Write a note on instruments of government control
Answers
Until 1985 Namboard was the monopoly buyer of maize at prices set by the government and the cooperatives were merely agents. The establishment of Namboard was based on the belief that centralized agricultural marketing would streamline the operations, while the promotion of cooperative unions was viewed as a way of protecting the peasant farmers from exploitation.
In 1986, Zambia made its first attempt at implementing the Economic Structural Adjustment Programme (ESAP) by liberalizing agricultural marketing. Namboard’s monopoly was removed in order to enable the cooperatives, millers, and other traders to participate in maize marketing.
Namboard remained the buyer of last resort and a government tool for intervening in the market. Producer prices of all controlled agricultural commodities, except maize for which a fixed price was determined, were set as floor prices. This meant that any price above the floor price was determined by supply and demand, and producers and buyers had the freedom to bargain. It was hoped that marketing costs were going to decline in this system as a result of competition and reduced average transport distances, due to decentralization.
This partial liberalizing did however have the opposite effect. The private traders who were allowed to participate in agricultural marketing demanded adequate compensation for their handling costs, and as a result there was an upward push in the price of maize meal which culminated in serious food riots in 1986. The government responded by nationalizing all maize milling facilities with the aim of controlling milling costs and hence check price increases.
In 1987, the government launched the New Economic Recovery Programme (NERP). Among the major policy changes was the re-introduction of extensive price control and the restriction, once more, of agricultural marketing in maize and fertilizer to PCUs/PCSs and Namboard. In mid-1988 primary marketing of maize was further restricted to PCUs/PCSs only.
In mid-1989, the government announced the dissolution of Namboard and transfer of its agricultural marketing and related functions to ZCF, including fertilizer importation, maintenance of maize strategic reserves, importation and distribution of empty grain bags, and provision of fumigation services. The main justification for the decision was the further streamlining the of the agricultural marketing system by avoiding duplication of responsibilities and double handling.
It was further envisaged that by transferring these functions to ZCF coordination with other cooperatives would be easier and thus the system would be much more efficient. This was not the case, however, as the same problems, such as of late input delivery and late payment to farmers persisted. As the policy framework did not change a decision to merely replace one organization by another could not be expected to solve deep rooted agricultural marketing problems.
The move to dissolve Namboard was subsequently criticized both in the cabinet and parliament, the main objection being the fact that ZCF as a private organization could not be responsible for administering part of the law of the land, in this case the Agricultural Marketing Act.
4.2 Effects of Regulated Marketing on CooperativesThe agricultural marketing policy has been motivated by equity and socio-political rather than commercial considerations. The main concern of the Zambian government was twofold, namely:
(i) to ensure food security for urban consumers, and(ii) to increase rural agricultural production and guarantee a market for all production as a means of improving rural farmer incomes.The government hoped to achieve these objectives through subsidizing both maize consumption, and, to a smaller degree, production in peripheral areas. The highest priority, however, was to reduce the price of maize meal to the urban consumers, and this was done by introducing a consumer subsidy. The subsidies took the form of direct payment of crop marketing and input distribution costs by the government on behalf of consumers.The policies distorted the basis for sound business management in the participating cooperatives as negotiations with the government on cost compensation, rather than successful business operations, was the most important factor in determining business income. The policies further and contributed to the following specific shortcomings in the agricultural marketing Timing of Purchases and Sales of Maize.
Cooperatives purchased maize from farmers during the period July to September, during which time all maize had to be bought and delivered to safe storage before the rains in late October. This exercise required huge cash outflows to pay farmers and transporters during a limited period of time, while maize sales to millers was gradual, reflecting the nation’s consumption. This meant that the cooperatives had to hold stocks of maize for a long period before realizing cash inflows.