Opportunities to Improve Household Food Security Through Promoting Informal Maize Marketing Channels: Experience from Eastern Cape Province, South Africa

May 1, 2006 - Author: Lulama Ndibongo Traub and T.S. Jayne

IDWP 85. Lulama Ndibongo Traub and T.S. Jayne. 2006. Opportunities to Improve Household Food Security Through Promoting Informal Maize Marketing Channels: Experience from Eastern Cape Province, South Africa

EXECUTIVE SUMMARY:
Maize meal is a staple food in South Africa, particularly among the poor. The South African
government by the mid-1980s enacted a series of legislations aimed at reducing the role of
government within the market and placing increasing reliance on market forces and the private
sector. Ex post studies of the impact of maize market reform in neighboring countries found
that, in general, the reforms led to lower maize milling/retailing margins in real terms. However,
in the case of South Africa, recent analysis indicates that maize market reform has not reduced
processing and retailing margins in the maize meal supply chain. To the contrary, these margins
have actually risen over the past decade resulting in maize meal retail prices in South Africa
being generally higher than in any other maize-producing country in the region.

The observations of a relatively large wedge between maize wholesale and commercial maize
meal prices, coupled with an apparent lack of investment response by informal small-scale
processors and retailers provide the motivation for this paper. The study objectives are to
determine actual and potential consumer demand for the types of maize meal capable of being
produced by small-scale mills, to measure the potential impact of small-scale grain retailing and
milling channels on households’ disposable income and food security, and to identify the factors
responsible for the negligible role of small-scale milling sector in South Africa. To this end,
surveys of households, small-scale millers, and large-scale millers were conducted within our
case-study area, the Eastern Cape Province, a deficit maize-producing province. Contingent
valuation methods were used to assess the potential demand for hammer-milled maize produced
by informal millers compared to commercial maize meal at various relative pricing scenarios.

The study highlights four main findings. First, the maize marketing system in the Eastern Cape
is not articulating the preferences of many consumers. About 38% of the respondents reported
having purchased maize grain locally or used the services of small informal maize mills over the
survey year. However, of these respondents, 23% stated that there are periods during the year
when they would have wanted to purchase maize grain but it was unavailable in their area.

Second, many local small millers are unaware of this potential demand for their services and the
role they could play in promoting food security in the area. A large share of consumers reported
that they would purchase hammer-milled maize meal from informal millers at a price discount to
that of commercial sifted meal. For example, 69.4% of all households surveyed preferred
straight-run maize meal to commercially produced sifted meal at a price discount of 29%.
During the 2003/04 season, it would have been possible to import maize to the Umtata area and
mill it into straight-run meal at a cost roughly 3% to 41% less than the price of packaged
commercial meal (of comparable quality to the straight run meal).

Third, positive benefits could accrue to consumers through the reduction in the proportion of
monthly income devoted to maize meal purchases, particularly in the case of low-income
consumers, if the informal marketing and milling networks could be developed to operate
through the year.

Fourth, lack of market information, the inability of milling agents to perceive marketing
opportunities (and possible anti-competitive behavior of the part of large commercial mills)
appear to be the major barriers to small-scale millers entering into production milling.
These findings hold some key policy implications imperative to increasing low-income
consumers’ disposable income and food security. Efforts to reduce costs within the maize
marketing system and enhance low-income consumers’ access to less expensive staple food will
promote the country’s objectives of national food security, efficiency, and competitiveness.


Authors

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