4.1 Agricultural Marketing and the Cooperative Role
4.2 Effects of Regulated Marketing on Cooperatives
4.3 Legal Control through the Agricultural Marketing Act
4.4 Legal Control through the Cooperative Societies Act
4.5 Political and Bureaucratic Control
Until 1985 Namboard was the monopoly buyer of maize at prices set by the government and the cooperatives were merely agents. The establishment of Namboard was based on the belief that centralized agricultural marketing would streamline the operations, while the promotion of cooperative unions was viewed as a way of protecting the peasant farmers from exploitation.
In 1986, Zambia made its first attempt at implementing the Economic Structural Adjustment Programme (ESAP) by liberalizing agricultural marketing. Namboards monopoly was removed in order to enable the cooperatives, millers, and other traders to participate in maize marketing.
Namboard remained the buyer of last resort and a government tool for intervening in the market. Producer prices of all controlled agricultural commodities, except maize for which a fixed price was determined, were set as floor prices. This meant that any price above the floor price was determined by supply and demand, and producers and buyers had the freedom to bargain. It was hoped that marketing costs were going to decline in this system as a result of competition and reduced average transport distances, due to decentralization.
This partial liberalizing did however have the opposite effect. The private traders who were allowed to participate in agricultural marketing demanded adequate compensation for their handling costs, and as a result there was an upward push in the price of maize meal which culminated in serious food riots in 1986. The government responded by nationalizing all maize milling facilities with the aim of controlling milling costs and hence check price increases.
In 1987, the government launched the New Economic Recovery Programme (NERP). Among the major policy changes was the re-introduction of extensive price control and the restriction, once more, of agricultural marketing in maize and fertilizer to PCUs/PCSs and Namboard. In mid-1988 primary marketing of maize was further restricted to PCUs/PCSs only.
In mid-1989, the government announced the dissolution of Namboard and transfer of its agricultural marketing and related functions to ZCF, including fertilizer importation, maintenance of maize strategic reserves, importation and distribution of empty grain bags, and provision of fumigation services. The main justification for the decision was the further streamlining the of the agricultural marketing system by avoiding duplication of responsibilities and double handling.
It was further envisaged that by transferring these functions to ZCF coordination with other cooperatives would be easier and thus the system would be much more efficient. This was not the case, however, as the same problems, such as of late input delivery and late payment to farmers persisted. As the policy framework did not change a decision to merely replace one organization by another could not be expected to solve deep rooted agricultural marketing problems.
The move to dissolve Namboard was subsequently criticized both in the cabinet and parliament, the main objection being the fact that ZCF as a private organization could not be responsible for administering part of the law of the land, in this case the Agricultural Marketing Act.
The agricultural marketing policy has been motivated by equity and socio-political rather than commercial considerations. The main concern of the Zambian government was twofold, namely:
(i) to ensure food security for urban consumers, andThe government hoped to achieve these objectives through subsidizing both maize consumption, and, to a smaller degree, production in peripheral areas. The highest priority, however, was to reduce the price of maize meal to the urban consumers, and this was done by introducing a consumer subsidy. The subsidies took the form of direct payment of crop marketing and input distribution costs by the government on behalf of consumers.
(ii) to increase rural agricultural production and guarantee a market for all production as a means of improving rural farmer incomes.
The policies distorted the basis for sound business management in the participating cooperatives as negotiations with the government on cost compensation, rather than successful business operations, was the most important factor in determining business income. The policies further and contributed to the following specific shortcomings in the agricultural marketing sector:
(a) Timing of Purchases and Sales of Maize.
Cooperatives purchased maize from farmers during the period July to September, during which time all maize had to be bought and delivered to safe storage before the rains in late October. This exercise required huge cash outflows to pay farmers and transporters during a limited period of time, while maize sales to millers was gradual, reflecting the nations consumption. This meant that the cooperatives had to hold stocks of maize for a long period before realizing cash inflows.
