International Development CommitteeWritten evidence submitted by Jonathan Coulter

THE ZAMBIAN FOOD GRAINS DEBACLE

HOW MUCH RESPONSIBILITY SHOULD DONORS BEAR?

1. I am submitting this note in response to the International Development Committee’s “call for evidence” on Zambia of 21 February 2012, as I wish to comment on a serious problem that has occurred in the food grains area.

2. Zambia along with some other countries of Eastern and Southern Africa is largely dependent on a single crop maize, the production and marketing of which has been heavily supported by Governments since Independence. Not surprisingly maize policy and pricing has been a very sensitive political issue, and immensely important to the standing of Governments on both the producer and consumer side.

3. In the years leading up to the 2011 elections, Government of Zambia (GoZ) spent massively on subsidies for this crop, including a very generous Farmer Input Support Programme (FISP) input and purchasing (through the Food Reserve Agency—FRA) at prices far superior to local market prices, and way above “export parity” prices (what it could hope to sell the same product on regional and international markets). The consequence of these policies was that FRA accumulated large unsold food stocks, much of which it had to store outdoors and was subject to deterioration and, which due to the country’s underdeveloped transport logistics, was difficult to shift to export markets.

4. I have yet to see an estimate of Zambia’s overall financial losses resulting from these policies, but some idea can be gleaned from the following:

According to a recent report by FAO,1 FRA is having to sell the stock at about $200 below cost price; if one applies this to total purchase of 1,745,000 tonnes of maize in 2011, one gets a total loss of $350 million. The same report estimates that the total costs of the FRA operation during 2011 alone are above $350 million representing over 8% of the 2011 GRZ budget.

The same report indicates that there are high physical losses, ie grain which may need to be written off due to poor storage conditions, and suggests that such losses may be as high as 30–50% of last year’s crop. According to another source I consulted in February 2012, FRA had 1.5 million tonnes of maize, of which only 700,000 tonnes was currently fit for human consumption. The cost of writing off 800,000 tonnes of maize worth $150 per tonne would be about $120 million.

To this one needs to add the cost of FISP which has been supplying farmers with between 46,000 and 84,000 tonnes of heavily subsidised fertiliser per year, building up large unmarketable grain surpluses.

5. These figures suggest that the total financial losses of these policies is likely to be well in excess of $500 million, which is large in relation to DFID’s annual bilateral aid programme of £55 million. Apart from the immediate financial cost, there is a longer term cost, as these policies have distorted private sector development in the agricultural sector. The constant subsidisation of a single low-value crop results in misallocation of resources, discouraging diversification to crops that might have better market prospects, eg soybeans. Government subsidisation has crowded private sector players out of input and output markets, and discouraged them from investing in storage and handling. Resources invested in maize subsidies might have been devoted to sorting out Zambia’s logistical constraints, making it easier to move surpluses in and out of the country.

6. But does DFID have any responsibility in this matter? I understand that under the last Government DFID was not supporting any directly relevant projects, so the appropriate answer to this question is “not directly”. Lately DFID has got very active in this area, seeking to engage with GOZ to restructure FRA activities, but it is doing this after the harmful policies have taken effect.

7. At a more indirect level, DFID’s past policies may have contributed to the problem. Along with other donors, DFID and other donors have been involved in budget support, which is largely fungible, and seems to be correlated with the resurgence of GOZ’s marketing board and input subsidy operations.

8. There is also a question as to whether DFID (along with other donors and multilateral institutions) could have done something to restrain the former GoZ in the first place. It may be argued that when the Government of an aid-dependent country implements policies that grossly damage the local economy, aid donors should come together and collectively express a view about and if necessary exert to pressure to get the policies rectified. I am not aware that the donor community (including the UN) took significant action. By providing aid with few strings, do we not share responsibility in the former GoZ’s immensely damaging and costly political grandstanding?

9. Anyone who has worked in the development business will know that in cases of this kind, aid donors are normally very reluctant to blow the whistle or exert pressures on host Governments. There are always good reasons to keep on doing more of the same; there is pressure to spend budgets and it is very awkward to hold up the flow of resources to Government departments and projects, particularly those that are not related to the problem in question. There may also be geopolitical considerations or donor-country business interests at stake. However this raises the question as to whether donor countries have been acting in a responsible manner or simply “taking the path of least resistance”.

10. I do not live in Zambia, or pretend to have the last word on this matter. However, I think Parliamentarians need to investigate and debate the Zambian food-grain crisis, and its broader implications for British aid policy—including the support is provides through multilateral agencies and the UN. At the present point of time, DFID seems to be playing a very positive role by engaging GoZ in policy discussion, but the lessons of the past need to be durably factored into future policies.

Jonathan Coulter
Specialist in agricultural marketing & post-harvest economics

6 April 2012

1 Kalinda, T., Stubbs, I. and Van de Ven, F. (2012) A Brief Assessment of the Agricultural Market and Trade Environment in Zambia – an Indicative Action Plan for Agricultural Market Reform. Report by the FAO Representation in Zambia to the Ministry of Agriculture and Livestock Government of the Republic of Zambia.

Prepared 5th September 2012