1. Update of the CREW Project findings: Zambia Maize and Bus Transport Sectors Cornelius Dube CREW Project 4 th National Reference Group Meeting (NRG-IV) April 22, 2015, Lusaka (Zambia)

2. RECAP from NRG 3 A DCR was being prepared focusing on maize and bus transport sectors The DCR generally involved identifying policies that were undertaken in the two sectors, prioritising those that affected competition and welfare and then trying to assess the impact that these policies have had on consumers and producers (consumer and producer welfare) Bottlenecks were also identified towards the attainment of the intended objectives and possible action to ensure that more consumer and producer benefits arise Both secondary and primary survey were used Secondary data – various policy documents, research papers, data on fertilizer, seed, production etc. Primary surveys involved interviews with consumers and producers

3. Staple Food Sector

4. 4 The DCR identifies several policies that were undertaken in the maize sector over the years, dating back to independence These saw the marketing for both maize and fertilizer changing from the National Marketing Board (NAMBOARD) and the Zambia Cooperative Federation (ZCF) After the establishment of the Zambia Food Reserve Agency in 1996 (under the Zambian Food Reserve Act (1995)), the introduction of the Fertilizer Support Programme (FSP) in 2002, later restructured into the Farmer Input Support Programme (FISP) in 2009 The study focuses mainly on three main reforms the Government floor pricing reforms which were implemented through the FRA; the 2009 FISP (targeting fertiliser and maize support to farmers) the reforms on subsidised maize to maize millers (2011) Key Maize reforms focused on

5. The impact of floor pricing reforms 5 The floor price reforms reduced the variability of prices for maize The variance of wholesale prices was reduced by about 13.5% on average The floor pricing regime led to increase in maize price but had minimal beneficial effects in Zambia. It was beneficial to the net maize sellers, who only comprise about 28% of all farming households; was not good for the 49% who are net buyers and had no direct effect for 23% of the farmers who are neither net sellers nor net buyers. Among smallholder net-maize sellers, benefits from higher maize market prices accrued to about 4% of maize-growing smallholders that account for 50% of all smallholder marketed maize. Although the maize floor pricing by FRA is meant to be a poverty reduction measure, the percentage of small scale farmers that sell maize to FRA is so small to significantly affect poverty levels

6. The FISP subsidy regime creates a fiscal burden on government (about 73% of the poverty reduction budget in 2011) Prioritizing FISP as a cornerstone of the government’s poverty reduction strategy has had little or no measurable impact on rural poverty. Although aggregate maize production has significantly increased in the last decade, rural poverty has remained consistently high at around 80% The failures of FSP/FISP to have an impact on rural poverty can be due to: failure to successfully target poor farmers, as subsidized inputs went disproportionately to wealthier farmers. delays in input distribution and poor fertilizer use efficiency among beneficiary farmers leakages, which saw inputs intended for the subsidy program being diverted and sold on the commercial market The FISP led to a poorly developed agricultural sector dominated by a single crop; maize. Other high potential cash crops and traditional drought resistant food staples such as sorghum, millet and cassava were less prioritised. The excessive dependence on government by the farmers also created a lax attitude toward credit repayment and a lack of understanding of the functioning of markets. 6 The impact of the FISP (fertiliser and seed support to farmers)

7. Impact of subsidised maize to maize millers The mill-to-retail marketing margins (difference between the wholesale maize price and retail meal price) actually increased despite the subsidised maize from about 900 kwacha per kg before the subsidy to 1,400 kwacha per kg after it. Evidence point to the fact that very little of the costs incurred in providing FRA grain to millers at below-market prices benefited the urban consumers who are the majority consumers of the mealie-meal from the millers. Thus the millers benefited more from the regime than the intended consumers. Some millers, especially informal and small/medium-scale millers, who deal with poor consumers, were excluded from the program. The subsidies therefore did not promote competition among the millers since it only favoured a few millers in the field. The removal of the subsidy regime in 2013 did not create any distortions in the market as the real prices for maize grain and mealie-meal after the removal were normal relative to their historical changes. It is mostly millers therefore who benefitted much from the subsidy and never significantly the benefits to consumers.

