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Sunday, 4 January 2009

A better vision for agriculture....

Clive Chirwa writes in The Post :

The first and what people are worried for is the cost of food especially the mealie-meal prices that are just too high for 85 per cent of Zambians who are at the same time seeing other amenities go up in costs. In the short term, let us use our food reserves to cushion out the escalating prices. In the long term, I want us to revisit the mandate of Food Reserve Agency and make it good for Zambia. I am surprised, perhaps astonished, as to FRA being a buyer rather than a producer. The question we must ask ourselves is why the FRA is not investing in producing food. How can you be a food reserve master if you depend on outside countries to supply you with most basic commodities?

If Zambia was Hong Kong or Singapore, I would understand. But we have so much land that is lying idle without being utilised and labour is in abundance. FRA should be a think tank to help the government formulate proper policies on food reserve. I therefore expect the agency to have started farming or sponsoring farming as a strategic move. Why should the Lutheran World Federation (LWF) embark on a four-year food security project in Chama and not FRA? There are just too many unanswered questions on the shoulders of FRA.

Time has come to really assess its books. Based on this analysis and numerous calls by Zambians and institutions in food production, FRA has failed and has let the people of Zambia down. Perhaps it is better to get rid of it and channel the effort through The National Service who are best suited to run this type of agency with utmost discipline.

I am always wary of commenting on Clive Chirwa after one reader took unkindly to my assessment of his policy positions. Unfortunately he wants to become our President in 2011, so I have no choice but pay close attention to what he writes or speaks. In the past, he has restricted his musings in The Post to new cars, but with the latest article referenced above he has strayed into important waters. Unfortunately (again), he has presented us another flawed vision. I don't even know where to start.

Clive wants the FRA to take on three roles : food producer, food security and agricultural policy think tank. Failing that he wants the whole thing abolished and replaced by the National Service. I assume he is not really serious about the National Service. In general, I agree that the FRA needs to be reformed, but the proposal outlined is misguided. Before one starts making the FRA bigger, surely the starting point is to ask what is wrong with the FRA?

The idea behind the FRA is to guarantee food security whilst providing the right incentives for smallholder and large producers to emerge in the market. The Government's aim is to encourage a private sector led agriculture industry whilst ensuring that enough food is available in the country. Clive's vision would introduce pervese incentives in the market. A government led agriculture industry has been done before and it has not worked. Now if we all agree with the Government's aim, the question then becomes how best to ensure the FRA achieves its food security goal within a broader and coherent agricultural strategy that contributes towards poverty alleviation - and that is important, we don't just want food in our mouths, we want agriculture to be an engine of economic growth. There are many many areas for reform but a few measures we here are a few areas that we have discussed on this blog in the past (available to Clive for free and any would be contender in 2011) :

First, reforming the FRA especially with respect to how it deals with small scale farmers. The National Association and Small Scale Farmers of Zambia Associate have
previously complained that the FRA sets the price too low and thereby discourages small scale farmers from going into maize farming (incidentally Clive's approach would make this even worse - why should individuals farm if government will simply buy from itself?). To make it worse, the FRA apparently rarely pays the farmers on time. The FRA has actually become a negative distortion in its own right, failing to provide the level of certainty in revenue streams that farmers desperately need to invest in more maize and other products. The late LPM acknowledged this and promised some reforms, albeit in the wrong direction. Like Clive he was calling for "increased operations" not "better operation". The FRA should be more directly focused on food security, rather than large significant purchases of maize in the market. It might also be good if some food purchases where done through the ZAMACE rather than directly with farmers to reduce price distortions - see Exchanging towards agricultural prosperity... Eliminating export restrictions would also be critical. When the incentives are correct and you have a fully functioning FRA you have nothing to fear. More exports more money in the pockets of rural dwellers to drive growth in other areas.

Second, better investment in education and research. We need to create better educational institution that supports farmers. Statistics show that only
3% of graduates in the higher sectors study agriculture. This is both unsustainable and unacceptable. Further investment is needed to encourage more research and development.

Third, physical infrastructure provision, especially transport to improve access to markets. We have previously discussed how this remains a key constraint to the developing of agriculture. The blog
Zambian agriculture, income diversification & rural poverty... presents evidence from FSRP which notes : "Our analysis certainly supports the notion that market access is a key determinant of smallholder income-diversification and growth, and, for peripheral regions, improvements in market access require investments in infrastructure. Another blog presented evidence on the abysmal and erratic spending on transport infrastructure -Infrastructure challenges, revist'd..

Fourth, access to credit for smallholder farmers. We have touched on this issue many times and some progress is being made in this area - see the blogs
Boosting rural finance.... and A credit management database for farmers... . The idea of a government bank for farmers has now been discarded - see A new Government bank for farmers? revisit'd....

Fifth, improving "market discovery" for small farmers. This blog is littered with many examples were the key constraint facing rural dwellers appear to be knowledge about market opportunities (see There are many good opportunities for income creation in rural areas, but locals are just not aware of the opportunities or they struggle with discovering the profitable markets. We have chronicled many on these opportunities including
Chilli, bees and mushrooms. The list is endless. Although private organisations like are doing their bit to unlock the potential that exists, I think our government can play a more proactive role at the local level working with communities to identify their local assets and solving the coordination and "market discovery" failures that exist. Unlocking these opportunities would make our local areas engines of agriculture growth.

Fifth, targeted subsidies to support mechanised farming, coupled with the on-going policy of farming blocks. The potential benefits of more mechanised farming should now be explored. I think now is the time to look to the Brazilians and ask ourselves how they have been able to develop large farms. We have the land just as they do, why can't we put together the same programme in place? We have no money, but the little that exists must be poured into agriculture.

