Op-ed: Is smuggling of maize necessarily bad?

Photo credit: Malawi police (as published in The Nation 29/4/17)

In recent days, MDF troops have been deployed to the northern border to prevent the smuggling of maize into Tanzania and Zambia.  While this action seems a natural response during a year of national food shortage, four factors should give us pause for thought.

First, food supplies during the last few months have been much more plentiful than expected.  This is largely a consequence of substantial unofficial imports of both maize and maize flour from neighbouring countries (in particular Zambia and Mozambique). With a normal to good harvest expected in 2016/17, maize is no longer in short supply in most parts of Malawi.

Second, maize prices elsewhere in eastern and southern Africa, in particular Tanzania and Kenya, are now much higher than in Malawi (see Figure 1).  By preventing maize exports, the Government is both starving Malawian companies of much need cash for the coming season, while at the same time depriving hungry consumers in neighbouring countries.

Figure 1. Retail maize prices, 31 March 2017

Third, the main 2016/17 harvest has already started in southern Malawi and will begin in most other parts of the country within the next month.  If traders are not permitted to export the surplus maize they purchased last season, they will buy less maize from farmers in the coming months. This will further depress farm gate prices that are already on a downward trend (See Figure 2), thereby discouraging maize production in 2018/19.  A vicious (‘cob web’) cycle of under-production and high prices in one crop year, followed by over-production and low prices the next year could result.

Figure 2. Daily average retail maize prices, January – March 2017

Fourth, the prevention of ‘smuggling’ maize by smaller traders may allow larger, better connected companies and parastatal agencies to take advantage of favourable price differentials to export their own surplus and (expensively) acquired stocks.  It is not clear that such preferential treatment will benefit either Malawian farmers or consumers.

Furthermore, it should be noted that there is limited evidence that: (i) governments are able to stabilize grain prices effectively; or, (ii) private sector grain traders make huge profits from ‘hoarding’ during times of food shortages.  Instead, international experience indicates that food price stabilization is both a complicated and expensive proposition. Well-intentioned government attempts to stabilize food prices often do exactly the reverse. Malawi faces the additional problem of being landlocked, which means that the ‘band’ between import and export parity prices is much wider than in countries with coastal ports.  So, international trade can only be expected to stabilize food prices to a modest degree. Permitting the cross-border maize trade with neighbouring countries would help to stabilize domestic prices at minimal cost by narrowing the ‘band’ between import and export parity prices.

In addition, a number of carefully researched studies show that, despite popular perceptions, most small and medium-scale grain traders in eastern and southern Africa operate in competitive markets and rarely make excessive profits. Instead, most grain traders make relatively small profits and perform an important function in keeping prices in different markets and months in line with each other.  Of course, this does not mean the larger traders−particularly those with good connections to Government− may be able to profit from the better information and contacts that they possess, especially in remote locations.  Transparent regulation of the activities of such companies is important to establish a ‘level-playing field’ for all participants in the maize market.

So is it not now time for the Government to reconsider its strong belief that that the ‘smuggling’ of maize is bad, and to permit a mutually beneficial trade in grains with our regional neighbours?

 

*This op-ed was written by Dr. Bob Baulch, Leader of the Malawi Country Strategy Support Program, IFPRI, Lilongwe.  It was also published in The Nation newspaper (Malawi) on April 10, 2017, available at this link.

 

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