Governmental Deregulation in the Zambian Maize Sector

Research Paper (postgraduate) 2011 18 Pages

Politics - International Politics - Region: Africa



1.0. Introduction

2.0. History of the Zambian Maize Sector
2.1. ColonialTime
2.2. Independence
2.3. From Regulation to Liberalization to Regulation

3.0. Deregulation Activities
3.1. Inland-Deregulations
3.1.1. VATStatus
3.1.2. Government Maize Purchases from farmers
3.1.3. Pan-territorial and Pan-seasonal Pricing
3.1.4. InputSubsidies
3.1.5. Provincial Levies (fees)
3.2. TradeRegulations
3.2.1. Export Regulations
3.2.2. Import Regulations

4.0. Discussion and Outlook

5.0. Conclusion

6.0. References

1.0. Introduction

The following paper will indicate the interventions taken by the Zambian government in the Zambian maize sector. The agricultural sector in Zambia makes up 20 percent of the country's GDP, employs 67 percent of Zambia's total labor force and is the main source of livelihood for poor people in Zambia (Dixon et. al. 2001). The agricultural contribution to the GDP is mainly attributed by rural small-scale farmers who make up 90 percent of all Zambian farmers and own nearly about two thirds of the agricultural land (OECD 2009). More than 70 percent of the entire agricultural area planted is under maize. Since agriculture contributes to the GDP to such a great extend and maize is by far the greatest crop planted, the performance of the maize sector is a very decisive indicator of how well Zambia is economically doing. Further, poverty is mainly existent in rural areas and as rural small-scale farmers make up almost the entire output of maize, maize is thus also an important indicator of rural poverty. The maize sector is at the same time the most deregulated sector in Zambia with a deregulation percentage ofgreater than 80 percent. Maize policies affect a large percentage ofthe population and policies can and are used to provide the government with strategic advantages for self-interest independent of whether such policies have a positive impact on the in highly poverty living rural population. This research paper will first examine in section two how maize became such a powerful crop by looking back into Zambian history. Section three will explain the deregulation policies that are currently in place in detail before section fourwill give an outlook into the future where the maize sector is heading to, accompanied with suggestion in how the maize sector must change in order to contribute to poverty reduction on a sustainable base. Section five will summaries and conclude this report.

2.0. History of the Zambian Maize Sector

The importance of maize as a politically strategic crop in Zambia is rooted in a historical context extending back to the beginning of the twentieth century with British colonization in 1888. Like many other countries, Zambia's current policy environment is closely tied to its history. Therefore, in order to understand the importance of the maize sector and the interventions taken by the Zambian government in this sector nowadays, it is necessary to take a look back to these historical movements. This historical section will be divided up into three parts by first looking at the colonial period from 1888 to 1964. The independence period up to liberalization of maize in 1985 will be the second historical part of this section before the last part takes a look at the liberalization period that lasted until 2001 and the following deregulation period that is still ongoing nowadays.

2.1. Colonial Time

The British government colonized Zambia in 1888 with the principal goal of exploiting the land's resources and people for the benefit of shareholders in England. What the government discovered when it invaded was a country with highly rich copper resources. Private British companies were ordered to take charge for the copper-mining which resource was then shipped back to Britain. As Zambia is a land-locked country, railways were needed to be established from all the copper-mines leading to the Pacific Ocean. Local Zambian people were recruited or slaved by the private mining companies as workers for copper mining. In the beginning, food for the Zambian workers was imported from Europe. However, as the copper­mining industry expanded and more and more local Zambian workers were recruited and therefore required food, British government sought it to be more efficient to supply workers with food from within Zambia to eliminate transport costs. Therefore, white British farmers were given the richest soil around the railways and were supposed to grow maize as supplement for the local mining-workers. Maize was chosen for the reason as it is a cheap but a highly nutritious produce to grow. Maize meal contributes 60% of the energy equivalence required to satisfy nutritional demands and was therefore a good crop to provide energy for the local Zambian workers to increase their productivity rate (Govereh 2007). This was the beginning of a long-lasting maize history in Zambia. Soon local farmers who were located around the railways started growing maize too and due to fewer salary costs could offer their supplies to the private companies more cheaply. During the 1920s and 30s local farmers became much more competitive than white farmers which led the British government to establish the Maize Control Board in 1936 which started subsidizing the British farmers to regain their competitiveness. This intervention was besides the introduction of maize itself, a second decisive point in Zambian history as it set the precedent for state intervention in agriculture that persists today (Hunter 2009). To the beginning of the 1940s, copper-mining had expanded to such an extent that maize-supplies from farmers around the railways, white and black, were not sufficient anymore. As a result, the British government ordered rural farmers to start producing maize which was then transported to the mines. These rural farmers were abused and profits were either very little when they even existed. By the 50s, farmers all over Zambia were producing maize as the only crop with almost no diversification. Towards the end of the 1950s, the colonial period started to come to an end and in 1964, the British government was handing the country back over to the locals. Zambia, which was one country with Zimbabwe and called Rhodesia before the colonial time, was founded as its own state.

