UNITED NATIONS Economic Commission
for Africa
~Jo:i CHl~ Aml(ulturf' CrljOtl'2C1!ICrl of l'l'-Iln1if,,(j ~ J(1118r1'
FOOD PRODUCTION A~ID CONSUMPTION IN THE CONTEXT OF BORDER TRADING
AN APPLICATION TO EASTERN AND SOUTHERN AFRICA
Joint ECA/FAO AtJriculture Division
MONOGRAPH
No. 12
FOOD PRODUCTION AND CONSUMPTION IN THE CONTEXT OF BORDER TRADING:
AN APPLICATION TO EASTERN AND SOUTHERN AFRICA
by
Dr. Wilfred Abuom-Ongaro
of tbe·Joint ECA/FAO Agriculture Division
The views expressed in this paper are those of the author and do not nect'SSaJ'ily renect the views of
the United Nations Economic Commission for Africa (UNECA) or of the United Nations Food
and Agriculture Organization (FAO)
Addis Ababa, UNECA/FAO May 1995
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TABLE OF CONTENTS
List of Acronyms and Abbreviations , , , , , , , , , , , , , . , . , .. , . , . . . , , , v
List of Tables , , , .. , . , . . . , , , , , , , . , , .. , , , , , , , . , , , , , , , , . , viii
EXECUTIVE SUMMARY, , , , . . . , , . , , . . . , .. , .. , . . . x
I. INTRODUCTION .. ' .. , . . . ' . . . , . . . . Ll
1.2
Background and the Setting . . . " " , ..
The Cases of the Six Selected Countries of Eastern and Southern Africa (Kenya, Uganda, Tanzania,
Malawi, Zambia and Zimbabwe): A Prelude .. " , . , . , .. " , 4 L 3 Objective of the Study . , , , . , .. , . . . ' . . . , , . . . . .. . . 6 1,4 Methodology and Limitation of the Study . . . , . , . . . . 8 I. 5 Data Sources . . . , . . . , . . , . , . . . , . . " " . 9 1.6 Achievements" . . . ,." .. " " . " .. " " " . . . , . . II I. 7 Organjzation of the Study , . , , , , , . . , , , , , , , , . . . , " 12
II. AGRICULTURAL FOOD PRODUCTION, CONSUMPTION
AND TRADE IN THE STUDY AREA: A SYNTHESIS " . , . , .. ,. 13 2,1 Agricultural Sector in Kenya, Uganda and Tanzania. , , . , , . " 14 (a) Food Production Patterns in Kenya. Uganda and Tanzania , " 16 (b) National Variations Between Production and Consumption, " 17 2.2 Agricultural Sector in Malawi, Zambia and Zimbabwe .. , , , " 22 (a) Food Production Patterns in Malawi, Zambia and Zimbabwe , 24 (b) National Variations Between Production and Consumption , ,. 26 2.3 Conclusions, .. " " . " , .. " , . , . " " " " " " " 30
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III. TRANS-BORDER TRADE IN THE SIX SELECTED COUNTRIES . .. 30
3.1 General Considerations . . . 30
3.2 The Case of the Three Countries of Eastern Africa . . . 32
3.3 The Spectrum of Food and Non-Food Products in Trans-Border Trade . . . 32
3.4 The Case of the Three Countries of Southern Africa . . . 39
3.5 The Spectrum of Food and Non-Food Products in Trans-Border Trade . . . 40
3.6 Some Determinants of the Cross-Border Food Trade and Factors Undermining the Effectiveness of Government Controls . . . 43
3.7 What Have We Learned? . . . 45
IV. SOME POLICY PERSPECTIVES AND CONCLUSIONS . . . 46
4.1 Implications for Food Policy Design .. . . . .. 46
4.2 loint Actions by the Group of Selected Countries: Bilateral. Trilateral and for Multilateral Food-Trade Agreements (MFTAs) . . . 50
4.3 Concluding Remarks . . . 54
4.4 Further Research Requirements . . . 56
Notes. . . .. 60
Selected Bibliography . . . .. 65
Appendix: Supplementary Tables . . . .. 72
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ADMARC AEC AGRITEX AGROSTAT AMS
BSLR CBS c.i.f.
COMESA CSO
q
EAC EIU ESAP ESARO EWS FAO/UN f.o.b.
FRIS FTCs GOP GMB
lCSPSF/ACD
IFPRI IFS IGO IMF JEFAD
LIST OF ACRONYMS .AND ABBREVIATIONS
Agricultural Development and Marketing Corporation African Economic Community
Agricultural. Technical, and Extension Services Agricultural Official Statistics
Agricultural Marketing Section Buyer and Seller of Last Resort Central Bureau of Statistics Cost, insurance. and freight
Common Market for Eastern and Southern Africa Central Statistical Office
Coefficient of Variation East African Community Economic Intelligence Unit
Economic Structural Adjustment Programme
Eastern and Southern Africa Regional Office (UNICEF) Early Warning System
Food and Agriculture Organization of the United Nations Free on board
Food Research Institute Studies Farmers' Training Centres Gross Domestic Product Grain Marketing Board
Interlinked Computerized Storage and Processing System of Food. and AgriCUltural Commodity Data
International Food Policy Research Institute International Financial Statistics
Inter-Governmental Organization International Monetary Fund
Joint ECA/FAO Agriculture bivision
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K Shs.
LlCs MFTAs MULPOCs NAMBOARD NCPB
NIPFP NMC NRDP NSO
om
OMER PIP PMER PTA RBM RCUs ROZ RPCS SADC SAL SAPs SGR SSA TBCAL TCDC TINET T-o-T TUVs UNCTAD UNDP/WB
Kenya Shillings
Low-Income Countries
Multilateral Food Trade Agreements
Multinational Programming and Operational Centres National Agricultural Marketing Board
National Cereals and Produce Board
National Institute of Public Finance and Policy National Milling Corporation
National Rural Development Programme National Statistical Office
Overseas Development Institute Official Market Exchange Rate Programme Implementation Plan Parallel Market Exchange Rate Preferential Trade Area
Reserve Bank of Malawi Regional Co-operative Unions Republic of Zambia
Rural Primary Co-qperative Societies Southern African Development Community Structural Adjustment Loan
Structural Adjustment Programmes Strategic Grain Reserve
Sub-Saharan Africa
Tea Brokers Central African Limited
Technical Co-operation in Developing Countries Trade I nformation Network
Terms-of-Trade Trade Unit Values
United Nations Conference on Trade and Development
United Nations Development Programme and The World Bank
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UNECA UNICEF USDA U Shs.