The discrepancy in cash outflow and inflow resulted in very serious liquidity problems for the PCUs, rendering them unable to retire their overdrafts. During years when production exceeded national consumption, the surplus stocks at times had to be held for several years, and therefore the overdrafts used to purchase these stocks could not be liquidated.
(b) Inadequate Budgetary Allocation.
The amount of consumer subsidy approved by government to cover crop handling costs reflected the governments budget constraints and thus was invariably below what was required to adequately cover maize handling costs. The amounts negotiated between the government and the cooperatives were also normally subsequently unilaterally reduced by the government through underpayment.
The budgeted consumer subsidy amounts were arrived at on the assumption that a bag of maize would only be held by the PC for a maximum of three months and the interest rate built into the subsidy was a reflection of this assumption. This was only valid when production was well below the nations requirements. In the event of surplus production, as the case was in the 1988 and 1989 seasons, the subsidy was totally inadequate to cover the additional interest rate and storage costs.
(c) Delay in Consumer Subsidy Payments.
The consumer subsidy was rarely paid to PCUs in time and they therefore had to draw additional overdrafts from banks or utilize proceeds from maize sales, which should have been used to retire outstanding bank overdrafts, to pay transporters and other related handling costs. The delay was caused by the procedures for processing payments of the government consumer subsidies, which required that the PCUs should pay for the activity and later claim on the basis of invoices from transporters. The additional costs resulting from the delays, were neither covered by the subsequent payments nor by the into-mill price of maize.
(d) Inadequate Storage Facilities.
The bumper production experienced in 1988 and 1989 seasons could not be stored safely due to limited storage facilities, exposing much of the crop to pest and moisture damage. The value of the stocks therefore depreciated rapidly, often by 20 percent on an annual basis. Unless the into-mill price of the stored stocks was subsequently substantially increased, the value of the stocks would be lower than the amount borrowed, including accrued bank interest, to finance the purchase.
Existing maize storage facilities are located in urban high consumption deficit provinces (Lusaka and Copperbelt) yet the bulk of the production was in rural provinces (Southern, Northern and Eastern). Maize therefore had to be transported long distances from surplus to deficit provinces, incurring huge transport charges which the PCUs were expected to pay and later claim from government on presentation of transport invoices.
(e) Management of Surplus Stocks.
There was no plan for how to deal with surplus production above the annual national consumption and the strategic reserves. At the opening of the 1990 marketing season, for example, the PCUs still held 640,000 tons which were purchased using borrowed funds. With this excess over the effective market demand, the PCUs were faced with the problem of meeting the cost of managing the stocks. The government had no funds set aside to meet such additional storage and handling costs.
As a result of these problems, outlined in sections (a) to (e) above, the cooperatives were financially undermined and became increasingly dependent on government financial support, including guarantees for bank overdrafts.
Government intervention in cooperative affairs has been largely a result of the legal framework under which the cooperatives have operated. This situation existed despite the fact that cooperatives in Zambia are fully owned by individual private members.
Agricultural marketing of grains, particularly maize, has always been a regulated industry in Zambia. In the colonial period grain marketing was undertaken by the Grain Marketing Board (GMB), operating under the Grain Marketing Act. The Zambian government amended the Grain Marketing Act in 1969, replacing GMB with Namboard.
Unlike the colonial Grain Marketing Act, which had favored the white settler farmers, the 1969 Agricultural Marketing Act aimed at creating equal access to markets by all categories of farmers, and expanding the range of controlled agricultural products and inputs. The Act was also designed to enhance the governments ability to effect central planning within the context of a mixed economy.
During the following two decades the government made a number of amendments, through statutory instruments, to the 1969 Act to allow for removal of some products from the controlled list and to create other agricultural parastatal companies such as Zambia Horticultural Company, the Lint Company of Zambia, the Coffee Company of Zambia, and the Kawambwa Tea Company.
