IMPACT OF REGULATORY AND OTHER PUBLIC
POLICIES ON COMPETITION IN THE ‘STAPLE
FOOD’ SECTOR: EMERGING FINDINGS
FROM THE CUTS-CREW PROJECT IN FOUR
CONTRIES
Presentation
by
R. S. (Shyam) Khemani
Principal, MiCRA, Washington DC, USA
and
Consultant-Advisor, CUTS Jaipur/New Delhi,
India
Email contact:
rskhemani@aol.com
Topics To Be Covered
1. Role and Importance of Competition
2. Constraints to Competition: Public Policy &
Private Business Restraints
3. Inter-face Between Economic Regulation &
Competition Policies: Promoting Effective
Competition
4. CREW Project: Sectors/Countries
5. Emerging Findings
6. Concluding Messages
Why Competition & Competition
Policy Matter
• Why are we interested in competition?
‘Competition is absolutely essential at every stage of
economic development’ (Robert Solow, Commission
on Growth and Development, May 2008)
• Role for Competition Policy
‘
Strong competition policy is not just a luxury to be
enjoyed by rich countries, but a real necessity for
those striving to create democratic market
economies’ (Joseph Stiglitz, Nobel Prize Winner,
August 2001)
COMPETITIVE
PROCESS
AUTOMATIC
NEEDS
To
Safeguarded and Sustained
NOT
Be:
 Competition can be distorted by public
policies and restrictive business practices.
 Public policy often manipulated by
interest groups source of/entrench
anticompetitive business practices and
policies
 Results in higher prices, lower/inefficient
output, reduced choice and adversely
affects consumer (and producer) welfare,
investment……..
 Adversely impacts especially on the
Major Source of Distortions
“The ‘really big’ distortions to competition are
in poor countries”
Distortions to competition are not always
obvious: “they have to
be dug out of each market”; “they are hard to
find…(and)
significant forces gain from their existence”
(William Lewis, The Power of Productivity, 2004)
Why Sector Specific Competition
Assessments?
 Distinction between Systemic vs.
Industry/Sector/Case Specific Impact
 Regulatory reforms such as
reducing/eliminating Tariffs & Non-Tariff Barriers
to Trade; Restrictions on Ownership-Investment
 Generally Systemic Impact.
 Enforcing Competition Law--case by case
application  Firm/Industry/Sector Impact.
 Complementary  Buttress each other
Especially Competition Advocacy
Competition Law-Policy & Economic
Regulation
 Competition Law & Policy and Economic
Regulation—Complementary or Antithetical?
 Both deal with ‘Market Failures’
 Effective ‘Competition Advocacy’ can foster
greater policy coherency and consistency
 Focus on measures-indicators that matter:
Prices, Output, Choice, Access to vital
products/critical inputs, Consumer and Producer
Welfare….
 Focus on policies-regulations least interfere
with markets
CREW: Competition Reforms in Key
Markets for Enhancing Social-Economic
Welfare Project
 Focus on Two ‘Key Sectors’ Across Four
Countries
 Sectors: (i)Passenger Bus Transportation and
(ii) Staple Foods
 Countries: Ghana (Maize), India (Wheat),
Philippines (Rice) and Zambia (Maize)
Research Approach: Desk and Field Research
(including interviews), ‘Perception’ Surveys……
KEY OBJECTIVES OF CREW-KEY
SECTOR COMPETITION DIAGNOSTIC
COUNTRY REPORTS(DCR)
 Analyze & evaluate existing sector specific
regulatory & economic policies in terms of
impact on competition, social and economic
welfare
 Identify gaps/distortions/areas where benefits of
competition can be strengthened and improved
 Build broad based support/informed discussion
for increased competition benefits through
regulatory-economic policy reforms
 Recommend & chart appropriate course of
action; monitor, evaluate and report outcomes
Overall Findings Across Countries
 Governments have intervened in varying but
using broadly similar policy instruments
 Different roles by government  dominance to
increased/higher participation by private sector
 Similar objectives: food security, increase
production towards self-sufficiency,
stabilize/reduce market fluctuations, provide
price support to farmers…..
 Instruments: Subsidies for critical
inputs/consumption, government as purchasertrader-distributor, import restrictions
 Mixed outcomes  distortions < potential
EMERGING FINDINGS--INDIA
 Wheat: Farm Gate to Marketing: Bihar &
Rajasthan. Average annual consumption 53Kg
per capita
 Supply chain analysis: India-Typically 9
Intermediaries; US 2-3 Intermediaries
 Long supply chain  Increased costs: Mark-ups
India 135% vs. US 9% Wastage: India 8-10%
 Critical inputs: Fertilizer & Seed
 Government dominance-subsidization in
Fertilizer: Distortionary effects
EMERGING FINDINGS—INDIA—Contd.