WB
United Nations Economic Commission for Africa United Nations Children's Fund
United States Department of Agriculture Uganda Shill ings
World Bank (also, International Bank for Reconstruction and Development)
Table 2.1
Table 2.2
Table 2.3
Table 2.4
Table 2.5
Table 2.6
Table 3.1
Table 3.2
Table A.I
LIST OF TABLES
Instability in Cereal Production in Kenya. Uganda and Tanzania:
(1975-1992)
National Balance of Production and Consumption of Selected Agricultural Food Products in Kenya. Uganda and Tanzania
Producer Price Ratios for Selected Agricultural Products in Kenya. Uganda and Tanzania: (1980-1992)
Instability in Cereal Production in Malawi. Zambia and Zimbabwe:
(1975-1992)
National Balance of Production and Consumption of Selected Agricultural Food Products in Malawi, Zambia and Zimbabwe
Producer Price Ratios for Selected Agricultural Products in Malawi, Zambia and Zimbabwe: (1980-1992)
Major Food and Non-Food Commodities Traded Across Borders of Kenya, Uganda and Tanzania
Major Food and Non-Food Commodities Traded Across Borders of Malawi, Zambia and Zimbabwe
Official Producer Prices for Maize in Kenya, Uganda, Tanzania, Malawi, Zambia and Zimbabwe: (1980-1993)
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Table A.2
Table A.3
Taple AA
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Table A.5
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Ratio of Parallel Market to Official Exchange Rates in Kenya, Uganda, Tanzania, Malawi, Zambia and Zimbabwe: (1975-1993)
Structure of Food Products Exports From the Selected Countries to Non-PTA/COMESA Countries (in %)
Intra-Country Trade Matrix for the Selected Countries for 1991:
(Lo.b. Values in millions of US$)
Annual Average Rate of Change (%) in Selected Indicators of Kenya, Uganda, Tanzania, Malawi, Zambia and Zimbabwe
EXECUTIVE SUMMARY
Government controls over prices an(l quantities as well as taxes, are universally circumvented by agents (i.e., producers and consumers) who participate in "parallel"
and/or "black" markets [See. inter alia, Johnson (1987:975-988), Bhagwati (1992:988- 1(02), Trandel (1992:313-331) and Lovely (1994: 157-174)1. There are many reasons why governments may wish to control prices and assure household access to certain quantities of basic staples. Periodic food shortages or rapidly increasing food prices create social and political instability and can cause severe hardships for poor consumers. A lack of confidence in the private food marketing system, including a perceived risk of speculative or exploitative behaviour of marketing agents, may lead to direct government intervention. Furthermore, governments may wish to keep prices low for commodities generally believed to be good indicators of inflation and purchasing power such as maize and rice in many African countries and, rice, in particular, in many Asian countries.
Development economists have been concerned for decades about the consequences of government interventions on efficiency, equity and growth but, it is only recently, however, that parallel and black market~ have become direct objects of economic research'. It goes without saying that a parallel market is a structure generated in response to government intervention that create a situation whereby there exist excess supply or demand in a particular product or factor market. For instance, when government. attempt to subsidize urban consumers by controlling prices of basic commodities, say cereals', farmersltraders bring less grain to the official markets at lower control price, while consumers demand more grain than that at the initial, marketing-clearing price, This excess demand will spill-over into parallel market, whereby grains will be sold above the control price, Farmers/traders will, then, sell at more rewarding prices while consumers, unable to satisfy their demand at official price, will have to pay more in the parallel markets, In this context, therefore, parallel
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markets refer to market structures which result from the economic agents responding to sub-optimal government interventions [See Chinn (1978:697-703), Pitt (1981 :447- 458) and, Maliyamkono and Bagachwa (1990:90-94)],
While parallel markets arise to evade government controls, it fits to suggest that even in the absence of government interventions, markets may be divided into segments in which participants face price differential of goods and services or factors of production. Some of the reasons for price differences may be high transportation costs, poorly developed channels of information (this increases the cost to traders of obtaining information about conditions in distance markets). etc. Were costs lower, supply would flow from the excess region to deficit region, equalizing prices between the two. Thus, when market intermediation is impeded by high costs, prices in one region for goods and services or factors of production may move independently from prices in another region. These are referred to as fragmented markets. Improving of the infrastructure (e.g., roads), hence, lowering of transportation, communication and/or information
cosl~ can decrease the effect of market fragmentation [See Helleiner (I 990:Ch. 13)1·
The concept of black market usually relates to anyone or more of the three criteria: that which (D is illegal or originates from illegal activities; Oi) evades taxes;
and (iii) escapes inclusion in the annual national income accounts [See Nayak (1977:2051-2062), Koveos and Seifert (1985:40-46) and, Acharya {1986:6)1. All black markets are paraliel but not all parallel markets are black. This statement suggests that the study of black markets is a sub-set of parallel markets with an exception of contraband trade -- i.e., that of prohibitive goods such as firearms. illegal drugs, etc.
- hence no parallelism.
The thrust of this study is to provide some insights into an important area of economic behaviour. It addresses some important issues of trans-border food trade as they relate to government controls and agricultural policy reforms in the six selected countries of Eastern and Southern Africa' and. explores the policy options available to these countries in addressing these problems. It is especially significant that the
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interface between these two areas of policy concern is explicitly examined since inappropriate domestic policies have been increasingly recognized as a major culprit for the deteriorating terms-of-trade for most agricultural commodities in the low-income countries (Lies).
