Department of Agricultural, Food, and Resource Economics Food Security Group

IDWP 113. David Mather, Duncan Boughton, and T.S. Jayne. 2011. Smallholder Heterogeneity and Maize Market Participation in Southern and Eastern Africa: Implications for Investment Strategies to Increase Marketed Food Staple Supply

EXECUTIVE SUMMARY:
In many African countries, as well as in other parts of the world where a significant part of
the rural population is poor and food insecure, policymakers face what is called the food price
dilemma. On the one hand, they need to provide farmers with incentives to increase the
quantity of marketed food staples to feed a growing population, especially in rapidly growing
urban centers where unrest can be politically destabilizing. On the other hand, because staple
foods account for a large portion of total household expenditures for both urban and rural
households, policymakers also are drawn to policies that lower the retail price of staple foods
for consumers. Achieving both objectives – increasing marketed supplies of food staples
while maintaining low retail prices – are also key to continued poverty reduction, as
smallholder incomes increase when they receive higher prices for their surplus marketed
output, while lower retail food prices decrease the cost of living for both rural and urban
households. Hence, these objectives figure prominently in Comprehensive Africa Agriculture
Development Programme (CAADP) investment plans and the United States (U.S.) Feed The
Future initiative.

The food price dilemma has become more acute in recent years because of the international
commodity market food price shocks in 2008 and 2011, aggravated by slower economic
growth because of the global financial crisis. A number of African countries have recently
sought to respond to the food price dilemma through large-scale fertilizer subsidy programs
to increase food crop production, often coupled with purchases of a large part of the marketed
surplus by state-run marketing boards to both avoid price collapses and to support farmgate
maize prices in general. However, there is growing evidence that such programs are not
sustainable from a fiscal perspective, and have little enduring benefit for either urban
consumers or rural smallholders. A key challenge for the architects of country and regional
investment plans in Africa, and initiatives like Feed The Future that seek to support them, is
to identify investment programs that can achieve sustainable increases in both marketed food
production and poverty reduction.

In this paper, we use descriptive and econometric analysis of nationally-representative
smallholder panel data sets from Kenya, Mozambique, and Zambia to examine the question
of how to achieve increases in marketed surplus of maize, the most widely marketed cereal
food staple of eastern and southern Africa (ESA). Our findings suggest that there are
alternative ways to invest public resources that will lead to sustainable outcomes in the long
term, recognizing that, in the short term, safety nets will be needed to protect the household
assets of poor urban consumers and food insecure rural households, alleviate suffering, and
safeguard political stability until such longer-term investments bear fruit (an area addressed
by CAADP’s Pillar 3).

Across our three case countries, there is a wide range of market access conditions, as
conventionally measured by distance to a tarmac or feeder road or to an input dealer. For
example, a Kenyan smallholder farmer need travel just 3 km on average to purchase from a
fertilizer retailer, compared to 37 km in Zambia and almost 70 km in Mozambique. Across
and within these three countries there is also wide variation in household assets and agroecological
potential. This diversity allows us to analyze the extent to which smallholder
production and marketing patterns vary by household asset levels and agro-ecological zone,
using panel regression techniques to determine how marginal changes in smallholders’ access
to assets, technologies, and markets affect their decisions about whether and how much maize
to sell.

Among our three study countries, Kenya has both the highest level of smallholder
commercialization and the lowest rural poverty rate. For example, the median Kenyan
smallholder sells 46% of the value of their crop production, while the median smallholders in
Zambia and Mozambique sell only 14% and 8% of the value of their crop production,
respectively. Even though the share of total household income from crops and livestock in
Kenya is only slightly lower (at 62%) than either Zambia or Mozambique (64% and 69%
respectively), median household income per adult equivalent in Kenya is almost six times
that of Mozambique and almost four times that of Zambia. Kenya thus demonstrates that
smallholder agriculture can provide a pathway out of poverty when households have the
necessary assets and access to improved agricultural technologies that enable them to take
advantage of investments in market development.

In all three countries, maize sales are concentrated in a minority of the population. For
example, in Kenya, approximately a quarter of the smallholders sell more than a 100kg bag
per adult equivalent, in Zambia between 10 and 20% depending on the year, and in
Mozambique only 3%. In all three countries, smallholders selling more than a 100kg bag
have production levels per adult equivalent five times that of their counterparts who have
negligible or no sales. To answer the question of what kinds of CAADP investment will shift
more of the smallholder distribution into the category with significant maize surpluses to sell
on a sustainable basis, we turn to multivariate regression analysis of the determinants of
smallholder maize sales. Our econometric analysis yields seven principal findings.

