Agriculture plays a major role in the economies of most Sub-Saharan African countries – creating employment, boosting GDP and supporting the livelihoods of many of the region’s poorest households. Yet the region has gone from being a net food exporter to a net food importer over the last four decades. Ensuring an adequate supply of food is a major challenge and governments have employed a range of pricing and procurement measures in an effort to achieve this, with varying degrees of success.

1. Briefing Paper Number 5 | 2012
GDN Agriculture Policy Series
Agricultural pricing T. Ademola Oyejide
Olumuyiwa Alaba
and public procurement Abiola Abidemi
in Sub-Saharan Africa Uttara Balakrishnan
Agriculture plays a major role in the economies of most Sub-Saharan Harvesting barley in the
African countries – creating employment, boosting GDP and supporting Delanta Plateau, Central
Highlands, Ethiopia.
the livelihoods of many of the region’s poorest households. Yet crispin hughes | panos pictures
the region has gone from being a net food exporter to a net food
importer over the last four decades. Ensuring an adequate supply
of food is a major challenge and governments have employed a range
of pricing and procurement measures in an effort to achieve this,
with varying degrees of success.
This briefing paper is one of
Key messages the 10-part Global Development
Network (GDN) Agriculture
Government interventions aimed
p Pricing and procurement policies
p Policy Series for its project,
at stabilizing food prices are more likely constitute only part of an integrated ‘Supporting Policy Research
to Inform Agricultural Policy in
to succeed in an environment where mix of government policies, which Sub-Saharan Africa and South
private and public trading activities contribute to food security and Asia’. It is based on a longer
co-exist. Public interventions should be economic stability. Governments synthesis paper, Agricultural
pricing and public procurement
constrained by pre-established rules and should focus on a range of policy in Sub-Saharan Africa, which
they will be most successful if they are instruments and services, including draws on extensive published
targeted towards vulnerable regions and providing information and research and unpublished research. The
full paper can be downloaded at:
households, rather than applied across and development. www.agripolicyoutreach.org
the board. Governments in Sub-Saharan Africa
p will be of value to policymakers,
It
The food pricing and procurement aiming to meet a country’s food experts and civil society working
p to improve agriculture in
environment should be consistent, security objectives need to take into Sub-Saharan Africa.
transparent and predictable. account the deficiencies in production This project is supported by the
and trade infrastructures when Bill & Melinda Gates Foundation.
designing or implementing food
pricing and procurement policies.
Similarly the macroeconomic conditions
of a particular economy need to be
taken into consideration.
Briefing Paper Number 5 Agricultural pricing and public procurement in Sub-Saharan Africa 1

2. Overview
Sub-Saharan Africa has gone from
being a net food exporter to a net food A thorough understanding
importer over the last four decades. As
a result the rising cost of food imports
of how markets work is
has become an increasing concern. needed before interventions
The global food crisis of 2007–08 further are designed. However, this
heightened this concern, as the Food knowledge is lacking in many
and Agricultural Organization (FAO)
food price index rose by 61 per cent.
Sub-Saharan African countries.
The impact of the crisis was particularly
severe in Sub-Saharan Africa because:
As a net food importer, higher food
p Nearly all Sub-Saharan African countries
prices generate trade imbalances. regard food security as the main reason
for government interventions in the pricing
A large percentage of this region’s
p and public procurement of staple food
households are net buyers of staple
crops. The agricultural sector plays a major
food crops.
role in the economy in these countries
Food accounts for 50–70 per cent
p in terms of GDP, employment and as
of household budgets. a primary source of livelihoods for many
of the region’s poorest households.
Background to the research Government policies have focused on either
making the price of staple foods affordable
A systematic review addressed two primary concerns. The first for consumers, ensuring attractive prices
was to explore whether and the extent to which various price and for producers or a combination of both.
procurement policies implemented in Sub-Saharan African countries The availability of food at affordable prices
achieved the goals set for them by the relevant governments. is a key political tool in all regions. The
The second was to determine whether current conditions in various consequences of a high price and high food
countries warrant further continuation, or adaptation, of existing cost scenario for poor consumers could be
pricing and procurement policies. just as serious as that of a low price and
The review focused on maize, rice and wheat because they low income scenario for poor producers,
are important staple food products in Sub-Saharan Africa’s in terms of poverty.
agricultural sector. The focus was on eight countries: two from Broad generalization is difficult across
each of four sub-regions. diverse countries, but essentially:
Central Africa – Cameroon, Gabon The eight countries examined in the review
p
East Africa – Ethiopia, Kenya were not able to achieve self-sufficiency.