The most important and revealing aspect of this study is that, the potential for trans-border food trade among neighbouring countries implies that, as a minimum in designing their economic policies, countries cannot ignore a realm of similar policies being pursued by their neighbours next door. Traders in a region or country (Le., exporters and/or importers) direct their activities, inter alia, in pursuant to the relative prices of marketing boards, export and import taxes, the relative value of currencies between/among cou ntries' borders, the degree of restrictions on food trade and other goods across common borders, etc.
The study observes that trans-border trade is no longer confined to the traditional exchange of goods and services between residents sharing common border with the primary purpose of meeting shortfalls in subsistence consumption, It also now embraces a whole gamut of products or commodities intended largely for re-sale in urban and rural areas quite far from the borders, and sometimes for re-export. Moreover, the stronger is the convertibility of a country's currency into say, dollars, relative to the ,currencies of other countries in the region, the more attractive, other things being
equal, is that country to border traders.
Although policy makers are fully aware of the above-mentioned, they have not sufficiently incorporated that awareness in their process of policy formulation, This study. therefore, also focuses on the constraints imposed on economic policy by cross- border trade and, some of the gains that cOij!d be accrued from economic policy formulation and coordination in an environment where the potential of such cross- border trade is sizable, Suffice it to say that the paper shows how synchronized internal decontrol among countries would reinforce the benefits from cross border trade. The study also explores the scope of bilateral and trilateral agreements to promote trans-
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border trade and suggests groups of commodities to be included in such agreements.
The unbridled trans-border food and non-food trading activity considered in this paper is not full-scale smuggling but rather, a kind of pseudo-smuggling which arises not only with a view of traders to evading taxes [See Trandel (1992:313·331) and Lovely (1994; 157-174)], but also as a result of economic agents responding to a host of sub- optimal government interventions [Cf. Pitt (1981 :447-458), McDonald (198S;668692) and Lundahl (l990;Ch.2}).
The empirical focus is on the three countries in Eastern Africa (i.e., Kenya, Uganda and Tanzania) and three in Southern Africa (i.e .. Malawi, Zambia and Zimbabwe), but the analytical approaches and policy implications are of wider applicability, being relevant to other countries in the sub-region and to many other low- income countries (LIes) as welL Two important messages that come out clearly from the study are that although price incentives are powerful instruments for achieving increased production and in fostering trade, these require an adequate agricultural infrastructure to be effective. It is in the area of infrastructure that direct government action is most needed -- in the form of expenditure. After aiL the producers and/or traders are aware of their environment and their own interests. An appropriate use of a system of market-related incentive signals could make use of both the producers' and/or traders' self-interest for achieving national goals.
Secondly, agricultural markets in the countries under investigation are very much dominated by governments' objective to maintain food security. Governments do not want to rely on the vagaries of external market~. This attitude leads quite often to a paradoxical situation where an excellent harvest may at times creates a national disaster. In the first case, governments may have to stock up huge amounts of food and may be in need of increased storage capacities and finances [See Koester (1986) and PinCkney (1988)]; in the second case, they may be short of foreign exchange to pay the additional import bill. The situation of the individual countries could certainly be improved if countries were to coordinate their stockholding or if they could rely on deliveries from neighbouring countries. Thus, bilateral or trilateral agreements could
include the commitment of one country to deliver a specific quantity of specific commodity and the commitment of another country to buy that quantity. The agreement should -- as in most other trade agreements -- include only the specification of the quantities to be traded. Price to be paid should reflect the prevailing border prices at the time of transaction'.
Thirdly. there is considerable anecdotal evidence of widespread cross border trade in the six selected countries. The existence of illegal activities on a significant scale has severe implications. The government budget may be adversely affected because many developing countries depend heavily on taxes on international trade and transactions. The biased statistics that are as a result of illegal trade may mislead policy makers. In addition. the illegal and/or informal activities themselves and their surveillance by authorities entail resource costs. The analysis in this study suggests that.
especially in sub-Saharan Africa. cross- border trade which today remain largely informal can be accomplished through trade tax co-ordination, including streamlining of border procedures, and other related policies that ensure adequate prolits to the producers and/or traders.
FOllrthly, and as a corollary to the third point mentioned above, cross border trade should be seen as method of promoting sub-regional economic integration since it encourages the production and trade in goods and services for which each country or state has a comparative advantage. It also provides productive employment and job creation for many of the new entrants to the parties (i.e" traders) involved in such economic activities. [n fact. it can activate the broadest possible mobilization of sub- regional resources by planning for mutually supportive activities in each part in the most resource conserving manner. In this regard, Governments should support and facilitate cross-border trade through economic and financial policies that proviJe an enabling environment for their sustainable growth and development.
Fifthly, countries of Eastern and Southern African SUb-region need to strengthen their trade information network [e.g., Trade Information Network, (TINET) in the
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COMESA sub-regionl which provide information on available stock of various agricultural and non-agricultural commodities in each member State, and match these with demand for them. Furthermore, sub-regional information networks need to be integrated with each other and the Early Warning System (EWS) to provide an up-date information about each country's production potential and existing market opportunities.
Finally, the opening up of the COMESA sub-regional domestic market to the Republic of South African imports may indirectly affect some of the major cereal crops, particularly maize, wheat and sugar produced in the countries of the the sub-region.
South Africa has a strong comparative advantage in the production of these commodities -- a reflection of technological advanced production and. partly, as a result of a long traditional experience in the production of these com mod ities and agro-processed products. Nonetheless, South Africa may also be a lucrative market for the sub-region's exports especially for those products which were earlier on cut-off from that market.
[n this regard, further research is warranted to understand various areas of economic policy co-ordination and co-operation with a vicw to creating a well organized cross- border trade for a larger marker which now exists within and without the sub-region.
SQ to speak. we are here suggesting avenues for promoting and strengthening TCDC within and outside the sub-region.
I. INTRODUCTION
1.1 Background and the Setting
The political economy of food took special importance with the intensification of the food crisis in Africa, especially, in the 19805. Stagnating or declining trends in food production per capita and an increasing inability to meet the shortfalls with imports created severe problems for a number of countries. Given the precarious balance between consumption per capita and recommended food intake, both have created a health risk and induced dependence on food aid. The experience of the 1990s has not been any better, at most, in an attempt to arrest the problem offrequem food shortages.
improvement of pricing, marketing and distribution systems'.
