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Zambia’s government has just banned the imports of some farm produce as a way of promoting the growth of the agriculture sector. The Conversation Africa’s Samantha Spooner asked Calestous Juma about the impact this will have on African countries and their agricultural sectors.

Which African countries are the biggest importers of fruit and vegetables and how much do they rely on to meet local demand?

In 2013, the import value of all fruit and vegetable categories for the African region was about $1.2bn. However, the trade tends to be localised in countries that have poor infrastructure. They have short shelf lives so it’s important to get them to the market quickly. Consumers are also discerning and avoid buying produce on the edge of being spoiled. Many of them may not have refrigeration at home so are selective in what they buy.

Poor infrastructure means that countries such as Nigeria end up being major tomato importers because they can’t keep up with the demand. Over the last 12 months Nigeria imported 189.5 tons of tomato paste. This is despite the fact that they have states with ample land for growing tomatoes close to major urban centres such as Lagos.

The importance of investing in infrastructure, as I argue in The New Harvest, has significant implications for food production, storage and distribution.

But poor infrastructure isn’t the only driver of imports, especially of fruit. Other factors such as taste, widely available variations among nations – like India – in fruit production, and seasonal availability are important forces behind the globalisation of the fruit trade.

Advances in freight technology and expansion of shipping have also made it possible for exporters to achieve economies of scale that out compete local producers. China, for example, is emerging as a major fruit exporter partly because of its world class capacity in shipping and logistics.

Is banning imports a good way to boost the local agricultural sector? Has it worked elsewhere?

Banning imports is a blunt tool for stimulating local production. It often triggers unnecessary trade reprisals unless there’s evidence of health concerns. And they’re a poor substitute for measures such as investments in local infrastructure that would enable local producers to compete favourably.

But it’s also important to take into account the political context that leads to bans. Countries like Zambia, for example, don’t have a long agricultural tradition and are under pressure to protect the emerging sector.

Zambia historically specialised in mineral exports and relied on food imports from neighbouring countries and international markets. It sought to diversify it’s economy when global copper markets tanked late last century and the economy collapsed. As a recent entrant into the green vegetable export market, Zambia has previously faced phytosanitary barriers to its exports.

Given the circumstances it’s clear why the government would want to protect local producers. But the ban is unlikely to result in the desired outcomes except to provide relief for existing producers. Bans are usually not permanent and so do serve as incentives to encourage new investment that may take a long time to show results.

Are international trading rules inclusive enough to accommodate a country’s different needs and pressures?

While I think bans don’t work in many cases, international trade rules cannot operate well without any consideration for their implications on ordinary people.

International trade can be designed as a positive-sum game. And it should be. But it will continue to be challenged when it carries the seeds of irreparable loss of livelihoods. Of course we need international trade, but it needs to be guided by different ethical stands such equity so countries are not pushed into continuous conflict because of the fear of being excluded from the global market.

4. What impact does importing agricultural produce have on local agricultural sectors?

Imports are not necessarily bad in themselves. They are part of a global system that’s theoretically built on the principle of reciprocity. This includes the expectation of reasonable balance of trade between the partners. Quite often bans are motivated by imbalances in trade relations.

Banning imports simply because one is seeking to protect local agriculture – and without just cause – is generally a poor approach to achieving food security. In many cases, imbalances in agricultural trade exist because African countries haven’t made the necessary investments – such as storage facilities and capacity building in international trade practices – that allow them to become important players in the global economy. Therefore, imports and suppressed local production tend to reinforce each other.

Even when countries increase production they still have to contend with the challenges of breaking long-term import contracts or violating international trading rules.

5. Have other African countries introduced similar bans?

Many countries tend to introduce bans to reduce the amount of foreign exchange used for imports, not necessarily to stimulate local production. When foreign exchange earnings improve they tend to reverse the bans. This often affects those local businesses that may have thought the bans would benefit them.

It’s therefore important to first put in place policies and incentives that promote local production. Their effective implementation often makes the need to introduce bans unnecessary.

