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Saturday, 28 August 2010

The road to food security

IFAD's Kanayo Nwanze on the importance of transport infrastructure in delivering food security. Nothing revolutionary there I suppose, the only strange factor continues to be the failure by developing countries to prioritise road and rail access. Indeed one thing that could be amplified in Nwanze's assessment is that investment in infrastructure better allows for an agriculture policy that leads to poverty reduction through broader income diversification - as discussed here.


Recently, I was on a road in the Southern Choma District of Zambia to meet with Rosemary Pisani, a smallholder farmer and mother of eight who struggled to feed her children prior to joining a farmer’s cooperative to raise goats. Thanks to the cooperative and support from other farmers, she now has a thriving business and all of her children are in school.

On the way to meet her, I passed women walking through mud to the market with large loads of fruit and vegetables stacked on their heads. I imagined how I might be on my way to a very different rural community if the road we were on was paved and well maintained.

Often in Africa, the few paved roads that do exist are littered with potholes and lead to unpaved ones that are nearly impossible to navigate without a proper vehicle. Closer to farming communities, roads disappear entirely. This leaves rural areas, which have the potential to feed the more than one billion hungry people, cut off and isolated. In sub-Saharan Africa, almost 70% of all people living in rural areas live more than a 30-minute walk from the nearest maintained road.

Kofi Annan, Chairperson of the Board of the Alliance for a Green Revolution in Africa (AGRA), has acknowledged this isolation: “The average African smallholding farmer swims alone. She has no insurance against erratic weather patterns, gets no subsidies, and has no access to credit. I say ‘she’ because the majority of small-scale farmers in Africa are women.” Indeed, half of the world’s smallholders are women, and we must keep in mind their punishing task of walking long lengths to get their produce to market.

At the International Fund for Agricultural Development (IFAD), we believe that farming, regardless of size or scale, must be seen as a business, and smallholder farmers as small-scale business owners rather than poor people who need handouts. There is growing recognition that these smallholder farmers and their rural communities are a major part of the solution to food insecurity and poverty – but only if they have what they need to do their jobs.

The Green Revolution of the last century had a tremendous impact on agricultural yields and food production, transforming the lives of millions of people. Much of this success stemmed from infrastructure that was already in place. India’s road density at the start of its Green Revolution in the 1970’s was 388 kilometers per 1,000 square kilometres. This compares with 39 kilometers per 1,000 square kilometers in Ethiopia today and 71 per 1,000 in Senegal.

New roads bring other essential services to rural communities. In Ethiopia, only 2% of rural people have access to electricity, and telephone communication is more or less absent. Researchers believe that this is because only 17% of rural communities in the country live within one mile of a paved road.

Together with poor infrastructure, many small farmers in Africa have insufficient access to productive assets, such as land, water, and new technologies. As a result, yields are generally too low to allow the millions of rural households to generate marketable surpluses. Even if smallholders are able to produce a surplus, their lack of access to downstream activities, such as processing and marketing, prevents them from selling it easily.

The cause of these missing, but vital, resources lies in the shameful neglect of agriculture in the past two decades. Both developed and developing countries – caught up in rapid economic expansion and technological development – got distracted. They turned off the tap to agriculture, leaving small farmers to rely on basic farming practices and on government and donor handouts.

That tap must be turned back on. In IFAD’s experience, working simply to double the income of a smallholder farmer who scrapes by on less than a dollar a day is poverty management, because at two dollars a day, he or she still remains poor. But supporting that smallholder in launching a farming business that could generate a five-fold increase in income amounts to poverty eradication.

If smallholder farmers are to be given the opportunity to become viable businesses, it is essential that they be connected to markets. Indeed, support for rural infrastructure – including last-mile roads, electrification, post-harvest facilities, support for agricultural associations and cooperatives, and access to land and irrigation facilities – is a crucial element in the value chain.

