Which farmers really benefit from food import protections?
We seem to be very fond of protectionist trade policy in Nigeria, especially with regards to food. We already know how the story goes. Ban the imports of a particular food because we could and should be producing it locally. To be fair we don’t always impose bans. Sometimes we just add on extra high tariffs to limit imports. For instance, in 2016 the federal government increased the import duty on rice from 10 per cent to 60 per cent and banned the import of rice through land borders, presumably to “promote local production.” It also increased tariffs on sugar cane, wheat, palm oil and some other imported food items.
In theory, tariffs are supposed to help local producers by encouraging the market to buy locally-produced substitutes. This happens by forcing the price of the imported goods up, although most times the price of local substitutes go up as well. This shift in demand is, in theory, supposed to help local producers and encourage them to produce more.
What is the net effect of this type of policy? We already know that it is typically bad for consumers. If the price of food goes up, regardless of who produces it or if its imported or not, it’s a larger burden for buyers. The burden is more painful for the poor who spend a larger fraction of their income on food.
What about producers? Well, for farmers, it depends. A common feature of agriculture in Nigeria, and indeed many other parts of Africa, is that it is dominated by smallholder farmers. Farmers who have small farms and grow crops in small quantities. Importantly, farmers don’t only grow crops to sell but to eat as well. So, most farmers are not only producers of the crop that they grow, they are consumers too. It’s not always the case that farmers produce more than they consume. Using rice for instance, a typical rice farmer has one harvest period in a year but consumes rice all through the year. The question of if tariffs and bans which lead to price increases are good for these smallholder farmers therefore depends on if they produce more food than they consume, or if they are net producers?
Are smallholder famers typically net producers? Given that we have a habit of not measuring these things in Nigeria, then, perhaps we can learn a thing or two from other countries that do. The use of trade and pricing policy is common in many parts of Africa and in Kenya, the target is typically on imported maize. A recent study by academics at Egerton University tried to answer the question of if smallholder maize farmers in Kenya were actually net producers of maize. Surprisingly, they found that a majority of smallholder farmers were actually net consumers of maize. The tracked farmers in 22 districts throughout the year and found that 52 percent were net buyers of maize, that is, they bought more maize throughout the year than they actually produced. 16 per cent didn’t trade and ate only what they produced, while only 32 per cent actually sold more maize than they consumed. Their conclusion? The majority of these smallholder farmers do not benefit from trade policies and they argued that the maize import tariff was a de facto tax on the poor.
In general, the policy conclusions, not just from this particular research but also from others, is that trade policy tools do not typically help smallholder famers. In case you are wondering, smallholder famers in Kenya are similar to those in Nigeria. The average size of smallholder farms in Kenya is 0.53 hectares which is the same as in Nigeria. The story is repeated across much of sub-Saharan Africa too.
So, if tariffs don’t particularly help smallholder farmers then what does? For these farmers, increasing their yields and the farm sizes seem to be the key. Interventions that help smallholder famers organize themselves into groups seems to increase their yields. This happens by allowing the farmer jointly access technologies that increase their yield and productive assets that increase their investments in their farms. Infrastructure, such as feeder roads, that reduce their costs of accessing markets also seem to be important.
Of course, if the goal of trade policy isn’t really to help smallholder famers then this entire article is moot. If the goal is to help larger farmers, then these trade policies do indeed tend to make larger farmers more profitable, although they typically don’t make them more productive in terms of productivity growth. But that is a story for another day.Nonso Obikili is an economist currently roaming somewhere between Nigeria and South Africa. The opinions expressed in this article are the author’s and do not reflect the views of his employers.