Regulate agricultural markets to prevent agricultural and food crises and give visibility to farmers : some key principles
Senegalese Institute of Agricultural Research (ISRA)
The second edition of the DAKAR AGRICULTURAL FORUM held in Senegal in April 2011 and in the context of the G20 for agriculture, began a process of reflection on agricultural price volatility, market regulation and global governance. The 2011 DAKAR DECLARATION calls for improved coordination in international organizations with a view to regulating agricultural commodity prices.
While broad guidelines are being raised by the G20 for Agriculture, Momagri, in collaboration with other experts from different countries of the world, are continuing their analysis to help define the future governance of agriculture and food worldwide.
Understanding the diversity of agricultural policies throughout the world is a prerequisite to defining politically acceptable proposals. Accordingly, here we present the views of the Senegalese Institute of Agricultural Research (ISRA) who believe that regulation, in particular, should be put into perspective with goals for development and no longer simply with the ideal of liberalizing international trade. This article is an interesting testimony of the results of the agricultural policies carried out in recent years in Senegal.
momagri editorial board
During the course of human history, agriculture, in an aim to feed the world, has been through some surprising developments. Progress has been dazzling. The challenges faced by agriculture in the broad sense are endless, given the growth in world population, an increase in demand by the world’s populations (particularly for quality), but also the desire for sustainable ecosystems. However, despite an increase in the use of modern production tools, this development is gradually taking place learning from traditional methods. The motive is to raise productivity levels, but for how long?
Is agriculture at the heart of the march towards progress? Does it benefit from training and income rises? Are there any major constraints in marketing agricultural produce? Are market prices shared equally among all market players? Are the gains from marketing agricultural produce sufficiently attractive to farmers to justify the sale of surplus production? Does the functioning of agricultural markets at different levels help to prevent agricultural and food crises, particularly in the most vulnerable countries? Do farmers recognize their role in the current systems established in agricultural markets?
Reflection on these questions gives us the opportunity to discuss some of the issues surrounding the proper regulation of agricultural markets, its impact on preventing the risk of food crises, but also the visibility of the producer. However, agricultural market regulation, (different from market management) is based on principles and tools. These change constantly, but the ultimate goal remains the management of food security and the fight against poverty.
1. Inter-branch organisations, regulation tools for agricultural markets
Market regulation is part of a broader debate in development economics, which raises the question of the respective roles of state and private actors in the regulation of economic activities. Firstly however, national markets should be regulated to then expand regulation to a regional level. Some relevant examples are worth noting.
The New Agricultural Policy (NPA) in Senegal was marked by the emergence of different types of organizations. The first generation of these organizations was aimed at substituting the State by getting involved in production, processing and marketing. These organizations take the form of economic interest groups but also of village associations.
Private coordination mechanisms have subsequently emerged within the sectors to take control of input management, negotiation and pricing. These mechanisms are very diverse: They take the form of inter-branch organisations, local or national advisory panels, sector indicators or watchdog organisations. They also contribute to the control of market information thus limiting imperfections. This system is undoubtedly a powerful tool for regulating agricultural markets.
When considering Senegal, with the example of the grain sectors, the elimination of the Equalization Fund and price stabilization in 1996 marked a milestone in the evolution of their economic and institutional environment. The elimination of the Equalization Fund from local rice sales and imports to the benefit of private importers has resulted in the lifting of protection mechanisms based on administered prices which has increased competition between imported rice and local rice. It has also contributed to reconfiguring the industry with the emergence of private actors, the establishment of private collective coordination systems such as the National Inter-Branch Rice Union (UNIRIZ), the Inter-Branch Rice Commission (Ciriza) and the Federation of self-managed producers. Coordination mechanisms are also mixed and focused on issues surrounding market regulation and the sectors. This is the case for the National Rice Monitoring Body (ONIRIZ), the National Consultation Committee for the rice sector.
