Africa Can Help Feed Africa

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Africa Can Help Feed Africa

Removing barriers to regional trade in food staples


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Arica Can Help Feed Arica

Removing barriers to regional trade in ood staples

October 2012

Poverty Reduction and Economic Management

Arica Region


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Foreword

Prices or basic staple ood are back in the headlinesthey are rising again. Tis is bad news

or those among Aricas poor who consume more ood than what they can produce. Tink

especially o poor amilies living in cities: they spend the majority o their income on sim-

ple oodstus. Rising ood prices are also having important macroeconomic impacts on many

Arican countries since more and more ood is being imported rom the global market leading to

worsening balances o trade. Just 5% o Aricas imports o cereals come rom other Arican coun-

tries. Tis issue is not going to go away. Demand or ood will continue to increase, it is project-

ed to double by 2020, and consumers will be increasingly located in Aricas rapidly growing cities.

Fortunately, Arica does have the means and opportunities to deal with and deliver improved

ood security or its citizens. I Arican armers were to achieve the yields that armers are attain-

ing in other developing countries then output o staples would easily double or even triple. On top

o this barely a raction o ertile agricultural land is being cultivatedjust 10% o the 400 million

hectares o agricultural land in the Guinea Savannah zone that covers a large part o Arica. Cul-

tivating this land, while ensuring that existing user rights and the environment are protected, can

play a key role in satisying the rising demand or ood in Aricas cities and ultimately elsewhere

in the world.

But or this to happen current ood trade policies need to change and armers need to be better

linked to both inputs and to consumers. Oen the nearest sources o demand are across a border.

Fragmented regional ood markets and the lack o clear and predictable policies have dissuaded

the private sector rom making the investments that could allow Arica to achieve its potential in

oodrom investments by the poorest armers in raising their productivity to large-scale invest-

ment by nancial institutions to allow role out o insurance-based products to protect armers rom

adverse weather outcomes.

Even though ood staples are very basic products there is still a value-chain that links the armer

to the consumer and at each link in the chain trade barriers and constraints on competition increase

the gap between producer and consumer pricesreducing returns to armers and increasing the

cost o consumers ood baskets. Farmers in Arica ace more barriers in accessing the inputs they

need and in getting their ood to consumers in Arican cities, than do suppliers rom the rest o

the world. Outdated regulations limit access to the best seeds, raise the price o ertilizers and pre-

vent agricultural specialists rom crossing borders to share their knowledge where it is most need-

ed; lack o competition oen ensures high transport costs and poor services; export bans, unnec-essary permits and licenses, costly documentary requirements hit poor small armers and traders

hard, and standards, rather than acilitating are oen a barrier to trade or small producers.

Te concept o ood security has too oen been twisted by narrow nationalistic visions and

requently hijacked by specic interests that benet rom the current situation. It is now an oppor-

tune time to breakout and pursue regionally integrated ood markets that will deliver ood security

more eciently and at the same time allow armers to obtain more o the returns rom their labors.

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What is required? First o all governments in Arica need to engage in a more open and inclusive

dialogue with their stakeholders on policies aecting ood trade and ood security and in particular

to engage with neighbors through the regional communities on pursuing a collective approach to

ood security. oo oen decisions are made without critical analysis and consideration o options

and the interests and views o the broad group o stakeholders in ood staples trade policies are sel-dom represented. Te international community has to be ready to support this dialogue with bet-

ter and more up to date inormation on trends in ood production and regional ood stocks and

analysis o the impact that proposed policy reorms will have on regional ood trade.

Second, there is a need to review and remove barriers to trade along the ood value chain.

Dicult decisions will have to be made and implementedwhile many armers and consumers

will benet a small number o inuential politicians and their riends with interests in the ood

and related sectors will strongly resist. Again the international community can assist with stud-

ies that show the magnitude o the benets rom reorm and in designing packages to oset loss-

es that some may incur.

Obviously, political realities mean that moving to open regional ood markets cannot all bedone at onceso the challenge is to design a processa series o stepsby which the govern-

ment provides clear signals regarding the policy environment or ood trade which gives the pri-

vate sector sucient condence to make additional investments which in turn allows the govern-

ment to take urther steps to reduce intererence in trade and agricultural production and so on.

One example, too oen armers arrive at the border to nd that the government has imposed an

unannounced export ban, or sometimes a ban has been removed but customs ocials have not

been inormed. Ideally governments should commit never to ban exportsexport bans have not

been successul and are typically counter-productivebut at the very least the government should

indicate and stick to clearly dened circumstances under which they will intervene such as when

local ood stocks all below a stated level such as 3 months supply.Food trade has yet to be unlocked within Arica, together with its potential to raise income or

armers and enhance ood security or all. For that, reorms need to happen. And to put reorms

in motion, nothing would help more than evidence brought to the attention o the common citi-

zen. Tis is the ultimate purpose o this report, and o the Arica rade Practice at the World Bank.

Makthar Diop

World Bank Vice President or Arica

Fall 2012

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Abbreviations and Acronyms

ADMARC Agricultural Development and Marketing Corporation (Malawi)

ACESA Alliance or Commodity rade in Eastern and Southern Arica

AERR ASEAN Emergency Rice Reserve

AFSIS ASEAN Food Security Inormation System

AIFS ASEAN Integrated Food Security

AMIS Agricultural Market Inormation System

ASCE Abuja Securities and Commodity Exchange

ASEAN Association o Southeast Asian Nations

ASFSR ASEAN Food Security Reserve

ASYCUDA Automated System or Customs Data

AU Arican Union

CEN-SAD Communaut des Etats Sahlo-Sahariens (Economic Community o Sahelo-

Sahelian Countries)

CGP COMESA Green Pass

COMESA Common Market or Eastern and Southern Arica

COMRAP COMESA Regional Agro-Inputs Program

DRC Democratic Republic o Congo

EAC East Arican Community

ECCAS Economic Community o Central Arican States

EAERR East Asian Emergency Rice Reserve

ECOWAS Economic Community o West Arican States

ECX Ethiopian Commodity Exchange

FAO Food and Agricultural Organization

FCFA Franc Communaut Financire Aricaine

FRA Food Reserve Agency (Zambia)

GDP Gross Domestic Product

HACCP Hazardanalysis and critical control points

IFPRI International Food Policy Research Institute

IGAD Inter-Governmental Authority on Development

IRG Improved Road ransport Government (USAID)

KACE Kenyan Agricultural Commodity ExchangeMAS Multi-Agency Support eam

NCPB National Cereals and Produce Board (Kenya)

NB Non-tari Barrier

OECD Organization or Economic Cooperation and Development

PHS Plant Health Services (anzania)

RA Regional rade Agreement


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SADC Southern Arican Development Community

SAFEX South Arican Futures Exchange

SED Single Entry Document

SOE State Owned Enterprise

SPS Sanitary and Phytosanitary StandardsSQM Standardization, Quality Assurance, Metrology and esting

SSA Sub-Saharan Arica

SR Simplied rade Regime

AEC anzania Atomic Energy Commission

PRI anzania Pesticide Research Institute

FDA anzania Food and Drugs Agency

BS anzania Bureau o Standards

UCE Uganda Commodity Exchange

UNCAD United Nations Conerence on rade and Development

USAID United States Agency or International DevelopmentVA Value-added ax

WAEMU West Arican Economic and Monetary Union

WFP World Food Program

ZABS Zambian Bureau o Standards

ZAMACE Zambia Agricultural Commodity

Acknowledgements

Tis report has been complied by a team led by Paul Brenton (AFPM) and comprising Nora Dihel

(AFP2), Richard Gicho (consultant), Ian Gillson (PRMR), Matthew Harber (consultant), Gozde

Isik (consultant), John Keyser (consultant), Ron Kopicki (consultant), Barbara Rippel (AFPM), and

Andrew Roberts (AFCRI). We are grateul or the comments and suggestions o the peer reviewers:

Bernard Hoekman (PRMR), Will Martin (DECAR) and Stephen Mink (AFSN), and comments

rom Mombert Hoppe (PRMVP). Tis work has been nanced in part by the Multi Donor rust

