FRA’s Deepening Fiscal Trap:Zambia’s Maize Crisis and the 2026/2027 Black Hole

FRA’s Deepening Fiscal Trap:
Zambia’s Maize Crisis and the 2026/2027 Black Hole

By David Ryder

8th November 2025

Zambia’s Food Reserve Agency (FRA) remains a crucial but persistently destabilising institution in the country’s agricultural economy. Its core mandate—to maintain strategic food reserves and stabilise maize prices for producers and consumers—continues to be undermined by chronic
underfunding, culminating in a large fiscal breach in late 2025.

Following a presidential directive1 to purchase all excess maize, the FRA bought more than 1.7million metric tonnes (MT)—well above its financing envelope and storage capacity.

The decision reflects a broader pattern in which a legitimate social objective (supporting small-scale farmers) is pursued through fiscally unsound means, creating large unfunded liabilities for the state leading to a deep economic trap for the years ahead.

In overriding budget limits, the directive also weakens the FRA’s operational integrity, directly
threatening its core mandates of safeguarding farmer welfare, ensuring national food security,and sustaining future production capacity.

1. The Historical Role of Arrears as a Social Cost

The FRA, established in 1996, operates on a complex dual mandate: food security and price stabilisation. It achieves this by purchasing maize at a politically determined, pan-territorial price often above market rate, which serves as an output subsidy for small-scale farmers.

• Farmer Welfare Mechanism: The high FRA price is a direct transfer of public funds to the rural poor. Research indicates the FRA has been effective in reducing poverty and increasing farmer incomes, especially for net maize sellers.

The late payment of this money—the perennial FRA arrear—is the mechanism by which this social cost is temporarily deferred from the Treasury to the farmer.

• The Funding Gap: When the FRA sells this maize to millers at a lower, subsidised price to keep mealie meal affordable for urban consumers, it creates a structural deficit (the
subsidy portion) for every bag sold. This deficit is supposed to be covered by the national budget (the Strategic Food Reserve allocation).

When this budgeted funding is delayed or insufficient, the deficit instantly becomes an arrear owed to the farmer.

The arrear is thus a revolving social cost financed by the farmer’s forced, interest-free credit to the State.

In the 2024, the subsidy amounted to K80 per 50 Kg bag or about 24% of the government set purchase price of K330.

In the plenary of the National Assembly of Zambia on 12 September 2025, President Hichilema stated:
“Madam Speaker, that is the issue on the table – to buy all the maize.”

• Negative Externalities: This historical practice has, however, discouraged crop diversification, biased production toward maize monoculture, and crowded out the private sector, which cannot compete with the government’s highly subsidised floor price.

2. The Fiscal 2025 Liability Crisis
The FRA’s mandate combines two conflicting objectives: securing a Strategic Food Reserve (a buffer stock) and stabilising market prices (a social function).

The 2025 crisis arose when the
latter objective was pursued without any financial grounding. (Read the Sidebar for detailed calculations.)

• The Unfunded Mandate: The FRA’s initial approved budget for the 2025 strategic reserve was based on purchasing approximately 543,000 metric tonnes (MT).

However, following a Presidential Directive to “buy all surplus maize” to support small-scale farmers, the FRA purchased an astounding over 1.7 million MT (34 million 50Kg bags at K340/bag).

The agency’s liability of K11.56 billion (about USD 503 million) is nearly five times the approved budget of K2.40 billion (about $104 million) for the Strategic Food Reserve.

This represents a K9.16 billion (about $417 million) expenditure breach.

• The Policy Consequence: This is the essence of fiscal indiscipline. It is the failure to align expenditure (the purchase commitment) with available resources (the budget allocation).

The resulting K8.56 billion (about $372 million) outstanding arrear after an initial Treasury payment of about K3 billion is not a temporary cash flow problem but a structural deficit—
the direct cost of an unfunded government policy.

• The Debt Swap: The subsequent K5 billion (about $217 million) commercial loan, raised this week to plug this hole, is an emergency measure that formalises the indiscipline.

The government is converting a domestic social liability (farmer arrears) into a formal, interest-bearing debt that must be serviced from the national budget. This action directly
increases the public debt burden and strains the resources committed to Zambia’s ongoing debt restructuring and fiscal consolidation efforts.

3. The Added 2026 Black Hole

The financial engineering to close the 2025 hole has merely shifted the problem and created a definitive new black hole for the next budget cycle.

• The Unfunded Arrear: After the K3 billion initial payment and the K5 billion loan, there remains a residual, unfunded arrear of approximately K3.56 billion (about $155 million)

(K11.56B total liability less K8B in payments/loans).

This remaining debt has no clear, explicit funding source in the published budget and will likely be paid slowly from revenue streams or supplementary budgets, ensuring the arrear cycle continues.

• The 2026 Budget Inconsistency: The proposed 2026 National Budget allocates only K2.1 billion (about $91 million) for the Strategic Food Reserve.

This allocation is barely sufficient to cover the original planned purchase target for the 2026/2027 season
(500,000 MT), let alone the structural 2025/2026 deficit or the cost of the new K5 billion debt servicing.

• The Fiscal-Social Dilemma: The government is legally obligated to service the K5 billion commercial debt, which will divert significant revenue. Simultaneously, the K3.56 billion domestic arrear to the farmers remains a major social liability. The 2026 budget is therefore structurally predisposed to running a major arrear before the first bag of the next
harvest is even purchased.

4. Jeopardising Food Security: Storage and Spoilage

The political imperative to buy maize superseded the operational and logistical capacity of the FRA, directly jeopardising the grain that was purchased in the name of food security.