As cooperatives became the main organizations for agricultural marketing the role of Namboard was gradually reduced. In 1989 the government introduced an act to provide for the dissolution of Namboard and the transfer of its assets, liabilities and functions to ZCF and the Nitrogen Chemicals of Zambia (NCZ), the latter as regards fertilizer procurement and marketing. In summary the new Agricultural Marketing Act contained the following major elements6.:
(a) empowered ZCF to appoint agents with the authority of the Minister;In essence the Act merely dissolved Namboard and replaced it by ZCF without recognizing and appreciating the special nature and functions of ZCF as an apex organizations for the cooperative movement. The Act thus treated ZCF as if it were a parastatal organization.
(b) empowered the Minister to call upon ZCF and NCZ to make good any default on any duty or obligation under the Act;
(c) required ZCF and NCZ to submit reports to the Minister as may be required;
(d) empowered the Minister to declare by statutory order any agricultural product to be a controlled product and to prescribe the area within which the product is controlled;
(e) empowered the Minister to fix prices payable by ZCF;
(f) provided for the registration of every producer, buying agent, miller, dealer, direct consumer and designated agent by ZCF;
(g) vested the property, rights, liabilities, and obligations of Namboard in ZCF.
6 The National Agricultural Marketing Act, 19 July, 1989.
Barely ten months after the Act was passed by parliament, the Parliamentary Committee on Agriculture observed that the transfer of the administration of the marketing act and assets to ZCF was wrong because ZCF was a private organization and not a parastatal organizations. This was an indication that parliament was not originally fully aware of the implications of amending the Act in the manner it was done.
It is clear from the clauses cited above that the 1989 Agricultural Marketing Act was intended to facilitate government control of the operations of the agricultural market, and to make the cooperatives a vehicle for the implementation of this policy.
The Cooperative Societies Act of 1972 gives broad powers to the government in cooperative affairs. The government, through the Minister and the Registrar of cooperatives, was granted extensive powers to control the registration, operations and policies of cooperative institutions. The wording is as follows7.:
The Minister shall take such measures as he deems advisable for the encouragement generally of cooperative development for economic social and cultural purposes and human advancement on the basis of self help..., andThe Act also emphasizes the social role of cooperatives while only limited attention is given to their economic objectives. The different types of cooperatives are described at length, including Cooperatives for Rural Development, Cooperative for Producers of Natural Products, Building Construction and Housing, Credit Unions, Artisan, Craftsmen and Contracting Cooperatives, Consumer Cooperatives, and Cooperatives for Community Development. This detailing of types is in itself a reflection of governments cooperative ambitions, as was shown in subsequent National Development Plans, which set targets for the number of cooperatives to be formed.
In encouraging cooperative development and in carrying out the provisions of this Act, the Minister shall take authorize or approve such measures as he deems necessary..., and
...an annual report respecting the operations of societies registered under this Act shall be prepared under the direction of the Minister and included in the annual report of the Minister to the National Assembly.
7 Chapter 689 of the Laws of Zambia. The Co-operative Societies Act, 1st March, 1972, Part II, Sections 3, 4, and 7.
The Cooperative Societies Act, which has not yet been amended, shows the governments ambition to closely control the cooperatives, and appears to have been drafted on the basis of a socialist cooperative model, which has proven to be incompatible with independent cooperatives in a market economy.
At the time of independence Zambia was a multi-party state. Due to what was perceived to be potential political problems, however, the new Zambian government imposed a state of emergency immediately after independence, and in 1968 the ruling party, UNIP, started advocating for a one-party state. The main argument advanced at the time was that the existence of political parties based on tribe lines posed a danger, not only to the political stability of the country but also to the creation of an enabling environment for economic development.
It deserves to be noted that about the same time other countries in Africa were experiencing serious political problems, such as the civil war in Nigeria and the military takeover of governments in several countries. The period during the late sixties was also characterized by serious East-West frictions, and the countries of the South were turned into battle grounds for competing political and economic philosophies. Like most newly independent countries Zambia, viewing the West as the architects of colonialism, turned to the East where dictatorial governments under single party rule dominated.