I am sure there are many dimensions I have not mentioned that would embody a coherent agricultural framework. However what all of these have in common is the realisation that for agriculture growth to translate into poverty reduction, the poorest have to be directly involved, not government doing the farming! That requires a fully functioning market with all the correct incentives for private led investment. Not Clive's vision of a marauding FRA that produces and sells food to itself. No that is not a viable vision for Zambian agriculture.

29 comments:

  1. I am always wary of commenting on Clive Chirwa after one reader took unkindly to my assessment of his policy positions.

    I hope that wasn't me. No politician is off limits when it comes to policy or anything else.

    Unfortunately (again), he has presented us another flawed vision. I don't even know where to start.

    Clive wants the FRA to take on three roles : food producer, food security and agricultural policy think tank. Failing that he wants the whole thing abolished and replaced by the National Service.


    Perhaps he could use more advice outside the technology/transportation arena?

    To address this issue. Enoch Kavindele offered a similar solution, in that FRA would have a certain number of commercial farmers dedicated to shoring up it's reserves.

    I have qualms about this, although anything would be better than the present situation.

    For example, food stored by the FRA could distort prices for subsistence farmers. They could put so much maize on the market that it would suppress prices below where it would be profitable for subsistence farmers to sell their surplus, reducing the amount of maize grown and suppressing their incomes, adding to rural poverty.

    I assume he is not really serious about the National Service.

    I also don't think the National Service should be running anything. However, they could be used to infrastructure creation, including rainwater catchment for small farms - swales and ponds - as well as feeder roads.

    Before one starts making the FRA bigger, surely the starting point is to ask what is wrong with the FRA?

    The idea behind the FRA is to guarantee food security whilst providing the right incentives for smallholder and large producers to emerge in the market.


    What there should be, are widely decentralized depots where small farmers can sell their maize at a minimum price - a buyer of last resort. If they receive less than they are mandated to have in storage, they could have dedicated farmers make up the difference. If they have too much, there should be factories to turn these surpluses into finished goods. And anything from cornflakes to Jack Daniels can be made from corn. So that could stimulate manufacturing, even exports.

    The Government's aim is to encourage a private sector led agriculture industry whilst ensuring that enough food is available in the country.

    And look where the 'free market' has gotten us. There is hunger breaking out all over Southern Africa.

    Clive's vision would introduce pervese incentives in the market. A government led agriculture industry has been done before and it has not worked.

    Sorry, but that is a standard dismissive argument. Done what way, and if it was done another way, it couldn't work either because it was government led? Government intervention worked like a charm for Japan and Korea, not so well for the Soviet Union (although even they never had famines, although they did have shortages of all kinds of goods).

    Now if we all agree with the Government's aim, the question then becomes how best to ensure the FRA achieves its food security goal within a broader and coherent agricultural strategy that contributes towards poverty alleviation - and that is important, we don't just want food in our mouths, we want agriculture to be an engine of economic growth.

    Food on our mouths would look pretty good for a lot of people right now.

    I would like to bring attention to my strategy, and now it would impact both increased production of staple foods and create demand by raising wages, specifically in rural areas, where most of the people live and which are also the poorest right now.

    100 hectare, commercial scale organic farms, with organized farm inputs and mechanisation. Use Chiefs and the National Service, and miners (who have expertise in earth moving) to build onfarm rainwater catchment ponds and ditches (swales), so we can reduce the amount of agriculture that depends on rainfall (97% right now). Set up silos and warehouses in every district, so that if one district goes without food, it can be brought in from another district.

    And I mentioned organic, because most organic farming inputs can be produced on the farm, reducing costs and increasing profits for the farmer, also allowing him or her to employ more people on other projects.

    There should be organized exentension services, preferrable through the local council (which could have an internet connection), to inform farmers on prices (Price Discovery), marketing opportunities (like tree farming, horticulturee, greenhouse produce, etc.), inform farmers about best practices, disease outbreaks, etc. They could even participate in remote auctions of their crops - talk about price discovery. :) Ebay for farmers.

    There are many many areas for reform but a few measures we here are a few areas that we have discussed on this blog in the past (available to Clive for free and any would be contender in 2011) :

    First, reforming the FRA especially with respect to how it deals with small scale farmers. The National Association and Small Scale Farmers of Zambia Associate have previously complained that the FRA sets the price too low and thereby discourages small scale farmers from going into maize farming (incidentally Clive's approach would make this even worse - why should individuals farm if government will simply buy from itself?).


    Good point. I would much more like to see the FRA as a buyer of last resort.

    To make it worse, the FRA apparently rarely pays the farmers on time. The FRA has actually become a negative distortion in its own right, failing to provide the level of certainty in revenue streams that farmers desperately need to invest in more maize and other products. The late LPM acknowledged this and promised some reforms, albeit in the wrong direction. Like Clive he was calling for "increased operations" not "better operation". The FRA should be more directly focused on food security, rather than large significant purchases of maize in the market. It might also be good if some food purchases where done through the ZAMACE rather than directly with farmers to reduce price distortions - see Exchanging towards agricultural prosperity...

    Eliminating export restrictions would also be critical. When the incentives are correct and you have a fully functioning FRA you have nothing to fear. More exports more money in the pockets of rural dwellers to drive growth in other areas.

    I'm not so sure about that one. In theory it might work like so much neoliberal free market theory, in practice there is not enough incentive to keep FRA stocks high, or keep enough food in the country (as we have seen with maize sales to Malawi and Zimbabwe) if farmers or the FRA can just export their goods in search of a better price.

    Free markets don't actually work in real economies and real societies.

    There are real reasons to keep staple foods in the country and not treat it as just a commodity, because it isn't. Shortages of staple foods do not lead to substitution, unless you count the infamous mangos we keep reading about. The alternative is not substitution but starvation. Food security cannot just be left to the forces of supply and demand.

    Especially when 'demand' is just 'need + money'. Take out either one, and there is no demand. People need to eat, even when they don't have the money to buy food.