Fund or rade and Development supported by the governments o Finland, Norway, Sweden, and

the United Kingdom


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Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

Introduction and context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Te ood staple value chain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Regional production and trade patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Agriculture and ood trade policy reorm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Aricas enormous potential or regional trade in staples is not being exploited . . . . . . . . . . . . . . 11

Regulatory barriers to trade undermine Aricas potential in ood trade. . . . . . . . . . . . . . . . . . . . . 17

rade barriers limit access to key inputs: seeds, ertilizers, and extension services . . . . . . . . 19

High transport costs, especially or smallholders, limit access to regional markets . . . . . . . . 27

Opaque and unpredictable trade policies undermine regional ood trade . . . . . . . . . . . . . . . 32

Crossing borders to deliver ood staples to neighbors is costly and dangerous . . . . . . . . . . . 46

Inecient distribution services hamper regional trade in staples and contribute

to ood insecurity in Sub-Saharan Arica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Support institutions that oster ecient and stable regional ood markets. . . . . . . . . . . . . . . . . . . 53

Standards and the capacity to enorce them . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Commodity exchanges and the development o ormal trade. . . . . . . . . . . . . . . . . . . . . . . . . . 57

Market inormation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Institutions that acilitate risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Futures and options markets or ood staples 63

Warehouse receipt systems 64

Weather-indexed insurance 66

Political economy issues that constrain open regional trade must be addressed. . . . . . . . . . . . . . 67

Recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

Indicative action matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

Action Area 1: Improve policies along the value chain to reduce the gap between

producer and consumer prices 75

Action Area 2: Provide a more transparent and predictable ood trade policy regime 77

Reerences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Annex 1: Basic rights and obligations or traders and border ocials . . . . . . . . . . . . . . . . . . . . . . 83

List o BoxesBox 1: Regional trade in rice in West Arica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Box 2: Government imports o maize during the 2001/02 Southern Arica ood crisis . . . . . . . . . 8

Box 3: Maize policy in Kenya. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Box 4: rade Ccsts and rural incomes in Malawi: Improving access to ertilizers . . . . . . . . . . . . . 24

Box 5: Road blocks more than a nuisance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29


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Box 6: Competing transport services key to lower ood prices or consumers . . . . . . . . . . . . . . 30

Box 7: Mozambique and Uganda open border policy or trade in ood staples . . . . . . . . . . . . . . . 35

Box 8: Te COMESA Green Pass . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Box 9: Regional quality standards or ood staples in Arica: Harmonization not always . . . . . . . .

appropriate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Box 10: Quantiying the eects o non-tari barriers on Arican ood staples . . . . . . . . . . . . . . . 44

Box 11: Te COMESA Simplied rade Regime (SR) or Zambia, Zimbabwe and Malawi . . . 49

Box 12: Te problem o post-harvest loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Box 13: Improving inormation ows: Mobile phones and agricultural markets in Niger. . . . . . 60

List o ables

able 1: Farm gate build-up o 2007/08 ertilizer prices in Malawi (US$/ton). . . . . . . . . . . . . . . . 24

able 2: Value chain indicators or Malawi hybrid maize

(US$/ton tradable grain, 2007/08 prices). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

able 3: otal available prots per hectare rom Malawi hybrid maize, 2007/08 (US$/ha) . . . . . 26able 4: rade policy impacts on maize prices in Zambia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

able 5: Comparison o current and nal dra East Arican standards or maize

with Codex. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

able 6: Comparison o dra EAC standards and ZAMACE standards. . . . . . . . . . . . . . . . . . . . . 42

able 7: Weaknesses o SPS standards management in anzania. . . . . . . . . . . . . . . . . . . . . . . . . . . 56

able 8: Major global utures and options exchanges or ood staples. . . . . . . . . . . . . . . . . . . . . . . 63

List o Figures

Figure 1: Key elements in a typical staples value chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Figure 2: Te maize ood shed in Southern and Eastern Arica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Figure 3: Te volume o net exports o ood staples by region 19762008 (1,000 tons). . . . . . . . 13

Figure 4: Aggregate ood staple trade by world regions, 1990 and 2010 (millions, US$) . . . . . . . 14

Figure 5: Regional markets can drive trade in staples: Tai exports o cassava 2000 to 2010. . . . 15

Figure 6: Nitrogen-based ertilizer prices in 2010 (US$ per mt o nutrients). . . . . . . . . . . . . . . . . 21

Figure 7: Price raising eect o NMs on rice in Kenya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Figure 8: Bringing staples across borders can be a risky business . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Figure 9: Impact o mobile coverage on the dispersion o agricultural prices in Niger . . . . . . . . 60


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Executive Summary

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PhotographbyUN/LucienRajaonin


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Aricas growing demand or ood has been met increasingly by imports rom the global

market. Tis, coupled with rising global ood prices, brings ever-mounting ood import

bills. In addition, population growth and changing demand patterns will double demands

over the next 10 years. Clearly, business as usual with ood staples is not sustainable.

But there is a solutionand it comes rom within Arica. Trough regional trade, Aricas arm-ers have the potential to meet much o the rising demand, while providing substitutes or more

expensive imports rom the global market.

Tis potential, however, has yet to be exploited because Arican armers ace more trade barri-

ers in accessing the inputs they need, and more trade constraints in getting their ood to consum-

ers in Arican cities, than do suppliers rom the rest o the world. Tus, Arican armers now pro-

vide only ve percento Aricas imports o cereals.

Tis report oers our main messages:

1. Regional trade in staples, which oers the potential to advance ood security and growth,

is not being exploited.Open regional trade is vital, especially as demand or staples becomes more concentrated

in cities, which must rely on ood production rom throughout the continent. And dier-

ent seasons and rainall patterns and variability in production, which will increase as cli-

mate change continues, are not conned to national borders. Tus, an Arica ood secu-

rity model based on nationalsel-suciency cannot work.

Removing barriers to regional trade presents benets to armers, consumers, and gov-

ernments. Farmers gain the incentives to meet the rising regional demand or ood; and

new jobs would be created along the activities o the staples value chainor example,

in producing and distributing seeds and ertilizers, in advisory services, in consolidating

and storing grains, in transport and logistics, in distribution and retailing, and in process-ing. Meanwhile, a regional approach to ood security allows Arican governments to bet-

ter ensure access to ood or their populations.

Te regional value chains that deliver ood rom surplus production areas in one coun-

try to consumers in ood decit areas (such as cities) in another country comprise a num-

ber o stages. Tese include inputs o seeds, ertilizers, labor and knowledge, marketing

and distribution, the requirements related to customs procedures, taxes, and regulatory

requirements in the export market, and then the wholesale and retail stages.

At each o these elements, the extent o competition and the nature o government policies

can inuence the price the consumer pays (and its variability) as well as the price that the arm-

er receives or the product. Tis study urnishes evidence that constraints along the regional value

chain inhibit Aricas cross-border trade in ood staples. Tis leads to the second message:


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Executive Summary

2. Regulatory barriers to trade and competition along the whole value chain must be removed

or Arica to reach its potential in regional ood trade.

Te report looks at barriers to trade and competition aecting ve elements o the region-

al value chain:

a. Inputs o seeds and ertilizers and extension services

rade barriers deny Arican armers access to higher yielding seeds and better ertil-

izers available elsewhere in the world. For example, in some Arican countries it can

take two to three years or new seed varieties to be released, even i they are used else-

where on the continent. As new varieties are introduced at a aster rate, Arica alls

arther and arther behind in the use o modern seeds making it dicult to compete

with imports rom the global market. In Ethiopia, or example, use o improved hybrid

maize could help quadruple productivity; and even i just hal the armers achieved

the productivity associated with hybrid seeds, the domestic production would replace

commercial imports (Alemu 2010). But without clarity about regulations, seeds canbe held up at borders or long periods, oen rendering them useless.

