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Analysis of wheat pricing policy in Zimbabwe Kaviza, Theodora M.


In Zimbabwe, wheat is the principal crop planted in winter occupying about 95 percent of winter planted acreage, it is also one of the most tightly regulated of the controlled crops. Even though Zimbabwe's wheat industry is well developed by regional standards, domestic production has not kept pace with demand making imports necessary, draining scarce foreign exchange and heightening concerns about national food security. The study has reviewed how pricing policy has to date affected production and consumption trends of wheat. Three forms of policy intervention have been identified in the wheat industry in Zimbabwe: -- The producer price of wheat is consistently set below the world price. --A subsidy on imported wheat to the millers is maintained in order to keep the consumer price of wheat and wheat products low. --The government through foreign currency controls limit the amount of wheat that can be imported into the country. Using a Nerlovian Dynamic Supply Response Model the price supply elasticity of wheat in Zimbabwe was estimated, and used to construct a model of the wheat industry. The results of the model were then used to evaluate the impact of different policy interventions on wheat production, through policy simulation. Government policy in Zimbabwe taxes wheat producers while subsidising the consumers, thus current policy acts as a disincentive to increased output supply on the one hand, while it encourages increased demand on the other. Although studies from other countries show that wheat production is responsive to price incentives, the results of this study however show a very low short run price responsiveness (0.11). Thus raising producer prices, without redressing all the other factors affecting wheat production such as cost and availability of irrigation facilities, prices of substitutes etc, would have limited impact on total production. This study quantified the welfare effects and foreign exchange costs of current and alternative policy scenarios. Current policy in the wheat industry taxes the producers in excess of $39 million which is partly transferred to consumers and partly to government as revenue. Imports cost the country about $33 million in foreign currency in addition to a consumer subsidy of $4 million. The study also showed that uncompensated losses accounted for $1.08 million. The question for Zimbabwe is how to create the necessary conditions to increase price responsiveness, i.e what policy changes are necessary to increase total supply of wheat. The verall conclusion is that there is not a simple low cost option to redress the situation in the wheat industry in Zimbabwe. The situation calls for a review of all the policy instrumentsc currently in place, in addition to external factors such as the world price of wheat.

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