First, previous research on household food grain sales behavior in developing countries has
tended to focus on the role of market access and price-related factors to explain why many
rural households do not sell staple crops such as maize. The conclusions of this line of
research have been to promote market liberalization and road construction so as to provide
smallholders with ‘access’ to markets, lower transaction costs, and thus more favorable input
and output prices. While such policies and investments are vital to improving the input and
output prices facing smallholders, we present evidence that suggests that many smallholders
in these countries already enjoy reasonable market access. For example, our descriptive
analysis of rural household data from Mozambique, Zambia, and Kenya shows that in general
there is little difference between large and small net maize sellers in any of the three countries
in regard to market access, as measured by distance to the nearest road and access to market
information. In addition, the majority of maize sellers in each country make their sales within
their village. This is consistent with our econometric analysis of household maize sales,
which finds that typical market access proxies (distance to physical infrastructure or towns)
are not significant, or of small magnitude in most zones of our case countries. These findings
are also consistent with recent rapid appraisal work in each country, which found that trader
presence even in ‘remote’ villages has greatly improved within the past decade, perhaps a
result of increased investments in road construction as well as the recent proliferation of cell
phones in rural areas. Thus, while there still may be significant transport costs to the nearest
relevant market for farmers in ‘remote’ villages (which would cause traders to adjust their
maize buying prices lower), even these farmers now face considerably lower search costs for
price information and access to traders than they did a decade ago. The implication of these
results is not that additional infrastructure improvements in ESA countries are no longer
needed, but that there are household-specific factors – such as low household asset
endowments and poor access to improved inputs – which appear to constrain the ability of
many smallholders to produce a surplus and hence be able to take advantage of public goods
that reduce the cost of market access.

Second, another potential factor affecting transaction costs is access to market price
information, which would be expected to improve maize market participation. In
Mozambique, we find that household receipt of market price information results in large
increases in the probability of smallholder maize sale and sale quantities. In Kenya and
Zambia, we use radio and cell phone ownership as a proxy for household access to market
price information, and find significant positive effects of such assets on quantities sold. These
findings suggest that funding to increase the spatial coverage and frequency of radio
broadcasts in these countries could potentially lead to large increases in both quantities of
maize sold as well as the numbers of households selling maize.

Third, in each country, we find that village or district-level measures of either rainfall or
drought stress have significant and large effects on smallholders’ probability of selling maize
and/or amounts sold, while controlling for household assets, maize price, and market access.
These results highlight the sensitivity of marketed maize surplus to weather shocks, and thus
the potential value of investment in climate change adaptation measures. Such investments
include the development and dissemination of drought-tolerant maize varieties, as well as
widespread promotion of smallholder access to low-cost methods of irrigation and/or
conservation farming techniques to reduce the impact of drought.

Fourth, our results from Kenya and Zambia show that use of divisible improved technologies
such as hybrid seed and chemical fertilizer can significantly increase the number of
households selling maize as well as quantities sold. In addition, the large effects of these
inputs on smallholder maize sales are significant among farmers of various landholding sizes
and from various agro-ecological zones. While the question of how best to increase
smallholder access to such inputs is currently the focus of much debate, it is clear that
improvements in access to input markets and extension to enable smallholders to deploy
profitable technology packages are at least as important as access to output markets,
especially in countries like Mozambique and Zambia where the majority of farmers have
negligible amounts of surplus food staples to sell.

An alternative to direct fertilizer subsidies is to strengthen farmers’ effective demand for
fertilizer through investments in public/collective goods that make fertilizer use more
profitable, and by building durable input markets and output markets that can absorb the
increased output without gluts that depress producer prices. Such investments would include
rural road infrastructure and port facilities to reduce the costs of distribution; agricultural
research to develop and adapt varieties that respond more efficiently to fertilizer; the
development and dissemination of fertilizer use recommendations that are appropriate for
different agro-ecological zones; and the development of rural financial systems and market
information systems. The specific mix of such investments would clearly vary across and
within our three countries given the dramatically different stage of development of the private
input markets in each country, and variation in the profitability of input use across agroecologies.
Nevertheless, returns to these investments require durable input and output
markets, which depend upon a supportive policy environment that attracts local and foreign
direct investment. The case of Kenya demonstrates that a stable policy environment – with
respect to fertilizer, land, and maize markets – can induce an impressive private sector
response over time that has helped to make fertilizer and improved maize seed varieties
accessible to most small farmers.

Fifth, we find that marginal increases in landholding in Mozambique and Zambia have
significant and relatively large effects on the quantities of maize sold by both current sellers
and all households (whether currently selling maize or not). Given that Zambia and
Mozambique both contain large tracts of uncultivated land, there are clear opportunities in
these countries to address the extremely low levels of landholding among the bottom half of
the land distribution, though this will require investment in public goods, such as investments
to eradicate disease constraints to animal traction use in Mozambique, and infrastructure
investments in unsettled areas to promote migration in Zambia. In the short run, expanding
access to improved seed and fertilizer is a powerful way to overcome smallholder land
constraints, while expanded access to animal traction and/or re-settlement in more land
abundant areas can further increase labor productivity and incomes in the medium to longer
term.

