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Friday, 11 July 2008

A fertiliser led response to rising food prices ?

Muyatwa Sitali and Humphrey Mulemba have a piece in the Times of Zambia, arguing for expansion in the domestic production of fertiliser to enable local farmers to take advantage of rising food prices.

Rising Food Prices - Opportunities for Country, Muyatwa Sitali and Humphrey Mulemba, Times of Zambia, Commentary :

Is it possible that Zambia can take advantage of the current global food price rise and use it to reduce poverty and accelerate national development?

Should Zambia, like many other countries, respond to this challenge with self interest by limiting or totally banning exports of foodstuffs that are essential to our population?

Will that sustain food security in Zambia? Is such a move economically and ethically justified? How can a country which has just begun to enjoy robust economic growth above five per cent like Zambia position itself to be a beneficiary rather than a victim of such changing tides and swings of the global economic and development pendulum?

When you think of these questions, you realise that the odds and stakes are high; the political choices are equally delicate and serious, while the economic and human development prospects are on a balance.

Zambia can continue to perform well economically if such an opportunity coupled with the rising copper prices is handled carefully. If not careful and with poor choices, Zambia could fail to make the most of this opportunity and experience slow economic growth.

Yet, food prices are not the only challenge affecting Zambia and the global community at the moment. Events in the energy sector and the exchange rate have also come into play.

The problems in the energy sector have clearly arisen out of poor planning that lead to deficient power output for existing and rising demand for energy. This has materialised even more so in the last seven months; crippling the ability of sectors to increase productivity.

In the case of the free-floating exchange rate, the Zambian Kwacha has enormously gained strength against major currencies. This has been good development for those on one side of the coin. Importers of raw materials and those with financial support for capital investment through importing equipment are content.

Unfortunately on the other side of the coin, this remains a bitter pill to swallow for both export manufacturers and exporters of non-traditional commodities, especially in agriculture.

Being a country with a relatively good weather pattern and good arable land with surplus labour in close proximity, this can be our opportunity to harness our potential from the current rise of food prices.

But how can this be done?

Contemplation and research on this issue at the Jesuit Centre for Theologcal Reflection (JCTR) has informed us that the answer will mainly lie in two major goals that Zambia should strategically have in order to respond to the challenge of rising food prices: to increase and sustain production of agricultural food crops, and fill our reserves and export the rest.

The main problem has been in implementing policies to make agriculture a core sector for trade. By doing so, growth and development will survive beyond mining.

Food prices are subject to the cost of inputs as the recent concern of rising oil prices and fertiliser prices has shown.

We will focus on fertiliser rather than the impact of rising oil prices because oil deserves independent analysis. The cost of fertiliser has increased four-fold in Zambia, reaching an average of K200,000 (in some cases K250, 000 in North- Western Province) from K60, 000 in 2007.

As food costs are in part being driven by the market shift to using food crops in the production of environmentally friendly fuels, increasing fertiliser costs are as a result of a competing demand between the energy and food sectors.

Factors influencing this have been an increase in demand for natural gas in the energy sector as an alternative to electricity. This is because consumers in some markets find gas environmentally friendlier, cheaper and more reliable than traditional energy sources.

Since natural gas is used as an input for the manufacture of fertiliser, accounting for up to 80 per cent of the production costs, there is subsequently competition between the food and energy sector for the same input.

Secondly, major fertiliser mining firms that supply the market have not been able to adjust short-term supply to meet growing market demand to supply enough fertiliser for the food and energy sectors.

This time-lag will only be able to adjust once the expansion of mines' output capacities increase, new mines open and fertilier demand stabilises.

The third is the costs of transportation of fertiliser which are increasing as a result of escalating fuel prices, then factored into the selling price which is borne by farmers.

Fourthly, the production of ethanol from corn is subsidised by US$0.51 per gallon in the United States (US), coupled with assurance for producers of a secured market of buyers.

Such polices have encouraged the transformation of agricultural produce such as corn and their inputs (fertiliser) into raw materials for the production of ethanol. Therefore, these dual incentives following the subsidy and the assured market to produce ethanol have aggravated the competition for inputs between the food and energy sectors.

For that reason, the food-energy nexus cannot be ignored. While all these shifts are currently happening in the US and developed countries in Europe, the high prices of fertilisers will now be more adverse to the poor small-scale farmers who do not have the support or financial ability to absorb the external pressure of the international market through the domestic economy alone.

Zambia is classified by the Food and Agriculture Organisation as one of the 22 countries at high risk in so far as the high food prices are concerned.

It is in our view that an export ban can ensure food security to an extent, but in itself, it neither takes away the threat of rising food prices nor increases production. An export ban is a disincentive to producers as it sustains the notion that there is enough in the domestic market.