Fertilizers oer a similar example, with application rates in Arica substantial-

ly lower than in other parts o the world. Farmers in Arica, especially those in land-

locked countries, ace higher prices or ertilizers than armers in other developing

countries. And markets in many Arican countries are too small to exploit scale econ-

omies linked with ertilizer production and even blending. Part o the reason that

regional ertilizer markets have not emerged is that individual countries more oen

speciy their own ertilizer blend specications and specialty products. Hence, ertil-

izers cannot move reely rom country to country.

As a result, many countries import directly rom the global market but, being smallbuyers, cannot gain the same price as larger buyers. In addition, shipping companies

usually charge more or smaller deliveries. Tereore, regional markets with common

ertilizer specications could generate substantially lower prices when quantities are

ordered or the region. Te lack o an eective system o standards is a major barrier

to cross-border trade and regional ertilizer markets.

wo key issues must be addressed: (a) establishing a consistent and stable policy

environment or regional trade in ertilizers; and (b) investing in institutions that reduce

the transaction costs o coordination ailures. Many countries have enacted new er-

tilizer laws in recent years, but ew have provided the resources to dene and enorce

regulations through standards and testing capacity. Tis report shows that reducing

regulatory burdens on ertilizers and the consequent increase in use o ertilizers would

have substantial impacts on returns to armers, with consequent impacts on poverty.


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b. High transport costs in Arica, especially or small armers

High transport costs and the lack o investment in modern trucking and shipping

capacity remain a key actor limiting the movement o surplus staples to areas o

strong demand. Although transport inrastructure needs improvementespecially on

cross-border routes and in linking smallholders to regional networksroads are notthe major constraint. Te critical issue is regulatory reorm that delivers more mod-

ern and competitive transport services.

ransport cartels are still common across Arica, and the incentives to invest in

modern trucks and logistics services are weak. Roadblocks, as well as being a nui-

sance, add considerably to the costs and time to transport, undermining the eciency

o transport operations. Estimates suggest that reorm that delivers more competition

could reduce the cost o transporting staples in West Arica by 50 percent within 10

years. A dierent study nds that a 50 percent reduction in transport costs in Mozam-

bique would increase real agricultural GDP by seven percent and also increase agri-

cultural GDP in Malawi by three percent.c. Opaque and unpredictable trade policies raise trade costs and curb private sector incen-

tives to invest in raising productivity

Among the actors aecting Aricas trade in staples are export and import bans, variable

import taris and quotas, restrictive rules o origin, and price controls. Tese are oen

determined without transparency, and are poorly communicated to traders and ocials

at the border. Tis then creates uncertainty about market conditions, limits cross-bor-

der trade, and raises ood price volatility. Te way that standards are dened and imple-

mented has a critical impact on the propensity to trade. For example, proposed stan-

dards in the EAC on discolored maize could exclude all smallholder-produced maize.

Tis calls or a more open discussion o trade policies beore implementation, witha careul assessment o the costs and benets as well as more inclusive processes or

dening standards to ensure consistency with consumer needs and producer capacities.

d. Crossing borders is costly and dangerous

Hundreds o thousands o Aricans cross borders daily to deliver ood staples rom

surplus areas to higher priced markets. Most o these traders are women, and their

activities provide an essential source o income to many households. But most bor-

der ocials are men, and studies show that cross-border traders regularly suer some

sort o harassment. For example, in the Great Lakes region, poor women cross-border

traders must routinely pay bribes, and a large number o them relate acts o violence,

threats, and sexual harassment, most o which go unreported. Te lack o econom-

ic and physical security undermines the livelihoods o these traders and compounds

their lack o access to nance, inormation, and business knowledge. Reducing the

number o agencies and ocials at the border and increasing the transparency and

predictability o the policy regime is crucial to providing an environment in which

traders ourish and expand their business.


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Executive Summary

e. Inefcient distribution services hamper regional trade in ood

Poor people in the slums o Nairobi pay more pro rata or ood staples than wealthy

people pay at supermarkets. Tis shows the importance o the distribution sector, and

that in many countries the sector is not linking poor armers and poor consumers.

Measures that support both armers and small sellers to become more organizedcan help inormal operators participate in evolving distribution sectors. Reorms are

also needed to provide the regulatory rameworks or modern distribution services.

Te lack o licensing and operation rules or distribution companies, inadequate codes

on investment, commerce, labor, and taxationas well as the lack o bankruptcy pro-

cedurescreate uncertainty and burden rms trying to conduct business operations

in the ormal distribution sectors.

Improvements to regulatory rameworks should eliminate disproportionate entry

requirements, such as lengthy registration procedures, multiple licenses, or inadequate

zoning regulations. In addition, price controls across the region and cartels in sever-

al Arican countries impede competition.

Removing constraints to trade in ood staples along the value chain will reduce transaction

costs but will not ensure good market outcomes. Market ailures, such as those rom asymmet-

ric inormation (or example, a armer knows less about the contents o a bag o ertilizer than the

trader selling it), call or institutions that support market outcomes, including those that dene

and implement standards regimes, commodity market exchanges, and those charged with provid-

ing market inormation. Under previous regimes o heavy state intervention these institutions were

less important. Tis leads to the third message:

3. Build and reorm institutions and invest in their capacity to make staples markets ef-cient and stable

Market-based agricultural production and distribution, especially when based on inte-

grated regional markets, require institutions that aid exchange. Tese market-supporting

institutions can be diverse in character and organizational structure; but their goal should

be to support the inormational and distributional unctions o markets.

But development o these institutions is compromised when the trade policy envi-

ronment or staples is uncertain. Eective standards regimes depend upon private sector

involvement, yet in many countries government agencies dominate the process o den-

ing standards. Commodity exchanges have a great potential to reduce transaction costs

or armers by reducing the number o intermediaries and improving the conditions o

exchange; however, they have not ared well in Arica. One reason is that these institu-

tions cannot thrive without even-handed policies. In addition, operating over larger ter-

ritories allows exchanges to build enough trading volume to exploit scale economies and

be protable, requiring exchanges to be able to operate across borders and requiring pre-

dictable regional trade policies. Investment in acquiring market inormationessential


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or allowing new opportunities or cross-border trade to be exploitedis less likely when

there are risks associated with the policy environment.

Finally, many institutions can help address ood security concerns and thus reduce the

political risk o reorm, allowing countries to pursue the integration o regional markets in

staples and their inputs. For example, utures and options markets or ood staples oer analternative to holding physical stocks o ood staples through ood security reserves and

to trade interventions that limit imports during periods o surplus and exports when pro-

duction is low. Tese contracts guarantee the supply o ood commodities.

Warehouse receipt systems may also negate the need to hold or maintain physical

stocks o ood staples. Tese allow armers to deposit a certain quantity o a commodity

into a private warehouse, where it can be pooled with other commodities o the same qual-

ity. A receipt is issued to the owner as evidence o location and ownership. Te receipt is

a negotiable instrument that can be sold or used as collateral or a loan.

Weather-indexed insurance can lessen the impacts o climatic shocks on armers.

Weather-indexed insurance is a type o nancial derivative written against deviations inaverage rainall or temperature indices constructed rom data measured at weather sta-

tions. For example, i rainall is below a set threshold, leading to low yields, an insured

armer would receive a paid compensation or reduced ood staple production.

Although these institutions can play a key role in supporting greater regional trade, they will

only ourish i there is a change in the way that ood trade policies are dened and implemented.

Tis in turn leads to the ourth message that:

4. Political economy issues that constrain open regional trade must be addressed.

Despite commitments to opening up regional trade in ood, implementation has general-ly been weak; governments continue to restrict trade, maintaining the barriers and con-

straints outlined earlier. A program o regional trade reorm can only be credible i gov-

ernments commit to it, and take ownership o the process.

An indication o this vital commitment and ownership is the extent to which governments

work to build a domestic constituency or reormexplaining the need or, and impacts o pol-

icy change, and generating a political consensus or integrated regional agricultural markets.

Most Arican countries have ailed in these eorts, and there has been little discussion about

the impact o current policy stances and the benets o a regional approach to ood security.

