Commentary, 22nd - 29th May, 09

The fixing of the floor price at K65, 000 per 50 kilogram bag of maize will require a complete buy-in by all the players in the business if Zambia seeks to maximize its comparative advantage in food production. Zambia is generally a high-cost production country and in the spirit of market liberalization, the anxieties expressed by the farmers about the floor price should be taken seriously.

On the other hand, K65,000 is not a lock-in price as farmers have the opportunity to explore other potential profitable markets. The floor price is simply the intention of one single buyer, the Food Reserve Agency which has determined the price based on its financial position, costs of transportation from rural areas, the Fertilizer Support Programme that benefited about 100,000 farmers as well as the market dynamics.

However, the FRA cannot determine the overall price because it accounts for just about 10 percent of the total demand for maize in the country and can, therefore, not be taken as a serious market-price mover. The Grain Traders Association is the primary mover and accounts for 400,000 metric tonnes of maize purchases. The association should establish its own price which reflects the market value of the commodity. The traders will generally welcome the announced floor price for it positively widens their margins.

Taken into a wider context, the floor price will hardly reward the rural farmers who largely account for 68 percent of the poverty levels in the country. As long as the price of maize does not reflect the fundamental challenges faced by a farmer, such as the high cost of inputs, rural farmers will fail to accumulate sufficient savings to re-invest into agriculture. Farming is a business and unless the market forces are allowed to have a strong hand in the determination of prices, the government will perpetually subsidize agriculture. It is acknowledged that maize is a political item and if left to the markets, has potential to destabilize the economy through higher prices leading to inflation. However, even as we manage this critical product, agricultural policies should not subsidize the consumer at the expense of the producer.

I also advise the Zambia National Farmers Union to negotiate for an open-market trading system. The Minister of Agriculture has assured the farmers that the ban on exports will soon be lifted. This should be done sooner than later so that the farmers have opportunity to export to countries such as Zimbabwe whose maize deficit stands at one million tonnes. The Katanga Province in the Democratic Republic of the Congo with a population of about 12 million is one such other opportunity. Maize can also be competitively sold through the Zambia Agriculture Commodities Exchange.

But the critical thing for now is for government and the ZNFU to go back to the drawing board and comprehensively assess the long term implications of the current floor price which has been rejected by many farmers.