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| Toward improved marketing and trade policies to promote household food security in Central and Southern Mozambique |
| June 2005 |
| David Tschirley, Danilo Abdula and Michael T Weber |
Acknowledgements: Paper prepared for the conference on "Toward Improved Maize Marketing and Trade Policies in the Southern Africa Region", Sponsored by FANRPAN, June 21-22, 2005, Centurion Park Hotel, Centurion, South Africa |
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This paper draws on insights generated from previous and on-going research on
agricultural marketing and policy issues conducted by the Department of Agricultural
Economics at Michigan State University in collaboration with colleagues in the Ministry
of Agriculture of Mozambique. Support for this analysis was provided by the
Rockefeller Foundation, USAID/EGAT and Africa Bureau, and the World Bank.
Support from the USAID mission and Ministry of Agriculture in Mozambique is
acknowledged for their role in financing the collection and analysis of household survey
data reported in this study.
Executive summary
Mozambique’s food production and marketing system faces a huge set of challenges over
the next decade, driven by population and income growth, and by a rapidly rising urban
share of population. We examine this challenge through the lens of the country’s primary
staple, maize, focusing primarily on the Center and Southern regions of the country.
After presenting summary information on data sources, we examine trends in population
growth and urbanization, highlighting the dimension of the production and marketing
challenge that the country faces. Section 4 examines the structure of maize production
and farm level marketing. In Section 5 we review urban and rural consumption shares of
maize relative to other staples, and estimate the proportion of net maize buyers in rural
areas. Section 6 links production and consumption by focusing on milling, with special
emphasis on the Central and Southern regions. In section 7, we examine maize trade
between South Africa and southern Mozambique, highlighting the potential impact of the
value-added tax on maize grain imports. Section 8 concludes.
Mozambique’s urban population share is estimated to be above 35%. Rural population
growth rates were slightly negative between 2000 and 2005, compared to over 5% annual
urban growth rates. These growth rates will lead to an urban population share of 48% by
2015. Even if economic growth slows from recent rates, total urban demand for maize
grain is likely to double over the next decade while the number of farmers may actually
decrease. The country will also need to continue feeding a large number of rural net
buyers. The rise in urban demand represents a huge growth opportunity for Mozambican
farmers. Yet the growth in demand could easily be satisfied by imports from South
Africa if productivity in production and marketing in Mozambique does not improve.
Less than five percent of maize producers account for over 50% of production and over
70% of sales. Unit marketing costs are very high, quality is poor, and it is difficult to
provide reliable supplies to large buyers, especially in the South. As a result, the largest
millers in the country, located in Maputo, rely almost exclusively on maize grain
imported from South Africa. Medium-scale millers in the Center and in the South
outside of Maputo rely primarily on local production, but hold very small market shares.
Penetrating the growing industrial maize milling market will require major public and
private investment in supply chain development (see the final section of this Summary
for details).
About 70% of rural households in the Center and South are net buyers of maize; total
rural demand for maize rivals that in urban areas. Especially in the deficit South, this
means that maize grain availability and prices during the hungry season can have major
impacts on household real incomes.
Maize meal prices are extremely high in Mozambique. The leading brand cost about
US$800/mt in early 2005, while the cheapest was about US$440. Maize grain at retail
was about US$280/mt during the same period in Maputo. These prices compare to a
range of US$270-US$330 for comparable meals in Zambia, and grain prices of US$190.
This very wide differential between grain and meal prices in Mozambique may be related
to the structure of the industry: the two largest millers hold nearly a 100% market share in
Maputo and also sell into major cities and rural areas throughout the country. At least
three new millers have come into the market in recent years, but they have much lower
milling capacity. At least in the South, they have a very small market share and do not
appear to have had any effect on prices charged by the leading millers.
Breakfast meal:rice price ratios range from 1.6 to 2.9 in Maputo compared to 0.61 to 0.75
in Lusaka. The relative affordability of rice means that its budget shares are relatively
high. Maize shares in total food expenditure in urban Maputo province are 2.4%,
compared to 7.4% for rice and 15.5% for wheat. The maize share rises outside of
Maputo, to 14.5% in other southern provinces and 40% in the Center.
