The private sector : regulation of rural markets in Africa

So concludes this study of the forms and effects of government intervention in rural African agricultural markets. The authors first review government regulation of African export crops, including coffee, cocoa, palm oil, cotton, sugar, and bananas. Although privately produced, these crops are required by law to be sold through state-controlled marketing boards originally designed to stablilize prices for the benefit of farmers. Instead, the boards have heavily taxed export crops in order to finance development of nonfarm sectors, obtain foreign exchange, and pay their own high operating costs. As a result, prices received by farmers for their crops are often less than half of international prices. Many farmers have responded by shifting to production of less heavily taxed crops, and high marketing costs imposed by the boards have played a part in dramatic declines in exports from Nigeria, Senegal, Ghana, and the Sudan. Export crop producers are also burdened by the high level of currency overvaluation in many African countries which further undermines production by reducing the value of export earnings. In the second part of the paper, the authors show how African governments regulate domestic food prices. Marketing bureaucracies act to lower food prices but in so doing increase marketing costs and price inefficiency and weaken production incentives. Governments also use trade policies to lower food prices by banning exports, allowing duty-free imports, and maintaining overvalued currencies. The origins of these food pricing policies are traced to the need of governments to satisfy the demands of politically powerful urban food consumers for low-cost food. In a final section, a proposal is presented for reforming the marketing boards which would entail allowing markets to make and retain a limited amount of profits to encourage efficient operation. The boards would be made accountable by including producers and cooperative society members on executive committees.