Mulungu & Ng'ombe Consultants
REVIEW OF LITERATURE ON
SELECTED POLICIES
(SECONDARY NOTE)
Mulungu and Ng’ombe
2016-07-16
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Competition Reforms
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Competition policy can have a wide meaning
attached to it
It can formally be defined as any policy that aims
at ensuring that competition in the marketplace is
not restricted in a way that is detrimental to society
For the success of the economy, competition and
consumer protection policies are pre-requisites with
each being a compliment to the other and in
tandem enhancing economic efficiency, offering
consumers more choice and quality
Mulungu & Ng'ombe Consultants
2016-07-16
Competition Reforms
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“Competition in agriculture might be of heightened
concern because the sector produces essential
products purchased by all consumers, including the
poor who are disproportionately affected by
anticompetitive activities” (AgCLIR, 2010)
The effects of competition enhancing reforms are
more likely to have major effects, considering 50
percent of the rural farmers in Zambia are net
buyers of maize
Mulungu & Ng'ombe Consultants
2016-07-16
Competition Reforms
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1.
2.
3.
Three reforms were chosen:
Farmer Input Support Programme
Food Reserve Act
Removal of subsidies on millers
Mulungu & Ng'ombe Consultants
2016-07-16
Competition Reforms
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To these reforms, the following aspects that impact
on welfare are being looked at;
 Price
 Productivity
 Access
 Quality
 Cost
and
 Growth
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Hypotheses are drawn around each of these
aspects
Mulungu & Ng'ombe Consultants
2016-07-16
FRA Act- Summary of Studies
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FRA prices are not
very different from the
prices that are
simulated using
historical data- except
for the first year of
operation by FRA1996/97
Mulungu & Ng'ombe Consultants
2016-07-16
FRA Act- Summary of Studies
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In some instances, the
FRA prices raised
market prices e.g.
between July 2003 and
December 2008, the
FRA’s activities were
estimated to have
raised mean maize
market prices by 19%
in Choma and 17% in
Lusaka (Mason and
Mulungu & Ng'ombe Consultants
Myers, 2011)
2016-07-16
FRA Act- Summary of Studies
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Between July 2003 and December 2008, the FRA’s
activities were estimated to have raised mean
maize market prices by 19% in Choma and 17% in
Lusaka (Mason and Myers, 2011)
The increase in price is beneficial to the net maize
sellers, which only comprise about 28 percent of all
farming households – which further implies
distributional effects
Mulungu & Ng'ombe Consultants
2016-07-16
FRA Act- Summary of Studies
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Therefore, to the extent that they raise average
maize market prices in Zambia, the FRA’s policies
are regressive: higher maize prices harm urban
consumers and a large proportion of rural
households, and help large-scale farmers and a
small number of relatively better off smallholders
Mulungu & Ng'ombe Consultants
2016-07-16
FRA Act- Summary of Studies
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FRA maize buying activity had a positive effect on
wholesale price variance- on average it reduced
the variance as measured by the standard
deviation by 13.5 percent
Studies have indicated that the benefits of price
stabilization accrue more to the better off farmers
than to the poor farmers.
Mulungu & Ng'ombe Consultants
2016-07-16
FRA Act- Summary of Studies
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Chapoto and Jayne (2009) in their study on the
effect of FRA marketing and floor pricing on price
unpredictability show that FRA purchases appear to
have no significant impact on next month’s market
prices
Government actions influence the incentives for
private players to store maize and sell when the
price has gone up in the dry hunger season
Mulungu & Ng'ombe Consultants
2016-07-16
FRA Act- Summary of Studies
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Even though the maize floor pricing by FRA is meant
to be a poverty reduction measure and ensure small
scale farmers have access to market at good prices,
the percentage of small scale farmers that sell
maize to FRA is so small and it is usually by male
headed better-off households. For example in
2003/04, only 1 percent of the smallholder
farmers sold maize to FRA while in 2007/08 this
figure increased to 10 percent
Mulungu & Ng'ombe Consultants
2016-07-16
Subsidy for Inputs (FISP)
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A study by Xu et al (2009) in Zambia showed that
in areas with low private sector activities, subsidy
programs tend to demonstrate the desired effect on
private sector development
The study found that a one-unit increase in subsidy
distribution will increase total fertilizer use by more
than 1 kg/hh. In other words, the private sector will
be crowded in by either increases in effective
demand or reduction in average fixed costs
Mulungu & Ng'ombe Consultants
2016-07-16
Subsidy for Inputs (FISP)
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However, in most areas the private sector is
crowded out
Ricker-Gilbert et al. (2011) estimates that between
2003 and 2007 in Malawi, one kilogram of
subsidized fertilizer crowded out 0.22 kg of
commercial fertilizer, on average
Crowding out is smaller for the poorest quintile of
