Mealie Meal Crisis Analysed by Kampamba Shula

The Cause of the Crisis

The roots of the current mealie-meal crisis lie in the seemingly insatiable demand for the commodity from neighbouring countries, particularly the Democratic Republic of Congo (as well as in the broader Great Lakes Region and beyond), which demand has been made even worse by last season’s poor harvest in the United States and Mexico. Here is a summary of the challenge: South Africa has produced about 12 million metric tonnes of maize this year and is able to supply mealie-meal to the Congo more cheaply than Zambia because of its efficient system of planting, harvest, storage, finance and generally well-supported agricultural sector. This year, however, South Africa is not exporting to the Congo because its exports are covering the shortfalls in the North American markets (which were a result of last year’s drought in that region). The massive vacuum in the Congo supply chain has created even greater pressure on Zambian maize. Due to the basic rules of supply and demand, Zambian maize has simply become hot property in the DRC and beyond, pushing up the local sale price to unprecedented levels.

When you add to the regional demand factor, the various problems resulting from (i) the Food Reserve Agency’s confusing role in the maize market (exporting maize when our markets are facing erratic supplies); (ii) infrastructure challenges preventing maize from being collected from rural areas when roads are impassable during the rains and there is no effective storage in these locations; (iii) long-term structural problems in maize marketing; (iv) delays in providing inputs and payments to farmers;

Structural problems from the FRA

Local traders have traditionally had mandates from mills to buy and stock maize for them for release later on in the year but this business has been obliterated by FRA. The reason is simple. If a trader is not sure whether the FRA will also begin releasing maize at a cheap price to millers in the middle of the year, that trader will not want to hold stock that he might have purchased at a high price. This is because even a small reduction in the FRA price to the market could bankrupt a miller that has pre-purchased maize stock for releasing later into the market.

Most millers rely on bank finance but the lack of clarity and planning on the part of FRA makes both the millers and the lending institutions nervous and therefore cautious. They have no certainty as to when the FRA will intervene in the market. The only solution is to focus on the export market or buy limited amounts of stock that they can quickly sell if the FRA drops the price of maize. The financial sector generally prefers to lend to FRA because such lending comes with a Government guarantee. Millers would therefore rather fill their storage sheds with only a few months of stock when FRA is not participating in the market between May and October (a restriction set by the Food Reserve Act).

Further, because not every miller is able to accesses cheaper FRA maize, there is a distortion in the market. A close look at production figures shows that the more efficient producers of maize – essentially the large scale farmers – have tended to diversify into other commodities such as soya beans and tobacco. FRA has therefore only served to promote inefficiency. Current maize yields in Zambia average about 2 tons per hectare when they are supposed to be 5-10 tons per hectare. With its 1.3 million small-scale farmers, Zambia can easily match the average annual South Africa production of 10-12 million tons of maize and feed the continent!

It is also important for Government to begin the exercise of re-thinking our dependence on maize as a staple food as part of a broader crop diversification programme. Consuming huge quantities of maize meal, particularly the refined breakfast meal contributes to the high rates of preventable illnesses – particularly diabetes.

It is important to recall that the private sector has been asking for the recognition of a Warehouse Receipt as a document of title from as far back as 2004. The MMD Government only moved on this in 2010 in an attempt to replace the Agricultural Credits Act. However, the 2012 Act remains unimplemented. This action should be delayed no further. Similarly, an Agricultural Marketing Bill went through stakeholders consultation in 2010 but it is not clear when it will be taken to Parliament despite a Parliamentary Committee report recommending the immediate presentation of the Bill to the National Assembly. It contains important provisions for the improving the sector and curtailing adverse political interference. A Commodity Exchange Bill also underwent stakeholder consultation in February 2010, although it is not clear what stage the Bill has reached.

Current Situation

THE Indaba Agricultural Policy Research Institute (IAPRI) has attributed the hike in mealie-meal prices to lack of competition among large scale millers accessing subsidized maize that have squeezed informal traders out of the market.

 Last month, Government allowed milliers to increase the wholesale price of 25 kilogramme bag of breakfast mealie-meal to KR55 (K55,000) to avoid continued shortages of the commodity on the market.