    Second, better investment in education and research. We need to create better educational institution that supports farmers. Statistics show that only 3% of graduates in the higher sectors study agriculture. This is both unsustainable and unacceptable. Further investment is needed to encourage more research and development.

    There should be agricultural and vocational colleges all over the country. Which of course takes investment in (universal) education, which means taxing the mines or inflating the currency through borrowing.

    Third, physical infrastructure provision, especially transport to improve access to markets. We have previously discussed how this remains a key constraint to the developing of agriculture. The blog Zambian agriculture, income diversification & rural poverty... presents evidence from FSRP which notes : "Our analysis certainly supports the notion that market access is a key determinant of smallholder income-diversification and growth, and, for peripheral regions, improvements in market access require investments in infrastructure. Another blog presented evidence on the abysmal and erratic spending on transport infrastructure -Infrastructure challenges, revist'd..

    I agree completely. The most often mentioned constraints are infrastructure, fertilizer and credit. Another should be access to water, but most (especially non-farming) people seem to think of rainfall a natural event, and don't pay to much attention to irrigation.

    Fourth, access to credit for smallholder farmers. We have touched on this issue many times and some progress is being made in this area - see the blogs Boosting rural finance.... and A credit management database for farmers... . The idea of a government bank for farmers has now been discarded - see A new Government bank for farmers? revisit'd....

    I would much rather see the state step in and set up systems to provide mechanisation free of charge. The thing is that if incomes are raised, credit will almost take care of itself. Firstly, farmers can save and buy equipment without going into debt, and secondly, once they have higher incomes, they will also have more collateral and become less of a credit risk.

    The way I see it, is not that we have state run agriculture, but that we use the state to set up commercial agriculture, very similar to the way the Japanese and Korean governments set up their car industries, without actually running the car industries in the long run.

    Fifth, improving "market discovery" for small farmers. This blog is littered with many examples were the key constraint facing rural dwellers appear to be knowledge about market opportunities (see There are many good opportunities for income creation in rural areas, but locals are just not aware of the opportunities or they struggle with discovering the profitable markets. We have chronicled many on these opportunities including Chilli, bees and mushrooms. The list is endless. Although private organisations like are doing their bit to unlock the potential that exists, I think our government can play a more proactive role at the local level working with communities to identify their local assets and solving the coordination and "market discovery" failures that exist. Unlocking these opportunities would make our local areas engines of agriculture growth.

    This is a key job for extension officers and again, this could be run through the local councils. Give those councils internet access, and farmers or extension officers can surf the web in search of market opportunities. There could even be dedicated national local government websites, offering best practices, bring together buyers and sellers, etc.

    Fifth, targeted subsidies to support mechanised farming, coupled with the on-going policy of farming blocks. The potential benefits of more mechanised farming should now be explored. I think now is the time to look to the Brazilians and ask ourselves how they have been able to develop large farms. We have the land just as they do, why can't we put together the same programme in place? We have no money, but the little that exists must be poured into agriculture.

    I agree completely about mechanisation, but I would like to see it happen on a more farmer friendly scale, my 100 hectare benchmark. It would employ a lot more people, allow for much more attention to be paid to the product, and create a much more diversified agricultural industry (staples, as well as cattle, fowl, dairy, horticulture, fruit, agroforestry, mushrooms, etc.) and the smaller scale would lead to many smaller patches of land, where diseases can't spread or even break out from, and which would enable crop rotation as part of farm management, utilizing much more of the soil and in fact build it up for future generations, instead of degrate the land by taking crops from it every year and making up the difference with chemical fertilizers which destroy soil life even more.

    I am sure there are many dimensions I have not mentioned that would embody a coherent agricultural framework. However what all of these have in common is the realisation that for agriculture growth to translate into poverty reduction, the poorest have to be directly involved, not government doing the farming! That requires a fully functioning market with all the correct incentives for private led investment. Not Clive's vision of a marauding FRA that produces and sells food to itself. No that is not a viable vision for Zambian agriculture.

    Absolutely, I agree with that completely. The government should set up the social/economic/physical infrastructure, they shouldn't run them. And instead of a few huge agribusinesses, we should have many farms where people can actually be employed.

    Lastly, there should be a good understanding that there is a direct link between demand and wages. If people do not earn a living wage out of this, they may like to buy lots of things, but economic demand will not be there. Therefore, it is important that most of the money made in agriculture stays with the people who do the work and the people who run the farms (the farmers, in effect, management) - not ownership (shareholders) or the state (taxation and levies).

    In the end, people who run these farms can be most relied upon to use their money to set up new businesses.

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  2. Mrk,

    Haha...I enjoyed reading your post!

    As I was reading I thought..."he disagrees? no!! can't be"...

    lol!

    On the "minor disagreement" we have on exports, I am not sure why you have that position...

    Many farmers are not even in position to export their products anyway..the transport costs are too high... So export limits probably do nothing to guarantee food security.

    A point I missed to add related to my other obsession.."cassava"...I very much agree with Frank when he observed that the problem of food security appears psychological..

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  3. Cho,

    Many farmers are not even in position to export their products anyway..the transport costs are too high... So export limits probably do nothing to guarantee food security.

    But they will be if my plan is carried through. They'll dedicate half their land to staples, but they can earn extra income exporting cut flowers, mushrooms, tropical hardwoods like teak, etc.

    Add a functioning local government office with internet connection, and they can sell that product all over the world if they want to and get extra income and earn the country foreign exchange too. I'm just against treating the country's staple food as just another commodity.

    A point I missed to add related to my other obsession.."cassava"...I very much agree with Frank when he observed that the problem of food security appears psychological..

    Cassava, sorghum, they are both very drought resistant. However for some reason people aren't growing them in quantity.

    And a belated Happy and Prosperous New Year to mrs. Cho too.