Producers then do not aim at maximising output because increased production will only result in lower prices on the market that will reduce obtainable revenue. Therefore, careful consideration should be given to policies in the broader context. Zambia currently has the objective in the Fifth National Development Plan (2006 to 2011) to develop the agriculture sector through trade.

Further statements indicate that there is an expectation of agro-producers to develop in the sector by diversification and value-added production.

Although it is possible to import equipment to diversify and develop value-added products in the agriculture sector due to the favorable exchange rate, a counter-incentive arises with the export ban.

The export ban de-links the producers from international markets. This subsequently has an adverse effect on agro-producers. Production in the agriculture sector is done in an open economy where the international market is the context where agro-producers make investments.

An export ban removes costs of production in the context of the international market, whereby revenues obtained are limited to the national market of the domestic economy.

This places producers at risk because the export ban distorts the actual pricing mechanism that guides agro-producers' investments and ambitions to sell to consumers with a higher purchasing power in the international economy.

Utility of an export ban has occurred as a result of an underlying problem that is not being addressed, which is, in essence, the inability to make the agriculture sector sustainably viable and efficient through policy implementation and support.

There are currently 28 countries imposing export bans. Zambia is one of them and none of these countries have been internationally supported in this, especially in the light of on-going World Trade Organisation talks, Economic Partnership Agreements' negotiations and regional trade agreements in the Common Market for East and Southern Africa and Southern Africa Development Community.

In this regard, the Government should respond to the real challenge enhancing production and the problem of fertiliser costs by finding and accessing affordable fertiliser.

In the short run, Zambia should set aside considerable resources for fertiliser. In the long run, the Government should revamp fertiliser manufacturing in Zambia and, yes, it is possible to do that.

A research done in the late 1980s and early 1990s by the Zambia Agriculture Research Institute discovered that areas such as Eastern and North-Western provinces in Zambia are endowed with phosphorus.

While Southern Province has shown significant deposits of natural gas, Zambia qualifies to undertake mining for the manufacture of fertiliser domestically.

With facilities already built at the Nitrogen Chemicals of Zambia, Zambia can take advantage at an opportune time when it is economically viable to develop the mines. This needs to be done soon in order to ensure that the next national development plan will position itself to make sustainable gains from this sector.

The answer, therefore, does not lie in new research per se, but the problem is elementary and requires implementation of already-known, well-researched policies.

If the Government was to proactively deal with food prices, the allocations to the agriculture sector would certainly reflect such commitments.

The revival of winter irrigation such as the winter maize programme of 2002 when President Mwanawasa came to power would be on the agenda.

Government would make sure that resources earmarked for improving the rural infrastructure bore fruit and storage facilities were adequately available.

While the challenge of food prices is a food security issue, it provides Zambia an opportunity to make economic gains which are vital for food security in the region and human development.

(Muyatwa Sitali is a programme co-ordinator of debt, aid and trade programme while Humphrey Mulemba is a programme officer for trade and capacity-building for the Jesuit Centre for Theological Reflection).

7 comments:

  1. The commercial price of fertilizer on the Zambian market was never K60,000=00 during 2007. A good average is around K115,000=00 per bag in Lusaka meaning the price has simply just doubled todate and not quadrupled as implied in the article.You may want to cross check this with Food Security Research Project (FSRP) or MACO.Good article overall.

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  2. Anonymous,

    My question is - why aren't farmers producing their own fertilizer?

    Why would they wait for or depend on the government to get fertilizer to them?

    There are many ways to make home made fertilizer, from teas made from compost, worm castings, animal manure, stinging nettles or similar plants - to green manuring by growing nitrogen fixing crops like legumes, before growing nitrogen using crops like maize.

    Why do they depend on the state?

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  3. With the news that our maize stocks will be drying up soon, doesn't this article bring back the fact that we should have acted earlier to avert this risk. A country so endowed with most (if not all) the factors of production needed for an affluent food production and agro-industry is now faced with hunger and starvation which will affect its poor most-the most

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  4. Muyatwa,

    You make a good point, given so many factors in favour of agriculture in Zambia, why is food security so elusive? I personally argue that it has as much to do with the type and emphasis of agricultural methods being employed as it does with the cost of imports.

    Attempting cultivation timed to produce bumper crops of particular commodities at just the proper time to take advantage of global price spikes is a highly risky proposition, and achieving high export numbers in favourable seasons does not achieve food security.

    Food security is most reliably achieved by diversifying and rotating crop species, improving soil quality and moisture retention, and promoting seed lines for staple crops which are able to produce reliable, albeit reduced yields under drought conditions, instead of none.

    The experience of small farmers in the developed and developing world indicates that several good years often fail to compensate for a single hard one, and inability to absorb such financial shocks causes them to give way to larger scale agribusiness. It is arguably natural that as a nation develops, the emphasis of agriculture shifts away from food security and toward competitive export advantage.

