HomeEconomyGovt must clarify pricing policy

Govt must clarify pricing policy

NO sooner had guaranteed prices for maize, oilseeds and traditional small grains been announced than our Treasury announced that a commodity exchange supported by a regulated warehouse receipting system would be launched in March this year.

The Brett Chulu Column

The guaranteed producer price is the antithesis of the free market pricing system the commodity exchange and warehouse receipting system are premised upon. We expected the latter to become the definite pricing discovery framework the nation would adopt, given that it is a component of the National Development Strategy One (NDS 1 2021-2025).

NDS-1 is very explicit in that the commodity exchange and warehouse receipting system would be established. It is going to be very interesting to see what will happen at the time farmers start selling their grains  and oilseeds as the agricultural commodities exchange will be in place as per the Treasury timeline. Will the government make an about-turn and renege on the guaranteed prices it pledged in December in deference to the invisible hand of the commodity exchange?

It will take unusual political courage to undo that commitment as it has potentially serious political costs attached to it. Yielding to political pressure will send the signal that the new path set out in NDS-1 will be veered away from when political expediency demands it.

Early into the implementation of NDS 1, a glaring and unexpected inconsistency is being allowed to take root. One of the warnings issued in this column  on NDS 1 was that there is a big difference between an intended strategy and the actual strategy. It is a common challenge in strategy where established routines developed to implement past strategies persist in the era of a new strategy.

A  new strategy needs new routines. It seems, at least on the agricultural commodities pricing policy, old habits are persisting and threatening to suffocate the development of new actions. There is a 900-pound gorilla in the room this column trained in, in connection with the setting up of the agricultural commodity exchange and the warehouse receipting system — how NDS 1 planned to deal with the Grain Marketing Board (GMB).

The GMB monopoly created by statute has to be first reversed and a new legal instrument created to bring life to the free-market vehicles of the agricultural commodities exchange and the warehouse receipting system. We had suggested in this column that the  GMB be repurposed to become the warehouse receipting system regulator, weaned off completely from the buying and selling of agricultural commodities.

When we peel away the layers of the policy incoherence, we see an underlying economics ideological contestation. John Maynard Keynes, the Eton and Cambridge-schooled mathematician-turned-economist once remarked: “Practical men who believe themselves to be quite exempt from intellectual influence are usually the slaves of some defunct economist.” When it comes to agricultural economic policy, we are either the slaves of Adam Smith or Karl Marx or John Maynard Keynes or Milton Friedmam. Thought slaves to Smith are unshakably enamoured  to the idea that the government should not have a hand in the working of the markets.

Those under the intellectual servitude of Karl Marx will defend with all their passion that the government must move the markets at its whim. They would gladly agree with Keynes who famously quipped that “Capitalism is the belief that the nastiest of men, for the nastiest reasons, will somehow work for the benefit of us all.” Keynes was not a Marxist at all–he was peeved by the thought that the government should not play a direct role in the economy. Keynes veered from Smith and popularised the idea that a government should intervene in the economy at critical times.

The American economist Milton Friedman, from the other side of the Atlantic, pushed back at Keynes but not close to Smith and advocated for minimal government involvement in the markets. The ideological wars within the decision-making assemblies in our country are driven by these four philosophical loyalties. In the immediate years before the Transitional Stabilisation Programme (TSP)(October 2018-December 2020) the power brokers within government had fealty towards Keynes and Marx, hence the relentless printing of money and heavy agricultural interventions.

The TSP sought to pull us away from Keynes and Marx towards Friedman. The NDS 1 was envisaged to mark a clean break from Marx and Keynes, flipping our economic ideological fealty to Friedman.

Keynes and Marx appeal to many politicians as they give politicians scope to intervene in the markets to safeguard their political interests.

In agriculture, the European Union has largely pitched its ideological tent with Keynes, hence the numerous price support and subsidies for the EU farmer. Friedman is not the favourite guest of many politicians. This is the backdrop of the agricultural pricing conflict that is currently playing out in Zimbabwe.

The ideological war between our policymakers needs an expedited “peace” deal. Treasury should be prepared to postpone his ambitions this year; he will most likely be forced to acquiesce to the guaranteed price policy. Treasury’’s vision of an untethered agricultural commodities price discovery mechanism by way of dismantling the GMB monopoly, setting up the agricultural commodities exchange and warehouse receipting system might have to be deferred.

To clear the confusion over pricing policy for agricultural commodities, it is prudent for the government to make an official statement, explaining that the guaranteed price policy is still in place as a transitional measure that will eventually give way to the free market agricultural pricing policy operationalised by way of the agricultural commodities exchange/warehouse receipting system.

Policy clarity is extremely important in building and sustaining confidence in a critical sector such as food production. Treasury has been clear that one of the critical governance issues that can make or break our economic recovery is policy consistency. The TSP and now the NDS1 have been unequivocal on the need for policy consistency and harmony. The agricultural  pricing policy contradictions currently at play provide need to be expeditiously reconciled. We walk the talk before we talk the walk.

Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — brettchuluconsultant@gmail.com.

 

 

Recent Posts

Stories you will enjoy

Recommended reading