    PS, please ignore the spelling errors, I was typing a lot and my old computer has become unstable. (I haven't switched to the new one yet. Windows Vista, quite a jump from Windows 98, and not necessarily an improvement - as usual, with Microsoft)

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  4. MrK,

    Many happy returns. I will pass on the message to the Mrs!

    The upgrade! wow...i think I need to change my laptop as well...my older brother came round over Xmas and he was laughing at how outdated it is..

    I have never got round to changing it..though it runs on XP..its still slow at times...the problem is reinstalling all other software...finding the CDs for the internet connections and so forth...its a pain!

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  5. Cho,

    Consider Apple laptops, they are pretty good and those with Intel processors can run Windows as well, although I have no need for it.

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  6. MrK, Your exchange with Cho about Chirwa's ideas on agricultural policy - which I haven't read yet in full, makes an interesting reading. I see two major points of departure between you two.

    On MrK's side, I have a sense that he believes in total (or a lot) of government intevention using a socialist approach as holding the answer to Zambia's hunger problem.

    On Cho's side - I see belief in neoliberal market orientation and free enterprise, as being the best answer to our problem of uderdevelopment in agriculture. The true solution lies probably somewhere in the middle.

    Based on summaries made by Zambian Economist of Chirwa's ideas I see that - food security will not be solved by having government directly involved in producing food be it thru FRA or any other government created dinstitutions. USDA or Ministry of Agriculture anywhere foood security has been eliminated. The Ministries are only involved in the backup, research, providing resources, extension services or necessary guidance and support. Agricultural production ultimately is done by farmers themselves.

    Whether it is in Japan, S.Korea or Brazil - farmers, small or big are responsible for production. Besides, Chirwa is so much obsessed by transportation technology - that he is blinded of other solutions. Once you have good trunk roads, feeder roads, and reliable railways leading to the export outlets, you do not need a high degree of sophisticated transport net network. Refridgerated aeroplanes can be introduced as soon as you have expanded horticulture and cut flower sectors.

    Therefore, the only minimum level of governement needed is to ensure that inputs, markets, credit and internationl contacts are functioning well and reasonably fair. In short, you do not need a top notch government efficiency. If farmers can get inputs, seeds, and payments in time - they would grow crops. At least you do not need the type of involvement MrK is thinking about. Far from it.

    On the other hand, Cho's degree of market level is not necessary either. In the real world, there are no perfect markets. But, an environmemt where producers (commmercial, peasant, or villager producer) can make money and/or a living is necessary. Agricultural work is so hard that, unless there is some sort of incentive to work, nobody would be prepared to sweat hard. Even in a situation where government would spell out crop priorities for smalll producers, individual efforts would still be required. You can't get this committment in a situation where government is in charge of things or perceived to be. Here in lies Cho's argument. Moreover, empirically, successful agricultural schemes are probably closer to Cho's position than MrK's. To eat if you don't have money, requires or should require some contribution on the part of the welfare recipient. That is what it was even in the extended family system any way.

    However, in a situation like ours, government must and should act as primus motto to have any achievement made at all. For left alone, things would either not move at all or crumble down. For example, FRA even with all the resources in the world given to them, unless government is tough on them, they would not function efficiently. On that score, taking more money to FRA is pouring money on the bad. Besides, how can FRA be a think tank on agricutural issues which involve science and so complicated? These simplistic solutions is what prevents us from finding sustainable solutions.

    Our governments from UNIP days, think that if they give a thousand fertilizer/seed packages to peasant farmers that would be the solution. Those small input handouts may be politically popular, but they will never solve your food security issues even though they are making a sizeable share. The corelation between these handouts and agricultural productivity is too erratic to be relied on as a predictor of safe food production. A non-political strategy is required.

    Given that scenario, where you do not have a reliable method to maintain your production, what do you do? In that case then, may be that is why we should try promoting or developing blocks where agriculture would be top-notch as some people are arguing. Not only that we can learn from what has been done by oberserving other countries like Brazil and India - but we have an example of our own in Mukushi block, where commercial agriculture has been revived by Zimbabwe white farmers. Those white farmers kicked by Mugabe came to Mukushi and revived farms/land which was abandoned by our people. Perhaps this is what Enock Kavindele and the new Finance Minister - Musokotwane mean when they talk about reserving tracts of land for commercial agriculture.

    For that strategy to work - something like Cho's plan would be needed. For you can't have white or any other commercial farmer who is going to come unless at least - property rights are permitted. That is, being able to own land, which they can then sell at the end of the day. (This is toxic to socialists). And in that case of course, government (or Zambians) must be clever enough not to sell out land to the new "gold hunters". Thus, before Kavindele/Musokotwane ideas can come into play - Zambians had better first studied Canadian, Australian, New Zealand and American models - to see how to avoid parting with land irreversibly.

    Until when I come up with my new ideas, gentlemen, this is my contribution to this important debate.

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  7. This year is the wrong time to talk about removing the export restrictions. It even seems insensitive to talk about that. Never the less, it is the right idea.

    The point of export restrictions is that people in Malawi have more money and can pay higher prices for food, on top of the extra cost of transport. The export restrictions keep the price of food low so that Zambians can afford to eat.

    Obviously low prices are good for city dwelling consumers and higher prices are good for farmers. Most other countries try tip the balance in favour of farming instead of consuming. It's only Zambia that favours consuming over producing.

    In America, they encourage higher prices by sometimes paying farmers to leave their fields uncultivated. They also give away huge amounts of food aid to countries affected by famine. In Canada last year the government spent $50 million dollars to buy surplus pigs and making dog food from it. In Uganda, they introduced a 75% tax on imported rice in 2004. That was a huge success and caused rice production to more than double.

    http://www.policyinnovations.org/ideas/commentary/data/000082

    Not only do other countries try to raise the price of food, but they also use taxes from industrial areas to support farmers. Beyond simply the enormous subsidies, there are rural electrification and roads programs.