Nigeria has previously imposed bans on imports. One example was barley. This helped to stimulate the use of sorghum to produce beer. But the motivation was foreign exchange management, not necessarily to promoting innovation in brewing.

In another Nigerian case, foreign exporters of wheat stifled efforts to introduce bread that was made with 40% cassava. The government didn’t ban wheat imports but a bill put to the legislature to require the blend was starved of support and defeated. Such is the power of food import lobbies.

In this case the initiative would’ve stood a better chance of success if it had found a way to extend benefits to those who were likely to lose from reduced wheat imports. It’s such losers who become the sources of resistance to new ideas, as I argue in Innovation and Its Enemies.

6. Apart from banning imports, what should African countries be doing to grow their agricultural sectors?

Banning imports may protect a few existing producers but in the long run it should not be considered as a tool to grow the agricultural sector. The focus should be on laying foundations for agricultural productivity, starting with infrastructure and working up the value chain to developing agro-industries.

Without reliable roads, power supply and irrigation there is little chance that Africa will radically transform its agriculture. Much effort is going into scientific research, which is commendable. But the gains from productivity will have little impact if produce can’t reach the market because of poor infrastructure and a lack of competence in logistics.

And more than anything else Africa needs agricultural engineering. Today Africa exports less food than Thailand. The immediate goal should be to learn how Thailand became an agricultural force and apply the lessons to regional trade.

Africa will become a more serious international player when it can trade effectively with itself. It’s like the world of football. Those countries that don’t have strong regional leagues tend to shine in the first rounds of the World Cup tournament then they flounder.

Calestous Juma, Professor of the Practice of International Development, Harvard Kennedy School, Harvard University

This article was originally published on The Conversation. Read the original article.

-This article is part of a series of studies titled “barriers to entry”, specifically looking at the expansion of regional supermarket chains in southern Africa. The article draws from studies that look at the spread of supermarkets in the region and how the market power of large firms in different sectors can hold back economic development.

Supermarkets are a key route to market for many suppliers of food and household consumable products. The growth of supermarket chains in southern Africa presents important opportunities for suppliers, as it potentially opens up much larger regional markets for them. Supermarkets can therefore be a strong catalyst to stimulate suppliers in food processing and light manufacturing industries in southern Africa.

But even the most efficient suppliers with competitively priced, high-quality products are unlikely to succeed if they can’t get their products to consumers. Here, large supermarkets play a key role. Onerous requirements and exertion of buyer power by large supermarket chains can result in small- and medium-sized suppliers and entrepreneurs failing to enter and participate in the economy.

We examined the obstacles to accessing shelf space in supermarkets in Botswana, South Africa, Zambia and Zimbabwe. The research revealed a range of costs that suppliers incur even before a single unit of their product is sold off supermarket shelves in each country.

Supplier development initiatives have been put in place by supermarkets and governments. But these have had limited success because they are restricted in scale and scope, are largely ad hoc, and don’t have a regional development perspective in mind.

There is a need for more co-ordinated, sustainable and regionally focused interventions to increase the participation of suppliers in supermarket supply chains. These should aim to reduce barriers to entry by, for example, curbing supermarket buyer power and building capabilities of suppliers.

Supermarket buyer power

Pick n PayThe formal South African supermarket industry is concentrated, with only a handful of large chains holding more than 70% of the national market share. South African supermarket chains also have a strong and growing presence in each of the other countries assessed, although recent years have seen the emergence of other African and global chains too.

Large supermarket chains therefore have considerable buyer power, and are often able to control pricing and trading terms with suppliers. This can include a range of fees such as listing or support fees paid by suppliers to get their products listed in supermarket books. These fees can be prohibitive for small suppliers. Estimates of listing fees in South Africa range from US$350 to $3,500 per year for a single product line of a basic food item on the shelf. They can go as high as $17,000 to $20,000 for prime till positions for products like sweets and lollipops for a limited time period.