the sample, with 0.18 kg displaced, compared to
the wealthiest quintile, with 0.31 kg displaced,
indicating
Mulungu & Ng'ombe Consultants
2016-07-16
Subsidy for Inputs (FISP)
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When leakage is accounted for in the public
distribution channel, the crowding out effect
increases
On productivity, in malawi fertilizer subsidy is linked
to increase in yields of about 600 kg/ha from
1,440 to 2,040 kg/ha for hybrid maize, and from
1,120 to 1,680 kg/ha for local maize from 2006
to 2009
Mulungu & Ng'ombe Consultants
2016-07-16
Subsidy for Inputs (FISP)
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Ricker-Gilbert and Jayne (2011) find that an
additional kilogram of subsidized fertilizer in the
current year boosts maize production on average
by 1.82 kg in that year
Chibwana et al (2011) found that fertilizer subsidy
made farmers allocate more of their land to maize
crop at the expense of other crops raising questions
about sustainability of yields in the long term and
nutrition
Mulungu & Ng'ombe Consultants
2016-07-16
Removal of Subsidies on Millers
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The subsidy by government to millers through selling
maize grain at a subsidized price and transporting
it to the millers depots was accrued by the millers
and not consumers
The mill-to-retail marketing margins had increased
significantly from the level of roughly 900 kwacha
per kg by August to 1,400 kwacha per kg after the
subsidy while the retail prices had remained
constant (Kuteya and Jayne, 2012)
Mulungu & Ng'ombe Consultants
2016-07-16
Subsidies to Millers
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Source: Kuteya and Jayne, 2012
Mulungu & Ng'ombe Consultants
2016-07-16
Removal of Subsidies on Millers
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Very little of the treasury costs incurred in providing
FRA grain to millers at below-market prices
benefited the urban consumers who are the majority
consumers of the mealie-meal from the millers
Subsidy was applied only to a selected few millers
and mostly the informal millers were excluded hence
it did not encourage competition and it would
negatively affect the future competitiveness and
market structure of Zambia’s maize milling industry
Mulungu & Ng'ombe Consultants
2016-07-16
Removal of Subsidies on Millers
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Such activities would over the time, likely to
entrench the market share of the selected millers
having access to subsidized maize supplies, force
non-selected millers out of business, and adversely
affect the degree of competitiveness within the
milling industry
Government continued with this subsidy until May
2013
Mulungu & Ng'ombe Consultants
2016-07-16
Removal of Subsidies on Millers
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A study by IAPRI in 2014 finds that the increase in
mealie-meal prices in December 2013 falls within
the historical bounds
FRA’s subsidized wholesale maize grain, wholesale
maize grain without FRA subsidies and retail
breakfast meal prices were all in their normal
ranges and could be predicted with small and nonsignificant margin error using the historical data
Mulungu & Ng'ombe Consultants
2016-07-16
Removal of Subsidies on Millers
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This means that despite the subsidy being removed
in May, by December 2013, the effect on price had
not yet been witnessed but that the increase in
prices was the normal seasonal increase
Seasonal price increases in 2013 were within their
normal historical bounds in Zambia. The study
concludes that mealie meal real prices in December
were actually lower than in several other years
since 2000
Mulungu & Ng'ombe Consultants
2016-07-16
Primary Surveys
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Primary surveys role are to get the consumer and
producer perceptions as well as interviews with key
informants which data will help to fill in the gaps
that are not answered by literature and secondary
data
So far some preliminary findings have been made
Mulungu & Ng'ombe Consultants
2016-07-16
Preliminary findings- Consumers
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For all the areas where questionnaires were
administered a 25kg bag of mealie meal costs
between K73 – K75
Consumers indicated that the price of mealie meal
has increased significantly since 2012
The quality of mealie meal has not changed over
the years but availability has improved
Mulungu & Ng'ombe Consultants
2016-07-16
Preliminary findings- Producers
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Most of the small scale farmers in Chipata do not
have a number of options in deciding who they can
sell their produce to. And those who have options
have they state the number of options to more than
2 but less than 5
The farmers sell their produce to government agents
mostly because the payment scheme is good, there
is assurance of payment and it is a readily
available market, followed by local open market
and local traders Mulungu & Ng'ombe Consultants 2016-07-16
Preliminary findings- Producers
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The government determined price is used as a
benchmark in selling to private sector buyers
The farmers are dissatisfied with the price set by
government
The millers indicated that competition is quiet high in
the market and one needs a lot of aggressive
marketing to sell
Mulungu & Ng'ombe Consultants
2016-07-16
Mulungu & Ng'ombe Consultants
THANK YOU
2016-07-16
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