Chapter I: Policies Toward Cash Crops for Export

Session 4 Robert H. Bates, Markets and States in Tropical Africa: The Political Basis of Agricultural Policies, 1981, pp 1-44 and 81-95 This book was published in 1981, and hence, all the examples are from 1970s and before. The book is divided into two parts – Part I (Ch. 1-4) is descriptive and Part II (Ch. 5-7) is interpretive. The book draws information from Nigeria, Ghana, Kenya, Tanzania, Zambia, the Sudan, Ivory Coast, and the Sahelian countries, especially Senegal, and does not include the former “settler territories” of Southern Africa.

Chapter I: “Policies Toward Cash Crops for Export”

This chapter discusses how agricultural states in Africa have diverted funds from agriculture to industry using surpluses from State Marketing Agencies that, under colonialism, were originally established to help farmers. Under self-government, states sought to modernize their economies using low-interest loans and grants from State Marketing Agencies. While state-sponsored businesses, local agricultural processors, and the SMA bureaucracies have benefited from these practices, these benefits have come at the expense of farmers who are paid prices for their cash crops well below the world market prices.

State Marketing Agencies: Sanctioned by law to be sole buyers of major agricultural exports. They purchase cash crops at administratively determined prices and then sell them at the world market price. Prices paid to farmers are kept lower than the world market price, allowing the agencies to accumulate funds.

State Marketing Agencies under colonialism  originated in times of economic crisis (Great Depression or World War II) to accumulate funds for the benefit of the farming community. Mandated by legislation to use the bulk of funds to benefit farmers, particularly through price stabilization.  As agriculture was the principal economic activity for most of Africa and generated the greatest volume of foreign exchange, state marketing agencies became the wealthiest and most economically significant unit of their economies  Colonial governments were sometimes able to divert SMA funds to other public coffers

State Marketing Agencies under Self-Government  Under self-government, new states were concerned about developing local economies  Independent states were now run by elected politicians rather than appointed administrators.  As one of the wealthiest units, SMA funds were an attractive revenue source for developing industry and appeasing interest groups. States sought to divert SMA funds from farmers to other uses, particularly promoting industry.  Example: Ghana in 1957 passed a bill declaring that funds previously legislated to help cocoa farmers “should properly be regarded as being held in trust for all people of Ghana.” When cocoa prices fell between 1959-62, the price drop was directly passed onto farmers.  States extracted money from SMAs as grants and low-interest loans (which were often never paid back)  Urban industry received a disproportionate amount of SMA funds  This practice can essentially be considered a tax on farmers, for which they were not compensated in terms of interest payments or goods and services.

Business and Industry  State-Sponsored Capitalism: Redistributing income from agriculture to industry  Example: In Western Nigeria, the state established a Development Corporation and Finance Corporation to develop industry (glass factory, textile plants, etc). The corporations would request funding from the Ministry, and the Ministry would demand that the state marketing agency provide the loan. The corporations often failed to repay the SMA and had to get reductions on interest charges.  Local Industry: Agricultural Processing Firms  Agricultural processing firms seek raw materials at a low price and attempt to use their power to keep prices paid to farmers low.  States want to support such firms as a natural way to move the economy from agriculture to industry.  States and processing firms have formed economic and political alliances to keep cash crop prices low.  Ways is which this has been done: the state has allowed processors to form their own monopsonistic marketing boards; the marketing agency has transferred funds to processors rather than farmers; the marketing agency has mandated low prices to farmers; the state has subsidized sales to processors, often by lowering prices to farmers  Bureaucracy: Another Beneficiary  Costs of marketing agencies have risen due to inefficiency. Funds have been used to increase staff, raise incomes, purchase cars, etc.