In Zimbabwe, listing fees can be up to $2,500 per product line, with $50 to $100 for the introduction of additional new product lines by the same supplier. Suppliers are also often required to offer supermarkets settlement discounts for paying them within the number of days stipulated in the trading terms. This varies depending on the supplier.

Long payment periods put considerable pressure on suppliers’ cash flow and working capital which is problematic particularly for small suppliers. Local suppliers in Zambia raised this as a key reason for non-participation in supermarket value chains although it was a concern in all the countries studied.

Over and above the advertising costs faced by suppliers themselves in creating brand awareness for their products, supermarkets require them to make a host of additional payments. These can include:

  • discounts off the purchase price for indirect advertising;

  • contributing towards promotions. Our research showed that it can cost anything from $2,500 to $7,000 to promote a single product line as a contribution to the costs of the supermarket advertising through TV, newspapers and flyers; and

  • paying to participate in different promotions held by supermarkets such as Easter and Christmas promotions.

A range of other fees also apply, varying by supplier and according to industry. These include general discounts, fixed or variable rebates based on sales volumes, transport discounts and swell or wastage allowances.

Cumulatively, the various fees can add up to at least 10-15% off the price of the product sold to supermarkets, placing considerable strain on supplier margins.

Other obstacles to accessing shelf space

General access to good shelf space often comes at further costs. It is critical for successful sales that products are displayed where shoppers can easily see them. Eye-level shelf space is often taken up by Spardominant suppliers.

Similarly, access to refrigeration space is important for suppliers of cold products such as soft drinks, ice creams and frozen food. There have been competition cases [globally]

((http://ec.europa.eu/competition/antitrust/cases/dec_docs/39116/39116_258_4.pdf; http://www.ccm.mu/English/Documents/Investigations/INV019-Final%20Report%20of%20Undertaking-NC.pdf) and in South Africa that have recognised the harm to competition of dominant suppliers imposing exclusivity requirements on fridge space.

Over and above legal requirements such as compliance with national standards, food safety, labelling and packaging requirements, suppliers also have to adhere to private standards imposed by supermarkets. These can include barcoding and specific packaging requirements as well as sustainability criteria and religious requirements (such as halal and kosher certicfications).

These can also include higher accreditation standards which often involve on-going audits at the supplier’s cost.

Helping emerging suppliers

Codes of conduct between suppliers and supermarkets can be a useful way to control the exertion of buyer power.

In the UK, for example, the Groceries Supply Code of Practice was set up specifically to oversee the relationship between supermarkets and their suppliers following an inquiry by the former Office of Fair Trading.

Similarly, in Ireland and Spain, there are plans to institute voluntary or mandatory codes of conduct in the grocery sector to govern commercial relations between suppliers and supermarkets in the food chain. We recommend that such codes also be set up in southern Africa. Given the multinational nature of supermarkets in the region, these codes can be harmonised across the region.

Supermarkets can also play an active role in building the capabilities of suppliers. Almost all supermarkets in South Africa have some form of voluntary supplier development program in place. In some instances, large supermarkets have been mandated to set up supplier development programs. For example, as part of the merger between Walmart and Massmart, the merged entity was required to set up a supplier development fund. Around $16.7 million was allocated to be spent over five years to develop suppliers.

Some aspects of the program involving farmers were unsuccessful. But there have been positive outcomes for some black entrepreneurs in food processing. One beneficiary, Lethabo Milling, a new entrant producing maize meal, received around $110,000 towards refurbishing his plant. And the company was able to secure a loan from a commercial bank on the back of a guaranteed route to market through supplying Massmart stores in South Africa. Lethabo Milling also received additional support through training, waived listing fees and fast-track payments.

Successfully developing supplier capabilities in the region requires a much larger, long-term and commercially oriented approach by supermarkets in partnership with governments. This can be done through the creation of supplier development funds similar to the Massmart/Walmart programme. Funding can also come from fines levied by the competition authorities in abuse of dominance or cartel matters in each country.

Reena das Nair, Senior Researcher, Centre for Competition, Regulation and Economic Development, University of Johannesburg

This article was originally published on The Conversation. Read the original article.

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