Manifold explanations have been offered to account for the past and current food crisis and, alternative panaceas or strategies have been proposed. Some observers have favoured interpretations rooted in the environment. in natural calamities and ecological constraints. Some have highlighted the changing structures of economic production and exchange. Others have insisted on the paramountcy of demographic movements. And still, others have declared emphatically the international dimensions of Africa's food insecurity'; i.e., sruft in world prices for primary exports vis-a-vis rising costs of imports [See Green (1986:768-801)]. But regardless of the variety of perspectives permeating the food policy literature, it is becoming increasingly apparent that in much of the responsibility for Africa's food instability, a problem symptomatic of a much broader economic crisis lies with the failure of governments themselves,
To mention just a fcw are the inappropriate domestic policies -- inefficient pricing, marketing and distribution policies, rural neglect, poor transportation systems.
unclear regulatory regimes etc. These lacunae, W!len accompanied by inadequate central guidance and/or planning have resulted into the creation of parallel markets and black
markets alongside the official ones [See Johnson (1987:548), Lundahl (l990:Ch,2) and, Maliyamkono and Bagachwa (1990:74-75)1,
Suffice it to say that, some economic agents have focused their attention in response to inadequate food supplies by devising means of bypassing the formal marketing network -- that is, of moving beyond the State, The restructuring of exchange through the institutionalization of a parallel economy has become a household concept in Africa in the 19805 and in the early 1990s, Special groups ( i.e" those who deal in illegal activities) have embarked on this task in different ways, This group has spearheaded a series of activities aimed at re-orienting accumulation and distribution patterns, The first of these activities is smuggling, Export of goods and foodstuffs are transferred illegally from countries that offer lower prices to those that grant higher payments or are themselves sources of scarce and required commodities, A familiar pursuit since independence, smuggling was especially rampant in the early 1980s and it is increasingly seeing itself through in the 1990$, It was particularly noticeable in countries like Niger and Nigeria ISee Azam (1991:47-61)1 Ghana, Guinea, Uganda, Tanzania, Zaire and Zambia ISee Rothchild and Chazan (1987)1, where access to food was circumscribed and essential supplies could be obtained only by resort to illicit transfer across neighbouring frontiers, Kalabule in Ghana, magendo in the countries of Eastern Africa and Katangale in Southern Africa are just few examples of what is a much more prevalent phenomenon in most pans of the continent today: the black market (the above are "local" or "preferential" words for smuggling activities in the sub-regions).
The second one, and which is closely linked to smuggling, is hoarding, Hoarding occurs when official prices are low and the sale of particular items become unprofitable. Inflated prices on the black market appear when specific goods that are in great demand are unavailable through the regular channels,
Last, and more fundamentally, is the cross-border trade thaI, in some cases, arise due to the introduction of pan-territorial pricing' in a country. In effect, pan-
territorial pricing 'penalizes" areas with least transportation costs and "subsidizes" those with high transportation costs. Producers/traders in low-cost transport areas experience a de facto fall in producer prices while those in the high-cost transport areas experience a de ft:tcto rise in producer prices. This has both advantages and disadvantages. Under pan-territorial pricing policy, the high-cost transport areas are likely to have an incentive to increase production and sales to the official marketing agents while those in the low-cost transport areas would look for more lucrative markets elsewhere: i.e., parallel and/or black markets [See Masters and Nuppenau (1993: 1647-1658) and, Valdes and Muir-Leresche (1993:Ch.1O)]. It, therefore, goes without saying that the relative price difference of various food commodities between the areas coneerned and the neighbouring countries would therefore determine the magnitude of trans-border trade'.
When well organized and with government support, trans-border trade could be used to meet three distinct tasks: to bridge the gap between national demand and supply for individual products in years of normal harvests: to even out annual fluctuations in production: and to even out SUb-regional deficits and surpluses [See Valdes and Muir- Leresche (l993:44)J. The potentials for such border trade have, to some extent, been investigated by Nuppenau (1993:271-299),
It is against this background that we analyze some of the determinants of eross- border trade in six selected countries of Eatern and Southern Africa. Because of significant data limitations on the actual volume involved in trans-border trade, we are not able to provide definite answers to some of the issues raised in this study. But until more detailed studies based on "sufficient" data are available, this study demonstrates the consequences of poor domestic policies on food production and distribution and, the extent to which the former have contributed to the unorganized trans-border trade prevalent in the countries under investigation. But before this is done, a summary description of the countries concerned is provid~d which, in our opinion, serves as a
"scaffold" and/or baseline from where to view and apprehend analyses in the next section and, the subsequent parts of the study.
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1.2 The Cases of Six Selected Countries of Eastern and Southern Africa (Le., Kenya, Uganda, Tanzania, Malawi, Zambia and Zimbabwe): A Prelude The six countries, Kenya, Uganda, Tanzania, Malawi, Zambia and Zimbabwe, which constitutes our study sample, have a combined land mass area of 2,986 million square kilometres. According to 1993 data, this was over 30% of the total combined area of the then PT AlCOMESA sub-region. With a combined population of over 100 million people, this constituted over 40% of the combined population of all PT AlCOMESA member States. In 1991, the six countries accounted for over 82 % of total intra-PTA exports, and 57% of the total intra-PTA imports; also, they had a combined gross domestic product (GDP) of about US$ 26,000 million which was over 30% of the total PTA/COMESA GDP lSee PTA (1')93)].
Three important reasons make the study of this kind compelling, particularly in the case of the countries under investigation. Firstly. it helps us to understand the response of various economic agents (i.e., producers. traders and consumers) to governments' domestic policies in regard to different food crops. We cail, therefore, take a gauge of what we have observed thereafter to form a reasonable guess about what may also happen to other countries of the African sub-regional economic groupings. Secondly. many opportunities for food trade exist in the areas under study.
These opportunities have been enhanced by various events in history that have prevented "normal" trade between and lor among countries to take a smooth path.
