The effect of the National Food Reserve Agency on maize market prices in Tanzania

• Published date: 01 May 2018
• DOI: http://doi.org/10.1111/rode.12374
• Date: 01 May 2018

REGULAR ARTICLE

The effect of the National Food Reserve Agency on

maize market prices in Tanzania

Guillaume Pierre

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Karl Pauw

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Emiliano Magrini

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1

Food and Agriculture Organization

(FAO)

2

International Food Policy Research

Institute (IFPRI)

Correspondence

Karl Pauw, International Food Policy

Research Institute (IFPRI)

Email: k.pauw@cgiar.org.

Abstract

Tanzania’s National Food Reserve Agency has a mandate

to ensure food security through procuring, reserving and

recycling grain (primarily maize) in a cost-effective manner.

This mandate excludes a price stabilization role. Procure-

ment prices, based on production costs, are often set above

market prices to encourage production. Several disburse-

ments channels exist: grain provided free or at a discount to

targeted vulnerable households; subsidized sales to millers;

and sales to prisons or nongovernmental aid programs, typi-

cally at market-related prices. Given the perception that

these activities are distortive, we use time-series economet-

rics to model maize price dynamics in select wholesale mar-

kets to capture the Agency’s market impact. We find that its

pricing strategy had an insignificant impact on prices during

2010/11–2014/15 despite a fairly significant presence in at

least some regional markets. We recommend that the

Agency reconsiders offering a price premium on procured

maize or selling maize at discount to millers, as limited mar-

ket spill-over effects imply the benefits are captured by only

a few, even though its practice of providing subsidized or

free maize to vulnerable people is not in question. Further-

more, current storage capacity expansion plans are not

required and inconsistent with its food security mandate.

DOI: 10.1111/rode.12374

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©2017 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2018;22:540–557.

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INTRODUCTION

Government interventions in staple grain markets are an important, albeit closely scrutinized ele-

ment of food security policies in eastern and southern African countries (Jayne, 2012). Tanzania is

no exception, with government engaging regularly in the maize market through trade policy mea-

sures, input policies, and direct procurement and disbursement through its grain reserve agency.

Since maize is a key food security crop produced by most smallholders (USAID, 2010) it is under-

standable that government feels mandated to intervene so as to ensure sufficient availability of

maize at affordable prices.

As such, most prominent maize market interventions have been justified or designed with expli-

cit food security objectives in mind. These include: the National Agricultural Input Voucher

Scheme (NAIVS), first implemented in 2007/08 to boost maize production, which at its height

reached 2 million farmers and supplied 57 percent of fertilizer in the Tanzania (Msolla, 2016); fre-

quent maize exports bans, particularly during 2006–2012, typically introduced when domestic

maize prices were high and removed again when prices were low (Baffes, Kshirsagar, & Mitchell,

2015); and the procurement and disbursement of primarily maize through its National Food

Reserve Agency (NFRA), established in 2008 to replace the Strategic Grain Reserve (SGR), and

with a mandate to guarantee food security in Tanzania (NFRA, 2016b). With the abolition of

NAIVS (see Cameron, Derlagen, & Pauw, 2016) and the Prime Minister’s commitment to discon-

tinue the distortive practice of maize export bans (Diao & Kennedy, 2016), the NFRA has come to

the fore as the government’s primary vehicle for addressing food insecurity.

The NFRA’s mission statement as articulated in the Strategic Plan 2016/17–2020/21 is “to

ensure availability of food in times of shortage by procuring, reserving and recycling strategic

stock in an efficient manner”(NFRA, 2016b, p. 28). A fixed procurement price is calculated each

year prior to the harvest in June on the basis of production cost estimates. Procurement typically

takes place between July and December, and grain is stored in NFRA warehouses, from where it

is distributed by the Ministry of Agriculture, Livestock and Fisheries (MALF) to those facing food

shortages or food emergencies, typically between November and April, or sold to the private sec-

tor, parastatals or nongovernmental food aid programs. Although the NFRA’s predecessor, the

SGR, had a mandate to stabilize prices, it was considered ineffectual in this regard, ostensibly due

to budget constraints. Therefore, in line with the government’s food market liberalization objec-

tives, the NFRA’s mandate explicitly excluded a price stabilization role (Stryker, 2015).

The NFRA has not escaped close scrutiny of its activities or even blame for distorting markets,

creating disincentives to produce maize, or contributing to market uncertainty and price instability

(Barreiro-Hurle, 2012; Stryker, 2015). Of course, government grain reserves are by n ature distor-

tionary—they are designed to intervene in markets where the private sector chooses not to partici-

pate or fails to achieve equitable outcomes (Murphy, 2009)—but since market distortions are

associated with efficiency losses, the consensus is that government grain reserve activities should

ideally be kept to a minimum. Nevertheless, the NFRA has gone against advice and has set ambi-

tious targets for expanding its presence in the maize market through rapid storage capacity expan-

sion (NFRA, 2014) to levels considered by some to be in excess of what is required to fulfill its

food security mandate (Stryker, 2015). The NFRA price setting mechanism also frequently sets

procurement prices above the prevailing market price (NFRA, 2016b), which is considered to be

distortionary.

As claims of distortionary effects of NFRA activities in Tanzania have been largely anecdotal,

this study sets out to empirically examine the impact of the NFRA on wholesale market prices.

Methodologically our approach is similar to that adopted by Jayne, Myers, and Nyoro (2008) in

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