Each link in the value chain, from the smallholder to the local trade agents and agro-processors to regional and national markets, needs to be strengthened. We need to link food producers with the people who need their product through viable and well maintained infrastructure. In addition, we need to provide them with research and technology to ensure that they can grow the best-quality produce, and storage capabilities so that they can sell at peak prices.

If smallholder farmers have the basic infrastructure they need to get their goods to market, they will not only be able to feed themselves and their communities, but will contribute to wider food security. We just need to put the pavement down so that farmers like those I saw in Zambia can more easily make their way on the road to food security.

20 comments:

  1. I saw a bit of that IFAD item on ZNBC. Also comments during the opening of the Chipata Malawi rail link about exporting our crops. "Zambia must grow crops for export" Both these items show the governments ignorance of reality. Most export crops are killed by the strong kwacha and the appalling road network which combine to make Zambia a more expensive place to produce things than the neighboring countries so how can we export?
    Most farming areas do not need tar roads but we do need decent regularly graded dirt roads that are passable at reasonable speed and cost.
    A decent working rail system would be cheaper than a road network especially for bulky goods.
    (Farm maize price is market price minus transport cost.)
    Some journalist really needs to investigate and do an article on who in government is benefiting from the strong Kwacha. The winners generally are importers and the losers are exporters. Importers employ few people. Exporters employ many. So what we are actually doing is exporting our jobs. We can no longer buy toothpaste, washing powder or tyres made in Zambia and other Zambian products such as ketchup, jam, peanut butter,cooking oil are threatened by cheaper imports. Allowing the kwacha to weaken 25% would change the whole scenario for so many products but Shoprite and similar places for marketing imports would suffer.

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  2. For a less developed economy such as Zambia's, replacing the Kwacha with the U.S. dollar might be a good idea to avoid the adverse effects of an appreciating Kwacha on exporters.

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  3. It is about time that we bring the new technology to bear on our agricultural businesses. With the fiber optic that helps in providing broadband Internet access to technology closed to the farming communities. So that people who are into agriculture can learn new techniques in agriculture and how they can access a ready market with their products.
    This will give them employment and eliminate rural-urban migration, which has become a great challenge facing all governments. It’s not an African exclusivity. In most African countries, agriculture remains a critical sector for employment. This is particularly in the case where countries have a majority of subsistence farmers. The sector is also important if broad based development is to be achieved. Incomes of small farmers must be increased.
    Mobile communication is gaining a consistent and growing market in rural and sub-urban areas in developing countries, where land telephone lines are difficult to set up. This will then stimulate demand in the local economy and lead to the production of high value added products. Mobile communications can become in inner regions a tool to access relevant information to improve living conditions of disadvantaged communities..

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  4. @R.Henson,
    At K5000 to the dollar, and the kwacha is strong? Could somebody please advise on what would be the ideal exchange rate for the kwacha under the prevailing economic conditions. Maybe we should adopt the Zim dollar if we want an even weaker currency......

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  5. General,

    And Zambia is not even under economic sanctions, or has a credit freeze put on it's clueless MMD government.

    May I remind everyone that when the 'bad' socialist government of the UNIP left office, the Kwacha US dollar exchange rate was K113/$?

    Today it is K6,000/$.

    And a big reason is the alienation of Zambia's one economic game, the mines into foreign ownership, under circumstances in which they pay no taxes and share no profits. We are losing $2.5 billion a year from our economy because of mine privatisation. That is why the value of the Kwacha has collapsed.

    Much of Zambia's land is not under permanent irrigation (only 3%), even though there are major rivers which could easily increase production if the money was there to build dams, canals, etc.

    Instead, we have a tinpot government that is patted on the head for presiding over the stealing of our national wealth. And that includes all governments since 1991.

    The Zimbabwean government said NO to this set-up, and it has been retaliated against, and sabotaged, and villified in the international media because of it.

    But that is because they had a leader who was not afraid to 'go back to the bush' and fight for his country.