Sixth, while we find that the responsiveness of smallholder maize sales to changes in
expected farmgate maize prices is significant and positive in most areas of Kenya, in higher
potential zones in Zambia, and among current sellers in Mozambique, we also find
insignificant or negative household responsiveness to maize prices in lower potential zones of
Zambia and Mozambique. The heterogeneity of maize price responsiveness in Zambia and
Mozambique indicates that while improved infrastructure may elicit a positive sales response
in some regions, policymakers aiming to increase marketed maize surplus from smallholders
need to also consider non-price factors such as the distribution and level of key production
assets such as landholding, as well as factors which affect the return to those productive
assets, such as technology use and agro-ecological potential (which affects the technology
needs for a given region). In the case of Mozambique, until productive assets such as
landholding and animal traction use are increased, and returns to existing assets are improved
via adoption of technologies such as fertilizer and improved seed, it is questionable whether
improved prices alone (through improvements in infrastructure) will elicit a positive supply
response from maize producers who currently do not sell maize (i.e., 80% of maize growers).

Seventh, our findings with respect to gender of the household head differ considerably across
countries. In Kenya, households headed by a single female are just as likely as male-headed
households to sell maize. By contrast, households headed by a single female in Zambia are
less likely to sell maize, while those in both Zambia and Mozambique sell lower quantities of
maize. Descriptive analysis suggests that the reason for this is not related to land access,
because these households actually have higher average total landholding and area planted to
maize, relative to male-headed households. However, households headed by a single female
have significantly lower maize production per adult equivalent on average relative to other
households. In Mozambique, low maize productivity in households headed by a single female
appears to be due to the relatively high percentage of these households located in areas of low
agro-ecological potential, while in Zambia female-headed households are less likely to use
either hybrid maize seed or to apply fertilizer to maize relative to other households, and likely
have lower levels of unobserved factors such as soil quality, length of fallows, and
knowledge of crop management practices. A key implication of our gender findings is that
there is unlikely to be a unique strategy to improve the food security and welfare of femaleheaded
households. Rather, programs designed to address the needs of female-headed
households must be based on an understanding of the specific constraints they face in each
country.

A key implication of the foregoing for CAADP and Feed The Future is that investment
strategies at country level can achieve increases in both marketed surpluses of food staples
and smallholder incomes, but to do so requires very effective spatial coordination between
investments under Pillars 1, 2 and 4 to ensure that farmers have sufficient access to land and
technology with which they can take advantage of investments in improved market access.
Likewise, investment plans will need to target different investment bundles to different
groups of smallholders, adapted to the agro-ecology where they farm. For example,
technology packages need to be well-adapted to agro-ecological conditions, and integrate
conservation agriculture methods to counter weather shocks. In the case of maize, for
example, high-yielding longer duration hybrids will be more appropriate for commercial
smallholders in mid-elevation areas whereas a combination of medium and short-duration
drought tolerant varieties would be more appropriate for vulnerable smallholders and/or low
elevation zones. While the private sector has a vital role to play in developing seed and
fertilizer markets, there are strong public good aspects to both the development of technology
packages which are adapted to varying agro-ecological conditions – especially for farmers in
zones with poorer agro-ecological potential – as well as extension services to farmers, which
address smallholder constraints related to both crop and livestock production and marketing.
Although CAADP and recent donor statements include agricultural research and development
as a key to improved food security in Sub-Saharan Africa, the reality is that government and
donor funding for National Agricultural Research Systems and the Consultative Group on
International Agricultural Research (CGIAR) system has declined significantly over the past
few decades. These declines in funding for agricultural research and development (R&D)
must be reversed, with the recognition that many Sub-Saharan African countries may be too
small to undertake crop research programs for every food crop, thus necessitating regional
research cooperation.

In summary, many African governments have pledged through the CAADP process to correct
the decades-long underinvestment in agriculture in Africa, and many international donors
have indicated their support for this goal. This paper highlights various investments in
public/collective goods that African governments and donors can make through the CAADP
process to increase both domestic quantities of marketed maize and smallholder incomes.
Yet, increased funding for such public goods depends upon governments successfully
managing the challenge posed by political economy factors which have recently led many of
them to funnel increased spending in the agricultural sector into subsidizing private goods
(fertilizer) and grain parastatal activities – which provide economic and thus political benefits
in the short-term – rather than investment in public goods such as agricultural research and
development, extension and improved road infrastructure, whose benefits are only realized in
the longer-term.