Natural calamities (i.e., drought), political instability, corruption, restrictive commercial policies, etc. all have contributed in one way or another in fuelling the illegal cross border trade lSee Hansen and Twaddle (1991) and, Schiff and Valdes (1992)].
Nonetheless, comparative advantage still plays a part, and seems, for example, to explain the prevalence of food border trade in most countries of Eastern and Southern Africa lSee Koester (1986), Maliyamkono and Bagachwa (1990) and, Valdes and Muir- Leresche (1993)1. Thirdly, the study is very timely. Since the mid-1980s, most of the above-named countries have instituted and implemented a number of liberal reform programmes, particularly the Structural Adjustment Programmes (SAPs) intended to
check the advance of the economic crisis and ill attendant adverse side effects. Of particular interest are the recent trade and exchange rate policies. It is, therefore, useml to see the effects of these measures and whether ~ not the countries ,are any bettar served as a consequence [See Commander (1989), Aghevli et at. (W91) and ROt (1993)].
Although the three Eastern African countries (i.e., KenyaJJganda and Tanzania) are diverse in their agro-potential and natural resource structure, they are principally agricultural. Economic policies followed in the subregion, have shifted over the years, since independence. The countries have shifted from market-oriented policies in the I%Os to heterogeneous development strategies in the 1970$ (e.g., Tanzania adopted a socialist pol icy during th is period) and began to converge back to market -oriented policies from the mid-1980s to date. The government is now encouraging increased private investment in export agriculture, including foreign investment (many foreign owned estates were nationalized in the early 1970s). Libera] exchange rate policies are also a common feature in the other countries of the sub-regio;]. These are expected to achieve the following objectives: reducing domestic demand, re-orientation of external trade, encouraging efficiency, encouraging domestic and foreign investment, etc. In the field of agriculture, the countries are in the process of privatizing State franchise over agricultural production. Marketing and inputs are being rationalized and privatized, and private sector participation in these activities is now being promoted at varying degrees in Kenya, Uganda and Tanzania (See Pinckney (1988) and, Maliyamkono and Bagachwa (1990)1.
With the exception of Zambia, agriculture plays a vital role in the development process of the economies of the other two Southern African countries -- namely, Malawi and Zimbabwe. Although Zambia hll:S a comparative advantage in moving to
more land-tied agricultural production. Malawi. the smallest in land area, allocates a much larger share of its land to crops than do Zambia and Zimbabwe. For some time now, Zambia has been depending on copper as a prime source of budgetary revenue but the situation has began to change gradually due to poor prospects on copper prices in
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the international market as a result of synthetic substitutes and, also, that the country has turned into high-cost copper producer relying heavily on imported equipment to maintain its deep and old mines. Hence, there seem to be a gradua1 and positive change towards promoting agricultura1 sector as the engine for nati9nal development and growth. The combined impact of agricultural development policies since 1989 has been an expansion in cultivated area, a widening of the agricultural base to include new crops like coffee, new exports -- cotton, sugar and horticvltural products -- and the development of farming areas outside the traditional heartland of Eastern, Southern and Central Provinces.
Like the above-mentioned countries of Eastern Africa, growing recognition of the deleterious effects of existing economies policies in these countries is one of several influences culminating since 1987 on governments' decision to reform their economies.
These reforms have involved liberal izing foreign exchange, eliminating of food subsidies, reducing government intervention in agriculture, liberalizing agricultural trade and reforming supportive macroeconomic policies in order to provide incentives to producers/traders [See Koester (1986) Masters and Nuppenau (1993: 1647-1658) and, Valdes and Muir-Leresche (1993)]. Given the current state of these two blocks of countries -- Eastern Africa and Southern Africa -- and, in an attempt to restore their economies to satisfactory levels, it is safe to suggest that if their domestic and external policies are well planned and methodically executed, food trade among them could be easily increased. It might well be that some countries import the same food product from outside the region, while other countries export the same food product to outside the region. We devote these discussions to the subsequent section of the study.
1.3 Objectives of the Study
Active border trade in many African economies has meant that producer/traders of exports, and imports as well, direct their activities. in conformity with the official marketing prices, transportation costs, foreign trade taxes and the convertiIJility of
currencies. There is ample evidence that an isolated national food price policy is very costly. When prices in one country are significantly lower than in neighbouring countries, they provide an incentive for illegal border trade. Such trade flows may even lead to a breakdown of the internal stabilization and liberalization policy. For instance, evidence indicate that, cowpeas produced in Niger and exported to Nigeria, or groundnuts crossing the border in one direction or the other, have been dictated by changing prices paid by the two national marketing agencies, which generally reflect different rates of tax and subsidy [See Azam (1991:48)1. But comparative advantage still plays a part, and seem, for example, to explain the cross border food trade among the countries of Eastern and Southern Africa [See Koester (1986), Maliyamkono and Bagachwa (1990) and, Valdes and Muir-Leresche (1993)].
This study aims at demonstrating how the above factors interact with the costs of border trade to deterll'ine the geographical direction of various food products in a number of borders in the selected six countries already mentioned [See Section 3, (3.3
& 3.5)]. More specifically, the objectives of this study is to:·
(a) Provide a synthesis of food sub-sector of the countries under investigation (i.e., comparative advantage in production, price setting, price ratios between commodities, crop distribution systems and consumption patterns);
(b) Discuss the adverse economic consequences that ensue from border trad ing when economic policies of countries sharing common borders remain uncoordinated;
(c) investigate the potentials for intra sub-regional trade with a view to contributing, in a major way, to development and food security in the sub-region: and (d) Discuss and provide some recommendations on the gains from sub-regional economic policy coordination in an environment where the potentials for cross border trade have reached considerable proportions.
