FRA low maize price offer driving inflation uptick!

FRA in Lusaka

The increase in price for Mealie meal, Cassava meal, and purchase price of Vehicles and as well as Charcoal has been sited as the causer of the inflation rate uptick that has even breached the 7 to 8% inflation target band set by the Bank of Zambia.

Inflation for the month of August 2018 hit 8.1%, the highest rate in 2018. It was however the presence of mealie meal, the country’s staple food, among the products that experienced steep price hikes, that perhaps caught the attention of Zambian Business Times analysts due to its pervasive effect on the national socio-economic fabric.

The more strategic reason explaining the current price hike in meal meal is arising from the low maize purchase price point of K70 per 50kg bag of maize announced by the Food Reserve Agency – FRA. This is partly creating an active maize black market that may hurt mealie meal price stability in the medium term.

This too low price offer has resulted in most emerging farmers with relatively better production volumes holding out, with the Millers Association of Zambia – MAZ announcing that its members are currently (month of August) buying 50kg bags of maize from K85 to K95 per bag, which is about 35% above the FRA offer price.

Moreover, FRA has scaled down its purchasing volumes concentrating on holding national reserves volumes. Though this move may be lauded as sticking to its original mandate, FRA has also been the agency that has been able to act as a stabilizer of mealie meal prices.

In the absence of setting up a separate state agency taking over this role of stabilizing and managing the local price stability of maize and thereby mealie meal prices, the price of maize will continue to sky-rocket, negatively affecting the majority of the local citizens.

Where this gap is left unattended to, the mealie meal price increases should be expected to continue until they reach price parity with alternative free on board – FOB export price points to, for instance export markets such as neighboring DRC and Angola.

Leaving this function of stabilizing mealie meal prices to the private sector whose key motive is profit is a recipe for disaster and may compromise national food security as far as stable local maize and mealie meal prices are concerned.

Even modern history has shown that without a huge chest of excess maize reserves, the government will find it difficult to influence the politically charged final price of mealie meal as its agency – FRA will have limited maize stocks to offload and influence final meal meal market prices

The national statistics bureau, the Central statistics office – CSO reported that Cassava meal, Vehicle import prices as well as Charcoal prices as the main individual products that led to the uptick in inflation for the month of August.

For Charcoal, its clearly a seasonal factor as the cold season peaked in July and August, the charcoal demand peaked and therefore the prices followed the route.

As for Motor Vehicles, the country imports mostly used cars and a few units of brand new vehicles which are dollar denominated, the Kwacha had come under pressure and lost value against the dollar leading to imported inflation.

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