Cash crops, marketing boards, and agricultural policy failures in Africa
On why policy distortions aren't the only (or even the biggest) problem
I: On agricultural productivity and economic development
I generally agree with David Ndii’s position on the singular importance of improving agricultural productivity in African states:
[T]he real binding constraint on growth in Africa is low agricultural productivity, or the agricultural productivity gap. Small-scale farming dominates African agriculture. Smallholder agriculture is also very diverse, ranging from relatively prosperous, globally competitive commodity exporters to relatively land-rich but capital-poor semi-subsistence farmers who also constitute the bulk of the continent’s poor. It is in this latter group that the highest potential for productivity growth is to be found. Simply put, Africa’s economic takeoff is contingent on a pro-poor agricultural transformation.
However, achieving Ndii’s dream will require significant ideational change among policymakers and a rebalancing of international commodity markets.
First, it is important to recalibrate perceptions of the distortionary effects of agricultural policies in the region. In particular, policymakers need to internalize Thandika Mkandawire’s caution against attributing everything that went wrong in the 1980s to neopatrimonialism, corruption, or ignorance. The widespread belief that agricultural policies in Africa have historically been unnecessarily distortionary resulted in a situation whereby policymakers simply abandoned the sector (after listening to international experts). The net effect of all this is that policymakers in most countries are out of practice when it comes to the agricultural sector. On average, African governments have historically spent 4% of their budgets on agriculture — well below the aspiration 10% target as per the Maputo Declaration. Recall that more than two thirds of Africans depend on agriculture for their livelihood.
Second, in order for African economies to reap more from their agricultural sectors, there is a need to shift towards greater local value addition before exports. Exporting raw agricultural commodities should be a thing of the past. In addition, African producers that dominate global markets should fully exercise their price-setting powers. In this regard, a number of countries, like Cote d’Ivoire and Ghana (cocoa) and Benin (cotton), have taken concrete steps in the direction. More countries need to follow their lead. Importantly, Africa’s commodity exporters should figure out how to defeat the specific non-market strategies (like high tariffs against processed African agricultural products entering Europe) that continue to disincentive value addition by primary producers.
II: Rethinking the role of the state in African agriculture
Given the enduring influence of external experts on African policymaking, it is a tough sell to advocate for robust government policies in the agricultural sector. There is an abiding belief, internalized even by African policymakers, that governments in the region can do very little good for farmers; and that the best course of action is to do nothing.
Consider the case of marketing boards. Anyone who has read the standard texts on the political economy of agricultural policy in African states knows all about the Big Bad Marketing Boards. Here, the canonical works of the late Robert Bates immediately come to mind. Consider this from Markets and States in Tropical Africa:
A major factor that distinguishes many African states from others in the developing world is their possession of institutions for effecting this transfer [from rural agriculture to urban manufacturing]. Most African states possess publicly sanctioned monopsonies for the purchase and export of agricultural goods. A monopsony is a single buyer; and where there are many sellers but only one buyer, the buyer can strongly influence the price at which economic transactions will take place. In Africa, public agencies by law sanctioned to serve as sole buyers of major agricultural exports. These agencies, bequeathed to the governments of the independent states by their colonial predecessors, purchase cash crops for export at administratively determined domestic prices, and then sell them at the prevailing world market prices.
By using their market power to keep the price paid to the farmer below the price set by the world market, they accumulate funds from the agricultural sector. Although the existence of international borders and the frequent absence of effective border controls have allowed some farmers to evade these state agencies, it has been estimated that at the time of independence, the agencies handled 90 percent of the exports of palm kernels, 80 percent of the exports of coffee, 65 percent of the exports of tea, and 60 percent of the exports of raw cotton.
In Essays on the Political Economy of Rural Africa, Bates further elaborates on the distributive politics of marketing boards — with a focus on African governments’ use of rural surpluses to invest in urban (industrial) development.
The beneficiaries of the dual-price policy are best revealed by noting who gains access to the trading surpluses. A prime recipient is the state; the marketing boards have become important instruments of taxation. Soon after self-government, for example, the governments of Ghana and Western Nigeria committed themselves to major development plans. In order no longer to be constrained to employ the funds raised by the marketing boards for the benefit of the farmers, the governments altered the laws governing the allocation of the trading surpluses.
Another major beneficiary has been the urban-industrial sector. In part, this sector has benefited as a consequence of the ways in which the governments have allocated public resources. Governments have employed the revenues generated by the marketing agencies to construct projects of primary benefit to the urban industrial sector: hydroelectric schemes whose power is used by urban industry but not for rural electrification, the building of industrial parks, or the construction of intra-urban transport systems. And while there has been little systematic research into patterns of governmental expenditure, what little there is suggests that it concentrates disproportionately in urban and industrial centers.
Bates’ arguments in both texts are clever and nuanced.He carefully weighs both the political and policy incentives faced by postcolonial governments eager to leverage agricultural surpluses for quick industrial development. He notes that marketing boards provided a cheap way for relatively weak states to raise revenue from the agricultural sector; as well as a means of protecting farmers from global price shocks. Bates also describes how interest group politics informed the allocation of costs and benefits as governments tried to raise revenue for developmentalist ends.
Perhaps because of his earlier works in Zambia (see here and here), Bates’ discussion of agricultural policies mainly focused on rural-urban distributive politics. This makes sense. Before de-urbanizing beginning in the 1980s, Zambia was relatively more urbanized than the modal African country (see above). It is perfectly understandable that both colonial and postcolonial Zambian governments had to ensure that mineworkers and other wage workers in the urban Copperbelt (and “line of rail” towns) had access to cheap food. To that end, governments regulated rural producers’ access to global markets as a means of stabilizing the prices of staples.
