Main points in Chapter 1
How does a liberalized market function?
The old, state-controlled system
|The old state-controlled system had so many problems that in many countries…|
… it was breaking down
The new, private-sector system
|The new system overcomes many of the old problems …|
… but it introduces a few new ones (Helping extension officers to work with farmers to solve them is the purpose of this Guide.)
Factors influencing maize marketing
The decisions farmers now have to make
THE OLD SYSTEM
Under the old system, maize marketing arrangements were quite simple. Fairly soon after harvest the farmer delivered his dried maize to the cooperative or marketing board depot at a pre-announced, fixed price. The marketing board stored the crop and eventually delivered it to the government mill and the mill sold the milled maize to consumers. Normally, farmers retained maize for their own consumption and either milled it by hand or had it milled for a fee at a local hammer mill. In a few cases, however, government subsidies on milled maize were so high that farmers actually found it to be in their interest to sell all their maize to the marketing board and buy back milled maize to meet their food requirements. This was clearly an unsupportable situation.
There were several advantages of the former system, at least in theory. Farmers could easily sell their maize and they knew a long time before harvest how much they would get for it. The price was the same throughout the country and this helped farmers in remote areas to obtain a cash income. Storage was done by the marketing board and thus farmers only had to worry about storing maize for their families, not for the market. In many countries the supply of credit was linked to the later sale of maize. Because there was only one buyer of maize it was theoretically possible for agricultural development banks to lend farmers money for fertilizer and seeds and arrange to get repaid through the maize marketing board.
Unfortunately, the advantages of the old system were more than offset by the disadvantages. Some of these were:
The total effect of these problems was that governments basically had to print money in order to keep the system of subsidized prices and high marketing costs going. This was a major cause of inflation with, in some countries, prices rising by over 100 percent a year. It was a system which, sooner or later, had to end.
THE NEW SYSTEM
Under the new or liberalized system there are many different ways in which maize reaches the consumer. These “marketing channels” vary depending on the country and location and cannot all be described in detail here. It is really up to the extension worker to familiarize himself with exactly how the system works in his area, by talking to traders, farmers and millers.
Figure 1 illustrates the main maize marketing channels likely to be found under a liberalized system. These are described below:
Example of a marketing channel
* interaction between consumer and hammer mill
|Since liberalization there has been an increase in the number of hammer mills in most countries in the region|
|Examples of basic hammer mills — Zambia|
The previous descriptions and Figure 1 may appear to be complex but, in fact, they are a rather simple version of the marketing channels that can be found. Traders may have several alternative places in which they can sell the maize they buy from farmers. Traders buying maize in the Mbeya Region of Tanzania, for example, may sell that maize at the retail market in Mbeya town, either to retailers or direct to consumers. But they could decide to transport the maize all the way to Dar es Salaam and sell the maize to other traders, to retailers or to a large mill. They could even decide to sell the maize to buyers from Zambia or Malawi. In fact, one feature of marketing liberalization is that it is likely to lead to greater trade between countries. Unlike the old system, there are no certainties in the way maize is marketed and maize marketing patterns can change rapidly in response to changing market conditions and prices.
INFLUENCES ON MAIZE MARKETING PATTERNS
There are several factors which influence the way in which maize marketing is carried out. These include:
Time of the year
Immediately after harvest farmers are often forced to sell some, or occasionally all, of their crop in order to raise cash to pay off debts and meet household expenses. Maize is readily available, even if the harvest has not been good. This means that traders do not have to go far to find maize to buy and farmers in remote areas are likely to have problems selling their crop.
Location and transport facilities
The marketing channels for maize produced by farmers living close to big cities or close to major roads or railway depots are likely to be very different to marketing channels for maize produced in remote areas. Farmers in remoter areas will have to play a much more active role in selling their grain and may have to take it to the trader rather than wait for the trader to visit their village. The marketing channel for maize from remote areas is also likely to have more intermediaries involved, so that the maize may be bought and sold several times before it finally reaches the consumer.
Availability of market places
Where there are markets which attract a large number of consumers or traders looking to buy maize, there is more incentive for farmers, either individually or in groups, to try to sell their own produce. As maize has not been traded at markets in large quantities until recently, several countries in the region lack suitable local markets which can operate weekly or twice-weekly. One role for extension workers is to identify possibilities for developing or improving such markets.
Size of the harvest
When the harvest is good traders will only want to buy maize when they are sure they can sell it at a profit. Traders in remote areas may feel that their marketing costs to send maize to distant towns are so high in relation to the price that it is not worth buying more than they need to supply local communities. When the harvest is good, all traders will be reluctant to buy maize for storage because the price is unlikely to go up enough to cover storage costs. On the other hand, when the harvest is poor traders with spare cash will look to buy maize cheaply and store it, in expectation of a large price rise later in the year.
Size of the harvest in neighbouring countries
As mentioned, countries in the region can no longer regard themselves as islands as far as maize supply and demand are concerned. As trade between neighbouring countries is increasing, a poor harvest in one need not necessarily lead to big price rises. It all depends on what happens in the others. Clearly, countries of the region do tend to experience similar weather patterns and when there is a major drought it usually affects several in the region. But rainfall in South Africa can be good when it is poor in Malawi, Zambia and Zimbabwe and weather patterns in Tanzania and Kenya often differ from those in the centre of the region. Thus traders will increasingly come to make decisions about how much to buy, when and at what price and about whether or not to store, on the basis of the harvest in neighbouring countries as well as the one in which they are operating
DECISIONS FACING FARMERS
Farmers are now faced with a bewildering range of options over selling their maize and the extension workers need to be able to help them make the right decisions. If a farmers has to sell immediately after harvest in order to raise cash …
Selling the crop is not the only change that farmers are having to adjust to. The pattern of farm input marketing is changing, as are arrangements for credit. In most countries of the region fertilizer was until recently distributed by government agencies which worked closely with agricultural development banks. In some countries, the agency selling the fertilizer was also the agency buying the crop which, in theory, made it easier to get repayment from farmers.
Under the new system, private-sector fertilizer retailers are taking or have taken over from government agencies. Private traders may be able to give credit to a few farmers but this will be the exception as such traders will not have the financial resources to provide large quantities of credit. They will only give credit to farmers they know and can trust to repay. Farmers will also find it more difficult to get loans from agricultural development banks, as these banks can no longer rely on the marketing boards to collect repayment. In the short term, at least, many farmers will have to pay for their inputs in cash. Extension workers have a job to do in pointing out to farmers the need to save money to buy inputs for the following season. They can also work with farmers to develop group credit applications, as credit requests from groups are more likely to find favour with the banks.