2.2. Independence

The newly formed local government was very concerned with rural poverty reduction to redress the neglect and abuse the rural farmers experienced under the colonial government (Govereh 2008). As rural farmers were already skilled in growing maize and skills for planting other crops did not exist, Zambian government saw maize as the easiest and cheapest way to start reducing rural poverty and therefore kept maize as the one and only crop. Maize production incentives such as free governmental input supplies of seeds and fertilizer were one primary vehicle to improve rural welfare just like the Brits have taught the Zambians in 1936 when British farmers were subsidized in the same way to increase their competitiveness. To provide markets for the rural farmers to sell their produce, Zambian government established depots all around the country which besides handing out the input were also in charge of purchasing the farmer's supplies to above market prices which further encouraged the production of maize and reduced poverty levels quickly. The above market prices purchases of maize by government were sold to tender market prices throughout the year and throughout the country. This meant that there was a gap which had to be paid by the government and in order to sustain tender prices the market had to be protected by foreign imports and local exports. Therefore, government fully banned exports and strictly regulated imports. This created a monopolistic culture of maize in Zambia. By the end of the 80th century, 76% of all cultivated land was still under maize and even in areas which land was originally not suited for maize due to drought- or flood endangered geographical conditions which maize is not resistant forwhich are mainly the Northern and Western parts of Zambia. Agricultural research and extension was also strongly biased towards maize production (Wichern et. al. 1999). This maize promotion strategy was pursued by the Zambian government for the next decades after independence and as input, purchase, transport, storage costs were all taken charge of by the Zambian government, expenditures reached tremendous levels. This was how, by 1984, Zambia became the most indebted country in the world relative to its GDP (Saasa 2003).

2.3. From Regulation to Liberalization to Regulation

By the beginning of the 1980s, the World Bank, the International Monetary Fund and the operating NGOs in Zambia intervened in the government's activities forcing it to liberalize the maize sector to prevent further debt accumulation. The liberalization process included the privatization of all depots, the elimination of the export ban as well as loosening import deregulations. As maize policies affect such a great number of farmers and most of them relied upon governmental subsidies tensions arose in 1986 as a result of the liberalization process causing several deaths (Saasa 2000). The WB, IMF and the NGOs were accused of the situation and it was decided to return to deregulation ofthe maize market and undertake the liberalization process more slowly so local Zambian small-scale farmers could adapt to the situation more easily. The slower market liberalization process went smoothly and by the late 80s, the entire maize market was free from government intervention. During 1990 and 1999, area of maize planted reduced by 22% reaching a level of 55% the lowest level ever accounted so far (Hunter, 2009). In 2001, the WB, IMF and the NGOs stepped away from intervening in the Zambian governmental policies based on the fact that they saw a long-term sustainability in the Zambian market only if the Zambian government was able to positively control it on its own (Saasa 2000). In the same year when external intervention phased away, elections took place and the opposition party (MMD) in person of Mwanawase announced to subsidies inputs and purchase 25% of the grown maize again (Chapoto and Jayne 2009). The election strategy taken by MMD made them win the election which indicates what influence maize policies have in a country where the majority of the workforce is affected by it. In the same year all originally established depots went under state-ownership again and in the following year, in 2003, export ban and strict import regulations were set in place again. By 2006, the government controlled more than 80 percent of the maize sector again and there is a common belief that Mwanawase won re-elections in 2006 based on the party's maize policies (Zulu et. al 2007). After Mwanawase's death in 2008, Vice president Banda took office while keeping the policies set by Mwanawase. In this current year of 2011, Zambia faces elections again and president Banda started his election campaign actions already last year. As in the elections before, maize plays a major role in it. In 2010, the government fertilizer support has been increased to cover 900.000 farmers from the figure of 500.000 farmers the year before. Thus the projected harvest for 2011 stands at 4 million tons of maize while at the same time carry-over stocks from 2010 will account for 1.5 million tons (Burke et. al. 2010). Given that Zambians eat around 1.5 million tons of maize, the supply of maize in 2011 would last for over three years with only 1.5 million tons being able to be stored in the country and no one in the region interested in buying the remaining 4 million tons of maize (The Farmers Gazette 2010). Storage cost for 1.5 million tons will account for almost 6 million US-Dollars each month and as the storaged maize cannot be sold at least until the next season or longer due to over-supply, storage costs will be tremendously high. The majority of the 4 million tons will be sold to dumping prices also due to oversupply and it is expected that quite some parts of the entire harvest must be destroyed as they cannot be stored and neither be sold (The Farmers Gazette 2010).

3.0. Deregulation Activities

This section will indicate the deregulation policies by the Zambian government in more detail. Hereby, deregulations are divided up into three areas in which government intervenes. The first part will take a look on the deregulations that take place within Zambia while the second and third parts will investigate the deregulations that affect trade. The second part will be concerned with export deregulations followed by import deregulations in the third part.

3.1. Inland-Deregulations

3.1.1. VAT Status

Intention: Poverty reduction by either VAT waivers to decrease production costs for farmers which would lead to higher income levels or by demanding VAT and using the tax income to fight poverty with governmental programs directly.

Implementation: Between 1996 and 2004, government waived VAT of 16 percent while previous to 1996 and after 2004 government collected VAT. The VAT-waivers were partly passed on from farmer to consumer in order that producers and consumers did not have to pay as much leading to increased income levels for both.

Results: Only around 25 percent of Zambian farmers are registered (Govereh 2009) and therefore only those registered have to pay VAT. Those who are not registered are mainly located in rural areas and are entirely small-scale farmers. These are the farmers who are affected by poverty the most. When government waived VAT, the once profiting from the policy were mainly the upper-class producers and consumers. The producers registered are often the ones better off and the consumers who purchase from registered farmers are mainly the upper class since the poorer consumers purchase their maize on the non-official markets from farmers who are not registered. The policy of no VAT was thus not targeted at reducing poverty levels to a decisive extend as why the government returned to VAT collections in 2004. The VATincome used by government for poverty reduction programs from 2004onwards failed to have decisive impact.



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ISBN (Book)
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University of Hamburg
Africa Agriculture Maize Zambia Deregulation Governmental Deregulation Poverty NGO Third World Aid Organization Non-Governmental Organization Subsistence Agriculture Sub-Saharan Africa Small-Scale Farmers




Title: Governmental Deregulation in the Zambian Maize Sector