Trade barriers worsen food insecurity
Africa is not achieving its potential in food trade. The growing demand for food is increasingly being met by imports from the global market. This, coupled with rising global food prices, is leading to ever mounting food import bills.
Clearly something has to change. Business as usual with regards to food staples in Africa is not sustainable.
Fortunately, there is a solution to this problem within Africa. The potential to increase agricultural production is enormous.
Yields for many crops are a fraction of what farmers elsewhere in the world are achieving, and output could easily increase twofold or threefold if farmers were to use updated seeds and technologies. Also, large swathes of fertile land in Africa remains idle. Open regional trade is essential because demand is becoming increasingly concentrated in cities, which need to be fed from food production areas throughout the continent. Different seasons, rainfall patterns and variability in production, which will increase as the climate changes, are not conveniently confined within national borders.
A model of food security based around national self-sufficiency is becoming more and more untenable. Cross-border trade in food provides farmers in Africa with the opportunity and incentive to supply the growing demand.
But the potential for farmers to satisfy much of the rising demand for food through regional trade is not being exploited. Currently, only five percent of continental imports of cereals is provided by farmers.
These farmers face more barriers in accessing the inputs they need and in getting their food to consumers in African cities, than suppliers in the rest of the world. Smallholders who sell surplus harvest typically receive less than 20pc of the consumer price of their products, with the rest being eaten away by various transaction costs and post-harvest losses. This clearly limits the incentive to produce for the market.
Many of the key barriers to trade in food staples relate to regulatory and competition issues along the value chain. As tariffs have come down, it has become increasingly apparent that a tangled web of rules, fees and high cost services are strangling regional trade in food.
In some cases, the policies that are restricting trade are deliberately protectionist. In many cases, however, they reflect poorly designed or badly implemented policies resulting from the lack of broad stakeholder participation and weak capacity in government departments and agencies.
Rules and regulations limit access to inputs of seeds and fertilisers and extension services, critical if productivity potentials are to be achieved. In Ethiopia, for instance, the use of improved hybrid maize could contribute to a quadrupling of productivity and completely replace commercial imports.
Transport and logistics costs, especially for small farmers, can gobble up as much as half of the delivered price of staples. While there is plenty of need for further improvements in infrastructure, the key reason for high transport costs is often the lack of competition. Transport cartels are still common in many regions, and the incentive to invest in modern trucks and logistics services are very weak.
Opaque and unpredictable trade policies also continue to raise trade costs. Trade in staples in Africa continues to be affected by measures such as export and import bans, variable import tariffs and quotas, restrictive rules of origin and price controls.
Often, these are decided upon without transparency and are poorly communicated to traders. This creates uncertainty about market conditions and limits cross-border trade.
Inefficient distribution services also hamper regional trade in food. Poor people in the slums of Addis Abeba pay more for food staples than the wealthy pay at supermarkets.
This shows that, in many countries, the distribution sector is not effectively linking poor farmers and poor consumers. Price controls imposed across the region and the cartels in place in several African countries represent a serious impediment to competition.
All these barriers raise costs and increase uncertainty, make regional markets smaller and increase volatility. Indeed, the price of maize in Africa has been more volatile than the world price of maize. Policies that reduce transaction costs and increase competition in the provision of services, affecting the production and distribution of food staples, would reduce the gap between consumer and producer prices.
The development of institutions that would support farmers in reducing risks and raising productivity is compromised when the trade policy environment for staples is difficult and uncertain. Effective standards regimes depend upon private sector involvement, but in many countries the process of defining standards is often dominated by government agencies.
Private investments in storage capacity, which would help to reduce the enormous post-harvest losses and allow farmers to sell when prices are most favourable, are undermined when policies that influence prices, such as export bans, are uncertain and lack transparency. Commodity exchanges, which have the potential to reduce transaction costs for farmers by reducing the number of intermediaries and improving the conditions of exchange, cannot thrive without even-handed and predictable policies. Operating across borders would allow exchanges to build a sufficient trading volume to exploit economies of scale and be more profitable.
Institutions that can help address food security concerns and so reduce the political risk from reform will only flourish if there is a change in the way that food trade policies are defined and implemented. For example, futures and options markets provide an alternative to holding physical stocks through food security reserves, and weather-indexed insurance can mitigate the impacts of climatic shocks on farmers.
Despite commitments towards opening up regional trade in food, implementation has been very weak. Few governments have sought to build a constituency for reform.
Opening up food staples to regional trade will lead to both winners and losers. Where reform reduces the mark-up between producer and consumer prices, it is farmers and poor consumers who will gain, while intermediaries earning rents, both in public sector agencies and in the private sector, will lose.
Reform becomes particularly difficult when politicians themselves are involved in the production and distribution of food. The absence of a stable and predictable policy environment breaks down trust and constrains private-sector investment in food staples, which in turn limits production and trade. And it encourages governments to continue to hedge against the failure of the private sector to adequately supply food when shortages do arise.
By and large, the nature and range of the barriers to trade along the value chain, and the need to invest in market-supporting institutions, shows that delivering an integrated regional food market involves more than a simple one-off commitment, and that reforms cannot be implemented at the stroke of a pen. Thus, for many policymakers, the goal of open and competitive regional markets will not occur during their electoral terms.
The reform strategy thus needs to define incremental steps that encourage investment by offering certainty to the private sector about policies. It should deliver real and visible benefits, while allowing policymakers to move at a pace consistent with their capacities and political risks.
A regional approach to food security in Africa will allow governments to more effectively and efficiently meet their objectives of ensuring access to food for their populations. This brings the prospect of not only benefits to farmers and consumers, but also of a significant number of new jobs in activities along the value chain of staples – in producing and distributing seeds and fertilisers, in advisory services, consolidating and storing grains, transport and logistics, distribution, retailing and processing.