12.1 Introduction

One of the most contentious policy debates in Africa concerns how domestic, regional and international agricultural markets should be organized. Most African governments initiated programmes of agricultural market liberalization in the 1980s as part of economic structural adjustment programmes. Yet many remain unconvinced of the most fundamental elements of the process. Some governments openly contend that agricultural market liberalization has contributed to the crisis facing small farm households across the continent, that private sector response and international trade has been too slow and too weak to spur development, and that the state should get back into direct distribution of strategic inputs and/or commodities and restrict regional and international trade to achieve food security.

The academic literature on agricultural market reform in Africa also ranks among the most divided within the field of economic development. While some scholars find that market reform and trade liberalization has generally supported agricultural growth and food security, a growing literature has explained the poor record of reform in terms of inadequate attention to the institutional foundations of markets and poor infrastructure, all of which lead to impeding growth. This literature has reinforced the common lay perspective that policy reform and trade liberalization has been a false promise.

An alternative view examined in this chapter is that agricultural market and trade liberalization has not actually been implemented, and hence its effects cannot be measured. Although the UNCTAD 2002 [193] report shows that LDCs are moving in this direction, implementation is rather selective and not complete. It is the countries in which liberalization has been most severely criticized, such as the former settler maize economies of eastern and southern Africa, where reform has been largely de jure rather than de facto. While it is difficult to control for all relevant factors, some evidence indicates that countries currently implementing agricultural market and trade reforms are performing no worse in developing their agriculture sector and improving food security, and in some cases clearly better than those implementing only de jure liberalization. Perceptions that African countries with increasing export orientation have had a stagnant per capita GDP and have not experienced a reduction in the incidence of poverty are based on a false premise and suffer severe measurement problems.

It is unlikely that market reforms will have the same impact in a country with open trade as in one where trade is still restricted. Trade liberalization is associated with faster economic growth when accompanied by comprehensive domestic macroeconomic reforms. There is a perception among some countries that regional trade liberalization policies have failed. There is no doubt opening up Africa to global trade integration will present domestic challenges in the form of fiscal pressures and short term adjustment costs [194]. Reversing these policies would be an act of bad faith and would take away the little confidence domestic and international private firms have in the policy environment. Instead, states need to continue with the process of regional economic liberalization to achieve the much needed economic integration of Africa. It is debatable whether African countries should continue with the process of multilateral economic liberalization in the face of continued agricultural support measures by OECD countries.

Trade liberalization in Africa has not been reciprocated in terms of better access to markets of African producers and manufacturers in industrial countries. Massive subsidies afforded to agricultural producers in some developed countries and other forms of protection have hindered Africa’s efforts to upgrade capacities and alleviate poverty. Increasing agricultural exports in the context of oversupply and correlative lower prices in world markets is not rewarding for African countries. African countries have drawn insignificant benefits from their participation in the international trading system. Agricultural support measures employed by developed countries need to be reviewed and simultaneously, provisions for preferential and differential treatment should be extended to African exports. For example, if tariff escalation is dismantled, there will be no duty or quantitative restrictions for imports of raw tropical products. Mobilizing the political support for constructive market reform will require seriously confronting the incentive dilemmas not only within African governments, but also within those of developed countries.

The first part of this section will discuss the extent to which domestic, regional and international reforms have been implemented. The following part discusses the preliminary or potential impacts of these reforms in Africa, and the final part identifies some of the challenges of reforming markets at domestic, regional and international levels.

12.2 Agricultural trade and market reforms in Africa

African countries are at different stages of reforming their domestic, intraregional and extra-regional agricultural markets. Governments have been successful at reforming less sensitive commodity markets but have been slow at reforming the more sensitive ones. Several regional Free Trade Areas (FTAs) have been established in Africa but extra-regional agricultural trade is still restricted. It is expected that building preferential conditions for expanded intraregional marketing will take place prior to the lowering of trade barriers between regional trade groups and with the rest of the world.

Domestic market reforms

In Africa, the conflicting goals of maintaining food prices that are profitable for producers but affordable to consumers have been pursued through controlled marketing systems. Subsidies have been used to raise prices artificially for producers and lower them for consumers. SSA farmers need to be helped to invest, especially when they are facing agricultural prices below their production costs, but agricultural subsidies became fiscally unsustainable and led to domestic cereal market reforms in several African countries in the 1980s and 1990s. Management of this fiscal problem is often construed as misplaced antagonism to agricultural subsidies in SSA, given their use at incommensurably higher levels in industrialized countries. Domestic reforms in SSA meant modifying state interventions and policies to reduce marketing costs and reduce government budget costs. The core policy changes that African countries have been implementing include:

removal of barriers to private sector involvement (e.g. licensing; movement controls on inputs and outputs);

deregulation of consumer and producer prices;

elimination of taxes and subsidies (implicit and explicit);

privatization of state marketing or processing enterprises;

abolition of official monopolies (and agents of the state) and the opening of trade to competition.

A broad assessment of the agricultural reform in Africa shows three basic patterns.

First, some governments have implemented a committed programme of market reform. Examples in eastern and southern Africa would arguably include maize and fertilizer marketing in Mozambique and Uganda. Mali and Ghana are two other countries commonly cited for their relatively steady adherence to cereal market reforms [195]. This category would also include countries where reforms may have been temporarily reversed but over time have moved to a fundamentally market-oriented system (e.g. the United Republic of Tanzania’s food markets). It is important to note that these cases are neither success stories nor failures when measures such as growth in GDP per capita and incidence of poverty are employed. On the other hand, the adherence to market reforms, for example, in cereal markets, has improved household food security.