 Fertilizer Subsidization  Non-optimal usage;
productivity stagnant; adverse impact on
investment and production  Import
dependence
 Seed: Liberalization; Entry  Hybrid seeds (high
profits); small farmers  reliance on own crops
 Between 1966-2005: 19
Laws/Amendments/Regulatory-Economic Policy
changes…..re: seed  uncertainty
 While Barriers to Entry lowered, Low inter-firm
competition : Benefits to skewed towards large
farmers
EMERGING FINDINGS—INDIA—Contd.
 Marketing-Procurement-WarehousingDistribution: various policies & public sector
Institutions
 Objectives: Provide price support & Reduce
Price Fluctuations & Increased Food Security
 Agricultural Products Marketing Committee
(APMC)  Foster Investment….
 Agricultural Pricing Policy (APP) Price Support
 Food Corporation of India (FCI) Warehousing
 Public Distribution System (PDS) Distribution
Outlets….
Emerging Recommendations--India
 Agricultural policies primarily State Government
level  wide variation in outcomes  point to
need for policy harmonization, re-vamping,
improved implementation.
 Production: Fertilizer  Concerted action to
improve ‘enabling environment’  Removal of
price controls over inputs (natural gas) & outputs
(urea): low-prices  low public & private
investment….
 Production: Seed  liberalization  private
entry, vibrant competition BUT public sector
focused on main seeds, private sector on
hybrids  higher profits
Emerging Recommendations—India—
Contd.
PPP Bihar highly successful  similar
approach need to be
disseminated/adopted in Rajasthan &
beyond…
Marketing: APMC—Divergent experiences
Rajasthan  contract farming, direct
marketing low private participation
 Bihar repealed APMC no regulatory
oversight  no improved competition, low
public and private investment…..point to
need for multi-pronged, harmonized multi-
Emerging Recommendations—India—
Contd.
Marketing: APP: Procurement extensively
bu public sector agencies  limited
presence in rural areas  MSP benefits
larger farmers  small farmers confront
market access problems
Distortions: Stock piling-surplus > required
quantity  increase in wholesale & retail
prices
Need to promote private participation,
increased cross-agency competition, entry
through ‘bidding’ for marketing rights….
Emerging Recommendations—India—
Contd.
Warehousing: Overall private participation
low 17% national capacity.
Unattractive: Require comprehensive
reforms re: availability of land, credit and
taxation….
Distribution: Targeted Public Distribution
System (TDPS)  performanceimplementation issues leakages to
wrong beneficiaries, pilferage, financial
non-viability….
Fair price shops policy  local monopolies
Emerging Recommendations—India—
Contd.
India ‘staple food’ situation indicative of
extensive distortions induced by plethora
of cumulated ill-designed and poorly
implemented policies and regulations
coupled
with
heavily
bureaucratic
procedures and inept public sector
participation that has failed to levarage
competition
and
private
sector
participation.
Requires massive over-haul.
EMERGING FINDINGS—Philippines
 Rice: Paddy field to retail marketing: Metro
Manila & Central Luzon. Average annual per
capita consumption 114 Kg
 Supply chain analysis: Significant competition at
each stage. Mark-ups low 2-5% at different
levels
 Entry easy, licensing, registration etc. do not
pose major barriers
 National Food Authority (NFA) interventionist
regulator with wide-ranging powers
 Monopoly over imports
EMERGING FINDINGS--PhilippinesContd.
 Many marginal producers & traders
Domestic production & yields
increased<consumption  rice imported
As trader NFA does not significantly,
directly influences prices BUT
As monopoly importer  insufficient
competition at import level
Domestic prices>International prices
EMERGING FINDINGS--PhilippinesContd.
 Import liberalization  10 fold increase in
imports (Good or Bad? Food security, adverse
impact on small farmers….)
 WTO ascension  trade liberalization measures
adopted –rice sector: special treatment
 Rice prices would decrease 6-7%; Aggregate
consumer surplus would increase > reduction in
producer surplus  Net benefit to economy
Key Recommendation: Rice: Philippines
Government needs to reconsider its rice
import policy re: quotas and tariffs.
Reduce/eliminate import quotas, increase
private sector participation in imports
Move towards full WTO agreement/trade
liberalization re: rice
Emerging Findings--Ghana
 Maize: Per capita consumption 44 Kg per
annum; Preferred food staple, however 4th
largest crop (value terms)
 Focus on Brong Ahafo and Ashanti Regions—
among primary maize producers
 Cultivation mainly by small resource poor rainfed farmers (2 million)
 85% supply consumption (white maize), 15% for
poultry and other uses (yellow maize-mainly
imports)
 Gradual increase in production/yield < potential
Emerging Findings—Ghana—Contd.