    The very first time I heard about the Zambian export restrictions it was in this context. A farmer was saying that, in Zambia, it was better to farm wheat instead of maize. He felt that maize prices in the country were too cheap but it was easier to get an export license for wheat. This also raizes the issues that wheat requires more water which MrK is aware of.

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  8. Kaela,

    I think you have slightly mischaracterized my position. I do not believe in centralisation or state planning of the economy.

    What I am looking for, is that the government sets up the infrastructure (in the broadest sense of the word) for agriculture and local SMEs.

    It would be more in the way the Japanese and South Korean governments created their car industries. I don't think they were communist or even socialist.

    Error 27,

    Neoliberalism is dead. Accept it, and move on.

    U.S. seeks $1 trillion federal assistance
    Jon Hurdle for Reuters
    Mon, 05 Jan 2009 00:50:00 +0000

    GOVERNORS of five U.S. states urged the federal government to provide $1 trillion in aid to the country's 50 states to help pay for education, welfare and infrastructure as states struggle with steep budget deficits amid a deepening recession. Read more...

    Deregulation has led to disaster. I quote:

    "It's clear that the federal government needs to step in and jump-start the economy," said Gov. Deval Patrick of Massachusetts.

    When you deregulate and stop enforcing all the little rules that were created to prevent situations just like these, all that happens is that history repeats itself.

    We already know what the effect of reducing import tariffs on goods that should be produced in Zambia are. They destroy local businesses and farmers.

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  9. Kafue,

    Thanks for the tip. Will look into Apple laptops. I was given Ipod touch over Xmas and I have been impressed with its performance over wireless.

    Kaela,

    I think we are in agreement on most things, except on your belief that I share some "neoliberal ideology".

    I always think it is interesting. I was telling Random a while back that some website labelled me a leftie. Some have even labelled me "elitist" for defending traditional institutions.
    On Blog Talk Radio...someone remarked that I had wreckless belief in markets.

    So let me put it simply. My ideology has recently exchanged with Yakima is based on what I call the unshakable tripod.

    I believe in strong markets, strong democracy, and strong religious and cultural institutions.

    The government's role is to do what it can it protect the tripod. Remove one of them society will just collapse.

    Note : the emphasis is on "strong"... a weak agriculture market is what we have at present. My plan is aimed at eliminating the "government" and "market" failures that surrounds it.

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  10. MrK,

    I don't think that Error27 was advocating for a lifting of import tariffs in that comment, rather for a lifting of export restrictions as a means of encouraging more domestic production. By not allowing potential surpluses to be sold across borders, the government hopes to reserve the full benefit of market gluts for Zambian consumers, however this backfires, because it reduces or even eliminates the advantages of increased productivity on the farm. Growing more maize simply results in a lower price per kg to the farmer, harder work, same pay, too soviet to ever work. Government "suddenly" discovers that its forecasted harvest has not materialized, and winds up paying too much for imports. The latest inflation figures show that the balance of trade in the country has slipped sharply into the negative over the last six or seven months, and increased agricultural exports could help fill the gap.

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  11. I have to agree with Yakima that is how I understood error 27

    By the way, error27, happy new year! It has been a while since we were blessed with your insight. Timeley nevertheless. lol!

    In general MrK, I am still puzzled by what people mean by "neo-liberalism"...Is it the "washington consensus" or "free market" economics? The two are not the same. I think it is pejoratively used these days to stifle debate, as I hinted to Kaela.

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  12. Yakima,

    I don't think that Error27 was advocating for a lifting of import tariffs in that comment, rather for a lifting of export restrictions as a means of encouraging more domestic production.

    Ok, well usually those go together. However, lifting export restrictions without doing anything else, will simply mean that less maize is available on the domestic markets. You could argue that this would lead to farmers growing more maize, but that maize is just as likely to end up overseas. If they are simply driven by the best price, the domestic price is going to be too low no matter how much maize they grow. You could argue the more maize they grow, the lower the price, and the less likely they will sell it domestically.

    By not allowing potential surpluses to be sold across borders, the government hopes to reserve the full benefit of market gluts for Zambian consumers, however this backfires, because it reduces or even eliminates the advantages of increased productivity on the farm.Growing more maize simply results in a lower price per kg to the farmer, harder work, same pay, too soviet to ever work.

    Unless a lower price would be an incentive to grow more to maintain the same income.

    One factor that is not taken into account, is the potential for expansion of agriculture. Only 20% of arable land is under cultivation, so the obvious way to increase or maintain income, is to get more land under cultivation.

    As long as maize is not sold below the cost of production, I don't see problem of keeping maize inside the country.

    For instance, if the FRA's silo capacity was expanded to hold a reserve that covers 2 years of consumption (60kt/month, or 1.44 million tonnes), and factories were created to turn as much surplus maize beyond that into other goods, then you could say that maize should be exported.

    And if the cost of growing maize is spread out over enough local workers, their incomes go up, and their ability to pay more goes up.

    At the same time, as the price goes down, consumption should go up and the domestic market would expand.

    However, what is most important is that the value chain stays as close to home as possible so as much of the cost of production ends up in wages and hopefully domestically manufactured goods.

    Government "suddenly" discovers that its forecasted harvest has not materialized, and winds up paying too much for imports. The latest inflation figures show that the balance of trade in the country has slipped sharply into the negative over the last six or seven months, and increased agricultural exports could help fill the gap.

    Undoubtedly because of the mines. However, why would those exports have to be the country's staple crop?

    Usually commercial farmers are called that because they export commercial crops (tobacco, coffee, tea, leather, meat, etc.) which catch a higher price per hectare - why add the country's staple to that?

    Maize could easily be seen as a matter of national security, if the government wants to avoid being overthrown during food riots, for instance.

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  13. Cho,

    I think it is the global economic meltdown caused by neoliberal theory (deregulation, privatisation and 'free markets') that is stifling debate, certainly about the benefits of free trade, deregulation and at least in South and Central America, privatisation.

