Impacts of government pricing policies on agricultural production and the achievement of government policy objectives in Zambia

Joseph Fosu

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: This Dissertation examines the impacts of government's pricing policies on agricultural production and the achievement of stated agricultural policy objectives in the Republic of Zambia. The specific pricing issues of 'border pricing' as an alternative pricing strategy to the existing pricing regime and 'maize price and fertilizer subsidy' as alternative pricing strategies for achieving the objectives of maize self-sufficiency and agricultural export promotion simultaneously were investigated.;The procedures generally followed in analyzing the impacts of agricultural pricing and market intervention policies are briefly reviewed. The general economic and agricultural specific policies, the production technology and policy issues that existed in the 1970s and policy changes that occurred before 1985 are outlined.;Due to limited data on livestock activities in Zambia, the study focuses on the crop sector. The supply side of the crop sector was modelled in a profit function framework to derive own and cross-price responses for the major crops grown in Zambia. The elasticity estimates derived indicated significant cross-price relationships among the major crops grown in Zambia. Increase (decrease) in the price of maize, for example, substantially reduces (increase) the production of all other crops and the use of fertilizer.;The results of the real and monetary impacts of selected pricing strategies that were considered did not give clear indication that 'border pricing' strategy is a preferred pricing strategy compared to the existing price regime. While 'border pricing' encourages export crop production, reduces fertilizer use and hence fertilizer imports, it increases maize imports substantially resulting in a net loss of foreign exchange. The objectives of maize self-sufficiency and agricultural export promotion are in direct conflict when maize price is used as policy instrument to achieve these objectives. Fertilizer subsidy, on the other hand, appears to be a desirable policy instrument for achieving both objectives simultaneously. However, it takes substantially larger changes in fertilizer subsidy relative to changes in the price of maize to achieve a given change in maize self-sufficiency.

Date: 1987-01-01
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