Opening up ood staples to regional trade will create winners and losers. For exam-

ple, where reorm reduces the gap between producer and consumer prices, armers and

poor consumers will gain; intermediaries earning rents, both in public sector agencies and

well-connected private sector interests will lose. Without a political and social consen-

sus on agricultural reorm, it is dicult to implement and sustain policy change. Tis is

especially true i this lack o consensus prevents the creation o new institutional arrange-

ments that moderate the impact o uture shocks and instability in agricultural markets.


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xv

Executive Summary

Te absence o a stable and predictable policy environment at the national and region-

al level in many countries has provoked mistrust between government and the private sec-

tor. Tis, in turn, constrains private sector investment in ood and thus limits the capacity

o the private sector to expand production and trade, while encouraging governments to

hedge against the ailure o the private sector to supply ood when shortages arise. A sit-uation oen exists in which private sector rms are motivated more by ear o loss than

by opportunity or gain. Te key challenge is how to create a competitive environment in

which governments make credible commitments that allow the private sector to invest and

respond in ways that moderate price uctuations and deliver ood security.

wo related actors could help governments build constituencies or reorm and provide a pre-

dictable and stable policy environment:

i. An inclusive dialogue on ood trade reorm inormed by timely and accurate data on

global, regional, and national markets. In many Arican countries decisions about oodtrade policies are made mainly at the highest levels o government, too oen with-

out critical analysis and consideration o options. Food trade policy is rarely subject

to open discussion, and the interests and views o the broad group o stakeholders in

ood staples trade policies are seldom represented. And when there is open discus-

sion about trade reorm, decision makers rely most on the input o those with political

inuencethat is, those in government agencies, whose size and inuence depends

on the current institutional arrangements, and private sector interests, including those

that earn rents as intermediaries.

ii. A reorm strategy that provides a clear transitional path to integrated regional markets

rather than a single but politically uneasible jump to competitive markets. Te rangeo barriers to trade along the value chain, as well as the need to invest in market-sup-

porting institutions, shows that delivering integrated regional ood markets involves

more than a one-o commitment, and that reorms cannot be implemented by the

stoke o a pen. Tus, or many policymakers, attaining open and competitive region-

al markets will not happen during their electoral terms. Te reorm strategy will have

to take place in incremental steps that encourage investment by reducing uncertain-

ties about policies or the private sector and deliver real and visible benets. At the

same time it will allow policymakers to move at a pace consistent with their politi-

cal risk calculations and their capacity to address the concerns o those who will lose

rom the reorm process.

Te rst phase will set clear rules or public sector actions in the staples market to minimize

the uncertainties that discretionary interventions might cause. Te challenge is to provide disci-

pline on short-term policy responses to short-term ood insecurity that have negative long-term

impacts on market development, productivity growth, and ood security.


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xvi


o promote transparency and private sector participation, governments could commit to pre-

cise notication procedures, both nationally and regionally, beore restrictions on exports are imple-

mented. Governments would agree to orego the use o export bans and apply an export quota

announced early, which could be increased but not reduced during the marketing year. Countries

would commit to limit public buer stocks to a level that satised three months o emergency needs.Governments would retain the capacity to act in times o short-term ood crises but would assure

the private sector that governments will not arbitrarily buy in or distribute staples rom the stocks,

with subsequent impacts on prices and protability.

Better-inormed and more open discussion o ood trade policies would promote greater trust

and understanding between the private sector and the government over ood security. Te ollow-

ing actions would support this process:

Improving stakeholder access to timely and accurate inormation on ood staples. Lack

o reliable and up-to-date inormation on crop supply, demand, stocks and export avail-

ability has led to hasty, ill-dened, and uncoordinated policy responses to crises that, inturn, have sparked even greater volatility. Although regional communities in Arica have

made some progress in developing inormation systems, the international community

could help build capacity and strengthen these institutions, so that they deliver up-to-

date inormation and sound orecasts o agricultural market developments within Ari-

ca and the global economy.

Knowledge platorms anchored in the Arican Union (AU) that collect, analyze, and diuse

knowledge and best practices on agricultural trade policy reorm across the value chain

to support increased intra-regional trade in Arica. Te platorms would bring together

stakeholders, legislators, and regulators, and unite agriculture and trade specialists. Te

platorms would ensure that countries have access to (a) the best inormation on rulesand regulations that aect trade in staples; (b) the appropriate design o trade and regu-

latory reorms and the capacity or eective implementation; (c) likely outcomes o spe-

cic reorms, including overall benets as well as identication o those who may lose;

and (d) policy options to address any adverse distributional consequences. Te platorms

would bring together all the players to discuss the creation o integrated regional markets

or ood staples. Platorms anchored at the AU would also disseminate experiences and

best practices to and rom regions within Arica. Tis would limit costly duplication o

analysis, advice, and technical assistance across the dierent regional groupings in Ari-

ca. We propose separate platorms, one to support reorm o regulations governing trade

in ood staples and trade in seeds and ertilizers and one to support trade acilitation and

logistics regarding the movement o staples across borders.


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xvi

Executive Summary

Te report highlights the range o barriers to ood trade in Arica along the entire value

chain. Te issues pertain to many ministries and agencies within government: trade, agri-

cultural, health and saety, transport, and nance. Tis in turn requires a whole o gov-

ernment approach to reeing up ood trade, which will require strong and eective lead-

ership to articulate the rationale and sustain the momentum or reorm. Leaders mustalso address the hard choices that will arise in dealing with the political economy con-

straintsconstraints that have until now blocked the capacity o Arica to exploit its enor-

mous potential to eed Aricans.


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Introduction and context

1

PhotographbyArneHoel,WorldBa

nk


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2


he rise in global ood prices and the ever-growing ood import bill have prompted sharp

attention on agricultural policies in Arica. Arican policy makers are grappling with what

unstable ood prices mean or their countries; how these price movements will aect their

ood security situation; how the private sector is likely to respond; and what governments them-

selves can do. In addition, they ear that global warming may signicantly change the location oood production within Arica.

Tis report discusses how opening up cross-border trade will boost the potential or great-

er ood production in Arica and contribute to ood security by improving poor peoples access to

ood and by increasing returns to poor armers or the ood they produce.

Agricultural resources are not allocated equally across countries, or even within them, so bor-

ders oen articially demarcate ood surplus areas rom ood decit ones. For example, Southern

Malawi is not well endowed with agricultural potential and is persistently ood decient. Nearby,

Northern Mozambique is a productive area or growing maize, the main staple o the region, but

it is ar rom the main area o national consumption in the south o the country. Kenya is maize

decit and depends on imports, especially rom anzania. Given dierences in weather patternsbetween countries, regional production is oen less variable than production at the country level.

Regional trade integration can substantially impact ood security by linking armers to con-

sumers across borders, ameliorating the eects o periodic national ood shortages and o escalat-

ing global ood prices. What matters or poor people is local price volatility, and changes in global

prices are only one actor behind domestic price changes. Local crop conditions, supply costs, and

policy measures, including those aecting trade in ood, are oen more important.

However, regional trade in ood staples remains ar rom ree despite the implementation o a

host o regional trade agreements and eorts or policy and regulatory harmonization. Te arbi-

trary and erratic imposition o barriers undermines private sector condence to invest and dis-

torts incentives towards cash crop production and away rom ood staples.Tis report is organized around our main themes or messages:

Te potential or regional trade in ood in Arica is not being exploited;

Barriers to trade along the value chain that prevent this potential rom being realized;

Te need to invest in institutions that support efcient and saer market outcomes; and

Te importance o addressing the political economy realities that have prevented Arican

countries rom realizing the gains rom opening up to regional trade

A nal section oers recommendations to promote dialogue among stakeholders about inte-

grating into regional ood markets, and suggestions on ways the international community can help.

Te report rst provides an overview o the typical value chain or a ood staple as well as a brie

outline o current approaches to regional trade in ood staples in Arica. However, we must rst

dene what the termood staples means.