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1.4 Methodology and Limitations of the Study
The basic framework to be analyzed herein is reminiscent of those presented in Bhagwati and Hansen (1973:172-187), Bhagwati (1982:988-1002), Johnson (1987:548- 564), Trandel (1992:313-331) and Lovely (1994: 157: 174) but slightly differs from these authors' work in that, here, an attempt is made to go further by applying their theoretical approaches into our empirical observation. The study thus deals with trade deflection that involves smuggling, tax evasion and parallel markets across borders, We must bear in mind that field work on parallel markets has severe limitations. Any enquiry to illegal activities is inherently difficult, and sometimes even risky. In many situations, respondents will be reluctant to reveal crucial information such as the quantities they sold or bought in parallel markets, the prices they received or paid, the bribes paid, and the way they reduce the risks of detection. Armed with such a justification we shall, at times, limit ourselves to qualitative method of analysis supplemented by the official government statistics which serve as pointers to price differential of various commodities. While this study is primarily concerned with cross border trade in food products, it is instructive, for both analytical and policy recommendation purposes, to look at some non-food products prevalent in trans bI'P;der trade as well. This is crucial for various reasons of which the two major ones are underscored below.
(i) Although it is not easy to establish exact volume of food and non-food products involved in the trans-border trade in the countries under investigation, the conventional wisdom has it that where there is a ·shuttle" in food market, producersltraders ferrying food products across borders, on their return, take the opportunity to buy other consumer and/or capital goods (i.e., not necessarily food products) which may not be available on their side of the border or if available, may be fetching at prohibitive pti<:es: and
(ij) The linkages between food and non-food cross border trade and, control of the internal markets are crucial elements in the reform process of any country's
domestic policies. The three are inextricably linked. These may serve as a foundation for analysis and praxis of trans-border trade. That is, by highlighting their variable interactions and manifestations, it might be possible to provide some meaningful steps towards understanding the magnitude of (i) above.
To address these policy issues and provide indicators of comparative advantage and economic incentives for the food-crop sub-sector, the study focuses on the resource endowments, agro-climatic patterns, distance to market outlets and levels of infrastructure development all of which vary across regions and are major determinants of comparative advantage.
This study is limited to the period from the mid-1970s to the early 1990s. The
,
period is significantly important. More importantly is· that, inappropriate domestic policies of the early 1970s have been increasingly recognized since the beginning of the 1980s as a major culprit to the deteriorating terms-of-trade (T -0-T) for most agricultural commodities in many African countries. This has led to most countries ad.opting structural adjustment programmes (SAPs) with a view to improving their economic
~nvironment. We are, therefore, of the opinion that during the period stated, especially between the early 1980s to date, major reforms have taken place in the agricultural sector in the countries under investigation.
1.5 Data Sources
To the best of our knowledge, very little has been done on the subject pertaining to this kind, at least, for the countries under investigation. This work, tbgether with the ongoing JEFAD's research on trans border trade in other sub-regional MULPOCs, adds to the few similar studies elsewhere in ~frica on the subject matter.
'The study largely uses gata drawn from FAO's Interlinked Computerized Storage and Processing System of Food and Agricultural Commodity Data
,
(ICSPSF/ACD), through the AGROSTAT information system. This system which was introduced in 1985, disseminates information drawn from (ICSPSF/ACD) and data banks of other international organizations. The above are supplemented by data from the respective country's Central Bureau of Statistics (CBS), Central Statistical Office (CSO) or National Statistical Office (NSO) and, some local information related to the subject matter. Other secondary information are drawn from Inter-Governmental Organization (IGO) such as Common Market for Eastern and Southern Africa (COMESA) and various international organizations' publications such the International Food Policy Research Institute (IFPRI), Food Research Institute Studies (FRIS), United Nations Economic Commission for Africa (UNfECA), United Nations Conference on Trade and Development (UNCTAD), United Nations Development Programme (UNDP), the World Bank (WB), etc. Information pertaining to each country's profile are drawn from various issues of [EIU:, (Economic Intelligence Unit), Country ProfIle]. Data on official and parallel market exchange rates is extracted from the IMF's International Financial Statistics (IFS).
Attempt has also been made to collect information through informal interview with the government officials conversant with the subject matter (i.e., Ministries of Agriculture and Lands, Commerce and Industry, Transport and Communication, etc).
Visits to the cross border areas have also been made in Malawi/Zambia (Le., at Mchinji/Chipata), Malawi/Mozambique (i.e., at Dedza/Villa Ulongwe, Ntcheu/Tete).
Zambia/Zimbabwe and Kenya/Tanzania (i.e., at Namanga/Longido) with a view to collecting information about the practical realities on the subject; interviews at the respective cross-border areas with both the government and non-governmeut officials (i.e., customs officials and local producers/traders) conversant with trans-border activities have also been carried out. In some cases, and in the absence of "reliable"
information, we content ourselves with an impressionistic approach to the analysis.
1.6 Achievements
The study will have arrived at its expected objectives by succeeding in answering the following questions:
(a) Identifying a host of food commodities traded across various border points and how producersltraders have reacted to a number of government control policies on such commodities;
(b) Identifying some of the government deficiencies in the institutional set-up and see how these have acted as catalysts in the promotion and expansion of illegal trans-border trade; i.e., infrastructural deficiencies, pricing and marketing pol icies, exchange rate policies, etc.:
(c) Thereafter, recommending measures to improve agricultural food trade with a view to promoting a well organized cross-border trade in the future:
(d) Discussing the economic COSts that ensue when relevant national economic policies remain uncoordinated among neighbouring countries and propose procedures for pertinent policy coordination between and/or among the countries;
(e) Briefly, taking a broad view of the impact of the recent economic and political changes in South Africa on the future of agriculture in general and agricultural food trade in particular for the countries under investigation, especially in MalawL Zambia and Zimbabwe and other countries in the sub-region; and
(f) Suggesting areas for further research requirements.
II
I. 7 Organization oftbe Study
The study is organized into four sections including the introduction. Section 2 provides a synthesis of agricultural food production. consumption and trade in the study area. Economic theory suggests that a potential for trade exist if price ratio in the pre- trade situation differ. if the set of products on the market differ, or if the economies of scale in production exist. In short, the scope for trade expansion often depends on the dissimilarities of the countries in the pre-trade situation. The dissimilarities emanates primarily from a host of factors including instability in production and consumption of various food and export crops which, in turn, contributes to the differences in the economic environment between and among countries. These are discussed in this section together with policies to' exploit the trade potential, in general. The production shares of selected agricultural cereals together with their coefficients of variation (CY).
ratios of producer price differentials in selected cereal products .. variations between production and consumption patterns of various food product~ are also provided.
