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Maize Market in Southern Africa:Effects from Improving Storage Efficiency

(A spatial-temporal price equilibrium approach)

António Sousa Cruz

Mozambique

September 2006

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ProblemPrices rise before following harvest

Consumer Prices

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0.100

0.150

0.200

0.250

0.300

0.350

0.400

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04 05 06 07 08 09 10 11 12 01 02 03

Months (April 2001 to March 2002)

US

$ p

er

kilo

gra

m o

f ma

ize

Malawi Mozambique Tanzania

Zambia South Africa (fob)

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Objectives

• To study the maize market in Malawi, Mozambique, South Africa, Tanzania, Zambia e Zimbabwe (SA6)

• To analyze economic effects from improving storage efficiency, i.e., reducing real interest rates (Arndt, Schiller, e Tarp 2001)

– Using a spatial-temporal price equilibrium model (Samuelson 1952; Takayama e Judge 1971)

• To analyze effects from reducing storage costs, reducing transportation costs and liberalizing intra-SA6 trade

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Correlation Coefficients of Maize Outputamong SA6, 1987-2002

Mozambique South Africa Tanzania Zambia Zimbabwe Malawi 0.40 0.27 0.33 0.51 0.38 Mozambique 0.17 0.13 0.26 0.26 South Africa 0.01 0.62 0.73 Tanzania 0.18 -0.18 Zambia 0.57 Source: Calculated by the author based on FAO 2002-03.

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Assumptions

• Producer and consumers are price-takers, operating in competitive markets

• Transactions costs: storage, transportation, tariffs• Each region is a separate market• Partial equilibrium• Producers and consumers are risk neutral• Perfect foresight for the entire year• Maize is a single and homogeneous product

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STPE Model: Objective Function

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Subject to restrictions:

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Simulations

Simulation Short name Explanation

0 Base Benchmark data replication 1 Storage More efficient storage in South Africa 2 Storagesa5 More efficient storage in MMTZZ regions 3 Storsa6 More efficient storage in all SA6 regions 4 Transport More efficient transportation in MMTZZ regions 5 Transaction More efficient storage and transportation 6 Notaxes Eliminating import tariffs among SA6 7 Combined Combining simulations 5 and 6

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• South Africa-East reveals a pattern of trade of the Benirschka and Binkley (1995) type:– Storage efficient region

– Intra-seasonal flatter prices

– Sells maize later in the marketing season

• Mozambique-Center, Mozambique-North, and Tanzania present a Timmer’s (1974) pattern of trade:– Low storage efficient regions

– Intra-seasonal price hikes

– Exporting maize immediately after harvest

– Importing it back later in the “hungry season”

Results(Base Scenario)

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Impact of Simulations on Welfare Measures,SA6 Regions (% changes)

Welfare measures storage storagesa5 storsa6 transport transaction notaxes combinedProducer surplus -0,2 9,4 7,6 -0,06 7,3 -1,9 6,5Consumer surplus 2,3 0,4 2,4 0,04 2,5 0,9 2,9Net social welfare 1,6 2,9 3,9 0,01 3,9 0,1 4,0Note: Percentage changes with respect to Base scenario.

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Conclusion: Maize Market

• Current differences in storage costs (in particular, in real interest rates) is an important determinant of South Africa’s comparative advantage over other SA6 countries

• When reducing real interest rates Mozambique-Center, South Africa-East and Tanzania increase their exports to other SA6

• Combining improvement in storage and transportation efficiency, and trade liberalization provides the best welfare results among all scenarios