Te general denition o a staple is a ood that is eaten regularly and constitutes the dominant

part o the diet and supplies a major proportion o energy and nutrient needs. Tus, staple oods

vary by location but typically include grains, tubers, legumes, or seeds. In the Arican context, the


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3


emphasis has been on cereals, especially maize and rice, and to a lesser extent on starchy root vege-

tables such as potatoes, yams, and cassava as well as pulses (dried legumes) and ruits such as plan-

tain. As will be subsequently discussed, the political economy issues that surround production and

trade o the key cereals has led to problems when implementing reorms. Tis suggests an impor-

tant role or trade in substitutes or the main grains, such as cassava and sorghum, which in thepast have been less vulnerable to political capture.

Te ood staple value chain

When consumers buy a staple ood the price reects that the product has passed through a num-

ber o stages o a value chain. Tis starts rom a seed and continues through a number o inputs,

including ertilizer, labor, and knowledge beore proceeding through a marketing and distribution

system that includes grading, bagging, transportation, and the wholesale and retail stages (Figure

1). When the product or its inputs cross a border there are additional elements linked to customsprocedures, taxes, and regulatory requirements. Te extent o competition and the nature o gov-

ernment policies can, thereore, inuence the price that the consumer pays and the price that the

armer receives or the product at multiple points along the staples value chain at which actors the

extent o competition and the nature o government policies can inuence the price that the con-

sumer pays or the product as well as the price that the armer receives. I the consumer purchas-

es the product in a processed orm (or example, our) the vertical chain linking the armer and

nal consumer increases by an extra level.

Te level o ood staple production in Arica thereore has important implications or employ-

ment beyond that required on the arm. Substantial increases in output that would ollow rom

bridging the gap in yields between Arica and other countries would generate a substantial amounto employment. While much o the employment would be in rural areas, rising agricultural pro-

ductivity and greater regional trade would create jobs in processing and a wide range o services

sectors, including transport, distribution, and retailing.

Te number o stages in the value chain and the value added tend to be less or staples than

or processed products. Tis means that the impact o specic costs along the chain or staples will

likely have a greater proportional impact on price than in more sophisticated chains. Te cost o

transportation comprises a high share o the overall cost o staples given their low-value to weight

ratio. For example, a 2007 value chain study in Cameroon (Keyser, with Nkama and Doya) ound

that domestic handling and transport costs accounted or 2135 percent o total shipment value

or resh cassava over a delivery distance o 130km, compared with less than 12 percent or cotton

lint delivered more than 1,200km rom northern Cameroon to the port o Douala. When the value

chain or staples extends across a border, costs such as those associated with border procedures,

international transportation, and satisying standards in the overseas market will likely have a dis-

proportionate impact relative to higher value products that are less vulnerable to damage.

Economic analysis o the impact o policies aecting agricultural markets typically assumes

competitive outcomes. However, lack o competition at any stage along the value chain can have


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4


important implications or the outcome o policy change and external shocks on producers o ood

staples and consumers (McCorriston 2011).1 For example, the decline in consumer prices rom the

removal o a trade barrier will be less i there is market power at some point along the value chain.

Hence, a lack o competition in, say, the transportation and distribution o staples might allow this

sector to capture the largest benets o trade reorm. Clearly, world prices still matter, but the struc-

ture o the value chain and policy interventions along that chain aect the way that changes in glob-

al commodity prices are translated into movements in consumer prices.

Porto et al. (2011) discuss a number o case studies o export crops in Arica to assess the impacto the structure o export value chains on poverty and welare in rural areas. Tey conclude that

greater competition among the processors and traders o cropssuch as cotton in Zambia, Mala-

wi, and Burkina Faso, coee in Uganda, Rwanda, and Cte DIvoire, tobacco in Malawi and Zam-

bia, and cocoa in Cte DIvoire and Ghanais good or smallholders since arm gate prices tend

to be higher. For example, with cotton in Zambia we ound that i the largest processing rm were

split then the income o the average cotton producer would increase by 2.4 percent.

Similarly, market power in the distribution sector can act as an eective import barrier. Fran-

ois and Wooton (2010) show that higher concentration in the distribution sector translates into

signicant trading costs. Tis means that by neglecting the structure o the domestic distribution

sector, the market access benets rom tari reductions may be seriously overestimated. Hence,with staples, a lack o competition in transportation, distribution, and processing will mean lower

arm gate prices or producers and higher consumer prices.

Figure 1: Key elements in a typical staples value chain

Production:Harvest /Collection

Transport /Transit / Storage

Border Wholesale /Retail Markets

Inputs: Seeds,

fuel, fertilizer

Extension

services

Financial

services

Consolidation

of production

Infrastructure

(physical)

Transport /

logistics

services

Storage

facilities

Regulatory

environment /

competition

between

service

providers

Customs

procedures

Border

facilities

Informal

payments

Market access

Food safety

and quality

standards

Competition

Access of

smallholders

to modern

distribution

sector

1 McCorriston highlights that, or the producer o ood staples, the relevant demand is not that o the consumer but rather

the successively related derived demand rom the various actors in the value chain, the nature o which reects the extent

o competition throughout the value chain.


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5


Regional production and trade patterns

Arica has traditional areas o ood decit and ood surplus. Te ormer include drought prone

areas, such as the Horn o Arica and the Sahel, that oen experience crop ailure. Conict and civil

unrest compounds this problem in the Horn, the Congo Basin, and pockets o West Arica. Te lat-

ter comprise Aricas highly productive agricultural zones, which occur in two types o areas. First

are those with avorable and reliable rainall that do not get too cold in the winter (cultivation o

cassava and banana needs warm conditions) and watersheds, where there is economical irrigation.

An example is Southern Mali, which exports surplus sorghum to Niger and coastal West Arica.

Second are the staple ood basket zones (Jayne et al.2007),where exible climates support

the cultivation o dierent ood crops, particularly cereals, alongside year-round drought-resis-

tant crops or domestic consumption. Tese zones produce a surplus o cereals or export to de-

icit regions in periods o ood stress. Examples include (a) Northern Zambia, where cassava pro-

duction ensures domestic ood security, even in drought years, enabling the region to export maize

to DR Congo, Malawi, and elsewhere in Zambia; (b) Eastern Uganda, where bananas and cassava

ensure ood security, thereby enhancing maize exports to chronically ood decit Kenya; (c) North-

ern Mozambique, where cassava and Irish potato cultivation provide local ood, enabling regular

maize exports north into Kenya and south into Malawi; (d) most o anzania, where a combina-

tion o rice, cassava, bananas, and maize enable regular cereal exports north into Kenya and south

into Malawi; and (e) South Arica, where large-scale commercialization and mechanization com-

bined with modern inputs and irrigation enable high yields or the export o cereals northward to

Zimbabwe, Southern Mozambique, and Malawi (Haggblade 2008).

Maize is the most important ood staple in Eastern and Southern Arica, and the most widely

traded agricultural commodity; in most countries its availability is equated to ood security. Rural

ood surplus production zones supply major decit urban consumption centers as their naturalmarkets. Tese spatially linked clusters o production and consumption zones are reerred to as

ood sheds. Figure 2 shows the maize ood shed in Southern and Eastern Arica and how nation-

al boundaries intersect natural ows o ood. I these borders add signicant costs to moving ood

rom surplus to decit regions then trade ow will be constrained.

In West Arica, there are three major agro-ecological zonesthe Sahelian, Sudanese, and Coast-

al zoneswhere production and consumption o ood staples can be easily classied. In the Sahe-

lian zone, millet is the principal cereal cultivated and consumed. Exceptions include Cape Verde,

where maize and rice are more important; Mauritania, where sorghum and maize are staples; and

Senegal, with rice. Te principle substitutes are sorghum, rice, and cassava our. In the Sudanese

zone,2

maize and sorghum are the principal cereals consumed by most o the population, ollowedby rice, cassava, and yam. In the Coastal zone (with two rainy seasons), yam and maize are the most

important ood products, supplemented by cowpea (USAID 2010).

2 Southern Chad, Central Nigeria, Benin, Ghana, ogo, Cte dIvoire, southern Burkina Faso, Mali, Senegal, Guinea Bis-

sau, Sierra Leone, Liberia).