• Capacity Overreach: Zambia’s secure national storage capacity (silos and sheds) is approximately 1.5 million MT.

Purchasing 1.7 million MT means the FRA exceeded its own safe limits.

• Spoilage Risk: Consequently, hundreds of thousands of tonnes of maize have been stored on open-air concrete slabs covered by tarpaulins. With the onset of the rainy season, this grain is highly vulnerable to moisture, aflatoxins, and pest infestation.

• Loss of Strategic Value: If a portion of this stored maize spoils, the total value of the K11.56 billion investment is immediately diminished.

This operational failure means the act of buying grain to ensure food security is compromised by the failure to store it securely, negating the entire public investment.

The imperative to export quickly—even at low revenue margins—becomes a race to save the commodity from ruin, rather than a planned revenue-generation strategy.

5. The Missing Cash: Impoverishing the Farmer and Undermining Future Harvests.

In 2022, the World Bank estimated that 80% of poor Zambians live in rural areas and earn a living of less than $3 a day as farmers.

The persistence of the arrears directly contradicts the FRA’s mandate to support the farmer and, critically, risks jeopardising the 2026/2027 planting season.

• Liquidity Crisis for Planting: The K3.56 billion in residual, unfunded arrears is cash that is missing from the rural economy during the critical time for buying inputs (seed, fertiliser).

Farmers who are not paid cannot adequately finance the next season’s crop.

• Reduction in Production: This forced liquidity crisis compels small-scale farmers to:

o Reduce the acreage planted or delay planting, leading to a projected smaller
national harvest in 2027.

o Buy inputs on credit at higher, unsustainable rates.

o Divert resources that should be used for crop diversification back into maize just to survive.

• Erosion of Trust: The continuous cycle of late payments erodes farmer confidence in the government, undermining the long-term objective of increasing agricultural productivity
and making Zambia a regional food basket.

The unfunded social programme designed to support them ultimately subjects them to financial uncertainty and penalises their efforts
to increase production.

• [To learn more about the challenges faced by farmers, including delayed payments from the FRA, watch LATE PAYMENT BY FRA WORRIES FARMERS IN MANSA published on the 15th October 2025 by Diamond TV.]

6. The Export Imperative and Strategy Shortfall
The record purchase of 1.7 MT has created an urgent export imperative to generate the foreign exchange (FOREX) needed to service the new K5 billion loan and clear the K3.56 billion arrear.

• Storage and Spoilage Risk: Zambia’s total secure national storage capacity is estimated at around 1.5 million MT. Storing 1.7 MT means hundreds of thousands of tonnes are currently kept in high-risk, open-air conditions under tarpaulins.

This forces a rapid-sale strategy to beat the onset of the heavy rainy season, which could destroy the commodity and wipe out the potential revenue.

• Export Strategy Shortfall: The government has approved the export of the surplus (500,000 MT) and is pursuing a massive 1 million MT G-to-G (Government-to-Government) deal with the DRC. While these are large volumes, the FRA is primarily an exporter of raw grain, not value-added mealie meal.

This means lower revenue per tonne compared to a private-sector-led export strategy focused on processed products, thereby extending the time needed to recoup the K8.56 billion deficit. The lack of a consistent, private-sector-friendly export policy (often characterised by ad-hoc bans) undermines the necessary investment in milling and logistics that would generate higher FOREX.

Conclusion: Necessary Policy Realignment to Close the Perennial Black Hole

The current crisis makes it clear that the FRA cannot simultaneously serve as an unfunded poverty alleviation programme and a financially sound manager of the national reserve.

Theimmediate priority for the Ministry of Finance is not just to secure payment for the K3.56 billion residual arrear but to enforce strict financial discipline. The K5 billion loan must be viewed as a fiscal bailout, and its repayment must be financed transparently.

The government must take decisive steps for righting the FRA’s operations:

• Focus on Liquidity in the Export Strategy: Aggressively execute export contracts (especially the G-to-G deal) to generate cash immediately to clear or offset the K3.56B arrear, service the K5B loan interest, and avoid spoilage risk.

• Budget Transparently in Full: Immediately table a supplementary budget to explicitly fund the remaining part of K3.56B arrear not covered by export revenue and the K5B loan
repayment.

• Enforce Budgetary Limits in Line with Fiscal Consolidation: The FRA’s purchasing mandate must be strictly limited to the K2.1 billion allocation for the 2026 budget equivalent to only 300,000 MT Strategic Reserve, alternatively allocate a supplementary budget to cover excess planned purchases, thus ending the practice of unfundeddirectives.

A budget of K6.8 billion is required for 1 million MT at K340/bag.

• Prioritise Food Security: Immediately budget to invest to upgrade and expand secure storage facilities to match the intended volume of the strategic reserve.

• Shift Social Burden: Separate the social cost of supporting farmers from the FRA’s balance sheet and place it into a different, explicitly budgeted, social safety net programme, allowing the FRA to function purely as a strategic stock manager.

This crisis demands a fundamental return to fiscal prudence and the right sizing of FRA’s mandate and budget.

The FRA’s role must be restricted to a strictly defined, fully funded Strategic Food Reserve, or Zambia will continue to pay the price for turning a social cost into a national debt emergency that risks future food security.

Sidebar: The FRA’s Unfunded Maize Purchase and the K8.56 Billion Black Hole

This sidebar summarises the financial failure of the 2025 maize purchase, where an unfunded political directive ballooned a K2.4 billion budget into an K11.56 billion liability, forcing the
government into emergency commercial borrowing.

1. The Budget vs. The Plan (The Initial Flaw)

The 2025