Pricing policy and maize market development in Zambia

By Antony Chapoto and Brian Chisanga

  • Current maize pricing policy has a huge impact on the National Treasury, downstream industries as well as the farmer and consumer welfare.
  • The cost of the production model used by the GRZ through FRA is not the most cost efficient option for stimulating sustainable growth in maize production in Zambia. The method disregards all other parameters that are required to obtain a reasonable indicative price, including prevailing maize market conditions in the country and in the region.
  • Costs of production differ widely by geographic location due to differences in agro-ecological suitability for maize production and input costs. In addition, within specific areas, production cost differences arise due to differences in farmer ability, knowledge, and the various management decisions they make. Therefore, there is no single cost of maize production. There is only a distribution of production costs across the millions of maize farmers in Zambia.
  • There are more losers than there are winners from a high maize price. It benefits a few larger producers who are net sellers, efficient, and account for the majority of the maize sales.
  • The real problem that Zambia needs to solve is low farm productivity. Due to low productivity, farmers always ask government to be compensated through a higher price to remain economically viable. The prices they ask for are usually above what the market can offer.
  • The market is generally a more viable and sustainable mechanism for setting any indicative commodity prices. However, because markets are not perfect, there is need for government to continue strengthening social safety nets for those who are adversely affected by market prices.
  • Given that FRA needs to co-exist with the private sector in the maize market, it is important for the government to embrace a market based price discovery. To do this effectively, we recommend that the government take center stage to help support the development of ZAMACE

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