A second path includes countries that have openly resisted reform or reimposed controls after some experimentation with reform. This category is characterized by transparent resistance to liberalization (e.g. maize in Zimbabwe after 1998).

The third form involves de jure liberalization and de facto state control of marketing, where the state maintains control while ostensibly implementing liberalization. The fertilizer markets in Zambia and Ethiopia and coffee market in Malawi also exemplify this category [196]. It is difficult to argue that countries which have followed this path have succeeded or failed to reduce the incidence of poverty but it is clear that private sector-led agricultural development has been severely stifled.

A close examination of countries in southern Africa reveals that many of the most fundamental elements of the reform process either remain unimplemented or were reversed within several years.

Zimbabwe

Price controls on maize meal were reimposed in 1998, five years after the Government eliminated them under a 1993 World Bank/IMF structural adjustment loan programme. The Grain Marketing Board (GMB) has remained the dominant buyer of grain throughout the reform process [197]. This Board has reverted back to a two-tiered maize pricing structure, selling maize at a lower price to large-scale milling firms than it does to other buyers. The GMB has also remained the sole legal exporter and importer of maize, and continues to offer pan-territorial and pan-seasonal maize prices as it did prior to the reform programme. While this policy environment has provided niches for new entry and investment at certain stages of the maize supply chain, notably in assembly, local milling and retailing, it continues to impede private investment at other key stages. It has been argued [198] that policies that favour communities in remote rural areas can be used as part of the poverty reduction strategy, but that these should not impede sustainable economic development of other regions. Poverty reduction policies that improve conditions for private sector investment in these regions will assist in extending the benefits of market reforms to outlying areas.

Zambia

The former state maize marketing board, NAMBOARD, was abolished in 1989 but since 1992, the government has designated various parastatal or private companies to distribute fertilizer on its behalf. The Food Reserve Agency, formed in 1995 and initially intended to play a limited role of holding maize buffer stocks, became the country’s largest distributor of fertilizer in 1997 and 1998. In 1999 with donors increasingly calling for the government withdrawal from fertilizer distribution, the Government responded by contracting private companies as logistical agents to distribute fertilizer to recipients designated by the Ministry of Agriculture. The designated agents received a flat fee for every tonne distributed. When state enterprises work hand-in-glove with selected agents, commodity market liberalization is incomplete. These government fertilizer programmes have continued distribution at subsidized prices, with repayment rates generally under 40 percent, undercutting private firms’ ability to distribute fertilizer at commercial prices [199]. After almost a decade of aid-conditionality agreements with the World Bank, new entry of commercial fertilizer firms has been limited due to the uncertainties associated with government distribution programmes.

Ethiopia

As part of aid-conditionality agreements, the Ethiopian government has curtailed the operations of its official state marketing board. However, in 1995 it permitted the creation of regional holding companies which enjoy near-monopoly rights for the distribution of fertilizer in their respective regions. Two large private companies have been forced to reduce significantly their level of participation in the fertilizer market because regional governments have been actively promoting the holding companies while simultaneously raising barriers to private sector companies.

Kenya

Aid-conditionality agreements pertaining to maize market reform commenced in the late 1980s with the Agricultural Sector Adjustment Operation of the World Bank and the Cereal Sector Reform Programme of the (EU). The reform process has been marked by increased political interference in the decisions of key cooperative and joint-venture marketing organizations [200]. Rent-seeking arrangements that created resistance to reform in the early stages of the process have been re-established within the evolving “market-oriented” institutions that have developed since liberalization, a phenomenon that has been observed more widely in other countries [201]. In the maize sector, the state-owned marketing board has continued to support maize prices in certain areas [202]. Maize import tariffs, marketing board price supports, and relatively high transport costs have combined to make maize prices in Kenya among the highest in the world, particularly among countries where maize is a staple crop [203] .

These examples show that many policy barriers continue to inhibit the development of competitive input and commodity markets. There may be legitimate objectives underlying the government actions creating these policy barriers, but it would be inappropriate to evaluate the effects of private sector response to liberalization in such environments. These cases illustrate how de jure market reform can be implemented in such a way as to maintain de facto control over the system. In such cases, the market reform process clearly proceeded in a manner that was unintended by its advocates. Even though farmers in SSA compose the majority of the population, evidence is presented later to show that a smaller portion of these farmers participate in the market as net sellers while the majority are net buyers of food from the market. In these circumstances, price supports to farmers will raise prices for staple food and could render net food buyers insecure.

Intraregional trade liberalization

The liberalization of domestic markets in Africa is taking place at a time when there is increasing renewal or creation of a number of regional trade arrangements. Countries in SSA share common colonial histories and characteristics, especially administrative and legal institutions. An increasing number of countries are coming together to forge stronger trading links among themselves. These trading blocs tend to allow for free movement of factors of agricultural production, agricultural commodities and services. Intra-Africa trade could prove to be a key avenue for achieving sustainable development of economies and preparing for competition and globalization. Increased regional integration in trade and investment is expected to lead to an expansion in the agricultural sectors of exporting countries and an overall improvement in the region’s competitiveness.

Under regional trade liberalization programmes, the core policy changes involve:

eliminating procedural barriers to free trade e.g. import licences;

eliminating tariff and non-tariff barriers for intra-region trade;

avoiding recourse to import bans and export prohibitions;