8. Bus Passenger Transport

9. The National Transport Policy of 2002 provided for the enactment of laws and regulations as well as enforcing institutions to develop and guide the transport sector The Road Traffic Act No. 11 of 2002 provides for the establishment of the Road Traffic and Safety Agency (RTSA). The Public Roads Act No. 12 of 2002 provides for the establishment of the Road Development Agency (RDA) and the management of road infrastructure in Zambia. The National Road Fund Act No. 13 of 2002 established the National Road Fund Agency (NRFA) as the enforcing authority for the Act. The Markets and Bus Stations Act No. 7 of 2007 provides for the establishment and regulation of markets and bus stations. The study focuses on the possible impact brought about by these reforms in the market. Key transport reforms focused on 9

10. Based on the data for the intra-city bus transport, bus fare has been increasing faster than the fuel price, which could reflect that the fares have been pushed by other factors outside fuel. However, if fuel is the major input into the fares, then the bus operators have generally been able to utilise the fare setting regime to their advantage The deregulation of the transport sector, and the tax concessions on importation of buses in 1994 and 1995 saw a drastic increased in the number of buses on the market. Over the past five years, there has been a reduction in the time it takes to obtain the licences following the introduction of the electronic licensing systems in 2010. RTSA has also further decentralised the system of obtaining licences such as the fitness and road tax certificate and made it easier to access this service. Entry barriers from the operators’ view also arise owing to there being a number of regulatory bodies in the sector. RTSA, the Zambia Police, PACRA, ZABS, Interpol Police, NAPSA and the Local Authorities all have a set of regulations that can be tedious enough to act as a barrier. 10 Impact of Bus Transport sector reforms

11. Impact of Bus Transport sector reforms (Cont..) There is currently no route allocation framework in Zambia: operators are licensed as intra-city and inter-city operators and can operate anywhere on such routes. This reduces accountability for the players as they dont have any incentives to invest in goodwill and good practices Operators acknowledge that the provision and availability of infrastructural facilities improved between the year 2010 and 2011 with easy access However, there is room for more improvement and expansion of the bus terminals. The results of the survey show that the average fare per trip for the intra-city route is about ZK4.94 (about US$0.82), which is higher than in other countries. Commuters spend about 8.6% of their income on transport. The respondents in the intra-city transport indicated that they do not have any bargaining power to negotiate fares. Commuters are thus generally not satisfied with the fare setting process which is not as originally envisaged 11

12. Consumer survey reveals that access to bus services has improved, as most commuters, at most, wait about 15 minutes during peak hours. About 46% of the intra-city commuters take less than five minutes of walking to get to the bus stop About 84.6% of the respondents get to the bus stop within 15 minutes of walking Intra-city commuters generally are not happy with the quality of the services, with only 17.3% indicating that they were good. This was mostly attributed to overloading, uncomfortable seats and rude bus crew. In the inter-city transport, consumers appear to be satisfied with the quality of the service. 12 Impact of Bus Transport sector reforms (Cont..)

13. Main Recommendations Floor pricing reduces variances of wholesale prices but only benefits net maize sellers who are better off farmers who were never the targets for such reforms. There is need to constantly generate awareness about the negative effects of these piecemeal measures as a way of ensuring that policy makers glean important lessons in future. The subsidy regime also distort the structure of the downstream supply and value chains by denying private sector participation in the farm input supply and agricultural marketing Economic efficiency can be enhanced with more competition by the private sector The maize millers subsidy distorted competition, while millers pocketed huge profits with no measures to ensure that they transmit the benefits to the consumers. Subsidies that are not properly targeted should therefore not be re-introduced in Zambia. There are also general indications that there was not too much distribution in terms of companies winning the bids to supply the fertiliser, with possibilities of collusion being raised. Possibilities of collusion should always be investigated, even in retrospect. CCPC could thus develop a keen interest in the industry with the aim of taking corrective action once collusion is established. 13

14. In the intra-city transport sector, while the operators have largely benefited from the pro-competition reforms, the fare setting process is stilled skewed in the operators’ favour. This calls for a relook at the fare setting process or a closer enforcement of the current system to ensure better representation of passengers The issue of standards in the buses, especially intra-city also calls for attention, as there does not appear to be proper mechanisms designed to make operators compete for quality. The first come first load principle and the use of touts to solicit for custom, whose behaviour is hardly regulated, do little to give incentives to operators to invest in quality The licensing regime was generally found to be fairly easy for bus operators. However, attention now needs to be shifted towards ensuring that the multiplicity of regulators operate in a harmonised manner to reduce compliance costs as well as routes for corruption. 14 Main Recommendations (Cont..)

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