Analysis of farm to retail maize marketing margins in Zambia

Abstract

The Zambian government like most African governments continue to intervene in food markets. One such intervention mechanism used in Zambia is the Food Reserve Agency which provides marketing opportunities to farmers but at the same time protects farmers against the exploitative behaviour of private traders. These private traders are believed to extract monopoly rents from their position between scattered and ill-informed producers, on one hand, and captive consumers, on the other hand. Marketing margin analysis has usually been used to examine the behaviour and competitiveness of markets and the share of a retail commodity price accruing to farmers. Most studies that have used marketing margins analysis have typically considered margins to vary either spatially or temporally. There has been little attempt to understand how or why marketing margins may vary across households holding both space and time constant, even though inter-household variability has been observed in most rural maize marketing areas. This study, therefore, determines the relative importance of spatial factors, temporal factors, and household-specific factors in the maize prices received by farmers in Zambia and in the associated farm-to-retail marketing margin under the assembly trader channel. Understanding where most of the variation in marketing margins and farm prices comes from is an important question that has great policy implications. The study findings reveal that the mean farm-to-retail marketing margin was ZMK195.70 per kg of maize, compared to a mean retail price of ZMK1018.44 per kg. On average, the farm-gate price was 80 percent of the price obtaining at the retail centres. However, there are wide variations in the prices received by farmers even within the same localized areas and time of sales. Spatial factors were found to account for the largest source of explained variation (72%) in the maize marketing margin and farm-gate prices obtained by farmers. There is wide inter-district variability in marketing margins. Temporal factors account for the second largest explained variation (16.7%) in the marketing margin and the price obtained by farmers. Household-specific factors account for the smallest source of explained variation (11.3%) in the marketing margin; factors that were found to significantly affect the size of the marketing margin were marital status, kinship ties to either the chief or village elders and access to price information. The wide inter-household variation in farm-gate prices within the same locality and month suggest the importance of unobserved household-specific factors. These results indicate that the prices that maize farmers in Zambia obtain are not exogenous to farmer characteristics and attributes. In order to raise maize prices that farmers obtain, policies should be aimed at providing timely price information to farmers. Given the importance of spatial factors in explaining variations in farm-gate prices and marketing margins, the results suggest that improved road infrastructure in areas where marketing margins are high could significantly improve farm-gate prices. Lastly, the study reveals that roughly 75% of the farmers did not travel to sell their produce, because the assembly traders travelled to their homesteads to buy maize. For those farmers who did travel off their farms to market their grain, the average distance travelled from the farm to the point of maize sale was 4.5km. These findings suggest that private traders are relieving most Zambian maize farmers of the need to organize transport for them to sell their grain. Nevertheless, the study’s findings indicate great potential for specific public sector investments to narrow the wedge between maize prices received by farmers, and those paid by consumers.