When Government Care

Sat, 15 Oct 2011 Source: Food Security Ghana

On Sunday 16 October 2011 the world will celebrate World Food Day 2011 amidst a second global food crisis in less than four years that has push millions more into poverty and many millions globally into hardship. Government policies play a major role in this crisis of immense proportions and Food Security Ghana (FSG) takes a look at what caring governments do.

In 2008 Ghana Cared

In May this year Hafez Ghanem, assistant director-general at the United Nations’ Food and Agriculture Organization (FAO), said that government policy decisions contributed to the 2008 food crisis.

A major contributing factor was the decision by certain countries to halt exports of rice despite the fact that production was good, stocks were high and consumption was stable. This caused shortages on the global market that resulted in a doubling of rice prices in 2008.

With this statement the importance of global trade was again underscored. While some countries are net exporters of basic foodstuff, others are and may always be net importers. Governments on both side of the coin can dramatically impact the lively hood of people.

Ghana is and have been a net importer of rice for decades. In fact the figure of a 70 percent deficit has been bandied around for years.

When the food crisis was at its height in 2008 the then NPP government under President Kufuor realised the plight of the people and scrapped the import duty of 20 percent on rice and other basic foodstuff.

In 2009 India Cared

In 2009 the India government realised that the importation of rice will become necessary due to adverse production circumstances in India. To protect its consumers against inflationary pressures of more expensive imported rice it dropped import duties from 70 percent to 0 percent.

This move by the Indian government must be contrasted to actions taken by the Ghana government. 1. India is a net exporter of rice, whereas Ghana only produces 30 percent of local demand; 2. Before dropping import duties on rice to 0 percent in 2009 to protect its consumers, India protected its local industry with import duties of 70 percent. Before dropping import duties by 20 percent in 2008, Ghana maintained import duties of 37 percent compared to its neighbour - Ivory Coast - of 12.5 percent. 3. India reintroduced its import duties only when local production circumstances normalised while Ghana reintroduced import duties amidst a new food crisis and with no improvement in local production.

Many Other Countries Cared by Reducing or Eliminating Food Tariffs and Taxes

A number of countries, including Bangladesh, Egypt, India, Indonesia, Mali, Mexico, Morocco, Pakistan, Peru, the Philippines, Senegal and Turkey, have reduced or eliminated food tariffs or taxes.

The impact has been substantial in a few countries for selected food items. For instance, Morocco cut tariffs on wheat imports from 130 to 2.5 percent, while Nigeria slashed duties on rice imports from 100 to 2.7 percent12. India removed a 36 percent import tariff on wheat flour, and Indonesia eliminated duties on wheat and soybeans.

Turkey cut import taxes on wheat to 8 percent from 130 percent and on barley to zero from 100 percent. Burkina Faso suspended import taxes on four food staples in February 2008 after riots over price increases.

Several countries have also suspended or reduced domestic taxes on food items. Brazil reduced taxes on wheat, wheat flour and bread. Mongolia scrapped its value-added tax on (imported) wheat and flour. The Republic of Congo reduced VAT levied on a range of basic imported foodstuffs and other goods from 18 to 5 percent in May 2008.

In Madagascar, VAT was reduced on rice (from 20 to 5 percent), lighting/cooking fuel, and possibly other primary necessity goods. Kenya removed VAT (16 percent) on rice and bread, while Ethiopia removed VAT and turnover taxes (15 percent) on food grains and flour. Some Countries Cared By Controlling Prices

Some countries have attempted to control prices and restrict private grain trade in order to keep prices low for consumers. Sri Lanka announced retail and wholesale prices of all varieties of rice. Senegal released assorted grains to the market and announced price controls.

The Government of Malawi announced that all maize sales will be done through the Agricultural Development and Marketing Corporation (ADMARC), and fixed the price at which ADMARC will buy and sell maize.

The government of Côte d’Ivoire announced emergency measures to cut prices of food and basic services following protests against the rising cost of living.

Malaysia imposed ceiling prices on rice sold to consumers and raised the guaranteed minimum price for rice growers.

Some governments, including India, Pakistan, the Philippines and Thailand also enacted harsh penalties for hoarding grain.

Enforcing price controls is costly and difficult in case there is no adequate public stock or imported supply to meet demand at government-fixed prices. Prices fixed at low levels are also likely to discourage domestic production and create a black market. Some governments thus opted for a partnership with the private sector to prevent price hikes.

The Mexican Government, for instance, opted for public-private partnerships and announced a price freeze on 150 basic-basket food products until the year’s end as part of a pact with the National Confederation of Chambers of Industry (Concamin).

Food processors affiliated with the largest Mexican industrial trade groups agreed not to pass on their rising production cost to consumers. The agreement is intended to enable the government to achieve price controls without direct economic intervention, such as through subsidies or ordering sanctions against manufacturers.

The government of Burkina Faso also negotiated with importers and wholesalers and announced indicative prices for some basic staple foods such as sugar, oil and rice. As a result of an agreement between the government and the private sector, prices of rice and sugar in Jordan were printed on all packages to avoid retail mark-ups.

Such measures could be popular with the public but are likely to reduce private storage or marketing activities and reduce incentives for producers. It is also unclear how long the private sector can continue to avoid passing rising production costs onto consumers. Other Governments Cared in Different Ways

Many other measures were taken by various countries with varying success, and we will not go into those measures at this stage.

The food crises of both 2007-2008 and 2010-2011 have also resulted in several countries who have decided to change their approach, questioning de facto the paradigm that had guided their policies and strategies during the last decades: * By trying to isolate domestic prices from world prices (exporting countries); * By moving from a food security based strategy to a food self sufficiency based strategy; * By trying to shunt “normal” international trade processes either by acquiring land abroad for securing food and fodder procurement or by trying to engage in trade agreements at the regional level; * By showing distrust towards the private sector (price controls, anti-hoarding laws, government intervention in output and input markets).

The Situation in Ghana

Despite denials by the Government of Ghana (GoG), Ghanaians have also been hard hit by the consecutive food crises and global economic woes.

The announcements and actions (and inactions) of the GoG leaves the impression that the country has decided to move from a food security based strategy to a food self sufficiency based strategy.

The most visible and tangible proof of this is the decision by the Mills administration in 2009 to re-introduce the 20 percent import tariffs on basic foodstuff such as rice and oil at a stage when the world was entering the second global food crisis. The main motivation was that the step was “protecting” the local industry - an industry that was in its infancy producing low quality rice.

The result of this policy is clear - Ghanaians are suffering while the GoG is not making much headway towards self-sufficiency.

In 2008 the NPP government was ousted mainly because a perception developed that they did not really care about the people. Did the GoG stop caring in 2009, and if yes, what will the implications of this be for the NDC led Mills administration in the 2012 general elections.

Time will tell.

FOOD SECURITY GHANA http://foodsecurityghana.com info@foodsecurityghana.com

Columnist: Food Security Ghana