Creating scarcity from abundance: Bumper harvests, high prices, and the role of state interventions in Zambian maize markets

Abstract

In 2012/13 Zambia experienced a significant spike in maize meal prices, which coincided with three consecutive years (2010 - 2012) of record maize surpluses. This seemingly paradoxical price spike occurred in the wake of a dramatic escalation of the Government’s Food Reserve Agency (FRA) interventions in the market, with the FRA purchasing approximately 80% of the available surplus during these surplus production years. Using a case study approach, this article explores Zambia’s maize price spikes amidst years of bumper harvests. The study findings reveal that maize procurement and marketing behavior of the Government through the FRA contributed to major structural changes to the maize market: (1) A withdrawal from the market by commercial mills. By purchasing majority of the maize on the market, the FRA limited the need for commercial mills to access maize directly from the market. This reduced competition in the wholesaling sector and concentrated maize supply chain around the FRA; (2) Rationing of the FRA maize sold at subsidized prices to commercial mills. The FRA depots were unable to consistently meet the demand requirements of the commercial milling sector and as a result, some mills were prioritized in terms of receiving FRA maize. Mills that could not consistently access subsidized maize from the FRA were put at a comparative disadvantage; (3) Exit of the commercial farming sector from maize production. Between 2010 and 2013 commercial maize production in Zambia halved, from 300,000 to less than 150,000 metric tonnes. This was due to the price uncertainty created by FRA subsidies to commercial mills, which are the traditional markets for commercial farmers, as well as significant increase in smallholder production; and (4) Squeezing the informal processing sector out of the market. By procuring the majority of the available surplus and selling it at subsidized rates to a selected group of commercial mills, the informal market, including small-scale traders, retailers, and hammer mills, were limited in their ability to participate in the market. This in turn undermined the market channel most often used by poorer urban and rural households. These structural changes in the organization of Zambia’s maize market led to a decline in available maize supplies and reduced levels of private-sector competition making the market vulnerable to unanticipated demand shocks.

Keywords: Maize, price spikes, bumper harvests, subsidies, markets, traders, agriculture, Zambia