Issues Surrounding Staple Food Trade Policy in Mozambique

1. Issues Surrounding Staple Food Trade Policy in Mozambique Presented for the Conference on Trade Policy for Food Products Conducive to Development in Eastern and Southern Africa - Rome, Italy

2. 2 Introduction What Makes Mozambique Different from Other Countries in the Region Issues Surrounding Staple Food Trade Policy Conclusions Road Map

3. 3 Mozambique’s food production and marketing system faces a huge set of challenges now and over the next decade Urban population share is estimated to be above 35% Rural population growth rates are currently at 0.5 % Urban growth rates are currently at about 4% annual These growth rates will lead to an urban pop share of 44% by 2017 Being maize the primary staple food, total urban demand is likely to double over the next decade But the number of farmers will increase very little

4. 4 The rise in urban demand represents a huge growth opportunity for Mozambican farmers However, if productivity in production and marketing does not improve, this growth in demand may easily be satisfied by imports from South Africa

5. 5 It has no state marketing agency for staple foods – all domestic food trade is in private hands It has no non-tariff barriers to trade, and government never involves itself in import or export decisions In the south, where the major urban population center is, maize budget shares are low (<10% of food expenditure) Both rice and wheat exceed it Maize shares much higher outside Maputo and in the center (20%-50%)

6. 6

7. 7

8. 8

9. 9

10. 10

11. 11

12. 12 Due to low productivity, imports will be a crucial complement to domestic production for the foreseeable future to satisfy the demand will increase the competition in the maize milling sector-->reduction on price consumers can choose to purchase grain rather than meal and then hand pound it or take it to hammer mills Three issues application of VAT to maize grain imports procedures for small-scale imports tariff on imported maize meal

13. 13 VAT Applied to maize grain but not maize meal, wheat, or rice meaning that grain imported for sale as grain must pay the VAT, while grain imported for meal receives a reimbursement Thus, in principle, the application of the VAT favors imports of rice and wheat relative to maize favors the availability of maize meal over maize grain at retail and favors large industrial millers over smaller traders and hammer millers In practice, imports of grain for sale as grain have not occurred despite several periods where such imports would have been profitable

14. 14 We attribute the absence of imports by small traders to complexities in import procedures high degree of formality and large scale of the South African maize marketing system The lack of imports by larger scale formal traders is likely due to a combination of factors consumers in Maputo have access to a low cost option in rice and most of them are therefore willing to pay the high premium for refined meals on the small quantities that they buy

15. 15

16. 16 Heavy market power of main company CIM holds 70%-75% of market in Maputo Low but highly inelastic demand 20% duty on imported meal Works as a protection for milling companies Why Are Maize Meal Prices so High? (Cont.)

17. 17 Consumers in Mozambique have had good options in rice and wheat But the price of rice is rising rapidly Now about US$560/mt at retail, up 40% in real terms since 2005 Breakfast meal about US$680/mt Compared to breakfast meal at about US$300 in Zambia Staples are much less affordable in Maputo!

18. 18 Maize grain imports for the South will be a crucial complement to domestic production for the foreseeable future At least three measures could be taken by government to facilitate efficient trade in maize First, convert value limit in simplified regulatory procedures for small-scale maize imports to a volume limit of perhaps 20 metric tons per month

19. 19 Second, consider phasing out the VAT on maize grain Third, import duty on maize meal be reduced more quickly Although the VAT alone has not acted as a binding constraint on maize imports for sale as grain, it could become a constraint if the reforms in import procedures suggested above are instituted In Conclusion (Cont.)

20. 20 Given the importance of rice in Mozambique, and its rising price, government needs to understand this market is the rice import trade competitive? In Conclusion (Cont.)