By Fred M’Membe
WHAT HAS HAPPENED TO OUR STRATEGIC RESERVES?.
Strategic reserves are contingent holdings to mitigate against unforeseen occurrences or catastrophes. When “business as usual is disrupted” by unplanned incidents so as to minimise the adverse impact of the unplanned event as actions are being undertaken to restore the status quo (Business as Usual).
Some critical reserves we have in Zambia include, fuel, Bank of Zambia International and Maize reserves. Should an unforeseen adverse event occur, government dips into these reserves to MINIMIZE not ELIMINATE the negative impact on the markets affected. Therefore, reserves can NEVER, be used as a daily operational tool.
Specific to Food Reserves (Maize), the government during the maize marketing season buys strategic maize reserves which is held by the Food Reserve Agency (FRA). In the past, government bought 500,000 metric tonnes of maize out of the total maize production of 3.6 million metric tonnes say in 2020 which translated to less than 20 per cent of total production at FRA dictated price per tonne. The 80 per cent remainder of the production is absorbed by the private sector at prices dictated by the market, which more often will be higher than the FRA price and also includes export prices. The private sector, amongst others, include milling companies for production of stock feed, maize meal and so on and so forth.
The implications on our current mealie meal issue are, inter-alia:
1. Mealie meal prices after processing the maize, will largely be dictated by the price at which 80 per cent of the production was bought by the private sector which is likely to be above the FRA floor price (market price)
2. In a liberalised market economy like ours, the private sector is at liberty to export their maize stocks at attractive export market prices which are much higher than local prices, unless government bans or restricts exportation
The implications of this are:
1. It is a fallacy to assume that releasing maize from the FRA reserves can bring down prices as the stock released is insignificant to have a real price impact given that 80 per cent of the maize stock is in the hands of the private sector. This policy intervention has failed in previous governments and only goes to enrich the millers who will buy the maize at a discount from FRA and still sell at market prices.
This policy measure is also unsustainable as government does not have sufficient stocks to continuously provide market intervention on account of price increments.
It is also misaligned to the very objective of maintaining strategic reserves which ideally should be used to mitigate natural calamities of which pricing is not one of them.
2. The end result of this policy intervention is that we will deplete the food reserves to zero and when a real natural calamity arises, we will have no fall back position and the country will be in serious trouble.
Contrast, how the maize reserves are being handled to Bank of Zambia international reserves of which the two reserves are established to serve a similar purpose. Bank of Zambia will only intervene when additional dollars but have set a target of maintaining a minimum 3 months import cover at any given point which translates roughly to between $2.5 – $3 billion.
What miminim reserves ratio has FRA set? In recent past FRA released 165,000 metric tonnes to suppress price and yesterday announced another 65,000 metric tonnes to deal with a shortage of mealie meal this cumulatively translates to 230,000 metric tonnes released and assuming the reserves are 500,000 metric tonnes then almost 50 per cent of the reserves are gone in the first quarter of 2023 and new crop harvest has not commenced.
This explains the importation of mealie meal because we are now running out of reserves and we should PRAY that no natural calamity falls on us.
What is the solution:
1. Aggressively increase maize production by providing conducive environment at government policy level to incentivise farmers to grow maize
2. Increase strategic reserve ratio to at least 50 per cent of maize crop production to have an influence in the market. Current less than 20 per cent has no impact on the market and if anything just goes to benefit the millers.
3. Direct subsidies on mealie prices will not cause any harm as this is the country’s staple food on which the vulnerable depend.
4. Government should set up industrial milling plants to influence the performance of this market in the medium term in order to have a real say in the maize market.
The point number 2 which talks to liberalised market incentivises private sector to focus more on exporting the commodity at lucrative prices to enhance their profitability at the detriment of creating a shortage in the local market as is the case now
On the solutions, we also need to mechanise agriculture and move away from the traditional hoe and ox driven production methods and this where government incentives are necessary, including providing cheap subsidised farming equipment.
Fred M’membe
President of the Socialist Party