Southern Africa – Malawi, Zambia In particular Cameroon, Nigeria and
Senegal, which have concentrated on
West Africa – Nigeria, Senegal
rice as a critical food security crop, have
not been very successful.
If maintaining moderate and stable food
p
prices is a measure of success, the pricing
and procurement policies implemented
by several countries may have worsened
rather than improved chances.
Neither complete market liberalization
p
nor complete state control has evolved
an efficient system that fosters food
security and guarantees the right market
conditions to encourage an increase in
production. A thorough understanding
of how markets work is needed before
interventions are designed. However, this
knowledge is lacking in many Sub-Saharan
African countries.
2 Briefing Paper Number 5 Agricultural pricing and public procurement in Sub-Saharan Africa

3. Pricing policies
Government interventions in pricing Maize production Production
and public procurement are motivated and consumption
(Period Average in ‘000MT) Consumption
by food security considerations,
defined as a guaranteed adequate
Kenya Zambia
food supply for the population with
a reasonable degree of certainty in 3500 2500
3000 2000
the future. 2500
2000 1500
Concerns about food security have 1500 1000
constituted a major and often explicitly 1000
500 500
expressed motivation for government
0 0
intervention in African food markets.
2006–2011
2006–2011
1981–1985
1986–1990
1991–1995
1996–2000
2001–2005
1981–1985
1986–1990
1991–1995
1996–2000
2001–2005
A sharp rise in the price of staple
foods is known to have a serious effect
on consuming households. Therefore
ensuring the availability of food at
affordable prices can become an acute Malawi Ethiopia
political issue. 3500 5000
3000 4000
In Sub-Saharan Africa maize, rice, wheat
p 2500
and cassava constitute the four main 2000 3000
food staples. In Eastern and Southern 1500 2000
1000
Africa food security is determined 500 1000
by maize sufficiency; plus wheat and 0 0
2006–2011
2006–2011
1981–1985
1986–1990
1991–1995
1996–2000
2001–2005
1981–1985
1986–1990
1991–1995
1996–2000
2001–2005
teff in the case of Ethiopia.
In Central and West Africa, diets are
p
more diverse but rice remains very
important to achieving food security.
Rice and wheat production Production
and consumption
Ensuring the availability (Period Average in ‘000MT) Consumption
of food at affordable prices
Cameroon Senegal
can become an acute
400 1200
political issue. 350 1000
300
250 800
200 600
150 400
100
50 200
0 0
2006–2011
2006–2011
1981–1985
1986–1990
1991–1995
1996–2000
2001–2005
1981–1985
1986–1990
1991–1995
1996–2000
2001–2005
Nigeria Ethiopia: wheat
5000 4000
3500
4000 3000
3000 2500
2000
2000 1500
1000 1000
500
0 0
2006–2011
2006–2011
1981–1985
1986–1990
1991–1995
1996–2000
2001–2005
1981–1985
1986–1990
1991–1995
1996–2000
2001–2005
Source: United States Department of Agriculture (2012)
Briefing Paper Number 5 Agricultural pricing and public procurement in Sub-Saharan Africa 3

4. The challenges in more detail
Stabilization policies: an overview Stabilization policy objectives vary
depending on whether directed towards
In Sub-Saharan African countries,
staple foods or export crops. With
governments typically try to minimize
staple foods, national policies seek
or eliminate risks associated with volatile
to strike a balance between the interests
markets through stabilization policies.
of domestic producers and consumers.
