Price Controls Are Not the Answer for Mealie Meal Crisis

mealie-meal-zambia-reportsThe rapidly increasing prices for basic foodstuffs such as Mealie Meal (cornmeal) is posing a difficult test to the Patriotic Front government of President Michael Sata, whose officials are scrambling for solutions to ease the burden on Zambia’s poorest citizens.

According to a survey published by ZANIS at Zambezi New Market today, a 50-kilogramme (kg) bag of maize is being sold at K150,000 while a 10 kg tin of maize has been increased from K10,000 to K25,000, which is almost double the prices from just a few months ago, despite the releasing of many tonnes of maize by the Food Reserve Agency.

Under pressure from desperate citizens and long queues for food in the PF stronghold of the Copperbelt (reminiscent of the Kaunda era of food shortages), President Sata is talking tough, saying that the high prices are “unjustified.”

“Mealie meal prices are getting too high. As Government we can re-introduce price controls if they (millers) don’t stop exploiting people,” President Sata said on national radio today.  “Licences are hanging for traders selling the commodity for more than K50, 000.”

However, Sata’s comment reveals a disturbing lack of comprehension of basic market forces, while the proposal for price controls would be exactly the opposite sort of policy to solve the crisis.

Many socialist and authoritarian countries have introduced price controls, which bring with them disastrous consequences.  When price controls were introduced by President Hugo Chavez in Venezuela, basic food staples like milk and flour and household goods such as toilet paper disappeared from the shelves, as the producers saw no incentive to engage in production at a loss.  When Robert Mugabe attempted to tame Zimbabwe’s hyperinflation through the introduction of price controls in 2007, the food shortages worsened, causing violent riots.

Most economists agree that not only are price controls damaging to an economy, they also simply don’t work.  Price controls and other interventions lead to market distortions like reduced supplies because they discourage domestic production, processing and trade, creating an influx of expensive imported foodstuffs. By dampening the underlying causes of inflation, price controls prevent market solutions.

High food prices are the result of the confluence of at least two factors in Zambia:  a poorly executed agricultural policy and an overall lack of confidence in the state’s economic management, which has led to inflation.  There have been numerous reports that the PF government’s crop marketing programme has been underscored by tribal, regional, and ethnic preferences as farmers are paid on an uneven basis (which in part led to the cotton farming crisis early this year).  The associated costs have been passed on to the millers of mealie meal, who are only able to secure their maize inputs at higher prices.

For Sata to “threaten” food producers and talk about returning Zambia to the price controls of the Kenneth Kaunda time is not only the wrong solution to the problem, but also indicative of just how little this government understands about the market.  Citizens should be very concerned.

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