This piece was originally posted on the Research for Ethiopia's Agriculture Policy website
By Sarah McMullan

Eight years ago, the Government of Ethiopia placed an export ban on maize and other major cereal crops. At the time, Ethiopia’s grain prices were three times higher than those on international markets. The government saw the price hikes as a symptom of trade and not high inflation rates, among other factors. But in 2013, higher-than-average Kiremt rains spurred projections of a bumper maize crop, which triggered the Ethiopian Agricultural Transformation Agency (ATA) to consider advising the Ministry of Agriculture (MoA) to lift the export ban for the 2014 marketing season. In 2002, a bumper maize crop of 9 million tons caused maize prices in the country to collapse by an average of 60 percent, leading farmers to sell their crops at a great loss. Avoiding a similar market catastrophe became a priority for the ATA and MoA, but the agency lacked any credible data to push the agriculture minister to lift the ban.

In a policy note drafted for the ATA to advise the MoA on lifting the ban, IFPRI provided insight into how removing the maize export ban could impact the country’s markets. According to Dr. Nega Wubeneh, Senior Director of the Systems Programs at the ATA, IFPRI’s note provides the ATA with a “framework” to re-examine Ethiopia’s agricultural export policies and “lays out the constraints of a closed border.” The note not only looks at the potential gains that could be made if the Ethiopian government was to remove the export ban permanently, but also analyzes examples of grain export restrictions in Kenya, Malawi, Tanzania, Zambia, and Vietnam.

Ethiopia has the potential to become a major exporter to neighboring countries such as Kenya, Somalia, and South Sudan. Maize production has increased in Ethiopia in recent years, due in large part to an improvement in the supply of seeds to farmers. Additionally, the government has worked hard to ensure timely delivery of seeds and fertilizer, as well as to improve agricultural extension services and trainings for farmers. But while Ethiopia is the second-largest producer of maize in Eastern and Southern Africa, the country faces maize marketing challenges, according to Dr. Wubeneh. Maize is seen as an inferior product in many urban areas, where consumers have higher purchasing power and tend to prefer teff and wheat. “The ATA wants to identify new markets to help cooperatives sell and market maize,” says Wubeneh.

One way to reduce the market pressures resulting from an excess supply of maize would be through cross-border trade. Export bans keep domestic prices lower than prices in other countries, which is beneficial for consumers but means that farmers make a smaller profit. The policy note suggests that if the government lifted its maize export ban, farmers would have a greater incentive to grow maize and more opportunity to increase their profits. “If the 2013-14 maize harvest is larger than average, domestic prices will decline, which would make exports a profitable option,” says IFPRI Senior Researcher and project note author Nicholas Minot.

Thus far, the ATA has made no recommendations to the Ethiopian government to revise the export ban policy. This is due largely to the fact that in 2014, despite a 9 percent increase in production, maize prices in the country did not drop as expected. The ATA is now investigating why this production surplus did not cause prices to fall. The agency also plans to help the government develop a system that tracks potential crop surpluses; this system will act as a mechanism to make recommendations to lift the export ban as needed.

“Unless there is clear, compelling evidence, the ATA cannot make a recommendation to the government to remove the ban,” says Wubeneh. The ATA is closely monitoring maize prices in 20 locations throughout Ethiopia, along with supply and demand data, to paint a clear picture of what is going on in the market. As a long-term strategy, the ATA will continue to monitor prices to provide relevant policy advice to the government.

The note’s author is quick to point out, though, that a permanent lift of the export ban could have benefits beyond dealing with excess production and price drops. “Frequently changing trade policies [such as removing and then reinstating an export ban] discourage private traders from cross-border trade and reduce the likelihood that investment will be made in increasing capacity in the sector,” Minot says. But a permanent removal of the ban would signal to investors and traders that it is beneficial to invest more in improving infrastructure, such as better trucking and storage. Investing in better roads, especially between Ethiopia and its potential trade partners (Kenya and South Sudan), could greatly decrease transport costs, which would be another means to stabilize grain prices. As a long-term strategy, improving infrastructure would play a role in decreasing transaction costs in crop marketing, which would similarly reduce grain prices in urban markets. By reducing transaction costs, urban consumers would see lower food prices and farmers would enjoy higher profit margins.

Check back for a follow-up report based on the interview held with ATA director Dr. Nega Wubeneh, which will discuss the ATA’s long-term plans for Ethiopia’s maize markets and a new clustering strategy to increase maize production and trade in high production areas.

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