Maize markets in southern and eastern Africa
June 01, 1998
by Teresa Acklin
Regional, national supply/demand situations in major producing countries affected by weather, market liberalization.
The status of maize in southern and eastern Africa differs from most other regions. While maize is considered primarily a feed grain in most parts of the world, it is a dietary staple in southern and eastern Africa.
Yellow maize accounts for the bulk of the maize produced globally, but white maize makes up the majority of the maize produced in southern and eastern Africa. White maize's vitally important role in the daily lives of Africans in this region makes its supply and demand situation a highly political issue.
Two factors are driving the maize situation and outlook in southern Africa: extreme weather conditions and market liberalization. While the weather patterns this year will only have a short-term impact, market liberalization in this region shapes the future. Kenya, South Africa, Tanzania and Zimbabwe are facing the consequences of these combined factors.
The situation in Kenya is affected not only by weather and market structure but to a large extent by political instability, a lack of confidence in the financial sector and poor infrastructure.
The government of Kenya's efforts to liberalize the agricultural economy have so far met with negative consequences. Producers were reportedly frozen by uncertainty in the newly liberalized market and responded by reducing acreage.
Weather is also a major factor disrupting production in 1997-98. Kenya faced a drought in early 1997 only to be hit with flooding later that year and into early 1998. All indications are that Kenya will face a maize supply deficit of between 700,000 and 1 million tonnes.
Because of the maize deficit, the government recently announced a temporary suspension (April 1 to June 30) of its 25% ad valorem maize import duty. With white maize reportedly selling at a U.S.$65 per tonne premium to yellow maize, a longer-term tariff suspension would enable larger imports and ensure their afford-ability, but there has been little indication as to what action the government will take.
Private importers must contend with that uncertainty and others as well. For example, the National Cereals and Produce Board, the government's grain agency, has been targeted for commercialization. However, little progress has been made toward that end, and some private importers fear that it will be given sole importer status once again.
Producers were inundated with reports early in 1997 that the El Nino weather pattern would cause dramatic reductions in rainfall during the 1997-98 production year, convincing many to reduce maize plantings. At the same time, producers were no longer under the protective wing of the disbanded Maize Marketing Board, which had guaranteed them a buyer and a good price.
Together, these forces compelled many producers to adjust their planting decisions. Yellow maize area dropped off sharply while white maize area declined only slightly.
Since a larger than normal portion of the maize crop was planted late because of the early-season dryness, it will mature later and may be threatened by frost. However, El Nino has not had as strong an impact on maize production as feared, as February and early-March rainfall and temperatures were near-normal.
Changes in planted area have also affected output significantly. The maize crop harvest is beginning this month and is forecast at 8.0 million tonnes, down about 1 million from the five-year average.
More significantly, yellow maize production is projected to drop more than white maize.
The production pattern of the maize crop soon to be harvested is a sign of things to come, with a marked shift away from yellow to white maize production probable.
While yellow maize area dropped dramatically this marketing year, white maize area fell by less than 1%. This trend is in line with South Africa's comparative advantage in white maize production, largely because of the cost of inland transport.
While white maize is highly competitive in trade, yellow maize must confront import and export parity prices that hinder its profitability. Import parity for yellow maize, shipped via the U.S. Gulf to South Africa and subsequently to the interior, is around U.S.$136 per tonne. Thus, imports cannot compete with local production in the interior. Likewise, the yellow maize export parity is U.S.$106 per tonne because of inland shipping costs, which render exports uncompetitive.
As a result, yellow maize imports are the most cost effective at the coast, and domestic production is most cost effective inland. Expectations are that yellow maize production will decline to meet the needs of the interior, while yellow maize imports will increase and supply coastal feedmill demand.
The typical maize trade pattern is: import yellow maize to the coast, export surplus white maize. That scenario holds true for 1997-98.
The common perception is that South Africa's neighbors are its major customers. While southern Africa may rely to a large extent on white maize imports from South Africa, South Africa does not necessarily rely on these exports markets.
The data show that South Africa exports roughly one-third of its maize (primarily white) to Japan and nearly one-fourth to Iran. Most of South Africa's imports are yellow maize, two-thirds of which are U.S. origin.
Maize imports are somewhat restricted by a variable tariff and by phytosanitary regulations. South Africa maintains a minimum import price tariff on maize that becomes effective once the price of U.S. No. 3 maize, f.o.b. Gulf, falls below U.S.$110 per tonne. For the first U.S.$10 decrease in price, a tariff of U.S.$5 per tonne applies. For the second U.S.$10 decrease, the tariff increases to U.S.$10 per tonne.
A phytosanitary restriction on maize imports from areas where Stuarts Wilt is known to occur requires special permits and procedures.
Tanzania is also attempting to liberalize its economy, but its progress so far has been limited. Marketing boards and parastatals still play a large role in the agricultural sector.
The government is making a slow move toward freer markets, which in the long run should bring production in line with demand, and producers are enthusiastic about the opportunities that a free market will offer. But in the short to medium run, Tanzania's agricultural sector is struggling to adapt, and with the past year's unfavorable weather, the agricultural sector has been hit hard.
Tanzanian maize production is expected to fall by 30%, to 1.85 million tonnes in 1997-98. As a result, imports are projected to increase five-fold to 50,000 tonnes. Supply is still likely to be insufficient to meet demand, so consumption is expected to fall by 650,000 tonnes. Imports will be most important from now to August when the domestic crop is unavailable.
With respect to trade, the government still strictly controls maize imports and exports. The government monitors production, supply and prices and then decides whether to authorize imports or exports. A license to import maize is required.
Because of the severe import needs in 1997-98, Tanzania lifted its maize tariff. The moratorium was in effect through December 1997 but no notification of an extension has been received.
In conjunction with the tariff change, the government banned exports and offered importers storage facilities.
Government policy has played a significant role in the maize sector during the past year, particularly with respect to the price of maize meal.
Merchants were reportedly marking up prices to be able to service their debts when faced with high interest rates. Riots erupted in Zimbabwe in mid-January 1998 when the government announced a 21% increase in the price of maize meal, an increase that followed three other price increases in four months. The government abandoned the latest price change immediately, and the Grain Marketing Board released maize reserves to ease prices.
The Board is slated to be “commercialized,” allowing the market to fully dictate price, supply and demand. However, no deadline for commercialization has been set, and in the meantime the Board controls the strategic grain reserve, through which it directly manipulates prices, and has the sole right to import and export maize. Since 1994, the domestic maize market has been opened up; maize producers are able to sell directly to users.
The government has espoused a land redistribution plan whereby some large land holdings (primarily commercial farming operations) will be divided among the population (primarily to communal farmers). Zimbabwe's maize production will most certainly decline if land is redistributed to small, communal and less-efficient producers.
While the government's influence clearly distorts the maize market, producers are doing their best to adapt to a more open market. In fact, Zimbabwe continues to produce ample maize to meet domestic needs and has had an exportable surplus in six out of the past 10 years.
The production and import situation in 1997-98 is unique because of weather factors that compound the political-economic factors outlined above. Late rains in December delayed plantings, and area is estimated to have fallen roughly 15%. Since then, Zimbabwe has experienced drier than normal conditions. As a result, production in 1997-98 is expected to fall by around 100,000 tonnes from last season.
This article is based on a recent report from the U.S. Department of Agriculture.