With 60% of the population of sub-Saharan Africa directly involved in agriculture, it is somewhat surprising they are not capable of feeding the region's 850m population. Each year, Africa imports up to $20bn worth of food as commercial imports and food aid to support local production, yet the main complaint of the smallholder farmers is 'a lack of market'.
Smallholder farmers continue to grow the traditional export crops of cotton, coffee, tea, cocoa and tobacco despite declining world market prices--as they at least know there will always be buyers in the market. What is less certain is the price these crops will realise.
The price of traditional staple food crops, particularly maize in East and Southern Africa, suffers from uncertainty in the market-place. In a good productive year, the price tends to collapse to uneconomic levels for the producers; in poor production years, the prices climb to highly profitable levels. The swings in production are driven by climatic conditions such as drought and flooding, but the market price is often also further distorted by a reluctance to produce in times of low market prices and an over-enthusiasm to produce in periods of high market prices.
In the past, several African markets were stabilised through state inventions when government agencies built up large surplus stocks of grain. The mechanism by which these stocks were purchased and released onto the market stifled the activities of commercial traders and millers who might otherwise buy on the open market. This reluctance was also compounded by the arbitrary use of import taxes and export bans imposed by governments in the name of food security and protecting local producers.
African markets are now in a transition phase with reduced activity by government agencies but unclear national and regional policies to allow the private sector mechanisms to provide some level of stability. There are several lessons to learn from both the traditional export markets and the South African grain market.
Traditional export crops of cotton, coffee and cocoa all have international markets where both spot and futures options can be traded. These mechanisms can be used to attract finance for production, processing and export. Access to international markets can also mean that crops can be purchased in a timely manner, in line with the demands of producers and processors.
Due to climatic cycles and the lack of...