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  6. If you look at the basic stabilization of the Kwacha, one can make the argument that the Kwacha is strong. A strong Kwacha is generally good for imports but dismal for exports and vice-versa. In essence it is a double edged sword. Abandoning our currency would be a monetary policy mess. Zambia will be less in control of its monetary policy. In essence, abandoning the currency is not an idea I support.

    What we need is to cut costs in the production process. Agriculture inputs have been zero-rated, we need to give other incentives to farmers to enable them produce food crops for cheap. Cheaper transportation is also essential. Farmers also need to diversify their crops and adopt new farming methods. Joining a cooperative (which functions like a corporation) is also something I would encourage.

    When UNIP and the failed socialist economic system (which has failed world over) left govt, they left govt with a bill of over $6 billion USD. This coupled with little or nothing done with diversification of the economy and falling copper prices. Of course there would be a huge mess in terms of fiscal and monetary policy. In short, Copper (Zambia's main export) was not bringing enough USD and we were repaying huge sums of money plus interest to international bankers which left Zambia with less USD to work with. In essence, the Kwacha lost value against USD. Cuts in the budget also had to be made. Many essential social expenditures had to be cut to support the budget. Let us also not forget nonperforming companies which left govt with a burden that the only solution was private ownership.

    Did Liberalization of the economy and capitalism really fail? That is questionable seeing that the fruits of capitalism are being realized today looking at Zambia's economic performance and increased investments. Did socialism really fail? that is a resounding yes.

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  7. General - 5000 Kwacha per dollar does not mean much as a concept. What one should look at is the magnitude and directional movement of the Kwacha exchange rate from an extended period of stability where production costs contracts (such as wages and rents) denominated in Kwachas have been established in Zambia. An adverse exchange rate movement means less Kwachas from exports to cover these costs.

    Mr. Capitalist: The way I look at the exchange rate situation is this. A strong Kwacha implies that there a strong sector (in Zambia's case - mining) causing the Kwacha appreciation (by mining companies using dollar export revenues to buy more Kwachas to cover their local costs). This implies that the country is already benefiting by higher employment and payroll taxes from mining and associated industries. Hence there is less need for monetary control to stimulate the economy by using a separate local currency. If this is the case, then the harm caused to other industries such as agriculture by a strong Kwacha becomes a more important case and can be remedied by using a stable currency such as the U.S. dollar. Local production costs can only be lowered to a limited extent under the current Kwacha scenario. In addition, using the U.S. dollar has other benefits, such as lower transactional costs (one does not have to divide everything by 5000 to find out their dollar equivalent) making it easier for tourists to evaluate prices for example.

    There are advantages and disadvantages to both currency scenarios, however I see the dollar scenario as holding a current advantage unless somebody else has more information as to why it is not.

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  8. Some articles about dollarization:

    http://www.swlearning.com/economics/policy_debates/dollarization.html

    http://www.americasquarterly.org/node/1706

    http://www.latinbusinesschronicle.com/app/article.aspx?id=3096

    http://www.forbes.com/2009/04/16/ecuador-dollar-recession-business-oxford.html

    http://www.hacer.org/current/Ecua048.php

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  9. MrK and Kafue001,
    Everybody has said everything except answer the simple question I put across to R Henson. What do you mean when you say the kwacha is strong? Are we looking at a rate of 5000:$1 or is it a rate of 500:$1? I think the kwacha is weak. As to whether or not the MMD is clueless is a completely different matter. I am just asking those claiming that the kwacha is strong to backup their argument. But then I suppose Zambia has reached a stage where everything is political.......even a simple question on what the ideal exchange rate is for Zambia. How sad...

    NB: Did UNIP allow the kwacha to float against other currencies or was it dictated by the central committee?