In 1972, the ruling party managed to impose the single party rule, which resulted into the formulation of the new constitution, and the commencement of the Second Republic. All politicians who opposed the change were arrested, and some were charged with treason and sentenced to life imprisonment.
During the period of a single party constitution in Zambia, any organization with broad membership was viewed as a threat to the supreme authority of the party and government. The trade union and the cooperative movements were viewed as potential challenges to the established system. Efforts to affiliate them to the ruling party as mass organizations were successful in the case of cooperatives. The trade union movement managed to resist due to its higher level of member awareness, cohesion and sense of purpose.
The result was that the cooperatives, which up to 1980 had been relatively free and to a considerable extent formed on the basis of local initiative and thus had a grassroots base, became almost totally controlled by the UNIP government. The leadership of the cooperative movement at the time made no overt attempts to resist this development. Some were actively interested in political leadership, others felt that this was the best way of influencing the process of government policy making, while yet others were quietly critical of the decision.
The main argument, advanced by cooperative leaders in favor of this political affiliation, was that if they got involved in the decision making process of the ruling party they would be in a position to influence policies of importance to cooperatives at source. In reality this turned out not to be the case. The cooperatives were allowed only one seat on the ruling central committee of the party, which comprised 21 members and was later increased to 65.
The cooperative representative, in an extreme minority situation, was however bound by the principle of collective agreement. This resulted in cooperative loss of autonomy and an inability to oppose state decisions, even when they had serious economic and other consequences for the cooperative movement.
At a National Cooperative Convention in 1986, it had been agreed in principle that an additional tier in the cooperative movement, in the form of district unions, was desirable. When the government decided to form DCUs in 1988, however, the majority of the national cooperative leadership disagreed with the manner in which the government initiated and dominated the process. Concerning the feasibility of establishing DCUs at that time the cooperative leadership was divided. Consultants, hired by ZCF, carried out a study which showed that the establishment of district unions in this manner was not feasible from an economic and managerial point of view. The government took no apparent notice of those findings, however.
At the operational level the legal and political tools of supervision and control available to the government led to extensive and often arbitrary interference in the activities of the cooperative movement. Instead of being able to operate with autonomy in a mixed economy, the cooperatives became part of a command economy and subjected to dictates from both politicians and civil servants. This was particularly evident in their major activity of agricultural input and crop marketing in the maize sector.
In 1986, for example, the ZCF and ZCF Finance Services were directed by the government to handle huge donor agricultural credit funds, which led to an approximately ten-fold doubling of their credit operations in a short period of time. This seriously undermined the Cooperative Credit Scheme, which had been methodically built up during several years, caused by the rapid expansion in volume and the enforced new rule of also lending to non-cooperators. The credit recovery rates dropped sharply as a result of this and of the fact that electioneering politicians promised borrowers that they would not have to repay their loans.
During every maize marketing season, with its perennial crises of transport, crop finance and storage in this state regulated system without guiding market prices, government officials and politicians at all levels issued series of directives and orders to the cooperatives about their marketing operations. Those invariably intensified and became more interfering as the rainy season approached and major parts of the crop was threatened. The result was increasing unclarity about the rules to be followed and making management of the cooperatives extremely difficult.
The end result for the cooperatives was the undermining of both their economy and autonomy, through their being obliged to carry out operations, particularly in the area of transport, with no or insufficient economic compensation. Subsequently, at the end of each marketing season the cooperatives were singled out by politicians and government officials as the culprits for the normally substantial crop losses that were sustained.
The cooperatives at all levels were also subjected to routine interferences in their operations by civil servants and politicians, and even at times by external donors, resulting in dismissals of boards of directors and managers. While such dismissals many times were justified due to corruption, they were often caused by other motives including power conflicts. The fact that civil servants in most cases were both cooperative supervisors and the required co-signatories of cooperative accounts made their role unclear and was an invitation to collusion.