Developing Agricultural Trade

The middle decades of the twentieth century saw a rise in the role of the state worldwide. State expenditure as a proportion of GDP rose dramatically, influenced in part by the replacement of the market with the state in the Soviet Union and China to stem perceived evils of capitalism, and by the popular clamour post-World War Two for better health, education and infrastructure. But with market economies outperforming centrally planned economies, and much state enterprise accumulating losses, the tide of ideology and state reform in the 1980s and 1990s turned towards expanding the private sector. The main targets for privatisation were state manufacturing and state farming enterprises. But state services were brought into the privatisation focus too.

For most of the twentieth century, particularly after the 1930s depression, governments worldwide intervened substantially in both input and output markets for agriculture, in some countries excluding private firms altogether. Seed, feed, fertiliser, pesticides, finance and advice were provided by state organisations or with state subsidies. Fixed asset investment (e.g. land purchase and development — dams, roads, fences) was often similarly assisted. Crop purchase was often carried out by widely distributed state depots offering standard prices across a whole country (pan-territorial pricing). Grain stocks were accumulated by the state in order to set and stabilise consumer prices. Large bureaucracies were set up to administer public agricultural services, imposing much budgetary cost — particularly for price stabilisation, mostly grains. The main purpose was to achieve self-sufficiency in food staples or to promote exports of agricultural commodities.

The total population of India is approaching one billion, making it the second most populous country in the world. There is enormous ethnic diversity and about a third of the population is classified as poor. India achieved independence in 1947. Its constitution provides for party government, with a legislative assembly, an upper house, and a permanent civil service. The country is a federal collection of twenty-five states and seven union territories, with local government as the third stratum of government. The constitution permits the centre to impose its will on the states by declaring a constitutional emergency.

Sri Lanka is an island economy with an estimated population of 19.6 million people in 2001. The country has long been known for combining a low income per capita with good human development indicators. This reflects provision of a wide array of subsidised commodities and services since independence.

Instability has characterised the Ghanaian economy since independence in 1957. At that time Ghana was one of the most prosperous countries in Africa, with the highest per capita income in the region and very low inflation. Agriculture was the main source of wealth, making up about half of GDP. Cocoa provided about three-fifths of export earnings. Foreign reserves were strong as a result of buoyant cocoa exports and an abundant supply of labour for agriculture, much of it migrants from neighbouring countries. Disastrous economic policies in the 1960s and 1970s over-expanded the state and favoured import-substituting manufacturing and large-scale farming. By 1982 per capita incomes had fallen 30 per cent, export earnings were halved, and imports were at 30 per cent of their 1970 levels (Sarris and Shams 1991: 1, 3). In 1983, in the face of much internal opposition, the military government of Gerry Rawlings adopted an Economic Recovery Programme (ERP) financed by World Bank and IMF, to restore fiscal and monetary discipline and production incentives. This involved radical realignment of exchange rates and interest rates and cutting of government expenditure and employment.

The role of government in agricultural markets in Zimbabwe has undergone successive radical changes, driven by a wholesale shift in political power in 1980, and a continuing macroeconomic crisis. The context is one of decline in living standards and public services from relatively high levels compared to other African countries. Per capita incomes in Zimbabwe are now lower than in the early 1970s. It is one of only five countries whose Human Development Index rating is now lower than in 1980 (UNDP 2001 ‘Human Development Report’). Its health delivery system is ranked bottom in a survey of 191 countries by the World Health Organisation.²

Through the colonial period and after independence in 1963 Kenya was the dominant economy of East Africa. However, the economy grew only intermittently in the 1980s and 1990s. In 1993, the government of Kenya introduced a programme of economic liberalisation and reform that included the removal of import licensing, price controls, and foreign exchange controls. Stop-go relationships with donors supporting structural adjustment, deterioration of infrastructure, civil instability, corruption and political uncertainty regarding the successor to President Moi hindering investor confidence, are factors variously put forward to explain Kenya’s poor economic performance.

The central question for governments in liberalising the grain trade is whether food supplies can be entrusted to the market. Previous chapters suggest the increased orientation by countries worldwide to making markets the basis of their staple food systems. The key practical issues are, first, how the process of deregulating the grain trade internally and externally can be managed politically, without disrupting food supplies or markets for farmers; and second, how the staple food trade can be enabled to work efficiently, cover the whole country and be accessed by the whole population.

Can public marketing agencies be reformed and play a productive role in developing agricultural markets, either by becoming competitive private firms or by providing public services beneficial to trade? Or is dissolution the only option when policy is to encourage market development? This chapter focuses on reform of public marketing agencies in liberalisation of agricultural marketing, principally in Zimbabwe, Sri Lanka, Ghana, India and Kenya, in the light of theory regarding commercialisation of public agencies.

Public services to agriculture are in a state of change. The force for change is the ongoing effort, reflected in the ‘new public management’, to bring market relations into public services provision as much as possible. Contracting between buyers and sellers of services is one of the key components of this approach. This chapter first overviews contracting in relation to the new public management and the circumstances under which contracting succeeds or fails. Case studies of contracting out public services to agricultural marketing in developing countries are then presented and discussed: food security rice stocks in Sri Lanka; wheat milling in Sri Lanka; public grain storage in India; exporting maize from Kenya; and rural feeder road construction and maintenance in Ghana. Lessons from the case studies are brought together in the conclusion. The main observation is that managing reform of public organisations, rather than managing contracting out, is the underlying constraint on making NPM-style public management innovations work.

Traditionally the public role in quality assurance for agricultural produce has been considered high compared to other goods because:

Recent market development efforts in developing and transition economies place much emphasis on the state’s role in improving the environment for business. Provision of market information is often viewed as a priority, because adequate information about buyers, sellers and prices is usually lacking in poorly developed markets. In some countries there are long-standing market information services (MISs) run by government. Others have been set up recently with help from donors. In the light of theory and current developments, this chapter reviews briefly market information systems run by government departments in Ghana, India and Sri Lanka, plus one initiative by a farmers’ representative organisation in Zimbabwe.

State trading and restriction of private agricultural trade became virtually the norm in many countries from the mid-twentieth century, particularly in the grain trade, owing to distrust of private trade, and policies of national self-sufficiency in grain and protection of domestic agriculture from foreign competition. High costs of state trading and public stocking of grain, plus the perceived benefits of market development, have swung policy preferences towards reducing trade restrictions and developing the private trade. Better trade information, quality assurance through branding and traceability, and the emergence of futures and options markets for the trading of risk are features of market development in agricultural trade. Market failure in the sector is thereby reduced. This provides the opportunity for government to shift its role in agricultural trade from buyer and seller to provider of infrastructure, facilitator of trade development¹ and regulator of trade in the public interest (providing a legal framework, ensuring competition, consumer safety and protecting natural resources).