Making a presentation on Fundamental causes and costs of mealie-meal prices in Lusaka , IAPRI research associate Auckland Kuteya said there has been little benefits transmitted to consumers from the Food Reserve Agency (FRA)’s maize subisidies to millers.

“The question is who is capturing the maize subisidies from FRA…why are retailers or millers able to keep prices so high despite subsidies,” he wondered.

 Mr Kuteya said Government has created a problem where only a few retailers or millers are able to benefit from maize offloaded by FRA, which has squeezed out the informal milling sector.

 He said the millers that are not receiving subsidised maize cannot compete on the market.

 “The Government has brought this problem upon itself by buying most of the marketed maize grain through FRA and selling at too low a price to few millers. If the grains were readily available on the market, the informal milling system could be booming right now,” he said.

 Mr Kuteya said increased demand for Zambian maize in the region has exposed problems in the marketing system which has led to shortages and high prices of mealie-meal.

 He said during the 2010 and 2012 period, the national treasury lost about KR3.8 billion (K3.8 trillion) through FRA due to large scale wastage, transport costs, storage/handling costs and storage losses.

 “Millers are doing what any self-interested business man would do if they had the opportunity. Government can end this behaviour by stopping subsidised millers from operating. Millers should be weaned off the maize subsidies,” he said. He said cross-border traders, millers and traders are not fundamental causes, but the maize marketing system that is not functioning effectively.Mr Kuteya said FRA should concentrate only on strategic food reserves and allow the private sector to get involved in marketing. He acknowledged the difficulties involved in stopping informal cross- border traders from exporting maize or mealie-meal to the Democratic Republic of Congo (DRC) as it offers a good market.

 Speaking at the same function, IAPRI research director and country coordinator Nicholas Sitko said demand for Zambia’s maize and mealie- meal in DRC will always be there as people need food daily.

“If the demand is not met formally, this will create room for informal trade. If mealie-meal cannot be transported on a big truck, people will resort to bicycles and this will push the price of the commodity up as transport costs increase,” he said.

THE IMF says government’s recent increase of mealie-meal prices to cushion transport costs incurred by millers will help improve the availability of maize across the country.

Responding to a press query, International Monetary Fund country representative, Tobias Rasmussen, however said to fully capture the available potential, it would be important for the country to let market forces work.

 “In the present situation, mandated pricing and limits on exports have kept Zambian maize prices well below those in neighbouring countries. This has led to smuggling and is discouraging production. Fixed pricing has also impeded incentives to distribute maize to remote areas where transport costs are high,” Rasmussen said.

Conclusions

FRA should NOT market maize. FRA is like a fork, I am not saying it shouldn't be on the dining table, but you don’t use it to drink soup.

FRA still has a big role to play in the market but not as a marketer but as a store of strategic reserves. Zambia Agricultural and Commodities exchange (ZAMACE), the agricultural commodities exchange must come in to fill in the marketing role. ZAMACE using Options and Futures on Global market prices will be able to secure Farmers a steady market for their crop. Farmers will never be paid late because derivatives like Futures will allow farmers to even be paid up front for crop.

Next, the subsidies of Maize will inevitably have to be reduced and eventually stopped. It is unsustainable in the long run. Maize will need to be depoliticized as a crop; we can’t have the President dictating to Millers at how much they should sell their Maize, Business doesn’t work that way.

Sherlock Holmes (my Favorite fictional character) said that once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth. For Mealie meal prices the impossible is preventing market forces from operating, the improbable is that Zambian must consume less Mealie Meal.

Zambians must eat less Nshima and more cassava, millet or whatever. I know this may sound as disconcerting news but it’s true. Market prices are determined by Supply and Demand. Given that Supply is distorted by FRA and will require Political will to empower ZAMACE, demand is something that as a community and a nation we can begin to address on our own.

The Zambian Government cannot solve all the problems of the country, it is up to ordinary Zambians to stand up and be agents of Change. In this case we have to diversify the Food basket and include other variety of foods.