Has the State’s withdrawal of several functions in the agricultural sectors led to improved regulation in agricultural markets? The impact of liberalization on the functioning of the agricultural market and sectors is varied. The conclusion is that questions posed on the regulation of the agricultural market and sectors are being frequently posed for peanuts and rice but also other products such as poultry and onions. This resulted in the establishment of arbitration agencies such as the market regulation agency. The coordination (cooperation) around the local onion is an original experience in agricultural market regulation, giving clarity to onion producers. Despite the difficulties in setting it up, the results in terms of regulation are admirable.
ARM (Market Regulation Agency) intervention in regulating the onion market in Senegal
The onion market is characterized by two peak production periods in March and May and in July and September. Because local supply is important, the presence of imported onions on the market leads to a significant drop in prices and to poor sales. Onion marketing therefore poses the problem of competition and complementarities between sectors. The strategy implemented by producers and importers under the leadership of the ARM temporarily regulates flow, halting onion imports according to the arrival of local onions on the market. Managing the flow of imports is the result of different regulatory mechanisms such as import quotas used until 1995 then abandoned following 50.80% increase in the CIF price during the devaluation, by 26.5% after the CET came into force and 18% VAT in 2000 and contracts with UNACOIS1 traders in 2000-2001.
2. World market instability and regulation: the influence of domestic sectors
The agricultural and food crisis of 2007 clearly demonstrated the efforts necessary for improving agricultural market regulation. Indeed, sharp price fluctuations during the second quarter of 2007 marked a new step in state intervention in the functioning of the sectors.
High inflation has illustrated the limits of liberalization and price mechanisms in market regulation. The measures set up against world food and agricultural market instability focused on consumer price subventions by temporarily lifting VAT and customs duties. These interventions show that regulatory policies are strongly linked to the level of development in domestic sectors and their ability to meet demand. In addition, these policies have sometimes had an impact on the organization of local sectors.
In the case of milk in Senegal, global inflation of over 100% on powder prices led to temporary adjustments to freeze customs tariffs and VAT. There was a slight decline in import volumes in 2007 due to soaring prices in the international market but this has not stemmed the rising cost of imports which rose from 25 billion Central African Francs in 2002 to 58 billion CAF in 2007. Tax measures2, even if they keep the price of milk at reasonable levels, do not exempt increases in milk costs and are not sustainable. Runaway prices on imported milk have resulted in higher prices for local milk.
Regulation eventually destabilized the local dairy sector through decisions made by agropastoralists (such as those from the Kolda region in southern Senegal) to sell at full price directly to retailers who have containers of milk reconstituted from milk powder in place of supplying pasteurised products. Local milk-based dairy SMEs working under this system have experienced episodes of shortages in raw materials, due to the competitive situation created by the instability in the world milk market.
Between 50% and two thirds of the milk consumed in Senegal is imported. Milk powder is subject to minimum protection (7.7%) and other processed dairy products also only receive little protection3(22.7%). The immediate effects of the constraints of market regulation for milk have been passed on to the consumer. These are primarily the effects of adjustment:
- Maintaining an apparent consumer price but which in fact corresponds to a reduction in the volume of packets sold;
- Adjustment through a drop in quality: many manufacturers have changed their process and dilute less powder with water;
- importation of lower grade milk powder. Some importers, who originally were supplied with milk containing animal fat have started to import milk containing vegetable fats. Others have tried to introduce milk powder low in animal fat content;
- Diversification of production: some industrial facilities used for the processing of milk have been redeployed to the processing of other types of products, such as fruit juice processing;
- Increased efforts in advertising: sales levels in the dairy sector fell from 10 to 20% (except September and October 2007, during Ramadan) because price increases have profoundly affected consumer purchasing power. In 2008, to regain markets, manufacturers recruited new sales staff and invested in commercial communication;
- In Niayes and the suburban area of Dakar, which is an intense breeding area, spending on animal feed (concentrate and hay) is becoming more restricted. Faced with rising input and energy costs, intensive livestock farms have increased the price of a litre of raw milk (500 to 600 CAF between 2007 and 2008). They were able sell the milk easily because consumers turned to local milk due to the rising price of imported milk;
- In the Kolda region, extensive agropastoral systems dominate. Since 1996, many mini dairies were established in suburban areas, increasing milk collection in rural areas. Since 2007, local milk is becoming competitive with small breeders making door-to-door sales of milk bought in suburban villages. For breeders, this is an interesting outlet because these informal players offer higher prices than the mini dairies;
- A synergy between industrial and local producers. Since the world milk crisis, dairies and producers see the necessity of forming alliances, holding a joint position vis-à-vis the state (a request to maintain tax levels on UHT milk imports, which was not successful). Industrial producers call for import taxes in order to strengthen the local dairy sector (be it collected milk or reconstituted milk) and subsidies for investments to develop local resources.