Agricultural markets in low-income With export crops, national stabilization
countries tend to be volatile. Prices tend schemes are concerned with the
to fluctuate significantly over short interests of producers. The government’s
periods of time. When prices are high, agricultural price stabilization policy
markets are particularly volatile. may have to incorporate minimum
and maximum prices as a means
This volatility increases risks for
of protecting both poor consumers
consumers and producers. Stabilization
and producers.
policy debates revolve around issues
such as: Price support mechanisms
Governments try to stabilize Whether and the extent to which
p
markets through a number of One policy instrument available to
producers or consumers or both could
stabilization policies, but often a government seeking to expand
these policies are based on achieve higher welfare with or without
its domestic food production is to create
inadequate knowledge of the an agricultural price stabilization scheme.
markets. In this picture farmers a price support mechanism. This means
weigh their surplus goods in Whether it is produce price or producers’
p governments can set guaranteed produce
Chiringa village market, Malawi. income that should be stabilized. prices that are higher than market levels.
sven torfinn | panos pictures
As farmers respond to price incentives,
output tends to increase and surplus
production is likely to be generated. This
policy is criticized for several reasons:
It leads to a rise in food prices so
p
supports domestic producers at the
expense of domestic consumers.
Poorer consumers spend a higher
p
proportion of their income on food,
so the policy imposes a regressive tax.
Only a small proportion of the benefits
p
go to farmers; many of the gains
are made within the processing and
distribution system.
Reducing the volatility of
food prices
Several domestic market policy instruments
can be used to reduce or eliminate the
impact of food price volatility.
Price control: governments prescribe
Until the 1990s the Zambian government guaranteed farmers
the maximum or minimum prices for
a minimum price for their maize crops. This secured a market for
specific food products.
smallholder farmers and improved food security but it imposed
a heavy fiscal burden on the government. Following liberalization Administered prices: governments
the government abandoned attempts to set minimum prices. set administered prices that are indicative
Competitively priced imported food pushed down prices for rather than being legally binding.
consumers. As a result fewer farmers planted maize, threatening
Neither form is likely to be effective without
food self-sufficiency and in effect food security. The government has
government control of the quantities of
since resumed buying maize at 40–60 per cent above open market
affected products.
prices, which indirectly provides income support to maize farmers
but has pushed up prices for consumers.
4 Briefing Paper Number 5 Agricultural pricing and public procurement in Sub-Saharan Africa

5. Stockholding agricultural produce Other factors influence the viability and
effectiveness of trade policy measures.
Private economic agents stock produce
A trade-based food price stabilization
p
The private sector when the price is low. When prices are
scheme requires adequate financial
high and are expected to fall, they release
is more likely the stock. If governments decide that (especially foreign exchange) resources
to play its role private stocks might not adequately that may not be available to low-income
effectively when stabilize food prices, they create public and food-import dependent countries.
public interventions stocks. Stocks fall into two categories: Trade policy also tends to be less effective
p
strategic stocks that are used to stabilize if imports are required to fill gaps in
are consistent, prices and emergency reserves that are domestic food supply when world food
transparent used to protect food security during prices are high.
and predictable. periods of extreme food price increases. Trade measures are more likely to fail if
p
Stockholding tends to work better in they change frequently. Government trade
dampening downward price movements. measures should therefore be constant.
But this has its limitations, as when stocks
Unreliable world market supplies limit
are exhausted, they can no longer dampen p
the extent to which trade policy can serve
prices. Public stocks may also be susceptible
as an important component of a food price
to mismanagement and corruption.
stabilization arrangement.
Furthermore, their discretionary use may
generate market uncertainties, which Successful interventions
can increase the problem of price volatility.
Given these shortcomings, it is important Government interventions to stabilize
to make the rules of a stockholding scheme food prices are more likely to succeed in
explicit before embarking on it as a price an environment where private and public
stabilization measure. trading activities coexist. Public interventions
constrained by pre-established rules
Trade policy measures should be consistently and transparently
implemented. A mixture of policy measures
Trade policy measures can be used in
is often required for effective food price
price stabilization schemes. Under normal
stabilization schemes.
conditions, international trade provides
general access to agricultural products In most practical cases, governments use
regardless of where they are produced or a combination of several policy instruments:
consumed. A range of factors influences A mix of trade and stocks to sustain
p
the viability and effectiveness of trade food consumption when production is
policy measures. These measures affect volatile. Some countries use import duty
both consumers and producers. reductions and export tax increases to
National-level fluctuations in food stabilize domestic prices when world food
prices can be moderated by adjusting prices are rising.
