Posted on September, 26, 2018 at 10:26 am
By HGK Nyakoojo
When government came out to “buy maize” at Shs500 per kilogramme, I wisely decided not to hold my breath although I commended the effort. Now we are getting reports that the commendable effort has so far yielded no tangible results and this should have been clear from the beginning. One flaw in the scheme championed by the Ministry of Finance was that it chose the wrong partner for its implementation – the Grain Council of Uganda (GCU). The GCU is a grouping of mostly grain traders, buyers of maize from farmers.
The Ugandan agricultural commodity market is such that farmers are rarely (if at all) price setters, but price takers. They are so weak that buyers nearly always dictate at what price they will buy and in this case, were responsible for the Shs100 to 150 maze price. So the government should have realised that the party they selected as partner has vested interest in keeping the price as low as possible. Worse still, government was expecting the traders to borrow its money in order to buy maize at 300 or 400 per cent above the market price. Why should they when they can borrow from the same banks (yes at a slightly higher interest rate) and continue paying the same Shs100 for the kilogramme?
Then, as the traders have pointed out, government expected them to buy a kilogramme of maize at Shs500 and immediately sell it to their own customers at a price higher than the real market price. Those customers would themselves have no incentive to buy at what would amount to an artificially raised price.
The other flaw is that the scheme, if it can be called that, was created and managed by an institution and people who have no real knowledge of trade and commerce. A team of people with rudiments of practical trade would have devised a different mechanism. First it would identify the stakeholders with the most to gain from a stable (not necessarily high) maize price. In this case two such stakeholders are the farmers and the government itself. It would have been clear to them that if maize were to be bought at a price significantly higher than the going market price, maize purchased would not be for immediate sale, but would be stored to constitute a buffer stock.
The buffer stock would then be off-loaded onto the market if, as is usually the case, prices next harvest rise beyond a pre-determined threshold. The proceeds from selling the buffer stock would then be banked on an interest bearing bank account to await when prices fall below a given threshold to replenish the buffer stock.
Therefore, if government wants farmers to remain providers of food for our tables and principal earners of foreign exchange for the country, a scheme or schemes for price stabilisation should be considered along these very simple lines because stable commodity prices ultimately are in most peoples’ interest. Unfortunately, we have to wonder whether Uganda still has people honest enough to run such schemes.
Source: Daily Monitor