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6


Nigeria is by ar the largest pro-

ducer o ood staples in West Arica

and exports to neighboring countries

(millet, sorghum, and yams). Among

West Arican countries, it is also theone that imports the most ood (in

particular grains) to satisy urban con-

sumption needs (accounting or 36

percent o Economic Community o

West Arican States (ECOWAS) ood

imports). Te most important crops

or Nigeria are roots, tubers, and grains.

Nigeria is the worlds leading produc-

er o cassava, yams and taro root, and

the second largest producer o sweetpotatoes. It accounts or 69 percent

o the regional supply o these prod-

ucts. Nigeria also accounts or hal

o the grains produced in West Ari-

ca and is the worlds largest produc-

er o cowpeas.

Still, while domestic production

provides most o the ood or Nigerias

urban areas, the country has a decit in rice and wheat. Every year Nigeria imports more than one

million tons o rice, making it among the largest rice importing countries in the world, and morethan two million tons o wheat our.

For trade ows, there are three trade basins in West Arica known as the West, Central, and

East basins. In the West basin3 rice is most heavily traded (see Box 1). In the Central basin4 maize

is mostly traded. And in the East basin5 millet is most requently traded.

Agriculture and ood trade policy reorm

Many countries have reormed their traditional state controlled ood marketing systems to dual

systems in which both the private and public sectors are involved in ood staple input and out-

put markets. Following this partial liberalization o ood markets, the private sector has started to

emerge and invest in commodity trading and processing. Most government parastatals no longer

Figure 2: The maize ood shed in Southern andEastern Arica

Source: Haggblade (2008).

3 Mauritania, Senegal, western Mali, Sierra Leone, Guinea, Liberia, the Gambia4 Cte dIvoire, central and eastern Mali, Burkina Faso, Ghana and ogo.5 Niger, Nigeria, Chad and Benin.


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7


have the nancial or operational clout to meet a countrys entire annual marketing, storage, and

processing requirements, and rely on the private sector or some o these unctions. In many cases,

delivery systems or ertilizer, seeds, and veterinary services have also been passed rom the pub-lic to private service.

Yet government marketing institutions continue to operate in the marketoen alongside the

private sectorboth through their direct procurement and sales operations, including input subsi-

dy programs and through trade policy instruments. Tese institutions oen try to inuence mar-

ket prices through their purchase and sale operations.

Over the last decade, the ood marketing policy environment in SSA has remained sub-optimal

in its support or agricultural productivity growth. Interventions have had an adverse impact on

the regional market or ood staples, especially when prices are articially manipulated and incon-

sistent with world market prices. o benet urban consumers, and to release unwanted stocks, gov-

ernment ood agencies have sold public reserves o ood staples at below-market prices. Tis trig-

gers unpredictability or arms and rms alike, diminishing their productive and trading capacities,

especially during periods o poor harvest,6 and raising ears o being undercut by subsidized gov-

ernment ood.

Box 1: Regional trade in rice in West Arica

With demand outstripping domestic production, West Arica is a major and expanding rice import

market. West Arica accounts or almost 20 percent o world rice imports, amounting to 6.3 mil-

lion tons in 2008. The main importing countries are Senegal, Nigeria, and Cte dIvoire. The larg-

est exporter to the region is Thailand, but China, India, and the US have also become important

sources or some countries. At the regional level, almost all cross-border rice trade is imported

through ormal transit shipments rom the main ports and through inormal trade. The latter is

signicant. For example, Benin ocially imports as much as 800,000 tons o rice in some years;

but the bulk o these imports are parboiled rice, which is trans-shipped via Cotonou to Nigeria

through inormal channels. Almost all trade rom surplus rural production areas to decit urban

markets remains within the country o production due to high transport costs and customs or-

malities. In 2007, ocial regional rice exports were less than 79,000 tons, principally rom Sen-

egal, Ghana, Cte dIvoire, and Togo. Other than Nigerian parboiled rice, inormal exports o

West Arican rice are mostly rom surplus areas close to borders. For example, there are some

exports o domestically cultivated rice rom the Senegal River Valley Mauritania, where rice pric-

es are higher. The largest rice decit countries are Benin, Cameroon, Cte dIvoire, Ghana, Libe-

ria, and Senegal. Most imported rice is consumed in the coastal regions in the larger cities. Dry

rural areas also experience signicant rice decits.

Source: USAID (2009)

6 For example, uncertain output prices in the ace o government intervention in the market coupled with risk-averse

smallholder armers reduces the incentive to use productivity-enhancing inputs such as ertilizer.


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8


It can even cause their withdrawal rom the market altogether (schirley et al. 2006). A study

o Zambian maize markets showed that several international grain trading companies le the mar-

ket because o high risks imposed by unpredictable government participation in the maize market

(Nijho et al. 2003a). Consequently, despite intervening in the market, governments have oen been

unable to prevent ood prices rom exceeding import parity levels, generating acute ood shortag-es and disrupting regional trade in these products (Box 2).

Statistical analysis by Minot (2011) nds that the world price o maize has been less volatile

than the price o maize in Arica, suggesting that strategies o national ood sel-suciency have

not been eective in reducing ood price volatility and may even have exacerbated the problem.

Box 2: Government imports o maize during the 2001/02 Southern Aricaood crisis

In 2001/02, the Zambian government publicly announced that it would import 200,000 tons o

maize rom selected South Arican suppliers to cover the national ood decit, and then sell it

below market price to a small number o large ormal sector millers. A subsidy was intended to

limit consumer price increases, paid directly to the South Arican suppliers in addition to the

importers payments. Because o liquidity problems, the subsidy payment was late, thereby delay-

ing the maize imports. When the government instead imported just 130,000 tons very late in the

season, there were maize and maize four shortages, and local market prices exceeded import

parity. Traders and millers not selected to benet rom the scheme, including inormal traders

rom Mozambique, rerained rom commercially importing maize or ear o not being able to

sell once subsidized maize reached the market. Because grain was channeled just to the large

millers, consumers had to pay the higher price or already-rened four instead o being able to

source grain and mill it themselves or though the inormal network o hammer mills.

In the same year, Malawi also aced a modest maize production deciteight percent below the

countrys 10-year average. In September 2001, its grain trading parastatal (ADMARC) announced

a xed price or maize to be sold at its distribution centers and declared its intention to import

maize rom South Arica to maintain this price. The selling price was set considerably lower than

the landed cost o imported maize, leaving private traders with no incentive to import commer-

cially. As with Zambia, the government imports also arrived late and were insucient to meet

demand so prices soared to a peak o US$450 per ton in early 2002. To make matters worse, the

late-to-arrive ADMARC imports arrived during the good 2002 harvest. These were then released

on to the market, resulting in 16 months o continuously alling maize prices to the detriment o

armers. At other times, the sourcing o grain rom South Arica and subsequent release on to the

domestic market through government contracts with South Arican suppliers has also depressed

inormal maize trade with Mozambique. Since Mozambique is the source o inormal trade in

maize to southern Malawi, these government imports also add greater risks and price instability

or Mozambiques smallholder armers.

Sources: Nijho et al. (2002); Jayne et al. (2007); Rubey (2004); Nijho et al. (2003).


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9


Tere have been ew cases where government attempts to stabilize ood prices have been success-

ul, and interventions to moderate ood price volatility oen impose substantial costs on consum-

ers and armers in neighboring countries (see Box 3).

Cross-border trade in ood staples in Arica remains limited. Prices or staples, especially in

land-locked countries, can vary substantially between years o domestic good harvest and those

o poor harvest. Tis explains why governments still empower agencies to intervene in agricultur-

al markets to supposedly (but ultimately ruitlessly) stabilize prices, and why these interventions

only discourage intra-regional trade. Te challenge is to allow regional trade to improve access to

ood and moderate price volatility while developing institutions that support price stabilization.

Te ollowing sections discuss the key constraints to regional trade in Arica.