the quantities of produce imported Stocks and trade are adjusted accordingly
p
or exported. But trade policy measures when both are used to control prices.
affect both sides of the market. When Adjusting stocks works better in the short
trade policy keeps domestic food prices term, and using trade is a better long-term
low through export tax or restrictions strategy, especially when the domestic market
to protect consumers, the producers are is fully integrated into the world market.
affected. They do not have as much
Building these schemes requires a
incentive to produce. When import tax
combination of public and private functions.
or other forms of import restriction are
The private sector is more likely to play its
used to keep domestic food prices high
role effectively when public interventions
to boost producers’ incentives, consumers
are consistent, transparent and predictable.
are penalized through high food prices.
This kind of environment is largely absent in
many low-income countries. The government
often has the flexibility to intervene in
food markets. Even if private trade coexists
alongside state pricing and procurement
activities, private–public interactions suffer
from a lack of coordination. The private
sector then faces significant risks and such
a system might fail to achieve its food price
stabilization goal.
Briefing Paper Number 5 Agricultural pricing and public procurement in Sub-Saharan Africa 5

6. Procurement State-controlled food
marketing systems
In African countries over the past 60
years, two broad types of food marketing In some African countries, governments
systems have evolved and in some believe that food security cannot be
cases now coexist. These are private ensured in the context of private food
and state-controlled (parastatal) food marketing systems. This is because
marketing systems. of the alleged parasitic nature of traders
and private companies. In African cereal
The private system is further subdivided
markets, governments use parastatal
into two components:
institutions to perform a range of roles
Trader-based marketing system
p in food marketing.
Large-scale commercial marketing system
p Three ways in which governments use
Trader-based food marketing system: parastatal institutions:
Small traders, often single-person 1
businesses, operate at different levels To directly intervene in food markets and
of the marketing chain. They mainly source act as private agents.
supplies of small quantities, and trade in
2
several food crops in limited geographical
To work alongside private traders and large
areas. In its immature state, this trader-
commercial firms.
based market system is typically fluid.
As it matures, it becomes more robust 3
and has more stable structures. Supportive To completely replace private traders and
institutional arrangements can help legally establish themselves as monopolies
to address these problems and lead to or monopsonists.
a more mature market. This might include When this happens, governments usually
brokers or commissioned agents, traders’ regulate monopoly controls in export
associations, producers’ organizations and import trade, restrict the movement
and periodic markets. of food grains by private traders or limit
Large-scale commercial firms: private storage. They might also regulate
Large-scale commercial firms generally concessional credit, preferential access to
engage in wholesaling, transportation, transport and subsidies on trading activities.
milling and inter-seasonal storage. A small Countries in Central and West Africa
number of large firms tend to dominate have generally relied on trader-based food
the market. marketing systems. They are increasingly
maturing and large-scale commercial
food marketing systems are now evident.
Senegal’s experience
Many countries in East and Southern
After the liberalization of domestic trade from 1990 the private sector Africa in the 1960s–80s were under
took over the production, processing, transportation and marketing state-controlled food marketing systems.
of rice. However, the complete commercialization of rice production In the 1990s, attempts were made
and marketing was unsuccessful. to liberalize the parastatal marketing
The government reintroduced state marketing and procurement policy systems and legalize private alternative
interventions in the domestic market. Subsidies since 2007 substantially arrangements. The general result has
reduced production costs and increased producers’ profit margins. been an uneasy coexistence between
The direct benefit of subsidy to the private sector increased private parastatal and private systems.
sector participation. Self-sufficiency in rice grew from 20 per cent
in 2007 to 40 per cent in 2011.
However, government participation in the rice market accounted
for 16 per cent of the trade deficit in 2007, a heavy fiscal burden on
the country.
6 Briefing Paper Number 5 Agricultural pricing and public procurement in Sub-Saharan Africa

7. Recommendations
Ensuring food security is the major
Public–private cooperation driving force for government-led
p pricing and procurement
Agricultural pricing and procurement policies. Here a boy in Oromiya,
systems require a structure where both Ethiopia, holds a plate of
a maize-based staple food.
the private sector and government mikkel ostergaard | panos pictures
can work together within the same system
rather than trying to displace each other.