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  10. General,

    Here is a graph of the Kwacha / US Dollar exchange rate over the past 4 years.

    http://www.google.com/finance?q=USDZMK

    The problem with the Kwacha strength was most severe in June, 2008 when the rate was as low as 3,160K per dollar. It then weakened to 5,700K during the recession but has now strengthened to 4,900K. Considering that the Zambian inflation rate is higher than the US, the Kwacha should be weaker but is now higher due to increased copper prices and exports. So, for those farmers who based their production costs on for example the 5500 Kwacha level, a stronger Kwacha means less money from agricultural exports to cover their costs.

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  11. General,

    To clarify the terminology used above, a strong Kwacha is defined when fewer Kwacha are needed to purchase a dollar (for example 3160K for one dollar). A weak Kwacha is when more Kwacha is needed to purchase a dollar (for example 5700K for one dollar).

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  12. General,

    I have replaced certain words in a prior post to reduce confusion over the meaning of Kwacha weakness or strength. Here is the corrected version:

    Here is a graph of the Kwacha / US Dollar exchange rate over the past 4 years.

    http://www.google.com/finance?q=USDZMK

    The problem with the Kwacha strength was most severe in June, 2008 when the rate was as strong as 3,160K per dollar. It then weakened to 5,700K during the recession but has now strengthened to 4,900K. Considering that the Zambian inflation rate is higher than the US, the Kwacha should be weaker but is now stronger due to increased copper prices and exports. So, for those farmers who based their production costs on for example the 5500 Kwacha level, a stronger Kwacha means less money from agricultural exports to cover their costs.

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  13. General,



    Nominal Exchange Rate, Kwacha to US Dollar




    1980 - 1984: 1.1
    1985 - 1989: 8.2
    1990 - 1994: 278.5
    1995 - 1999: 1,527.5
    2000 - 2003: 3,955.8

    2000 3110.8
    2001 3607.9
    2002 4306.8

    Source: Table III.I Zambia: Summary Table:

    External value of the Kwacha 1990 to 2003.

    Kwacha liberalization started in 1991 and was completed in 1994. It would be nice to find a chart with the black market rates at the time, which would sidestep the issue of government decreed exchange rates.

    What is very much clear, that there was massive inflation after 1994, and that the privatization of the mines in 1999 if anything exacerbated the slide.

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  14. Mr K,

    "What is very much clear, that there was massive inflation after 1994, and that the privatization of the mines in 1999 if anything exacerbated the slide."

    There was massive inflation before 1994 as well because the exchange rate would not have risen from 1.1 in 1984 to 278.5 in 1994 (25,318 % inflation in 10 years) if there was low inflation.

    From 1994 to 1999 (5 years), inflation was 1527/278 = 549% inflation.

    From 1999 to 2004 (5 years), inflation was 4704/1527 = 308% inflation

    (2004 exchange rate from here: http://www.xe.com/ict/ )

    So, the rate of inflation has declined after privatization.

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  15. R. Henson said...

    (.....Most export crops are killed by the strong kwacha and.......

    Some journalist really needs to investigate and do an article on who in government is benefiting from the strong Kwacha........)

    Strong compared to what and based on what? Would he rather the kwacha lost some value? What happens to the value of our exports then?

    General said...

    @R.Henson,
    At K5000 to the dollar, and the kwacha is strong? Could somebody please advise on what would be the ideal exchange rate for the kwacha under the prevailing economic conditions.


    MrK said...

    General,

    And Zambia is not even under economic sanctions, or has a credit freeze put on it's clueless MMD government.

    May I remind everyone that when the 'bad' socialist government of the UNIP left office, the Kwacha US dollar exchange rate was K113/$?

    Today it is K6,000/$.


    Kafue001 said...

    .......The problem with the Kwacha strength was most severe in June, 2008 when the rate was as strong as 3,160K per dollar. It then weakened to 5,700K during the recession but has now strengthened to 4,900K.

    I can see that Kafue001 and I agree that the kwacha is weak.....

