12 February 2013

Tanzania: Export Bans Undermine Agricultural Output

FOOD prices have remained a major stumbling block in bringing down inflation rate, leading to the ever rising cost of living in both rural areas and urban centres.

Available data shows that food prices contribute more than 60 per cent to headline inflation, that continues to devour consumers' purchasing power. Monetary policies applied by the Bank of Tanzania (BoT) have, however, paid off and managed to reduce the annual inflation rate to 12.1 per cent in December last year, from around 19.0 per cent some 10 months earlier.

But insufficient investment in agricultural sector is seen as the main factor to the limited food supply in the local market thus fuelling prices of various cereal products. Surveys in some markets show that from December to February, prices of almost all cereal products have been rising fast.

The BoT monthly economic review for December last year shows that annual inflation rate for food and non-alcoholic beverages declined slightly to 13.1 per cent compared to 13.4 per cent of the preceding month. Similarly, on month-to-month basis, the rate accelerated to 3.1 per cent in December 2012 from 0.9 per cent recorded in the preceding month, owing to rise in prices of maize, rice and fruits.

During the month under review, the stocks of maize and sorghum held by the National Food Reserve Agency (NFRA) decreased to 89,951 tonnes from 105,734 tonnes recorded in November 2012. But then it purchased 51,381 tonnes of maize and sorghum and sold 26,657 tonnes of maize and sorghum.

In an interview last week, the Economic and Social Research Foundation (ESRF) Executive Director Dr Bohela Lunogelo said export ban imposed some years ago is to be blamed for the limited supply of cereals, thus the higher prices. "Most maize farmers abandoned production in the subsequent seasons due to the export ban that plunged them into heavy losses, instead they opted for other oil seeds which gave them assurance of reliable markets," he said.

He said the supply of food products would continue to be insufficient for most part of the season unless farmers are given assurance of reliable markets. The situation will pull up prices unless there is close control by the NFRA to ensure there is sufficient supply in the market.

The BoT monthly report underscored that the average wholesale prices for major food crops increased, with sorghum registering the highest increase followed by maize and rice. Similarly, on a year-on-year basis, prices for the crops increased with maize registering the highest rise.

For example, the price of a 100kg bag of maize rose to 72,496.6/- in December, last year, compared to 42,970.1/- recorded in the corresponding period 2011, which is equivalent to 68.7 per cent change. On monthly basis, prices changed by 11 per cent to 72,496.6/- in December, from 65,340.6/- registered in November 2012.

Studies done on export ban imposed on cereal crops have already revealed that the practice had contributed greatly in discouraging investors in the agriculture sector while at the same time increasing poverty. The findings showed that the export bans not only hurt poorest rural households the most, while generally benefiting the wealthiest urban households, but undermined people who could have been having the opportunity to be major exporters of food crops, particularly maize and rice in the East African Community (EAC) region, given its abundant natural resources and increased food deficits in parts of the region.

For policy makers, experience shows that the bans have not been effective to increase supplies and lower the prices of cereals for the domestic market in relation to demand as had been anticipated. Instead the prices have remained unchanged and if they did change they were in favour of traders, while being a burden to poor producers in terms of production and market prices, they said.

If the export ban practice continues to be applied, then it would deny crucial opportunity for Tanzania to become the granary of Eastern Africa due to its large expanse of productive agricultural land. The ever rising food prices in the local market could only be tamed by increasing investments in the agriculture sector that would solve supply constraint, ultimately pulling prices of the cereal products and the headline inflation.

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