Zambian Smallholder Behavioral Responses to Food Reserve Agency Activities (Revised Version)

The FRA purchases maize from smallholders at a pan-territorial price that often exceeds market price levels. Private trade is legal, and private buyers are allowed to buy maize at prices above or below the FRA price. The FRA's budget allocation averaged 25% of the total allocation to agricultural sector Poverty Reduction Programmes (PRP) in Zambia between 2004 and 2011. Research has shown that only a small percentage of well-capitalized smallholders are able to sell maize to the FRA and take advantage of the maize price support. For example, in the 2007/08 marketing year, only 10% of smallholders sold maize to the FRA, and these households had larger landholdings, more farm assets, and higher education levels than smallholders that did not sell maize to the FRA. An increase in the FRA farmgate maize price influences smallholder behavior by increasing the farmgate maize price that smallholders expect to receive at the next harvest. Smallholders respond to an increase in the FRA price by both intensifying and extensifying their maize production. On average, a 1% increase in the FRA price is associated with a 0.14% increase in smallholders' fertilizer application rate on maize and 0.06% increases in their maize area planted and maize quantity harvested. Empirical results do not support the claim that the increase in maize production stimulated by FRA policies comes at the expense of other crops. Compared to poorer households with smaller landholdings, relatively better-off households with larger landholdings are more likely to sell maize to the FRA and have a larger maize supply response to changes in the FRA price. The FRA's activities have a significant impact on fertilizer use and crop production by smallholder households in Zambia. The empirical models used in the study estimate the effects of changes in FRA maize purchase and pricing policies on the farmgate maize price that smallholders expect to receive at the next harvest. The results show that an increase in the FRA farmgate price has a positive effect on the household's expected maize price. The magnitude of this elasticity is larger for smallholders that cultivate two or more hectares of land or are located in areas that are well suited for low-input rainfed maize production. The study uses a nationally representative household-level panel survey of Zambian smallholders, which covers the 1999/2000, 2002/03, and 2006/07 agricultural years and the 2000/01, 2003/04, and 2007/08 maize marketing years. The data also include FRA administrative records on yearly maize purchase prices and district-level maize purchase volumes from 1996/97 to 2006/07, dekad rainfall data, producer-level crop prices, and monthly maize wholesale prices from trading centers in each of Zambia's nine provinces. The study's findings have significant policy implications for the FRA's activities and the impact of maize price supports on smallholder households in Zambia.