    I don't think too many people realize that we are heading for the Second Great Depression. And a direct cause or at least catalist was the deregulation of the banking industry, and the securitisation of the mortgage industry. Everyone can now see, that when push comes to shove, even the free marketeers are running to the government to bail them out, and only governments which did not follow their advice are in a position to do something. The very government they claimed was 'the problem'. That in and of itself makes neoliberalism a failed theory.

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  14. MrK,

    Well I think you have outlined the problem sufficiently well. If I can make more money exporting tobacco, why produce maize on any of my land at all, other than for my own use, or to justify receiving subsidized inputs from government, if there is clearly no profit motive for maize, unless the entire agriculture system gets closed, which prevents using sustainable agriculture to improve balance of trade and thus inflation? My understanding is that commercial farmers are so called because they are in it to make money, not subsistence. If you want lots of hectares under maize cultivation, allow people to make as much money off it as they can from other crops. Domestic consumers prefer maize, so given equal opportunity, farmers would be well served to continue producing it. Preventing export seems to only result in import.

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  15. Yakima,

    Well I think you have outlined the problem sufficiently well. If I can make more money exporting tobacco, why produce maize on any of my land at all, other than for my own use, or to justify receiving subsidized inputs from government, if there is clearly no profit motive for maize, unless the entire agriculture system gets closed, which prevents using sustainable agriculture to improve balance of trade and thus inflation? My understanding is that commercial farmers are so called because they are in it to make money, not subsistence. If you want lots of hectares under maize cultivation, allow people to make as much money off it as they can from other crops. Domestic consumers prefer maize, so given equal opportunity, farmers would be well served to continue producing it. Preventing export seems to only result in import.

    My point is that if farmers are just entrepreneurs, they will simply produce that what makes the best return on investment. Which is why for instance white farmers in Zimbabwe barely grew any staples - those were grown by their farmworkers. They almost uniquely grew tobacco.

    There has to be more incentive that just profit per hectare, when production of the country's food is concerned. I would say that farmers should farm at least half of their land for staple crops.

    Or, back in the early days of the US, farmers would pay their taxes in hemp. Why not have commercial farmers pay their taxes in maize (say anywhere from 20% to 80%)? They could pay a variable percentage of their taxes in maize just above the going market rate. In times of low maize prices, the government could reduce the percentage, and in times of high prices and shortages, increase it.

    I think rather than select a few commercial farmers to produce maize for the FRA as Enoch Kavindele proposed, this would make every commercial farmer a likely contributor to the FRA.

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  16. MrK,

    "Unless a lower price would be an incentive to grow more to maintain the same income."

    I found this a little puzzling.

    Maintaing what income?

    Lower prices only lead to expansion in output if the producer is a monopoly already experience large abnormal profits. Under those circumstances, the regulator can sufficiently depress the return to push the firm to expand output.

    In a competitive agricultural framework (and that is essentially the case for many smallholder farmers...they are price takers), agriculture firms only earn normal profit. So pushing lower prices would just push them out of business.

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  17. MrK,

    Also I don't follow you on why you think food will be scarce if you allow exports.

    Aside from the arguments ably stated by Yakima, farmers will always have the incentive to satisfy the local market first because the transport costs are lower. A while back the FRA used to fail to sell their excess stocks because of higher transport costs. There's a blog here somewhere that details this.

    A little evidence from your end might help to substantiate the concerns.

    My argument is that farmers should be allowed to explore economies of scale that come from a wider market.

    I will shortly upload a new FSRP that sheds more light on this export dimension.

    ReplyDelete
  18. MrK,

    I am not certain that you can prevent farmers from being entrepreneurs, just affect their profit incentives, unless I am misunderstanding the method you are proposing for doing so? G8 countries certainly engage in widespread programmes designed to maintain domestic production of food supplies including grains (e.g. Japan and rice). Their methods are almost universally designed to increase the price per hectare paid to domestic producers of desired foodstuffs, and then to use import tariffs to protect that higher price from external competition. I do not understand how export restrictions and lower prices per hectare are supposed to achieve the same thing.

    "Why not have commercial farmers pay their taxes in maize (say anywhere from 20% to 80%)? They could pay a variable percentage of their taxes in maize just above the going market rate. In times of low maize prices, the government could reduce the percentage, and in times of high prices and shortages, increase it." -MrK

    Interesting, but hard to see how this would work in practice. I will try to flesh out the model somewhat and see where it goes. Suppose I am a commercial farmer (we can use your distinction to stipulate that my farm produces non-staple crops, though I still think a staple farmer can be "commercial"), operating on 100 hectares where I grow tobacco (could be rice or flowers which get into questions of whether my equipment and/or soil would support maize cultivation, but its a model so I'll keep it simple). In past years, the total output of my farm has provided variable profits/losses due to weather and market condition, again for simplicity lets say in a good year the farm earns $200,000 profit, in an average year $100,000, and in a poor year $0. This year before planting I must now determine how much of my land to remove from tobacco cultivation, and place under maize. Wow, looks complicated.

    If I am an optimist, perhaps I figure on a good year for tobacco and maize, which would mean lower maize prices (but not necessarily lower tobacco prices due to world harvests, we're assuming the price which brings total profit of $2,000 per hectare). With low maize prices I will only have to provide 20% of my taxes in the form of maize, but of course the more maize I grow, the less tobacco, therefore the less profit, so less maize required. Okay I give up, I need Cho or someone with economist level statistical tools for this one. As a small businessman/investor, I wouldn't go near such uncertainty, agriculture is already risky enough.

    I prefer to concentrate on balance of trade. As you know I favour various forms of import substitution, since the provisional stats show that the country is spending intolerable amounts on imports of such basic economic inputs as mineral fuels/oils (K171,611,000,000 in Nov '08) and fertilizers (K141,970,000,000 in Nov '08). Total trade deficit for the period was K337,184,000,000. I would like to see policies in place which would make domestic production of vegetable oils and organic fertilizers attractively profitable, ideally in quantities sufficient for growing domestic consumption and export of value added products. To me, Zambia has as much of a problem as a raw material importing nation as it does as a raw material exporting nation.