Transparency
p
Governments should ensure better
coordination and transparent and
consistent policies in the food system.
Targeted policy instruments
p
Governments should focus on providing
a range of policy instruments and services.
These might include market infrastructure,
dissemination of market information,
and research and development towards
strengthening private sector participation
in the food marketing system.
Macroeconomic policies
p
Pricing and procurement policies constitute
only part of an integrated mix of policies,
all of which impact upon the key issues
identified above. Governments should also
take into account deficiencies in production
and trade infrastructures (and other
macroeconomic policies) in the design,
and packaging and implementation
of food pricing and procurement systems
aimed at meeting each country’s food
security objectives.
Briefing Paper Number 5 Agricultural pricing and public procurement in Sub-Saharan Africa 7

8. Key references
The full paper Agricultural pricing and public
Paul Dorosh, S Dradri and procurement in Sub-Saharan Africa is available for
S Haggblade (2010) download at www.agripolicyoutreach.org
‘ egional trade and food security: recent
R It was written by:
evidence from Zambia’ in Food Security
Prof. T. Ademola Oyejide
in Africa: Market and Trade Policy for
Foundation for Economics Education, Nairobi
Staple Foods in Eastern and Southern
Africa, eds A Sarris and J Morrison, Dr. Olumuyiwa Alaba
Cheltenham, UK and Northampton, Lead City University, Nigeria
Mass., USA: Edward Elgar Abiola Abidemi
Crowther University, Nigeria
N M Mason and R J Myers (2011)
‘ he Effect of the Food Reserve Agency
T Uttara Balakrishnan
on Maize Market Prices in Zambia’, Yale University, USA
Working Paper No 60, Food Security and reviewed by
Research Project, Lusaka, Zambia Prof. Alexandros Sarris
N Minot (2011) University of Athens, Greece
‘ ransmission of World Food Price Changes
T P
roject Steering Committee
to Markets in Sub-Saharan Africa’,
IFPRI Discussion Paper 01059, Markets, Senior Advisors
Trade and Institutions Division, Prof. Per Pinstrup-Andersen
International Food Policy Research Cornell University, USA
Institute (IFPRI) Prof. T. S. Jayne
S Rashid and A Negassa (2011) Michigan State University, USA
‘ olicies and Performance of Ethiopian
P Prof. William A. Masters
Cereal Markets’, ESSP II Working Paper Tufts University, USA
No 21, International Food Policy Research Prof. Alexandros Sarris
Institute (IFPRI) / Ethiopia Strategy University of Athens, Greece
Support Program (ESSP) II Prof. David Zilberman
A Sarris and J Morrison (eds) (2010) University of California, Berkeley, USA
Food Security in Africa: Market and Trade
Policy for Staple Foods in Eastern and
Project Management Team
Southern Africa, Cheltenham, UK and Principal Advisor
Northampton, Mass., USA: Edward Elgar Prof. Douglas Gollin
Williams College, USA
Q Wodon and H Zaman (2010)
‘ olicies for the Effective Management
P Project Director
of Food Price Swings in Africa: Managing Dr. George Mavrotas
Food Markets Through Stocks During Chief Economist, GDN
the 2007–2008 Price Episode, Evidence Deputy Project Director
and Recommendations’, Policy Brief 1, Tuhin Sen
Trade and Markets Division, Economic Lead Strategist, GDN
and Social Development Department, tsen@gdn.int
Food and Agriculture Organization Project Consultant
of the United Nations (FAO) Nupur Suri
Policy Outreach Analyst
Vinaina Suri
you wish to reproduce or build upon this work,
If
please contact Global Development Network (GDN).
© Global Development Network
Designed and produced for GDN by Panos London,
panos.org.uk
All photographs © Panos Pictures, panos.co.uk
All rights reserved.
Further information
more information on the ‘Supporting
For
Policy Research to Inform Agricultural Policy in
Sub-Saharan Africa and South Asia’ project visit:
www.agripolicyoutreach.org
Supported by the Bill & Melinda Gates Foundation
ew Delhi | Cairo | Washington DC
N
www.gdn.int
8 Briefing Paper Number 5 Agricultural pricing and public procurement in Sub-Saharan Africa