Box 3: Maize policy in Kenya

Maize policy in Kenya tries to support and stabilize prices through the National Cereals and Pro-

duce Board (NCPB). In the 1980s the NCPB played a major role in the domestic maize market,

purchasing 600,000800,000 tons annually. Since then, maize markets have been liberalized and

private sector trade plays a much larger role.

However, the NCPB continues to purchase maize to deend a foor price. Since 2000, NCPB pur-

chases have been 30,000190,000 tons per year. NCPB operations are estimated to have increased

domestic maize prices by 20 percent during 19952004 because they account or 2535 percent

o all maize sold by the agricultural sector in Kenya. Most o the maize purchased has been direct-

ly rom large-scale armers in the Rit Valley.

To deend high maize prices, the government has limited maize imports. In mid-2001 a tempo-

rary ban was imposed on cross-border imports o maize because o low prices associated with

a good harvest. Another temporary ban was introduced in 2004 in response to an outbreak o

afatoxin poisoning thought to be caused by imports rom Uganda. And recently Kenya has pre-

vented Tanzanian trucks carrying maize rom entering Kenya, orcing them to o-load and reload

onto Kenyan trucks. The main beneciaries rom high maize prices within the country have been

the largest arms, and the main losers have been the net buyersthat is, urban consumers and

maize-purchasing rural households.

Source: World Bank (2009).


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Aricas enormouspotential or regionaltrade in staples is notbeing exploited

11

PhotographbyP.Casier,CGIAR


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12


Arica has considerable variation in its climatic conditions across countries and even with-

in them. Te distribution o ood crop cultivation coupled with possibilities, where they

exist, or staggered harvesting within the same commodity oer substantial opportunities

or trade. Since production variability is not highly correlated among most countries in the region,

integration through regional trade oers the prospect o canceling the eects o small country sizeon production volatility (Koester 1986). Size matters as larger countries, or groups o countries,

typically have more diverse climatic conditions than smaller ones, which reduces systemic risks at

the country level.

Increased regional trade has the potential to (a) expand the size o Aricas market or ood sta-

ples, (b) boost agricultural growth in surplus zones, and (c) mitigate shortages in decit ones. In

addition, regional trade in ood staples can also help moderate price volatility in Arican ood sta-

ple markets (see Dorosh 2001).

Suppliers rom outside the continent are meeting most o Aricas growing demand or ood.

Te production o ood staples or growing urban markets and ood decit rural areas presents the

largest growth opportunity or Arican armers. Te market value o Aricas ood staple produc-tion is at least US$50 billion per year, equivalent to three-quarters o all agricultural output (World

Bank 2008). Given population growth and increased urbanization, Aricas demand or ood sta-

ples will grow dramatically in the coming decade. Indeed, demand is expected to double by 2020,

primarily in cities. Import bills or ood will rise substantially i Aricas armers do not contribute

more to meeting this demand.

Unortunately, the experience o the past two decades shows that Arican armers have not been

able to do this. And the enormous potential to produce and trade ood staples in Arica remains

unexploited. Tus, despite being rich in agricultural potential, the continent increasingly imports

rom outside o the region to satisy demand. Figure 3 shows that the trend in the volume o net

exports o staples in all our regions o Arica is strongly negative.FAO estimates that Arican cereal imports in 2008 were US$15.2 billion. However, just ve

percent o all grain imported by Arican countries originates rom regional sources. Te volume

o extra-regional ood staple imports shows how regional integration in the ood staple market can

achieve ood security.

Figure 4 compares the deterioration in the net trade position o sub-Saharan Arica as a whole

with that o other regions. While Aricas imports o ood staples have grown at a much aster rate

than exports, other developing regions such as Eastern Europe and Central Asia, South Asia, and East

Asia and the Pacic have seen a turnaround rom a position o net imports in 1990 to net exports 20

years later in 2010. In Latin America the gap between imports and exports has narrowed substantially.

Tese dierential trends in imports between Arica and other developing country regions o

the world suggest that the role o heavily subsidized production and export in OECD countries,

while important, has played a lesser role than domestic actors in explaining the underlying causes

o the increase in net imports o staples in Arica.

Te increasing imports o ood staples are shocking, especially since Arica has the agricul-

tural potential to satisy a large part o this demand. Applying inputs, such as widely available high

yield seeds and ertilizers would substantially increase output in Arica.


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Aricas enormous potential or regional trade in staples is not being exploited

A large body o literature has identied the gap in staples yields obtained in Arica relative toyields o staples elsewhere in the world. Te potential to experience a two- to threeold yield increase

among some o the basic ood staples is possible i more armers can access and efciently utilize the

available stock o knowledge and technologies(Nin-Pratt et al. 2009).

Calculations or Central and Western Arica suggest that the ratio o potential to actual out-

put to be around 1.5 or cassava, 1.9 or rice, 2.7 or maize, 3.3 or millet and sorghum, and 5 or

wheat. With regard to catching up to yield potential, Nin-Pratt et al. (2009) estimate that by 2015

imports into the Central and West Arica region would all rom a base case o $12.4 billion to $9

billion, and exports would rise rom $10.6 billion to $16.4 billion, reversing the regions net import

situation. Tis study indicates that i this was accompanied by better trade policies and measures

to improve market conditions, then exports would increase to $22.1 billion, and imports would

increase slightly to $10.1 billion. Tese are optimistic scenariosbut the estimates demonstrate

the potential or increased trade. What willbe important is to remove barriers to higher yielding

seeds, ertilizers, and knowledge as well as link armers to markets and provide the incentives or

investment that delivers higher productivity.

It is also true that large swathes o ertile land in Arica remain idle. For example, the Guinea

Savannah zone covers around 600 million hectares in West Aricathrough Uganda and anzania

Figure 3: The volume of net exports of food staples by sub-region 19762008 (1,000 tons)

1000

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2004

2008

2002

2004

2004

2008

East Africa

Net exports Linear (net exports)

West Africa

Southern Africa Central Africa

5000

50010001500200025003000350040004500

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

0

1000

2000

3000

4000

5000

6000

7000

5000

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2004

2008

2002

2004

2004

2008

4000

3000

2000

10000

1000

2000

3000

4000

5000

0

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

200

400

600

800

1000

1200

Source: FAOStat


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and encompassing Malawi, Zambia, Angola, and Mozambiquewhich is around one-third o the

total area o sub-Saharan Arica. O this, 400 million hectares can be used or agriculture. How-

ever, less than 10 percent o this area is being cultivated, suggesting huge unutilized agricultural

potential (World Bank 2009b). Te experience o Tailand shows how areas thought to be back-

ward and with little prospect can prosper in the right conditions. Figure 5 shows the recent expan-

sion o Tai cassava exports and how they have been driven primarily by exports to countries in

the East Asia region.

Almost all o the increase in staple ood imports in Arica is caused by the rising demand o

urban populations, which are growing at over our percent annually compared to less than one

percent per year or rural populations. Te shi rom rural to urban liestyles is signicant con-

sidering the high share o staple oods in their total consumption. Among the urban poor, who

comprise the bottom 20 percent in terms o poverty, ood makes up 6070 percent o total expen-

ditures. Across all urban consumers, ood accounts or 4555 percent o total annual household

expenditure (Jayne et al., 2009).

Tis shi in demographics also brings new opportunities as more o the urban demand becomes

commercialized. I Aricas armers can capture a good share o the market created by this growth,

intraregional trade in ood staples could signicantly advance growth and poverty reduction on

the continent.

Global warming may also make ood production and prices in Arica more volatile, increas-

ing the ood security risks and making moving ood rom areas o surplus production to ood de-

icit regions even more urgent. Te IPCC predicts that temperatures in Arica will rise more than

the global median, and extreme weather events will become more prevalent, aecting agriculture

in some regions, while dry areas will become drier, and wet areas will likely receive more rainall.

Figure 4: Aggregate ood staple trade by world regions, 1990 and 2010 (millions, US$)

ECA SAR SSA EAP LAC MENA

Imports

1990 2010

Exports

0

2000

4000

6000

8000

10000

12000

14000

ECA SAR SSA EAP LAC MENA

0

500

1000

1500

2000

2500

3000

3500

4000

Source: COMTRADE.