    Agriculture is renewable and underutilized, shortage is caused by artificially higher demand for imported inputs over domestic alternatives, due to the perceived advantage of high yields per hectare, but hectares are not in short supply, farmers with the capital and tenure rights to place them under cultivation are. Increasing the cost of farming a hectare is what happens when conventional wisdom leads farmers to believe that they should prefer imported equipment, imported chemical fertilizers, and annually imported seeds (seeds!?!). Bringing prices down by surplus production lends impetus to value addition activities, bringing prices down by mandate fails to achieve this, and in fact many are now attempting to blame the beer industry for taking advantage of low prices to increase production in spite of shortages.

    Social welfare is important, but distributive measures only work where there is something to distribute. As you say, a few rich white farmers with large tracts of land garnered from Rhodesia did not grow staples, but instead non-food cash crops for export, primarily tobacco. Zimbabwe was hungry then, but isn't it hungrier now in spite of much of that land being converted to maize, because its not about that, its about hyperinflation due to forex shortages? How effective would sanctions that prevent borrowing for forex have been if Zimbabwe had had a positive balance of trade? Not very in my opinion. I think that if Zambians make a conscious effort to export more of the products created by their own expertise and innovation, and to avoid importing products which they could be buying from their neighbors, inflation will come down, the currency will strengthen, the economy will diversify, fewer people will be poor and hungry, so it will be easier and cheaper to help those that still are (even at higher maize prices).

    Numerous studies of poor, inner-city, African-American communities indicate that if the "welfare" dole the resident collectively received were to change hands within the community boundaries just once before moving out into the larger economy, then the average resident would no longer be poor. It is the fact that most residents do not have jobs or businesses within the community, and consumers travel relatively large distances to low-cost, high-volume retailers to buy most of their basic goods. Very few own their own residence, fewer own a rental property within the community. As a result, money comes in, money goes out. If the welfare money were instead used to employ recipients in locally owned stores selling groceries, dry goods, household electronics, fuel etc., then more of the money being earned outside the community would be spent within it, raising the total amount above the assistance level. The hardest part is convincing people that they are better off paying a little more for goods locally, than traveling to the high-volume chain stores. A smaller piece of a growing pie is better than a bigger piece of a shrinking or static one.

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  19. Much as consumers are always crying for a reduction in mealie meal prices this is actually detrimental to future food security. When the maize price drops farmers plant less maize. This eventually results in a shortage of maize (easily blamed on the weather) Low maize prices result in increased rural poverty as people sell food to keep their children in school or take a patient to hospital.
    The real problem is urban unemployment. People in towns earn so little that mealie meal prices are a real issue. If eveyone in town was employed at a minimum salary of say one million kwacha then the price of roller meal would not be a big issue. If this was the case the market for other farm products (veg, eggs, meat fruits etc)would be so huge that farmers would actually start making money and more people would leave town to go and farm. This would be great. The question is what can create the urban employment required?

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  20. Multi Facility Economic Zones are a good start to creating urban employment, large amounts of capital and expertise from outside the country can be attracted and utilized for industries thereby creating jobs.

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  21. In developed countries where incomes are high, people hardly talk about corn, wheat, rice because they form a very small portion of their monthly expenditure. So the key to affording these foods is increasing incomes.

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  22. Hi Ruth,

    Much as consumers are always crying for a reduction in mealie meal prices this is actually detrimental to future food security. When the maize price drops farmers plant less maize. This eventually results in a shortage of maize (easily blamed on the weather) Low maize prices result in increased rural poverty as people sell food to keep their children in school or take a patient to hospital.

    That's all theory, though. In reality, there are a lot of factors other than maize price that effect production volumes. With 97% of agriculture being rainfed, absence or presence of rain is a big factor, which can only be reduced by improving irrigation. Rural infrastructure is keeping a lot of land uncultivated, and markets inaccesable to remote farmers. Absence of fertilizer support causes a drop in production; the answer to which would be get farmers off using chemical fertilizer, and to start producing their own fertilizer; or make fertilizer cheaper by producing more of it (NCZ).

    Lastly, don't discount the effect on the market of lower prices themselves. Right now prices are very high. If they were lower, more people could afford it and demand would increase.

    However, farmers could compensate for lower prices by increasing the amount of land they have under production. Increasing the scale of their operations could both improve their income and lower prices at the same time.

    For instance, a farmer who produces

    100 tonnes
    $200/tonne
    turnover = $20,000

    200 tonnes
    $150/tonne
    turnover = $30,000

    In other words, if the price dropped from $200 to $150 (25%), but the farmer increased his crop 100 tonnes (100% more), he would still have a bigger turnover.

    In other words, he could produce himself out the effect of lower prices. With only about 20% of arable land under cultivation, increasing the land under cultivation is the way to go. Land under cultivation could easily be doubled from 20% to 40% nationwide - and there would still be room to spare.

    What we need is comprehensive agrarian reform, with land redistribution, title deeds that have some limit on their saleability, and irrigation/infrastructure projects, which would also create large numbers of jobs.

    The price of maize in Zambia is very high. Over $200 per tonne, versus $140 per tonne in South Africa.

    The last thing we should worry about is farmers going out of business because of a lower maize prices, unless of course we artificially lower the price or allow dumping practices, instead of producing more by getting more land under cultivation and making sure the money goes to the farmers (not some agribusiness corporation).

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  23. MrK,

    Bigger turnover doesn't necessarily mean bigger profits however. If we start plugging in production costs to your example, it can look either better or worse.

