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The effects of the food reserve agency on maize market prices in Zambia

The Food Reserve Agency (FRA) is a major player in the Zambian maize market and substantial public sector resources are devoted to its activities. This policy synthesis estimates the effects of the Zambia FRA’s activities on maize market prices in the country.

The paper clarifies that The FRA, a government strategic food reserve marketing board, buys maize at a price that typically exceeds wholesale market prices in major maize-producing areas. It then exports the maize or sells it domestically at prices determined by market or administratively.

The results of the paper suggest that two of the major outcomes of the FRA’s activities have been an increase in the average level of maize market prices in Zambia, yet a reduction in the variability of these prices.

Findings are that:

  • higher maize prices hurt urban consumers and the nearly 50% of smallholders that are net buyers of maize
  • large-scale farmers as well as the 28% of smallholders that are net-maize sellers benefit from higher average maize prices
  • among smallholder net-maize sellers, gains from higher maize market prices would be highly concentrated in the hands of the 3% to 5% of maize-growing smallholders that account for 50% of all smallholder marketed maize

Conclusions:

  • to the extent that they raise average maize market prices in Zambia, the FRA’s policies are regressive: their both effects disproportionately benefit relatively better off households and have negative net effects on relatively poor households
  • there may be additional welfare impacts associated with the market price stabilising effects of FRA policies
  • however, the welfare effects of FRA-induced increases in the average level of maize market prices are likely to dwarf any welfare effects that result from price stabilisation