Regulating agricultural markets to better manage price instability is a view that is now shared by most experts and decision-makers. As regional integration processes are expected to grow, the issue of regional perimeter to implement regulatory policies and instruments seems to be increasingly pertinent. In a recently published paper, Arlène Alpha of GRET and Raphaël Beaujeu of IRAM are exploring the possibility of a regional approach in Western Africa that would aim, on one hand, to regulate agricultural markets and, on the other, offset the consequences of price instability on the most vulnerable people. As shown by the authors, if the implementation of a customs union and a regional network of public reserves provide many opportunities, unfortunately their enactment is confronted to significant political, economic and administrative difficulties. We are deeply convinced that an International Policy for Agriculture and Food would resolve these hurdles. We are publishing hereunder excerpts of the article1
that deal with the interest and limitations of a regional approach to regulate agricultural markets.
momagri Editorial Board
The relevance of the regional level to manage price instability in Western Africa
In Western Africa, thinking in terms of agricultural market regulation and price instability management at the regional level is especially justified by the strong regional scope of the latest food crises. Incidentally, the Economic Community of West African States (ECOWAS) is considering the feasibility of regional means to regulate the region’s agricultural markets and manage the consequences of price instability for the most vulnerable people.
a) The regional scope of price instability in Western Africa
Western Africa has experienced a number of crises that reveal the growing interdependence between the region’s economies. […] These crises generated several observations:
- The growing interdependence between the region’s economies and the legitimacy of instability management in terms of production and consumption areas justify a regional approach;
b) The process of regional integration in Western Africa
- The heterogeneity of countries in the region in the face of imported instability and the problems it poses for regional intervention. The level of price transmission for imported grain and locally-produced grain can vary from one country to the next, and the degree of dependence of nations from importations also greatly varies within a given region;
- The diversity of means to be marshaled to achieve food security. The region is increasingly faced with diverse causes of instability––whether natural or imported––which require the diversification of regional regulatory instruments.
In addition, the choice of the regional level to manage agricultural and food price instability in Western Africa is justified by the fact that the regional integration process is accelerating. […]
The ECOWAS nations have adopted a Blueprint for Trade Liberalization (Schéma de Libéralisation des Echanges or SLE) whose objective is to ensure free trade for all goods produced in the Community since 2004. The West African Economic and Monetary Union (WAEMU or UEMOA) acts as a customs union since 2000, and the ECOWAS Common External Tariff (TEC ) is now in its final stage. The Community commitments of Western African nations are thus in line with the formation of a wide regional market capable to alleviate price hikes through increased competition and improved space-time arbitration of private players.
The SLE, however, is far from being effective. Its implementation is confronted to numerous difficulties that curtail the positive effects that could be expected––high transportation costs, administrative red tape generated by corruption, need for customs receipts, hasty decisions by governments when national situation become tense as well as ECOWAS efforts to enforce Community’s commitments. […]
Public means to regulate markets
a) Border instruments in the framework of a Customs Union
The implementation of a regional customs barrier must regulate importation flows at the Community’s borders and promote inter-regional trade in the free-trade zone. Safe from import competition, we expect that regional industries will develop and that regional products can circulate unhindered from surplus zones toward deficit zones, thus contributing to a drop of price instability in agricultural and food markets. To achieve this, however, the TEC must be sufficiently protective and incentive, so that the free trade area is operational.
Yet, the definition of an effective and incentive TEC is far from obvious. The TEC implemented in the WAEMU zone, which was supposed to be extended to the ECOWAS other member countries, was one of the world’s lowest. Strongly contested––in particular by agricultural operators––because of its poor protection and its inconsistency with sectorial priorities, ECOWAS’ current TEC definition provides the opportunity to revise it with the introduction of a fifth tariff band at 35 percent.