Despite very high maize meal prices, only about one-third of maize consumers in Maputo
rely primarily on maize grain for their maize supplies; about two-thirds primarily
purchase refined maize meal. In cities outside of Maputo, about 70% of consumers rely
primarily on maize grain. We attribute the surprisingly low share in Maputo relying on
maize grain to the low price and widespread availability of rice, the resulting very low
budget share of maize, especially for higher income consumers, and the buying habits of
low income consumers, who tend to buy very small quantities at a time, making hammer
milling infeasible and hand pounding less desirable.
The urban hammer milling sector boomed in the early 1990s, fed by market reform and
large amounts of yellow maize food aid in the market.
With the sharp reduction in food aid after 1993 and the rise of the maize mill CIM
starting in 1997, the hammer milling sector began to decline in the urban South. By
2003, it was difficult to find hammer mills in the city, and those operating mostly
indicated that their main clients were small manufacturers of alcohol, not consumers or
retailers of whole meal. Though about a third of consumers in Maputo, and 70% in other
southern cities, rely primarily on grain for their maize supplies, nearly all of them process
the grain at home, reflecting long-standing practice in this area of the country. Beira, and
the Center in general, has maintained a much more active hammer milling sector. Of 18
such mills interviewed in Beira in 2003, all indicated that their main clients were either
retailers of mugaiwa or consumers; 70% of interviewed consumers in that city relied
primarily on grain for their maize supplies, and 90% of these reported using hammer
mills either wholly or partially to process the grain.
Mozambique’s 17% VAT is applied to imported maize but not rice or wheat. Maize meal
is exempt but maize grain is not, meaning that grain imported for sale as grain must pay
the VAT, while grain imported for meal receives a reimbursement. Thus, principle, the
application of the VAT favors rice and wheat over maize, favors the availability of maize
meal over maize grain at retail, and favors large industrial millers over smaller traders
and hammer millers. In practice, however, imports of grain for sale as grain have not
occurred despite several prolonged periods where such imports would have been
profitable. We attribute the absence of imports by informal traders to complexities in import procedures and to the high degree of formality and large scale of the South African maize marketing system. Our explanation for the lack of imports by larger scale
formal traders is essentially that consumers in Maputo have access to a low cost option in
rice, that they spend very little on maize, and that most of them are therefore willing to
pay the high premium for refined meals on the small quantities that they buy. While
based on known facts about relative staple prices, staple budget shares, and buying habits
of low income consumers, this explanation is partial and amounts to a researchable
hypothesis.
Government could take several steps to improve competition in the maize milling sector.
All involve reducing the cost of supplying maize grain to Maputo so that more consumers
can choose to purchase grain rather than meal, and either hand pound it or mill it in
hammer mills. To reduce the cost of maize supplies from domestic production,
government should collaborate with private sector in a maize supply chain development
program. Key elements in this program would include:
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More active marketing information focused on farmers in the Center (and
promising areas of the South) and the traders that supply the South from the
Center. Making marketing information available through cell phones, possibly on
a subscription basis, should especially be investigated;
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Training for these traders in basic accounting and post harvest handling
techniques;
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Promoting more efficient rural assembly of grain through recognized market days,
improved physical infrastructure in assembly points, and improved transport
availability linked to these assembly points;
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Improved marketing infrastructure in public terminal markets of Maputo, Beira,
and perhaps other key cities of the South and Center. Improved storage and sales
point infrastructure would be especially useful.
Financing of the program would need to involve public, private, and donor funds.
Maize imports for the South will be a crucial complements to domestic production for the
foreseeable future. At least two steps could be taken by government to facilitate efficient
trade in maize. First, government might consider converting the value limit in the
simplified regulatory procedures for small-scale maize imports to a volume limit, and
increasing this limit to perhaps 10 metric tons per month. This change would
substantially expand the number of informal traders who could take advantage of these
provisions, and would reduce their unit costs. Second, government could consider
phasing out the VAT on maize grain. Because all imports currently are for processing
into grain, resulting in eventual reimbursement of VAT, the tax generates no permanent
income for the state. Furthermore, although the VAT alone has not acted as a binding
constraint on maize imports for sale as grain, it could become a constraint if the reforms
in import procedures suggested above are instituted. Finally, if the above two measures
are taken, government and donors could consider special programs to facilitate
rehabilitation of the hammer milling sector in the South, which has steeply declined over
the past decade. |
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