Maize Price Cycles in Eastern and Southern Africa


Under most state-controlled
maize marketing systems,
producer prices are announced
just prior to the growing season to
influence farmers' planting deci-
sions. However, producer prices
set in response to short-term
market conditions often have
undesirable consequences in the
long term. One striking example
of this process is the maize price
cycle observed in recent years in
several countries of eastern and
southern Africa.

The maize price cycle is a vari-
ation of the so-called "cobweb
model" of agricultural commodity
supply. The basic assumption of
the cobweb model is that produc-
ers respond to last year's price,
which reflected the previous
year's supply, which itself repre-
sented producers' response to the
price the year before, and so on
back in time. These delayed re-
sponses, which are a result of
agriculture's seasonal nature,
result in an unstable cyclical rela-
tionship between price and quan-
tity produced.

In eastern and southern Africa,
the maize price cycle typically
begins in a year when drought
severely limits production, leading
to maize shortages and necessitat-
ing high levels of imports to meet
domestic demand for food (see
Figure). Policy makers respond by
sharply raising the producer price
of maize. The higher price induces
farmers to increase their produc-
tion the following year, and a
large surplus results. In subse-
quent years, if rainfall is normal,
nominal producer prices are kept
virtually static, which in the pres-
ence of inflation translates into


declining real prices.
Declining real prices
eventually lead to
lower production as
farmers gradually
decrease area planted
to maize or reduce
their use of purchased
inputs. For a time, the
government can com-
pensate for declining
production by releas-
ing grain from its
stocks; thus, the effect
of lowered production
is concealed with the
help of the surplus
generated by the origi-
nal drought-induced
rise in prices. But
sooner or later a
serious drought
recurs, causing pro-
duction to slide again,
and shortages reap-
pear. Imports are again
to meet domestic food de
policy makers react by s
ing the producer price; a
cycle is repeated.

In Zimbabwe, the maize
has been particularly ev
Independence. When th,
government came to poi
maize producer prices h
declining for a number
and Zimbabwe was imp
maize for the first time
decades. In the face of d
production, the gover'im
the maize producer prior
higher than the previous
price and well above pri
for substitute crops.

With the help of except
vorable weather and f~i
lated to price, such as th
the civil war and impro


Price


 Year 7
0


Quantity


The maize price cycle in eastern and southern
Africa.

necessary bution of purchased inputs, farmers
demand; responded enthusiastically to the
harply rais- price increase. Sales to the official
nd the Grain Marketing Board surged
 from 800,000 t in 1980 to over
 2 million tons in 1981. This
 price cycle quantity of maize overwhelmed
 ident since marketing and storage facilities,
 e new and the government was forced to
 ver in 1980, export the surplus at a loss. For the
 ad been next three years, producer prices
 )f years, remained the same in nominal
 sorting terms but actually decreased 27%
 in several~ in real terms. Planted area conse
 expressed quently fell,resulting in a steep
 lent raised drop in production (which was
 e 40% exacerbated by drought). In
 s year'w reaction to plummeting maize
 ces offered stocks, the government announced
 a 30% nominal increase in the
 1985/86 producer price. Again,
onally fE- producers responded by producing
tors ur a huge surptua
e end of
red distri&