# _Stabilizing Maize Markets_

The price spikes in global grain markets during 2008 focused public attention on the vulnerability of the rural and urban poor to volatility in food and fertilizer prices, although these issues are by no means new. A compilation and review of empirical research in a conference sponsored by the World Bank (World Bank 2005; Byerlee, Jayne and Myers, 2006) led to several general conclusions regarding maize grain markets in Sub-Saharan Africa. First, poor producers and consumers in Africa, which include many smallholder farmers, are more exposed to sharp movements in the price of maize relative to those who depend on rice in Southeast Asia (Table 3). Second, landlocked countries in southern Africa that depend on maize are most exposed to domestic sources of shocks, as are other landlocked African countries, such as Ethiopia. In these countries, food production is highly variable, and national capacity to operate on world markets to smooth supply variability is limited by high transport costs and foreign exchange constraints. For example, maize prices in Ethiopia can fluctuate widely between import parity of $250 or more and export parity prices that may be as low as $50. Consistent net importers of maize with better infrastructure, such as Kenya, can smooth prices through trade, although they risk exposure to sharp spikes in world prices, as occurred in 2008.

Not surprisingly, the high level of price instability for a staple crop such as maize has invited efforts to stabilize prices, even during the post-structural adjustment period. Yet discretionary interventions in grain markets often reduce participation by the private sector in countries where reform from parastatal to market-led approaches remains incomplete. Maize markets are more volatile in Malawi than in other countries of southern Africa, despite the fertilizer subsidy and recorded production gains. Continued suspicion with respect to the capabilities and intentions of the private sector has led to greater involvement of the nation‘s parastatal, Agricultural Development and Marketing Corporation (ADMARC), in maize marketing. Tschirley and Jayne (2010) conclude that market shortages and stock-outs at ADMARC have sometimes led to huge price surges. However, there is growing private sector entry in maize marketing and encouraging evidence on the number of traders to whom farmers can sell maize and proximity to point of sales.

Over the past few decades in Kenya, synergies between the liberalization of the input and maize markets and public investments led to tangible investments by the private sector in not only seed and fertilizer retailing but also maize marketing (Ariga and Jayne 2010). Maize marketing margins have also contracted, as well as the distance traveled to the point of maize sale. However, maize sales remain highly concentrated among farmers. The Tegemeo Institute panel data confirm that less than two percent of the farms account for 50 percent of the overall marketed maize surplus from the smallholder sector. Most smallholders, which account for 96 percent of all the farm households in Kenya, were consistently buyers of maize in the three seasons for which data were collected (which included one good production year and two average years).

Kenya has pursued a policy of high food prices with import tariffs in the range of 25-50 percent and until 2005, restrictions on maize inflows from neighboring countries. The operations of the maize marketing board (NCPB) have raised the level of maize prices in the country by offering support prices well above market levels (Jayne et al. 2008). Grain price supports and/or stabilization policies that raise mean price levels over time will have income distributional effects that run counter to stated goals of reducing poverty. Mean-neutral forms of price 18