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  16. My point was that the Kwacha rate determines our ability to export and in some cases our ability to produce, which determines employment.
    You cannot compare value in number terms because of inflation but rather compare it in goods. Why are farmers complaining about smuggled in wheat flour undercutting them? Why is it cheaper elsewhere? Why is Rivonia Ketchup in Shoprite the same price as South African brands? Why is New Zealand powdered milk cheaper than Zambian fresh milk? Why are so many products now imported that we used to produce? The answer is as simple as the exchange rate. Alternatively we could tax all imports of products we can produce but since we signed all those free trade agreements that could be a little difficult. The Kwacha exchange rate has exported our jobs to South Africa, China, Taiwan, Indonesia, Malaysia etc but they won't let you in to work there.
    China's exports run on an artificially low value of their currency. It works for them. Would it not work for us?
    A strong Kwacha favors cheap cars, bicycles, radios, etc and all imports but how long can you import when your job is gone?

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  17. I think the objective for many producers is to have a situation where their costs and revenues are not affected by large currency exchange rate movements. Hence I had proposed my dollarization strategy, since the value of the U.S. dollar would be not be affected by higher copper exports for example. In addition, the prices of many internationally traded products are quoted in U.S dollars.

    Under the current scenario, a strengthening Kwacha adversely affects those producers whose costs have been set during a period of a weaker Kwacha. (General - the Kwacha is viewed as strong or weak depending on when the cost structure of the producer was set).

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  18. Kafue001,

    Well I know that paying 278.5 Kwacha for a dollar is a lot less than the 6,000 Kwacha you need to pay for a dollar today.

    Privatisation certainly did not reverse inflation, or return the value of the Kwacha to the 1/1 parity it started out with.

    And that is with record high copper prices. We should be receiving the money for that, and we are not.

    Privatisation and (as George Soros calls it) Free Market Fundamentalism have failed miserably, and have left none of the infrastructure behind that socialism did.

    No longer are all children in school. And the country's energy supply is still dependent on Indeni, the country's only oil refinery.

    After 19 years of this experiment, I would say that is an abject failure.


    R. Henson,

    " My point was that the Kwacha rate determines our ability to export and in some cases our ability to produce, which determines employment. "

    The problem is that a weak currency *in theory* is good for exporters. But that presumes that there should be an economy based on exportation of goods, rather than an economy with a lot of employment, which produces to meet local demand.

    Secondly, a weak currency makes life very difficult for local producers and farmers, who need to import capital goods and fuel.

    Lastly, we need to protect local producers, and raise the demand from the local population by raising incomes. Demand side economics, not supply side economics.

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  19. MrK,

    If you are comparing inflation before privatization to inflation after privatization, then you have different periods of time to use to compare the rate of inflation. So the base year for your periods are going to be different. (1994 for pre-privatization when Kwacha liberalization was complete, 1999 when mines were privatized).

    Furthermore, from 2004 to 2010 (all years under privatization), the inflation rate is (4930-4704)/4704 = 5% inflation.

    So inflation has certainly declined under privatization due to the massive increase in copper exports that privatization has brought.

    A correction to the 1994 to 2004 calculations done previously, I think the calculation method I used in this post rather than the previous one is the correct method. It still shows inflation dropping in the period after privatization.

    Corrected method:
    1994 through 1999 = (1527-278)/278 = 449% inflation.

    1999 through 2004 = (4704-1527)/1527 = 208% inflation.

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  20. Kafue001,

    No.

    Furthermore, from 2004 to 2010 (all years under privatization), the inflation rate is (4930-4704)/4704 = 5% inflation.

    A few months ago, the exchange rate was 6,000 to the US dollar, today it is back just below 5,000. (I guess that is what R. Shenton meant with a strong Kwacha? 5,000 instead of 6,000?)

    And by the way, the US dollar itself inflated if you compare it to the price of gold.

    In 1992, an ounce of gold was $280. Today it is over $1200.

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