In other words, policy exhibited urban bias.
However, policy concerns regarding access to staples in the Zambian Copperbelt are conceptually different from the politics of managing cash crops like cocoa, tea, sisal, and others that are typically produced for the international market. Even if one accepts that cash from sisal exports is fungible and can be used to subsidize other aspects of urban life (e.g., by overvaluing the exchange rate), it quickly becomes difficult to explain either motives and outcomes using Bates’ model of distributive politics described above (see here).
Bates himself acknowledged the limitations of the urban bias thesis in a special issue of the Journal of Development Studies. A number of papers in the issue challenged the idea that the urban bias thesis was a settled theoretical framework for understanding the political economy of agricultural policy in low-income states. I particularly recommend Jennifer Widner’s discussion of the origins of agricultural policy in Cote d’Ivoire in the same issue. Widner’s historical account highlights specific features of agricultural policies (e.g., path dependence, land-owning elite policy capture, policy feedback and gradual change, price volatility) that may not be captured by standard models of interest group politics.
Historicizing marketing boards helps us appreciate the full set of problems they were trying to solve. Those problems would have still remained had marketing boards been eliminated; and the historical record suggests that market forces would not have solved them. As Alence reminds us:
[P]ressures on the government to mitigate domestic social conflict caused by external economic volatility are crucial to understanding the shift to controlled cocoa marketing. This change is a notable example of expanded colonial state involvement in Africa’s open economies. Recent econometric studies have shown that open economies worldwide are, counterintuitively, prone to greater domestic state involvement. Since at least the interwar period, Africa’s open economies have experienced among the world’s largest fluctuations in trade earnings. Despite diversity in particular government’s responses to the shocks of the 1930s and 1940s, similarities in resulting patterns of state economic involvement have become defining features of the institutional architecture of Africa’s open economies.
An enduring characteristic of Africa’s open economies through the colonial and postcolonial periods has been their vulnerability to trade shocks. Continuity in the domestic challenges posed to governments has been obscured by the conspicuous policy influence of external actors – first European imperial powers and later institutions like the International Monetary Fund and the World Bank. As many countries struggle to recover from the global volatility of the 1970s and 1980s, the shocks of the 1930s and 1940s are the most comparable historical precedents. They hold useful insights into the link between social conflict and state involvement in Africa’s open economies.
Overall, the stylized accounts of distortionary agricultural policies in African states require recalibration. Specifically, there is a need for an ideation shift to allow room for public policy experimentation towards improving agricultural productivity. For far too long the thinking in the region has been that African governments have been uniquely unable to do any good in the agricultural sector. That view is simply not backed by the facts (see Widner above). It is also a misreading of Bates, whose interest group arguments are perfectly compatible with the presence of beneficial public policy interventions.
III: Working with very thin margins
Even if one takes it for granted that African agricultural policies have always been unnecessarily and uniquely distortionary, the associated failures would only explain a small portion of why farmers in the region only marginally benefit from their produce. For the most part, African cash crop producers’ inability to widen their sectoral margins is a function of the structure of international commodity markets.
Take cocoa. African countries account for 81% of the global output (with Cote d’Ivoire and Ghana leading the pack). Yet for historical non-market reasons, the region’s producers only get a sliver of the global chocolate industry. That share has also substantially declined since the early 1980s (see above). The explanation for this state of affairs is that much of the value addition — including initial grinding of cocoa beans — happens outside the region. A Financial Times story on Ghana clearly captures this reality:
Of the $130bn global chocolate industry, less than $2bn goes to Ghana. Many farmers live in penury. Some employ children or extend their farms by cutting down forest to make ends meet. Farmers get at most 7 per cent of the chocolate value chain. Those who make, sell and market chocolate grab more than 80 per cent.
What this means is that even if Ghana’s Big Bad Marketing Board, COCOBOD (which, mind you, has for decades kept the sector afloat through global price fluctuations) were to increase its efficiency and only charge farmers the cost of price stabilization, the gains would still amount to less than 7% of the chocolate value chain.
It follows that any African government that is serious about agriculture as the foundation of economic takeoff must seriously invest in value addition. Such investments will necessarily involve persuading international buyers of raw commodities to relocate processing plants in addition to convincing high-income countries to remove disincentives against local value addition.
I have argued that there is a need to reconsider the role of African states in agriculture. For too long, past policy failures have created the impression that African states can do nothing good in the sector. Consequently, African states have been MIA in agriculture, with the results obvious for all to see. As shown above, the region lags the globe in changes in productivity over the last six decades.
This has to change. And to facilitate that change, two things need to happen: 1) there is need for open-mindedness in thinking about government involvement in agriculture (with a bias towards minimally distortionary policies, but also openness to experimentation and learning from mistakes); 2) African governments should aggressively pursue policies that incentivize the localization of value addition. Exporting raw commodities should be a thing of the past.
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Everyone reads Markets and States and the Essays because they are classics. But to understand fully where Bates was coming from in both texts (especially his “Urban Bias” thesis) one must also read Unions, Parties and Political Development: A Study of Mineworkers in Zambia and Rural Responses to Industrialization: A Study of Village Zambia.
Interestingly, no mention of the erstwhile "Breadbasket of Africa", or what has become of it...