3. The market puts agriculture to the test
The market has integrated the domain of the rural farmer, changing structures and reshaping the development of rural Africa. There is more diversification in production and a multiplication in volumes and the value of transactions. The liberalization of the agricultural sector took place in the mid-1980s had a significant impact on the lifestyle of the rural population and the supply to urban markets. Some sectors have stagnated following the withdrawal of the State, others have become more dynamic. Liberal political transformation has accelerated market penetration in the rural African economy.
In the last quarter of a century, Senegal has moved from an administered economic model to a liberalized economic model. These policies have led to a slow but profound reorganization in the management, production and marketing systems for agricultural produce.
Senegal is one of the most urbanized countries in West Africa, thus changing business systems and therefore the rural economy. The urban economy is increasingly more outward looking. Have Senegalese farmers been able to take advantage of trading model promotion policies in a context of increasing competition on food imports? Has subsistence farming finally given way to commercial food producing agriculture or a so- called “commercial” agriculture? It remains useful to measure the impact of these mutations on the visibility of the producer.
The crucial principles of market regulation for an agriculture challenged by the market could come by the globalisation of actions, particularly as part of regional trading blocks for agricultural produce, by strengthening farmers’ capacities for negotiating power for win-win relationships. These principles require the harmonization of agricultural policies at the sub regional or even regional levels.
The principles of agricultural market regulation are subject to policy positions for accompanying efforts for productivity growth, but also market access. The formation and consolidation of regional blocs contributes to increasing the income of small farmers and agribusiness, to reducing the world agricultural divide and the agricultural and food crises that weaken the poorest nations and their rural populations. Regulation also takes into account the changing demographics of nations and the needs of consumers.
DIA D., NGOM Y., DUTEURTRE V., DIEYE P. N., DUTEURTRE G., BROUTIN C. (2008) : Étude de l’impact de la hausse des cours du lait et des produits laitiers sur les producteurs et les consommateurs : Étude de cas du Sénégal. IRAM, GRET, ISRA, CIRAD. 60 p.
DUTEURTRE G., DIEYE P.N. (Éd.), 2008 : Les organisations interprofessionnelles agricoles : de nouveaux outils de régulation des marchés ?, Institut sénégalais de recherches agricoles, Dakar, 192 p.
DUTEURTRE G., DIÈYE P.N., DIA D., 2005 : « Ouverture des frontières et développement agricole dans les pays de l’UEMOA : l’impact des importations avicoles et laitières sur la production locale au Sénégal », Études et Documents, Institut sénégalais de recherches agricoles, vol 8, n° 1, 78 p
DUTEURTRE G., FAYE M. D., DIEYE P.N. (Dir.), 2010 : L’agriculture sénégalaise à l’épreuve du marché. ISRA, Karthala, Paris, pp 305-328).
1 National Union of Traders and Industrialists of Senegal
2 Exemptions from custom duties on the value of powder imports and VAT on sales of milk powder, the setting of public ceiling prices for retail milk powder (Dakar region only)
3 The level of protection applied within the framework of the CET was already low and Senegal, in a situation of price-takers had very little flexibility to deal with price volatility