Furthermore, the scope for intra-regional expansion are discussed.
Section 3, a substantive section, confronts directly the issue of trans-border trade in the selected countries between the mid-1970s and early 1990s. More specifically, we look at the spectrum of food products traded across borders of the selected countries (I.e., types of products traded: their origin and destination), assessing some of the factors that have contributed to this. Factors undermining the effectiveness of government control in trans border trade are also discussed. Based on these analyses.
we outline some of the lessons derived from the study.
Finally, section 4 provides some policy perspectives and conclusions and, caveats that emerge. It is certainly true that governments can hardly be expected to institute drastic policy changes in one stroke. Any food and/or trade policy design should be made according to the specifics of the country under investigation.
Nevertheless, some general guidelines in the case of the six selected countries are provided, followed by alternative food-trade promotion policies that can be instituted
by concerted actions -- either bilaterally, trilaterally and/or multilaterally -- to help capture some of the trade benefits even before the total package of the needed policy changes is instituted. Some suggestions for further research requirements are also provided, wrapping up the entire study and bringing it to a close. The. selected bibliography may serve as a reading list for those who may wish to delve on the subject matter. The supplementary tables in the appendix complement our discussions and some of the tables presented in the text.
n.
AGRICULTIiRAL FOOD PRODUCTIO~, CO~SUMPTION AND TRADE IN THE STUDY AREA: A SYNTHESISSignificant and well. organized trade in agricultural food products between neighbouring countries is still at its embryonic stage in most countries of Sub-Saharan Africa (SSA). Although, quite recently, some decontrol of food marketing has been observed, in principle, governments still follow different strategies of "autarky" in food markets in order to prevent their population from becoming dependent on foreign markets. In the context of Eastern and Southern Africa. where marketing boards regulate food marketing to a considerable degree, domestic food markets have been insulated from markets in the neighbouring countries ISee, inter alia. Kenya (1994: 114- 117), Malawi Government (1994:17) and EIU:, Country Profilil. (Various Issues)!.
Suffice it to say, the experience from these countries indicate that most of their parastatals have not been sufficiently flexible to respond to changes in marketing conditions in the neighbouring countries. There is by now ample evidence that these countries could gain considerably from each other if trade in agricultural food commodities were well organized and with government support. In this section, specific emphasis is laid on the agricultural sector, food production and consumption differentials and, scope for intra-regional trade expansion in the study area.
13
2.1 Agricultural Sector in Kenya, Uganda and Tanzania
This sub-section overviews the contribution of agriculture and the food-crop
/
sector to the Eastern African countries' economies. Then it examines the trend in production, consumption and trade and reviews government policies and incentive structures affecting the production and trade of various food-crops. The study focuses on the major food-crops' mainly cereals (i.e., maize, wheat, rice, millet/sorghum) but also pulses, groundnuls, sugar and fish all of which together represent the bulk of total calorie and protein supply in the countries under investigation.
Agriculture and ranching are still the prime movers of the Kenya economy, accounting (with forestry and fishing) for over 30 percent of GDP (See Kenya:, (1994):
economic SU11'ey and World Bank (1993)). More than half of agricultural output is for subsistence; the two main cash crops, coffee and tea. are, with horticulture, Kenya's main source of merchandise export revenues. Food self-sufficiency is still heavily emphasized, although the acute shortage of arable land means that increased production have to be sought through improved yields rather than an expansion of the cultivated area: only 18 percent of Kenya's soil is categorized as being of medium or high potential, and some of this is already severely overcrowded [See Kenya:, (1994):
Economic SU11'eyJ. Meanwhile, agricultural marketing remains a bone of connection with the World Bank (WB), which has been pressing for a much greater liberalization of grain marketing structure than the government has been willing In accept. The substantial easing of restrictions on maize movement, announced in November 1993, has been widely welcomed.
Agriculture is the cornerstone of Uganda's economy, contributing about two- tbirds of GDP and a significant proportion of tax revenue. With its fertile soils, almost in most areas, the country is normally self-sufficient in food and shortages are a result of distribution problems or, as in the recent past, security dIfficulties, However. slow growth in the food crop sub-sector has given grounds for concern about the future adequacy of food supplies in view of the rapid increase in population, The export base
has remained critically narrow, heavily dependent on coffee, although the government is trying hard to promote export of food crops [See EIU:, (1991): Uganda: Country ProfUe], Crop marketing is handled by the co-operative movement, marketing boards and private companills but the export monopolies of most of the various crops which were controlled by the marketing boards have been removed in line with the general policy of liberalizing trade,
In mainland Tanzania, agriculture still dominates the economy, Its contribution to the GDP has been about two-thirds during most of the period of 1980s and early 19905 [See EIU (Various Issues) and World Bank (1993)1, Much of the country has low and erratic rainfalL Evidence indicate that only 6 percent of the country's total land was under cultivation in 1989, and only 0.4 percent of this was irrigated [See EIU:
(1992: 14) Tanzania: Country PrgfUej. Seen in this regard, there is still more land that can be brought under cultivation depending on the availability of resources. Since 1985, the responsibility for purchasing crops from producers was transferred from parastatal crop authorities back to co-operative unions due to parastatal mal-administration and mounting losses in the later. Under the new system, Rural Primary Co-operative Societies (RPCS), which together comprise Regional Co-operative Unions (RCUs), have been given responsibil ity for crop purchasing and distribution. Starting from 1988/89 the RCUs as well as primary societies were permitted to sell directly to private traders.
The National Milling Corporation (NMC) now operates Strategic Grain Reserve (SGR).
Although created to manage a small emergency reserve, the government considers that the SGR should also have market and price stabilization functions.
Three messages emerge out clearly from the above analysis. First, the land constraint differs significantly among countries. Second, and more recently, all the countries have began pursuing liberal agricultural trade policies with a view to improving the food crop sub-sector. And, finally, there seem to be scope for agricultural trade expansion. The above issues have important implications for the design of trade policies in the three countries: these are highlighted, albeit briefly, in d,he last part of this sub-section.