    Let us suppose that producing a tonne of maize costs the same amount to produce in either scenario (ignoring for the moment that often higher yields require higher production costs per hectare). For instance, a farmer who produces

    100 tonnes @ $75/tonne
    sells for $200/tonne
    turnover = $20,000
    profit = $12,500

    200 tonnes @ $75/tonne
    sells for $150/tonne
    turnover = $30,000
    profit = $15,000

    Or,

    100 tonnes @ $100/tonne
    sells for $200/tonne
    turnover = $20,000
    profit = $10,000

    200 tonnes @ $100/tonne
    sells for $150/tonne
    turnover = $30,000
    profit = $10,000

    Or,

    100 tonnes @ $125/tonne
    sells for $200/tonne
    turnover = $20,000
    profit = $7,500

    200 tonnes @ $125/tonne
    sells for $150/tonne
    turnover = $30,000
    profit = $5,000

    So if production costs are low enough, then a farmer could indeed do as you suggest and increase production in order to offset lower prices. To the extent that lower prices stimulate additional demand, doesn't the increase in demand in turn stimulate an increase in price? I think that it would, if the government were not, as you say, artificially attempting to control the market for maize rather than allowing prices to float.

    I agree that the key to improved performance by the agricultural sector in general is improved irrigation and fertilizer production infrastructure, however I think that lowering prices by preventing export of surplus, as well as subsidized fertilizer imports, has a stifling effect on potential investment in such facilities by farmers themselves.

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  24. Yakima,

    Bigger turnover doesn't necessarily mean bigger profits however.

    I agree, but if costs stay the same (say, 50%), they make more money.

    And if ecomies of scale kick in, the person with the greater turnover may have a lower cost as well.

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  25. Why should a farmer only be commercial if he has 100 hectares, or 1000? In Mozambique there are private programs to get small farmers, on an average of 5 ha growing tobacco, they each grow about 300m2, a tiny area, but when you have a couple of thousand of these guys, the total area is huge. .
    These farmers have extension officers helping them every step of the way. They sell the product on an auction system, Transport is provided and they have access to credit to get inputs. With the money they are earning from tobacco, people have started buying things, which in turn has created opportunities for traders to set up shops, manufacturers to expand, the government earns more in taxes so has more to spend to provide better services. The most successful small farmers have started taking over the neighbours plots, and employing the neighbours. Some have gone from 0.3 ha to 40 ha in 6 years. Its a small start, but its working.

    There seems to be a perception that farming is easy, and a huge money maker. The reality is just the opposite. As in any business, if your not going to make a profit, why would you go into the business at all?
    The Mozambicans are depending on a private company to provide credit, transportation, training etc. With no title to the land, no bank in the world will do that.
    The grain profit margins in Zambia are tiny, around $150 / ha for good dryland maize. Transport, irrigation, fertiliser etc take most, bank loans take another huge chunk, and the amount thats left isnt worth getting excited about.

    I think to get the whole country going, farmers need access to cheap credit, Transport need to be sorted out. Railway is the most efficient, if properly run. Silos need to be built to store grain. The country can then have a national reserve, and export the rest. Universities etc need more and better courses in agriculture. Govt needs stable and open policies toward farmers. Im sure there are more. If youngsters grow up wanting to be a farmer, but earn more elsewhere, the world will run out of good farmers pretty soon.

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  26. Ryan,

    Why should a farmer only be commercial if he has 100 hectares, or 1000? In Mozambique there are private programs to get small farmers, on an average of 5 ha growing tobacco, they each grow about 300m2, a tiny area, but when you have a couple of thousand of these guys, the total area is huge.

    Excellent point,and you are absolutely right of course. You can create a commercially viable farm on as little as 7 hectares.

    However, I see these 100 hectare farms in a multi-generational context. Most farm knowledge today is still transferred through experience and within farming families, alhtough you can go to agricultural college.

    If a farmer has 100 hectares, he can use 50 hectares to grow staples and still make $10,000 per year (at 2 tonnes per hectare, $200 per tonne on 50 hectares -> 2x200x50=$20,000; if half of that is cost, he ends up with $10,000).

    However, it gets even better. The other 50 hectares can be used for other farm businesses, which can be run by the farmers sons or daughters. Cattle rearing, horticulture, smallstock, etc.

    Then, if they accumulate enough savings, they can build a greenhouse, which requires even less space, and yet a 2 hectare greenhouse can itself generate tens of thousands of dollars in flowers (roses, orchids, tomatoes, etc.).

    Because they are all on the same 100 hectares farm, all these businesses would be using the same infrastructure (electricity, plumbing, housing), the same transportation company to get goods to market, etc., radically reducing their costs.

    So it is the potential of a farm with this much space serving as a location for many rural businesses and create large numbers of good paying jobs, while transferring skills intergenerationally.

    Also, the average size of a commercial farm in the EU is 90-100 hectares, while in much of Africa, subsistence farmers have 2-3 hectares, while 'commercial farms' are giant estates of 2000-3000 hectares, or much larger.

    Having 100 hectare farms would really get the people involved (employment, raising demand through higher wages), which would also make organic commercial agriculture (which is more labour intensive, while requiring fewer commercial inputs) possible.

    So it is the potential for expansion that you get at 100 hectares, instead of 7 hectares - which I admit can work as a commercial farm. It would lay the foundation for agriculture for centuries to come.

    Also, it gets a lot of people back in the rural areas, reducing the pressure on cities and reversing urbanisation to some degree.

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  27. "High-Stakes" agriculture in Nigeria:

    http://www.washingtonpost.com/wp-dyn/content/article/2009/08/02/AR2009080202091.html?hpid=moreheadlines

    ReplyDelete
  28. We are still facing lots of problems , we need to develop our industry and understand this is out one most best strength.

    ReplyDelete
  29. Focusing on the industries where your economy will grow is definitely a good idea. If you think that the agriculture provides a better future, I suggest you develop it.

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    ReplyDelete

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