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Maize trade-policy decisions highlight need for closer regional policy harmonisation

05 July 2011

In May 2011, the government of Tanzania banned exports of grain in an effort to contain price increases in the face of poor rainfall. This is part of wider efforts to improve maize supplies, which includes selling grain from the Tanzanian strategic reserve. Press reports however suggested that this would result in an increase in regional maize prices. In addition, analysts and market traders suggested that the decision would also ‘trigger distortions in the domestic grains market through panic buying and hoarding’.

The day after the Tanzanian announcement, the Kenyan Ministry of Agriculture began to seek a tariff waiver for maize import in view of rising domestic prices (Kenyan maize prices increased 20% from March to April 2011). This comes against a background of complaints by Kenyan millers that farmers are ‘hoarding’ maize, and flour millers considering whether they need to buy ‘expensive grains to plug national shortages’ or face a shut-down of their operations.

According to the Kenyan Ministry of Agriculture, the national maize stock is 16.9m bags, with ‘farmers holding 10.9 million bags, traders 2.4 million, millers 519,530 bags’ and the National Cereals and Produce Board holding a strategic reserve of 3.1 million bags.

In the face of farmers’ reluctance to sell maize, even after the price offered by millers increased from 1,000 to 3,200 Tanzanian shillings (from €0.44 to €1.41) per bag, the Kenyan government, following lobbying from the Cereal Millers’ Association, has allowed the National Cereals Board to sell ‘more than 360,000 bags of maize to the World Food programme for relief activities’.

The waiving of duties on maize imports, however, needs to await approval from East Africa Community partner states. According to David Nalo, the permanent secretary in the ministry of East African Community, ‘if a partner state wishes to waive duty on any goods on the sensitive list, a letter must be written to the EAC’, with a formal procedure then being followed.

Editorial comment

Under the EAC customs union agreement, maize is considered a ‘sensitive product’ and so is excluded from the three-band (0%, 10%, 25%) common external tariff (CET). As a ‘sensitive product’, maize attracts an import duty of 50% (with wheat and meslin grain attracting a 35% import duty and wheat and meslin flour attracting a 60% import duty).

Transitional provisions under the customs union agreement allowed member states to apply lower import duties, if the application of the CET would create difficulties for existing industries, with such action being subject to approval by EAC ministers after the submission of a specific request from the government concerned. Such actions however have raised concerns about trade diversion and smuggling within the customs union, since any national action de facto impacts on the customs union as a whole.

Since the establishment of a fully fledged EAC customs union from 1 January 2010, theoretically there is no longer scope for the application of national duty waivers or national duty remissions. However there remain implementation problems, which mean that national-based actions remain possible, subject to regional consultation, until such time as appropriate regional procedures are in place.

Unilateral action to ban trade within the customs union territory and unilateral initiatives to seek duty waivers (subject to regional consultation) highlight the need for greater harmonisation of policies on the use of agricultural trade-policy tools within the East African Community Customs Union. The price implications of national decisions on markets in fellow customs union members underline the importance of this.

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