Domestic Maize Market Development in Zambia: Implications for Food Security

1. Domestic maize market development and implications for Zambia’s national food security Auckland Kuteya and Nicholas Sitko Presented at a policy dialogue on “Food Security Information: Issues, Gaps and Opportunities” Lusaka August 14, 2014 June 19th, 2014 Indaba Agricultural Policy Research Institute

2. Outline • Motivation • Changes in investments in the maize market • Investments implications on maize production and rural poverty • Investments implications on food price • Conclusions • Proposed ways forward

3. Motivation • Maize in Zambia is synonymous to national food security

4. Motivation • Maize is the dominant staple food and nearly all Zambians consume nshima daily • Maize production is perceived to bring economic development and poverty reduction • More than 80% of smallholder households grow maize • Maize self-sufficiency is equated to national food security • Since 2009, maize production has been above national consumption requirement every year

5. Changes in investments in the maize market

6. Share of Agricultural Budget to FISP and FRA Source: MAL and MoFNP actual expenditure

7. Frequent subsidies to commercial millers, 2011-2013 • Sept 2011 – Aug 2012 • Government subsidizes maize to millers at K20 per 50kg bag • Dec 2012 –Mar 2013 • FRA subsidizes maize to millers at K60 per 50kg bag • December 2013 • FRA offloads 50,000 metric tonnes of maize on the market to stabilize rising prices of mealie-meal • FRA sells maize to milling companies not along line of rail at K1,000 per MT

8. Increased private sector investments • Private sector investments in Zambia’s maize market has been motivated by market liberalization and volatile global maize prices • In 2012, Cargill and NWK Zambia began providing maize inputs and output market to farmers in addition to cotton • In 2013, APG Group of Companies began construction of its first massive milling plant in Solwezi • Others include Seaboard Corporation and Export Trading Group; all providing maize output market

9. Implications on maize production and rural poverty

10. Upward trends in maize production Source: CFS various years

11. Consistent maize surplus production but low formal exports Source: MAL/CFS and COMtrade

12. Persistently low yields Sources: MAL/CSO Crop Forecast Surveys, 2006/07 - 2013/14

13. High rural poverty levels Source: GRZ’s Central Statistical Office and RALS 2012

14. Land size and poverty in Zambia Source: RALS 2012

15. Relatively well off HHs obtain 55% FISP fertilizer 55% of FISP fertilizer Source: RALS 2012

16. Better off HHs account for majority of maize sold to FRA, 2011 These account for 78% of maize sold to FRA Source: RALS 2012

17. Share of marketed surplus maize by farm size 1990/91 and 2012/13 Source: PHS 1990/91 and CFS 2012/13

18. Highly concentrated patterns of maize surplus production N= Farm size (ha) Ha farmed (ha) Gross rev., maize sales (million kw) Gross rev., crop sales (million kw) Top 50% of maize sales 78,384 (5.2%) 4.3 3.0 8.1 8.6 Rest of maize sellers 499,530 (33.2%) 3.4 2.0 1.3 1.7 Households not selling maize 927,971 (61.6%) 2.2 1.2 0 0.2 Source: CSO Crop Forecast Survey, 2011

19. Putting it together • Government expenditure through FRA/FISP benefiting larger and relatively already well off HHs • HHs cultivating 2ha and above are more likely to engage with commercial private markets and FRA • This situation has worsened over time • GRZ spending through FISP/FRA has little impact on yields or poverty reduction • FRA/FISP come as an opportunity cost to key agric growth drivers (irrigation, rural electrification, R&D, extension, etc.)

20. Implications on food price

21. Effects of restrictions and uncertainty over trade Farmers would have obtained higher prices if exports occurred Source: FAO GIEWS food price data analysis tool, AMIC

22. Narrowing wholesale-to-retail market margins over time - Lusaka K2 K1 Source: AMIC and IAPRI

23. Declining market margins • In 2000 the average mill-to-retail margin in Lusaka was K2 and by 2013 it dropped to K1 per kg • Narrowing margins imply maize marketing is becoming competitive and efficient – this is good for urban consumers • Between 2000 and 2010 there were significant investments in maize milling as large mills increased roughly from 25 to 35 in the country • Widening margins at any stage of the value chain would suggest declining competition as this was the case during FRA subsidies to large millers between 2011 and 2013

24. Conclusions • Current maize production meets local requirements and we have witnessed increasing surpluses over time • However, formal exports remain low and markets have become more concentrated • Majority of smallholder HHs are land constrained • Maize yields have remained stagnant, ~2MT/ha • Government spending on FISP and FRA have little effect on rural poverty reduction for HHs with <2ha • Maize prices sometimes trade outside of the bounds set by import and export parity prices due to trade restrictions and market interventions

25. Proposed ways forward • Redirect investments in technology (research, extension), rural electrification, irrigation, markets and roads which may be more productive according to empirical evidence • Government should create conducive environment for private sector participation in agriculture through predictable trade policy

26. Thank You