Welfare and incentive efects of possible changes in the regulatory environment of the maize market in Swaziland

Abstract

Maize production in Swaziland has been falling in recent years, forcing the country to increasingly rely on imports from neighbouring South Africa. Weather patterns that have featured unrelenting droughts in the country, as in the other Southern African countries, have contributed in no small way to this situation. But it is also considered that excessive regulation of the maize market by the statutory body, the National Maize Corporation (NMC) has played a major role. For instance, it has the sole responsibility to anticipate domestic maize demand based on which imports are programmed. In turn, importation of maize can only be done upon receipt of an import license which is not only costly but also involves very cumbersome processes. With the threat of food insecurity growing, suggestions have been made to deregulate the market for maize in order to make the system more efficient possibly by eliminating inefficient production and service units and transferring resources to their best alternative uses. However, to date, no studies have explicitly investigated the likely effects of the current marketing arrangements and how they will differ in a fully deregulated environment. The purpose of this paper is therefore to present the results of a study that examined the welfare effects of regulation in the maize market of Swaziland as a basis for determining the likely impacts of a possible deregulation of the industry, emphasis being placed on the social welfare effects. The study utilized a partial equilibrium model to quantify the distortions in the maize industry. It also drew from the methodological guidance provided by the Comparative Advantage Studies for Southern Africa sponsored by the United States Agency for International Development (USAID). Te study established that the maize industry of Swaziland is uncompetitive and that this situation gives rise to the serious distortions in the maize market. It was also observed that the system features high degree of efficiency losses as a result of the misallocation of resources in the economy. Prospects for any improvement look quite bleak. The paper concludes by recommending the full deregulation of the maize market and dismantling of the statutory structures that currently manage the system. Implications for effective food chain management are highlighted.