 Until 1990s lack of comprehensive policy
framework  Adoption of pro-market-private
sector reforms including agriculture: Medium
Term Agricultural Development Program
(MTADP)  pricing-supply liberalization of seed
& fertilizer
 Various other policies-institutions re: agricultural
diversification, sector adjustment credits, price
stabilization, supply of critical inputs, R&Dproductivity programs, food security among
others.
Emerging Findings—Ghana—Contd.
 Creation of: National Food Buffer Stock Co
(NAFCO)
--Introduction of block farm program-increase
mechanization
--Subsidies  fertilizer and seeds
--Purchase surplus/store…..
--Determine minimum guaranteed price…
--Licensed Buying Co (LBC) net work…
 21% Agriculture Sector Budget  subsidies
(2008)
 Fertilizer not domestically produced  reliance
on imports
Emerging Findings—Ghana—Contd.
 Wide range of options-sources for seed, fertilizer
 mainly skewed to district capitals
 Marketing-distribution: segmented, unorganized,
sales through middlemen and/or purchases by
‘market queens’
 High degree of rivalry/competition
 Capital requirements pose as barriers 75%
farmers rely on self financing, access to
financing an issue
 General awareness of fertilizer subsidy program
 However, opacity in NAFCO price determination
Key Recommendations--Ghana
 Government needs to facilitate distribution of
subsidized fertilizer, expand low interest credit
financing to farmers especially in rural areas
 Improve infrastructure (transport-warehousing)
to increase market access
 70% farmers without access to warehouse
storage, 50% farmers indicate problems re:
availability of seed
Key Recommendations—Ghana--Contd
 Increase communications/awareness of various
support policies, especially determination of
minimum guaranteed prices—84% unaware of
government support price, 89% how its
established
 Engage with NGO’s, civil society, other publicprivate sector entities to achieve these goals
Emerging Findings--Zambia
 Maize primary food: avaerage per capita
consumption 120Kgs
 Production primary by small farm holders
 History of government intervention in supply,
distribution, pricing with haphazard policy
implementation  distortions  continue to
persist
 1971-1988 average subsidy 70% price of maize,
20% total government spending
 1990s embarked on structural adjustment, promarket/private sector oriented policies
Emerging Findings—Zambia—Contd.
 Farmer Input Support Program (FISP) primarily
fertilizer
 Food Reserve Agency (FRA) sets minimum
prices, purchases-stock pile surplus, targeted
distribution for poverty reduction….
 Fertilizer not produced domestically imported
 13 importers—while rivalry, government
dominance thru’ FISP two major companies
found colluding-market allocation prosecuted
under Zambia Competition & Consumer
Protection (ZCCP) Law by Zambia Competition
Commission
Emerging Findings—Zambia—Contd.
 Under FISP, government dominant importer of
fertilizer (66-80%) sets prices, subsidy level,
allocates supply thru’ bidding, allegations of
irregularities dominated by two companies,
found violating ZCCP law
 Nitrogen Company of Zambia (NCZ), a SOE,
inefficient, allocated imported fertilizer for
blending crowding out private participation…
 FRA dominant purchaser of maize (26-86%),
with purchase price> free market
equilibriumcrowds out private firms, stifling
competition
Emerging Findings--Zambia
 30-40 Millers  significant competition tho’ new
entrants face BTEs in form of capital
requirements, economies of scale, market
fluctuations, excess capacity…..
 Traders  dominated by 4 major companies
w/40%+ market shares, potential exercise of
market power
 Different views re: subsidies and impact on
production (skewed towards larger farmers),
prices (lead to higher costs, prices)…
 Overall policies viewed to reduce competition,
increased business uncertainty, adverse effects
on investment…
Emerging Recommendations--Zambia
 Emerging findings suggest unfinished agenda
re: agricultural policy framework, especially for
maize
 Need to re-vise/re-vamp subsidy programs and
role and functioning of government entities e.g.
NCZ, FISP, FRA in markets
 Address allegations re: irregularities in bidding
processes, distribution of critical inputs to rural
areas, determination of minimum support
prices…..
Concluding Remarks
 Draft DCRs represent ‘work-in-progress’
 Different countries have adopted similar
approaches re: provision of critical inputs,
minimum support prices, creating government
agencies to purchase and stock-pile supplies,
stabilize prices and other objectives such as
security and availability of staple foods
 Differences in policies/regulations also exist with
different outcomes
 History of past government interventions and
some existing policies-regulations persist in
distorting markets
Concluding Remarks—Contd.
 In all 4 countries, role of private sector and procompetition/pro-market measures have been
‘ham-strung’
 Point to un-tapped opportunities for increasing
affordability, competitive supply and access to
staple foods and poverty alleviation
 A course of formulating and advocating
alternative policy approaches and possible
actions is required The Next Step in the DCRs
Thank You