The current process to finalize the ECOWAS TEC illustrates the problems involved in agreeing on tariffs that ensure the fixed protection of regional industries against international markets. These difficulties are largely stemming from the diversity of situations and of approaches between the nations in the region, as national interests might be concealed at the regional level. Studying extreme cases, Ivory Coast and Nigeria have totally opposite approaches regarding the opening-up of markets, and therefore adopted very different trade policies––liberal for one (maximal tariff at 15 percent) and protectionist for the other (maximal tariff of 150 percent, ban on imports). Behind such differences, the socioeconomic and political motives also differ. For instance, broken rice imports are currently necessary in Senegal, since broken rice represents a mass consumer staple, its national production is inadequate and such importations must not be overly taxed, whereas Mali relies very little on imports to meet the needs of the population. […]
b) Regional networking for public reserves
A regional approach of Western African public reserves seems to be pertinent for several reasons. The possibility to mobilize more stocks and benefit from a denser “coverage” of stocks at the regional level can improve the effectiveness of unstocking and supplying operations for deficit zones. In case of food crisis, according to the proximity of reserves, it might be quicker and less costly to marshal the reserves of a neighboring country rather than use national reserves, or resort to international markers (food aid and importations). In addition, warehousing costs (maintenance, management, rotations…) can be partly shared between the region’s countries, in as much as a country’s reserves can be used in another one. The risks related to the saturation of reserves––or conversely depletion of reserves––are mitigated with regional networking of reserves. Lastly, in comparison with current thinking on the formation of stocks at the level of international markets for wheat and corn, the regional level has the advantage of promoting regional trade between surplus and deficit zones and therefore encourage regional integration.
The benefits of considering the management of public reserves at the regional level has led Western African nations to set up a network between the various structures to manage public reserves––RESOGEST––which is based of a principle of solidarity between the region’s countries. Each country holding stocks commits to free five percent of its stocks to “regional reserves”. In this initiative, only national food security reserves (SNS) and intervention stocks are concerned, as their goal is to meet food crisis and price hike situations. Although stock entry and depletion operations might have consequences on markets, and although the term of “intervention reserves” might suggest market intervention, we are not talking about regulatory stocks, as mentioned in the framework of the CAP for example, whose objective is to support farmers’ prices.
The Western African initiative of food security reserve networking is nevertheless an interesting one to consider as a sounding board to foresee a system of regulatory stocks. The principle of such a system would be to purchase from farmers to build up stocks when collection market prices are below a given threshold, and conversely, release stocks when consumer prices rise beyond an excessive level. The regional system of public reserves could combine public reserves managed by national entities (additional percentage of national stocks), private reserves held by socio-professional organizations or traders under ECOWAS contracts (regional warehouses) and ECOWAS own reserves, although stored in any type of warehouse (deposit certificates).
The implementation of a network of regulatory stocks at the Western African level cannot be possible in the short term however, since the institutional and political conditions are not met. One of the hurdles concerns practices of private operators and their role as regional warehouse-keepers. Today, ECOWAS is by no means capable to grant agreements, to supervise compliance to specifications and the lack of speculative distorting practices (sending agents on site), and to sanction if required (withdrawal of the agreement). […]
In addition, the management of public reserves should be transparent, and there should not be any political interference leading to the use of reserves for other purpose than the general interest. […]
Lastly, the implementation of regional regulatory stocks imposes a variety of technical or methodological constraints. First of all, ECOWAS must determine which markets to regulate (collecting and consumer markets of reference), as well as which products to be targeted (undoubtedly prioritize dry grains already currently warehoused as food security reserves). Setting up guaranteed purchase prices to farmers in the framework of warehousing operations is especially complicated. How can we set up the appropriate price level so that it is incentive enough without being too high? How can we include the various transportation costs according to the location of reserves in relation to the deficit area to be supplied? Do we need different purchase prices, at the risk of creating inequalities between producers? Finally, how can we determine the critical size of reserves to both have an effect on markets and take into account the budgetary, technical and organizational capabilities of ECOWAS?
1 The complete article is available from http://www.inter-reseaux.org/IMG/pdf/Note7_Regional_AO_A-Alpha_R-Beaujeu.pdf