The Maize Price Spike of 2012/13: Understanding the Paradox of High Prices despite Abundant Supplies

Type Working Paper
Title The Maize Price Spike of 2012/13: Understanding the Paradox of High Prices despite Abundant Supplies
Publication (Day/Month/Year) 2013
The 2012 harvest was, according to the Ministry of Agriculture and Livestock national food balance sheet estimates, a major surplus production season. However, by November the same year, Zambia started experiencing widespread maize meal shortages and skyrocketing maize meal prices. This paper seeks to identify and analyze the fundamental causes of high maize meal prices in Zambia amidst years of bumper maize harvests. Our findings reveal that the maize procurement and marketing behavior of the FRA from 2010 to 2012 contributed to major structural changes, including 1. A shift in maize procurement strategies by commercial mills; 2. Rationing of FRA maize sold at subsidized prices to commercial mills; 3. Exit of the commercial farming sector from maize production. By procuring the majority of the available surplus and selling it at subsidized rates to a selected group of commercial mills, the informal market, including small-scale traders, retailers, and hammer mills, were effectively squeezed out of the market. As a result, this made the milling sector more concentrated and enabled large millers to raise their prices without risk of losing market share to informal milling competition. As a result of this market reorganization, the levels of competition in the market decreased while total available maize supplies were lower than would have been the case without the large FRA presence. The limitations of the market structure that emerged out of the consolidation of the market by the FRA were exposed in 2012 by a significant shift in regional trading relationships for maize. In particular, beginning in 2010 and continuing through 2012, South Africa, the region’s only consistent surplus producer of white maize, redirected the focus of its exports from the Sub-Saharan Africa region toward overseas markets. Because of the ways in which Zambia’s maize market had been restructured it was unable to effectively respond to this increased demand burden, leading to maize and maize meal shortages along Zambia’s border and elevated prices throughout the country.

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