IS
(a) Food Production Patterns in Kenya, Uganda and Tanzania
Estimates of the magnitude of food crop sub-sector are made difficult by the absence of "reliable" production and consumption figures. There are no figures on actual crop production because crop-culting surveys are rarely carried out. Only estimates are available. Year-to-year fluctuations which reflect changes in weather and government policies make estimates of production even more "unreliable". Official estimates of food crop sales show only the volume of crops marketed through official channels and therefore exclude crop sales to private legal and illegal channels. Data on food crop production are even more limited to food crops such as maize. wheat. rice.
millet/sorghum and groundnuts. Bearing these limitations in mind, our focus in this sub- section will mainly focus on those crops for which data problem is less severe, Nonetheless. analysis of 'other crops· will also figure, albeit briefly.
Table 2.1 below contrasts the production shares and instability In cereal production in Kenya, Uganda and Talll'ania for the periods 1975-1992. The table reveals that production is fairly volatile for individual types of grains and for the total cereal in the entire sub-region. However, there are significant differences between types of grains between countries. For instance, Kenya is the major maize and wheat producer accounting for 47 percent and 70 percent respectively of the total production shares. On the other hand. Tanzania is the major rice producer with over 80 percent of the total production share. Maize is the most important cereal in the sub-region accounting, on average, for about 70 percent of total cereal production
I
See EIV:, (1992): Tanzania: Country Profile].The Coefficient of Variation (CV) reveal that Kenya is a relatively stable maize producer while Tanzania is a relatively stable rice producer. Uganda is a relatively stable miliet/sorghum producer. Taken together, however. the CVs reveal that the gap for total cereal production are more or less the same for the three countries. The application of this measure implies that instability of variability are interpreted as deviations of actual data from expected data [See Cuddy and Della Valle (I 978:79-85}1.
It is, therefore, instructive to suggest that stability in cereal production could be improved if the countries were to adjust their production patterns by emphasizing those types of products for which they are more stable than partner countries. But, again, one would require a more in-depth analysis which includes other types of grains grown in the sub-reg ion.
(b) National Variations Between Production and Consumption
The inquiry of the national balances between the production and consumption in the countries under investigation are brought together in Table 2.2 below. The Table indicates that in all the individual countries and the sub-region, maize and millet/sorghum production have been well above the consumption levels. The only exception has been in the case of Kenya between 1981-85 where the national balance was, on average, 0.97. Although the ratio between 1986-1990 rose to 1.11, this declined again to 1.02 between 1991-1993 [See Table 2.2]. Most of the farmers expressed dissatisfaction in the quality of seed available in the market during 1992/93.
These adverse factors automatically affected the yield. Furthermore, drought in successive years has had the effect of discouraging expansion in planted hectarage under maize and other rain-fed food crops [See Kenya (1994: 123)1, In the case of wheat, consumption still outstrips production thus necessitating importation, Rice (paddy) has fared pretty well during the period under investigation, particularly in the case of Tanzania.
17
Table 2.1
Instability in Cereal Produdion' in Kenya, Uganda and Tanzania: (1975-1992) Cereal/Conntry Production Share Coefficient of Variation (in %) Maize
Kenya 0.47 18.65
Uganda 0.13 22.87
Tanzania 0.40 23.33
Sub· region Total 1.00
-
.Wheat
Kenya 0.70 20.50
Uganda 0.04 33.65
Tanzania 0.26 18.25
Sub-region Total 1.00
- -
Rice
Kenya 0.11 20.50
Uganda 0.05 57.63
Tanzania 0.84 40.92
Sub-region Total , 1.00
- -
Millet/Sorghum
Kenya 0.13 47.99
Uganda 0.34 20.00
Tanzania 0.53 26.53
, Sub-region T oral 1.00
- .
Total Cereals
Kenya 0.35 15.91
Ugaoda 0.14 18.46
Tanzania 0.51 18.46
" Sub-region TaraI' 1.00 . -
Notes: *) All production data on cereals relate to crops harvested for dry grain only. Cereal crops harvested for hay or harvested green for food. feed or silage or used for grazing are therefore exclUded.
Total cereals includes otber cereals such as oats, barley, coarse grains, etc. **) The term "sul1-region total" here implies only those countries shown in the Table above. We shall follow suit for all the subsequent tables in the study.
Sources: Author's calculations based on AGROSTAT data, Food Balance Sheets, Statistics Division.
Rome, Italy., FAO/UN:, Production Yearbook. (Various Issues), and EIU:. Country Profile. (Various Issues).
•
,
Variability in food consumption is, to a large extent, caused by variability in household income. Other things being equal, variability in farm income is a function of variability in agricultural production and prices. On the other hand, variability in production of individual agricultural products is largely determined by adverse wea,ther conditions and is beyond policy control. Nonetheless instability can partly be reduced by appropriately adjusting the production patterns. Indiv.idual crops are affected differently by weather conditions, and there may be negative covariances in fluctuations of individual crops. Product price differentials may also serve as a good indicator of the variability in the value of agricultural production and, hence. affect the production patterns.
The result of the calculations of the selected agricultural product ratios are presented in Table 2.3. First, the~ indicate that the variability in producer price ratios are considerable among products. The obvious drawback of these ratios is that they cannot distinguish the impact of subsidies and the effect of other factors which may bear on the price of a particular commodity or commodity group. Notwithstanding these shortcomings. the ratios provide us with preliminary understanding of the issue at hand.
As stated above, since maize is the main staple food in the countries under investigation, we have used maize price as a baseline to compute all the price ratios of the products. Kenya seem to provide significant higher incentives to producers of coffee and tea than in the cases of Uganda and Tanzania. Nonetheless, caution is warranted in this regard since the ratios for Kenyan coffee and tea are for the processed products while in the cases of Uganda and Tanzania the ratios are for the unprocessed products.
The ratios for wheat in all the countries present interesting scenarios. There seem to have been a relatively greater incentive in the production of maize than wheat during the period under investigation. This is because the ratios for wheat have successively fallen between 1980/82 and 1992.