    Not every nation which has significant and consistent food exports can be said to have achieved food security, the former doesn't cause the latter, they just often go together. The produce of large scale agribusiness can only reach as far as the transportation network can economically go. As is often discussed on this blog, transport infrastructure is not a Zambian strong suit to say the least, and while the issue of food security helps to further highlight its importance, it does not remove the impediment.

    Geographically and biologically diverse and locally sustainable agriculture is the most reliable, and frankly, achievable route to food security for Zambia over the medium term. There is no short path to food security.

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  5. MrK, thanks for your insights. While I agree with most of what you have said, I feel that we are talking about two important topics.

    Your focus on food security and the proposition in the article that we have an opportunity to induce and speed up agrarian reforms both for food security and economic development should be well distinguished.

    I am of the conviction that the notion of food security should not only be limited to producing enough food for the nation's population but that it should be interlocked into the global scenario of enhancing economic gains that are in themselves a means to sustainable livelihood. The large farming community in Zambia should not be working towards a limited goal of food security but as a part of their progression they should have means and a better access to a functioning market. This can extend to markets beyond the borders and making trade an essential component in their plans.

    And thus, rather than, create a second topic inside another one, we could look at these two issues separately and realise that a food secure nation has got an advantage in dealing with a mirriad other issues including health and and even economic development. It is the opportunity presented by the latter that we can also use to induce better action for the former to be enhanced. In any case, all these should be long term development goals for the country.

    Historically, discussions on diversification to agriculture are well accounted for, but there is little action to match the words and thus such an opportunity can be used for the benefit of both food security and growth.

    Thanks

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  6. Sorry, I meant Yakima

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  7. Muyatwa,

    Please allow me to begin by thanking you for your efforts overall and polite responses to fellow seekers. While I do not know you personally, I am appreciative of any person who will dedicate themselves to confronting the problems before us all, and please extend similar regard to your co-author. One of the reasons I participate in the comment threads of this blog almost exclusively is due to the high level of respectful and relevant discourse that takes place here, and this current exchange of ideas with you is no exception.

    That said, the vigorous nature of debate and the constraints of time often cause me to emphasize areas of contention over those of agreement, perhaps to the detriment of both the intent of the original author(s), and my own stated argument. While recognizing this tendency in myself is the first step toward correction, I must admit that I catch myself after the fact more often than before it. I apologize if my divergent views on the tactics of food security specifically unduly created an impression that I similarly differ on all the policy proposals contained within the piece, or with the overall assessment of the problems themselves.

    Your point about the export ban on foodstuffs is especially salient, I agree wholeheartedly that exports are likely to drive the future of Zambian agriculture. After all, there is abundant land and water resource, and relatively low population density by comparison with the hungry Asian nations that are likely to make up the primary export market for foodstuffs in coming decades. Certainly you are correct that producing and exporting a consistent surplus would be infinitely more preferable than price protection and export restriction of insufficient local production has proven to be.

    Development of any sort of domestic fossil fuel resource is likely to ease the import burden significantly, and while we may differ over the "best" use Zambia should make of such scarce resource going forward, we are in full agreement that it is high time for thoughtful and responsible exploitation should proceed apace. Likewise revival of the winter irrigation efforts is an excellent recommendation, allowing far greater productivity from the same quantity of land.

    I have been doing a fair amount of research into alternative solutions to the food/energy/petrochemical conflict, and while I concur that import substitution is desirable for many farm inputs currently in wide usage, I am hopeful that some of the emerging technologies which combine energy and fertilizer production in the same process from a single raw material source will serve to eliminate this nexus as a bottleneck to agricultural development. For example, my thus far ineffective but not fruitless, search for the elusive Biomax corporation of SA, has led me among other things to the products developed by the Community Power Corporation of Colorado, USA.

    The CPC product they have chosen to name Biomax is a modular electrical and thermal power generator designed to work from a wide variety of woody biomass fuels such as wood chips, scraps, or nutshells. The fuel conversion rate is approximately 1.5kg of wood per kWhe, and modules capable of 5 to 50 kWe fit into a footprint of just 5m square, with a highly portable weight of 1.5 metric tonnes. The primary waste product is ash suitable for use as fertilizer. Such systems would not only be appropriate for many agricultural activities which produce residues usable as fuel, but also a viable means of providing electrification to rural communities which currently rely on combustion of wood or charcoal for household energy consumption without requiring an expensive or disruptive change in fuel sources. Persons currently collecting wood and preparing charcoal could be more or less seamlessly transitioned into providing sustainable levels of raw material for cleaner and more versatile electricity production.

    I agree with Cho that issues of Zambian development present us with, "a complex web of puzzles", and I thank you for permitting my forays into details and minutia into your consideration of larger issues.

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