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June 06, 2012

World Bank advice for Zambia to stop setting maize price is a tall order politically

According to Reuters, The World Bank has urged Zambia's government to stop setting prices at which it buys maize from local farmers and allow the prices to be determined by the market to promote sustainable growth in the agriculture industry.

This is all very well,and sounds like good advice in theory, but has not always worked out so well in practice in the many African countries that have toyed with liberalizing their maize sectors. The standard mantra that this will lead to greater competition, increased and more stable maize supply and better prices for consumers often simply doesn't work out that way in countries with markets that are not well developed.

For instance, monopolies or a few dominate key player will often take advantage of liberalization to obviously squeeze the highest possible price out of the consumer. People may still buyer 'expensive' maize, especially in times of scarcity, but this can have political consequences because of the unfortunately too important role of the crop in the diets of many Africans. Consumers/voters expect maize to always be available, and at prices they consider affordable. When either condition does not obtain, the anger is often directed at the government. An excuse by them that they can't do much about the supply and price of maize 'because the World Bank advised us to leave price setting and marketing to the private sector' would simply not work politically, or practically for that matter.

It is somewhat surprising that the bureaucrats at the World Bank keep knocking their heads against the wall over this. You would think that after decades of giving this advice and having it rejected or fail to deliver the promised results, they would have thought to abandon their orthodoxy, think outside the box and offer more realistic advice for the stage of market development of most African countries.

For sure, setting an 'official' price for an important crop like maize also has its own problems. They include the hindrance of the development of a properly competitive market, as the WB points out. When the price set by the government is lower than that which farmers feel is necessary to make a reasonable return on their investment, shortages and other distortions result.

The Reuters article points out: 'The government normally buys the maize at higher prices than those offered by private buyers to ensure higher returns for the farmers. It then sells it at reduced prices, locally and within the region. The World Bank said the policy was costly and not sustainable in the long term and urged the government to review it.

While it is not hard to understand the political justifications of keeping maize prices low for citizens (i.e. voters!) it is not at all clear why the Zambian government passes on those below-market prices to foreign buyers as well.

There are problems with both the WB's unrealistic advice as well as the Zambian government's unsustainable  price policy. It seems neither group of bureaucrats is willing to think of a middle ground that considers both capitalist market imperatives as well as political realities.

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