Chapter 2: “The Food Sector: The Political Dynamics of Pricing Policies”

Why do African states want to lower the cost of food? . There is political pressure from urban workers, who have often demonstrated and seized power to protest the erosion of their purchasing power . The government, as a major employer of workers (from civil servants and bureaucrats to railroad operators), has an incentive to resist wage increases

What alternatives does the government have at its disposal? . It can attempt to reduce the effectiveness of organizations that advance the interests of urban workers (e.g. suppress trade unions) . Or it can use policies to lower the cost of living. This option attempts to cope with political problems whose origins lie outside of the agricultural sector, and makes rural producers bear the cost

What types of policies are used to lower the cost of food? . Commercial policy or the manipulation of trade: o Governments overvalue the exchange rate, making foreign goods seem cheaper relative to domestic goods. Without tariff barriers, domestic food prices must fall to compete. o And/or governments manipulate tariff barriers to allow imports only when domestic food prices get too high, and to prevent exports when world prices are above domestic prices o These policies are “consumer biased” and are very hard on producers . Direct interventions in the market: o Governments create legalized monopsonies in the form of marketing boards, buying at official prices and selling through price-controlled channels. This amounts to a subsidy of urban consumers through the board. Since these policies must (by definition) operate at a loss, they are very expensive for the government. (There are several examples, including the National Milling Corporation in Tanzania, offered in the book on page 38.) o Governments purchase food from abroad and distribute it domestically. By competing with local farmers in sales, the boards lower prices . Bates notes that these methods are not fool proof and that a great majority of food crops do not pass through government channels

What are the consequences of these policies? . Continued conflict between peasant and bureaucrat, with peasants trying to avoid adverse impacts of policies (they buy bureaucrats off) . Bureaucrats try to appropriate the peasants’ products, and often become corrupt by offering protection from the policies, for a price . The end result is a redistribution from farmers and consumers to officials

Chapter 5: The Market as Political Arena and the Limits of Volunteerism When African governments intervene in markets, they often harm the short-run interest of most farmers. The farmers have to pay higher prices for goods from urban areas, and receive lower prices for their products, and also have to compete with government fin supplying food to the urban markets. Furthermore, only the rich few can benefit from the subsidies conferred on farm inputs. Few questions arise. The most important is: How do the governments get away with sustaining policies that violate interests of the majority of their constituents? One answer is that governments have power to coerce, and are willing to suppress those who attempt to organize against them. Therefore, farmers are afraid of government reprisals. However, there are other factors beyond coercion.

Private Choice and Public Policy The farmers also have a less costly alternative: they can use market against the state to evade some of the adverse consequences of government policies. African producers withdraw from ventures that have been rendered unattractive (through lower prices), and also alter their product mix to take advantage of shifting relative prices, thereby moving into products for which returns have become more favorable by comparison. E.g. when the price of coffee goes down, fewer acres of land is devoted to coffee production (positive own-price elasticity), while cocoa production would go up (negative cross-price elasticity). Thus, by exploiting the alternatives open to them in the market, the peasants are able to defend their incomes against adverse shifts in prices of particular commodities. Rural dwellers have another alternative – out-migration of persons. They use the labor market to exit from areas where economic conditions have declined and to enter areas where economic conditions (average earnings) are more favorable. Another channel available is moving away from the government-controlled market, and divert produce to private channels of trade. In addition to altering their market strategies, peasants also alter their production mix so as to avoid the burdens that governments impose upon them. The marketplace offers several alternatives. However, it should not been seen as triumph for the peasantry. They avoid state by taking refuge in alternatives that are clearly second best. They move into production of crops that are more profitable only because they are less heavily taxed, and hence, incur economic losses.

Collective Action The marketplace offers only private “solutions” to the collective problem. However, farmers often do not dare to seek public solutions for fear of government reprisal, and also because the structure of the industry greater obstacles to organizing. Since Africa is overwhelmingly rural, there are large numbers of farm families, and each produces a small portion of the total output. In comparison, there are few urban producers who control large portions of each industry, and hence benefit-cost ratio of collective action favor those working in industries other than farming. However, not all farmers are treated equally; large farmers receive more favorable treatment. Large farmers tend to be geographically concentrated and face lower costs of organizing. Hence they act collectively in defense of their interests. E.g. rice farmers in Ghana and Kenya National Farmer’s Union (KNFU). The interest of large and small farmers often conflict, but sometimes these large farm lobbyists generate benefits for the industry as a whole. E.g. KNFU’s lobby to increase food prices in 1976. There are two important implications – 1) As the number of large farmers increases n Africa, the farming community will tend to grow politically more assertive, leading to conflict between industries and farming communities. 2) Countries with greater number of farmers will tend to have agricultural policies that offer more favorable prices to farmers.