Why protectionism just hurts maize farmers and consumers
The standoff between maize growers and the government over the producer price hasn’t come as a surprise. When the government offers Sh2,300 for a bag (90kg) of maize, the producers are justified in rejecting it because they do not see how the price was determined.
Neither are consumers satisfied that this is the right price to safeguard their interests. From their perspective, it doesn’t make economic sense to set a price higher than the established free market cost of maize. Prices published by the Agriculture and Food Authority on November 5 showed that maize was trading and Sh1,500 a bag in Nakuru and Sh1,600 in Eldoret, and Sh2,000 in Nairobi and Loitokitok. The highest were Sh2,500 in Malindi and Sh2,600 in Kisumu.
Government intervention distorts the maize market by interfering with the forces of supply and demand.
Moreover, the government funds the National Cereals and Produce Board every season to buy maize from the farmers, but doesn’t question why it never achieves financial independence when it sells the maize. The plot is the same this time round—the Strategic Food Reserve Fund has applied for Sh5.7 billion from the National Treasury to facilitate the NCPB to buy 2.5 million bags of maize from the frustrated farmers.
Controversy over the pricing of maize delivered to NCPB has persisted for decades, fuelled by the manipulation of market forces by reactive government policies and wily cartels that have kept the cost artificially high at the expense of both the producers and consumers.
The government’s action is premised on three myths. First, the belief that maize is Kenya’s staple food and “staple” is synonymous with food security.
Even though maize is consumed by most communities, its absence doesn’t mean that the people will suffer food and nutrition deficiency. Indeed, consumers would improve their health by diversifying their diet.
Second, the misplaced assumption that maize farmers need to be protected and that NCPB acts in the best interests of farmers.
Numerous studies have shown that the protectionist policies that keep the NCPB as a major player in the maize market distort the pricing, keep cartels in business and increase the suffering of poor consumers.
In a case study of the maize and sugar market, the World Bank argued in a policy paper in 2015 that government intervention inflated the prices of the two commodities by 20 percent. Less intervention in the maize market, said the paper, could reduce poverty by 1.8 per cent.
Third, the fallacy that keeping the farmers happy through subsidies would protect consumers from high prices.
This doesn’t always work because the total sum of maize output is not just a function of government stimulus of subsidised fertilisers and artificial producer prices.
Several other factors, including weather variability, farming practices and post-harvest handling, significant impact on the volume of maize available.
Time series data from 1961 shows how frequently maize output dips in response to poor rainfall patterns—with the worst years being 1971, 1980, 1984 and 2008.
Yet, in good times, there’s quick and strong recovery, such as in 2012, when output rose to a record 3.8 million bags.
When drought hit the country last year, the government’s response was to allow massive importation of duty-free maize.
This intervention turned into a major scandal in which public funds were lost and consumers were exposed to food unfit for human consumption.
Rather than continue to pump good money after bad, the government should create an enabling environment for the private sector to invest in maize value chains—from the farm to processing factories. This would improve the efficiency of the maize sector.
Sustainable maize production would improve prospects for the government to achieve food security, increase manufacturing value added and create quality jobs for youth.
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