The Food Crisis and Restrictive Trade Practices
IPN Opinion article
This Day (Nigeria)
The food crisis has been a major headline around the world. Since the beginning of this year, food prices have increased by over 65 per cent. Aside from street protests in many parts of the world, there have also been panicky measures aimed at solving the food crisis. Whether those measures will ultimately bring about abundance of food is subject to debate.
Everywhere the price of food has increased. Retail prices of foods are up 18per cent in China, 17 per cent in Sri Lanka and 10per cent or more throughout Latin America and Russia. In Nigeria, rice epitomizes the magnitude of this crisis as its price has doubled since last year.
Just like most other African countries, Nigeria is trying to address the current crisis. One of the solutions on the table is to increase imports of rice. In addition, the government plans to disburse loans to domestic rice processors at a 4 per cent interest rate with a repayment period of 15 years and a five-year moratorium. While this might provide a brief improvement, it will not prevent future shortages or ensure that food is abundant.
Importation of food items used to be promoted and managed by the Nigerian Government, leading to large-scale abuse by officials. That regime was terminated primarily to protect local producers. While it makes economic sense to encourage importation, not just in a time of crisis, it is economic folly that government should manage it when private individuals could do it better.
The food crisis in Nigeria and Africa can be linked to inappropriate agricultural policies that have stifled the continent's great agricultural potential. Over the years nothing has been done to address low yields--on the contrary, it seems as though government has gone out of its way to stifle production.
Agricultural policies were erroneous right from the conception and most were ad-hoc in nature. According to the Rice Farmers Association of Nigeria, Nigeria fell 800,000 tonnes short of its five million tonne production target for 2006 due to inconsistency in government policies.
Of the projected 4.64 million metric tons annual national demand for rice, current local production stands at a meager 525,000 metric tons, requiring imports worth US$267 million. Most of the locally produced rice is of low quality which limits its market potential, even within Nigeria.
By trying to protect the local rice growers, the government has shielded them from competition. Farmers have not had the incentive to improve the quality of their crops, nor crop yields. They have not been able to invest. This in turn breeds low production.
Government duties and other levies starve poor people to death - they drive up the cost of food needlessly. Averaging 33.6 per cent, agricultural trade barriers within Sub-Saharan Africa are the highest compared with other regions of the world. Given that the poorer people are, the more of their income is spent on food, this spells disaster.
Customs duty on rice imports in Nigeria, is at 55 per cent including a 5 per cent levy for increasing local production. In neighboring Benin, rice merely attracts a huge 35 per cent duty. In monetary terms this represents a whopping US$200 per ton price advantage over imports through Nigerian ports.
To make things worse, import tariffs have put fertilizer out of many people's reach--leading to low yields and hard manual labour. The removal of tariffs on fertilizers and other agricultural inputs is crucial for increased productivity. In turn this would help reduce the costs of other foodstuffs.
Fertilizers that could have helped farmers increase yields have instead become a political weapon. Fertilizer use in poorer countries averaged 107kg per hectare worldwide but in Africa it is only 8kg per hectare. The present mode of fertilizer distribution is cumbersome and manipulatable, as sizeable amounts of fertilizers end up in the hands of politicians and their cronies who rake in profits at the expense of farmers.
Meanwhile, efforts to embrace biotechnology to improve yields have been thwarted by well-fed groups of, largely western, activists. Whether others are hungry seems to be of no importance to them.
Nigeria at different times has banned the importation of various staples including wheat, rice, maize and vegetable oil. Such restrictions may indeed protect local industry for a short time, but it punishes consumers immediately and discourages production in the long run. Protectionism from competition and innovation allows local producers to hike up prices on lower-quality goods. Relaxing these restrictive trade practices will increase the availability of food and a fall in prices.
Efforts in the past to get credit through to farmers have achieved little as most of the funds were either mismanaged or ended up in the wrong hands. Between 2003 and 2007, private sector credits, which have equally dismal results, to agriculture stood at 3.43%. Governments in the continent will have to stimulate agricultural production through better infrastructural bases and incentives within the sector.
A large section of Africa's population suffers from hunger every day - and even more are malnourished. What is needed is a long-term solution for making food available. To avoid social unrest, most of the governments in the continent have released their food reserves. Unless crop yields increase, the reserves will in a short time be depleted.
While importing staple foods could complement the present shortfall, many countries have counter-productive bans or restrictions on the export of such items. Aside from the fact that these do not actually stimulate local production, it protects it from competition. Lack of competition undermines innovation, raises prices and damages quality.
Food production should be a continuous effort, not an ad hoc exercise. Rather than making loans to farmers in a time of emergency like this, such loans must be made available to real farmers who have minimal collateral all the time. For the sake of accountability and transparency, the loans should be disbursed through private organizations: otherwise government will remain part of the problem, not part of the solution.
Ayodele is the Executive Director of Initiative for Public Policy Analysis, a public policy think-tank based in Lagos