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Aricas enormous potential or regional trade in staples is not being exploited

Schlenker and Lobell (2009) esti-

mate that average maize productivi-

ty in sub-Saharan Arica may decline

22 percent by mid-century. However,

there is considerable heterogeneity inthe impacts o climate change across

countries, and so international agri-

cultural markets may allow or pooling

o the risk posed by local (or nation-

al) climate extremes. Farmers in coun-

tries severely aected by weather may

be able to sell excess supplies to meet

the excess demand rom consumers in

the more severely aected regions. In

the medium to long run, declines inagricultural production rom climate

change in some countries could be o-

set by production increases in other

regions. Again, this puts the emphasis

on linking ood production areas and

major consumption centers through open and predictable regional trade. A regional approach to

ood security will lower the costs o adapting to rising temperatures compared to the costs incurred

i countries isolate production rom regional demand.

anzania is an example o a country where grain production variability may increase because

o climate volatility. Ahmed et al. (2010) analyze the archive o global climate model simulationsand nd that severe dry conditions in anzania will most oen coincide with non-dry conditions

among anzanias key Arican trading partners. Tis suggests that anzania could benet rom

exporting grains to countries within and outside Arica as climate change increases the possibility

o severe precipitation decits in other countries while simultaneously decreasing the likelihood

o severe precipitation decits in anzania. However, i current policy stances to shocks are main-

tained, especially export restrictions, then anzanian armers will not be able to capitalize on his-

torical export expansion opportunities.

Figure 5: Regional markets can drive trade instaples: Thai exports o cassava2000 to 2010

0

200

400

600

800

1000

1200

1400

1600

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

US$Million

Total exportsExports to region


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PhotographbyJosephHadar,WorldBank

Regulatory barriers to tradeundermine Africas potentialin regional food trade


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Arica must increase outputs to moderate rising ood import bills and satisy growing

demands. Te degree o access to markets or nal products is critical. Linking rural ood

surplus production zones in Arica to major decit urban consumption centers requires

a well-unctioning regional market or these products.

But improved productivity and a decline in the enormous gap in yields between Arica andthe rest o the world requires the using higher-yield seed varieties, more intensive ertilizer use,

and better production techniques. Yet there are major constraints on access to these key inputs,

oen because o trade barriers and limitations on the movement o proessionals across borders.

Te debate about agricultural policy is oen presented as a dilemma between pursuing high-

er producer prices or armers (to encourage investment in higher yield seeds, use o ertilizers,

and better techniques) and delivering lower nal prices or consumers. But this dilemma does not

appear when policy interventions have raised transaction costs between armers and consumers,

and the policy environment has permitted limited competition at key points along the value chain.

Such policies lead to a large gap between producer and consumer prices and entail that the bene-

ts o previous reorms and investments, such as tari removal and better quality roads, may nothave accrued to either armers or consumers, but rather to those providing services along the chain,

such as transport and distribution.

Arican smallholder armers who sell surplus harvest typically receive less than 20 percent o

the consumer price o their products, with the rest eaten away by transaction costs and post har-

vest losses (AGRA 2009). Clearly, this limits the incentive to produce or the market. Policies that

reduce transaction costs and increase competition in the provision o services that aect the pro-

duction and distribution o ood staples could reduce the gap between consumer and producer

prices by reducing consumer prices, increasing producer prices, or both. USAID (2011) estimates

that in West Arica a reduction in transaction costs equivalent to 10 percent o the arm gate price

o agricultural products would lead to a our percent increase in production and a similar increasein the real income o armers, together with an eight percent all in consumer ood prices and a

seven percent increase in real disposable incomes o consumers.

Many o the key barriers to trade in ood staples relate to regulatory and competition issues

at elements along the value chain. As taris have come down, so a tangled web o rules, ees, and

expensive services is strangling Aricas regional trade in ood.

But in many cases an eective market system in ood inputs and nal products requires well-

designed regulationsor example, to ensure that consumers receive reliable inormation about

the quality o the ood or seeds they buy. Tis is important to protect countries rom disease and

pests that could devastate local production. In some cases, the policies restricting trade are deliber-

ately protectionist; but in other instances the lack o regulations limits the development o region-

al markets, such as in the case o ertilizers. In many cases the issue is to dene appropriate regu-

lations and create better institutions to implement them.

Te ollowing section summarizes inormation on the key barriers to trade at dierent points

along the value chain o ood staples. Specically examined are: (a) barriers to trade that limit access

to seeds and ertilizers; (b) actors that lead to high transport costs in Arica; (c) dangers o cross-

ing borders, especially or small inormal traders many o whom are women; (d) costs o opaque


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Regulatory barriers to trade undermine Aricas potential in regional ood trade

and unpredictable trade policies that limit trade in staples across borders, mainly non-tari barri-

ers (NBs); (e) inecient distribution services that ail to link poor producers to poor consumers.

rade barriers limit access to key inputs: Seeds, ertilizers,and extension services

Seed security is closely linked with ood security in Arica, but many Arica armers lack access to

modern high-yield seed varieties. In Ethiopia, or example, Alemu (2010) estimates that only about

one-quarter o the demand or improved seed is being satised. Use o modern seed is undamen-

tal to increasing productivity towards its potential; and use o improved hybrid maize in Ethiopia

could quadruple productivity. Even i just hal the armers achieved the productivity associated with

using hybrid seeds, the domestic production would replace commercial imports (Alemu 2010).

rade barriers that create high transaction costs between countries prevent seeds rom mov-

ing quickly across borders when a seed decit occurs due to a disaster, such as ooding, drought,or pest inestation. Inappropriate regulations and burdensome requirements governing the release

o new varieties create small and ragmented seed markets and ensure that varieties available else-

where are not widely disseminated in Arica (Minde and Waithaka 2006). Even within Arica, arm-

ers on one side o a border may not have access to higher yield seeds that have been approved by

the neighboring country under similar agro-climatic conditions.

Seed trade is constrained by regulations and policies established when plant breeding and or-

mal seed production were the responsibility o the public sector. Procedures or the release o new

varieties were designed to meet the needs o public research institutes, and seed certication was

primarily an internal quality control mechanism.

Now, however, a key concern with seed regulation in Arica is the inordinate amount o timerequired or the approval process (ripp 2005), which can take around two to three years or more.

Tis puts Arican armers at a serious disadvantage in competing with imports rom the global

market, which are derived rom seeds that deliver much higher yields, and which may require less

ertilizers and pesticides and be more pest and drought resistant. Arican armers must thereore

be allowed to acquire seeds widely available elsewhere. A rst step would be to ensure that test

data used in the approval process in other countries is included in Arican approval processes to

avoid duplicative testing.

Certication plays a crucial role in a market system in providing condence and bringing buy-

ers and sellers together. In the past, each Arican country developed its own seed regulatory regime;

however, these dierent regulatory arrangements have now created a situation where sourcing seeds

between neighboring countries is complicated, lengthy, and expensive.

While many countries have implemented a degree o liberalization in seed markets, government

and its agencies still heavily control the introduction o new varieties, trade, entry o seed compa-

nies, and in some cases seed prices and production. Central controls on seed production, includ-

ing compulsory certication and licensing or seed arms, can create conicts with pro-market and

pro-reorm processes. As a result, the private sector is oen poorly integrated into the national


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seed production and distribution system. In Ethiopia, or example, tensions exist between the state

and the emergent private sector, and the argument o the strategic importance o ood and agri-

culture and the perceived weak presence o the private sector is deployed to argue or strong state

control (Alemu 2010 p15).

Restrictions on the cross-border movement o seed are primarily due to NBs, resulting romsanitary, phytosanitary and plant quarantine measures, seed certication, and variety release regu-

lations, which dier across regions and countries. Regional trade in seeds has been hindered by a

lack o agreement among agencies in dierent countries about standards, and by inconsistent and

heavy-handed application o control procedures or imports. Tese costs and delays are exa

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