85

MARKETING BOARDS AND PRICE FUNDS IN UGANDA, 1950-1960: A COMMENT Ian Liringstow Litiversity of Dar es Salaam

In a recent issue of this Journal, three authors have undertaken a critical survey of the operations of the Uganda Marketing Boards and associated Price Funds in the decade after 1950.+

Price and income stabilisrtion Haring. Christy and Humphrey see the Uganda case as fitting closely the typical "model" of a marketing board which has advantages and disadvantages which they list. Among the latter they claim that as "buffer funds normally concentrate on price rather than upon income stabilisation, they tend to ignore the effects of variation of output upon the fluctuations in export proceeds".t

The fact that in Uganda as elsewhere reference is loosely made to the need for price stabilisation in no way implies that income stabilisation has not been the more basic aim. The purpose in stabilising prices is to reduce uncertainty, and thus permit better planning based on a clear choice by the peasant farmer. This is the rationale for keeping prices steady within one season. It could also make sense over several years for crops with a larger gestation period, such as coffee, but this would be much more difficult to do than income stabilisation: for the latter can normally be achieved more exactly by a second payment after the Board has sold the crop. Price stabilisation would imply sticking to the price previously considered appropriate. The practice of making second pay- ments in fact implies income stabilisation as the objective, however incompletely t h s was achieved.

In examining the experience the authors prefer to make use of Macbean's calculations of instability indexes rather than looking directly at their own figures. The disadvantage of the former approach is that it aggregates the whole 10-year period.

Figure 1 plots the value of incomes actually accruing to coffee and cotton growers compared to those which would have occurred in the absence of assistance funds. For cotton there has been some reduction in inter-seasonal fluctuation, though the main effect has been to alter the trend over the period by shoring up incomes in the later years (something which can obviously not be done in- definitely in the absence of a revival in the world price). In the case of coffee n e can say that from 1955 onwards there has been a minor degree of success in stabilisation, but that disastrous decisions were taken in two successive years in the brief period 1953-55. In 1953 prices and incomes were kept low- unnecessarily-while in the following year incomes shot up from €6 million to f l 5 million. An increase of 150 per cent in one year indicates a pretty low degree of achievement in stabilisation, particularly when followed the next year Iry a 50 per cent fall almost to the original level. * Joseph E. Harina Susan Christy and Joscph F. Humphrey, "Marketm Boards and Price

A p. 346. Funds in Uganda, 1950-1960". Journal ofAgricultural Economics. V 0 l . h . No. 3, 1969.

86 1. LIVINGSTONE

f COTTON

1953 1954 1955 1956 1957 1958 1959

GROWERS'

!!ws W Z

PAYMENT FROLI FUND

12.8 11.5 12 5 13.1 12 8 11.7 10 5

GROWERS' INCWE BEMRE

PAyMElsT

14. 4 12.4 12.9 13.8 10.5 9.6 11.3

1953 h9Y1 l955 1956 1957 1958 l959 I .

6.0 15.0 7.6 10.5 10.1 12.0 10.9

6 . 4 10.4

7.4 10.9 11.4 11.6 7.9

COFFEE

Yet a failure, no matter how bad, over a two-year period does not in principle indicate a general failure in stabilisation attempts. This is true even if the peasant was probably much more adversely atTccted by the experience of 1953-55 than he was benefited by the minor success of 195360.

Intnswolul price stabilisafjoll Haring er 01. go on to discuss intraseasonal price stabilisation and here, although they do refer in several places to the value of this in reducing uncertainty,

87 MARKETING BOARDS AND PRICE FUNDS IN UGANDA, 19So-l960: A COMhEM

AREA IYILWW

ACRES1

m-

l 9m - I O O -

1700 - IUD - Ism - uoo -

AREA I

2

I MILLION

.~ I

I60

lL0

110

IW

m

60

1 I 0 1- 19% 1952 1953 l%I 1955 1956 1957 195# 1959 1960 0

F& 2 cofrcc price pnd pcmoe planted

- -

-60

- 1 5

-u)

- L 5

RA110 COTTON

rnICES COTTON/COFF EE RLWXICERS’

0 ’ ‘ 0 1 9 ~ / 1 msih i w p ~ S Y L ies& IOS* RW mnh msqA ms/bo n@i

Fig.3 Cottwprkx~d8uugepbated

they are ambivalent. “An inherent problem in the use of set prices, however, would be the possible lack of adjustment to market conditions. With a set price, producers would have no incentive to deliver at the times best suited to market demand, and this would serve to increase the peak load problem.”+

This is the first and last reference to a peak load problem in marketing and no evidence is offered to suggest that it exists in coffee and cotton marketing. In fact since cotton, for example, has to be collected in small bundles from thousands of small fanners at a large number of scattered depots, there are considerable economies to be gained through concentrated movement of the crop. Secondly, and more importantly, peasant producers are not always inclined to pick their crops at the optimum time, and in their quest for ready cash are particularly given to premature picking, with detrimental effects on both quantity and quality. Nor do growers have storage facilities for their crops, so that rapid collection is needed to avoid spoilage.

1. LlVINaSfONE 88

It is for both these reasons that buying periods for such export crop arc declared every year. Moreover, frcedom of supply to adjust the demand which may be important for complicated local markets in foodstuffs really does not apply in the case of non-perishable export crops which, once collected by the Boards, can be placed on the international market in an orderly way-an obvious necessity in the case of coffee.

Intraseasonal price stabilisation also has a positive effect on equity, since the return to the grower is independent of the time when he chose to, or was forced to sell, but is in dircct proportion to the quantity and quality produced.

By comparing acreages of coffee and cotton planted during the decade with respective producer prices, Haring and his colleaguts jump to another hasty conclusion, or rather non-conclusion: “. . . a frequently heard argument for the guaranteed priccs and the Price Assistance Funds was that they would provide incentive for entering the monetary sector. Examination of acreage planted to both crops does not prove the argument either way, however”. Tbe figures quoted are plotted in Figures 2 and 3. In the latter the price ratio, cotton to coffee, has also been plotted.

We need to explain both the steady rise of coffee acreage and the simultaneous failure of the cotton acreage to increase. The lack of correspoodence between the two graphs in Figure 2 is not too strange. Normal sloping supply curves should not necessarily be expected in a nomenclature where the crop is the only one available. There are then no substitution possibilities and reduced output, in the face of lower prices, will simply reduce incomes (since foodcrop production for the local market is not generally a comparable alternative, despite the con- viction of Haring cr d.). There is, however, a trend factor which will carry production upwards over time, not so much “the increasing knowledge of its (coffee’s) possibilities”’ or even improvements in infrastructure over time, but increasing demands for income over time. The writer has discussed elsewhere the operation of a Duesenberry-type ratchet effect whereby increased incomes bringing new consumption habits increase aspirations, further increasing the supply of effort and thus incomes.t

Although in some regions of Uganda the coffee and cotton belts overlap, offering possibilities for coffee/cotton substitution, the clearly higher return on coffee production has probably ensured steady expansion. In the case of cotton, a regional breakdown of acreage is necessary, since the aggregate figures possibly include some cancelling out between an upward trend effect in cottonsnly areas (though less strong than in the coffee areas) and a negative substitution effect in coffee/cotton arcas.

Having thrown doubt on the strength of price in explaining coffee and cotton acreages the authors nevertheless explain fluctuations in cotton acreage: “Doubtless the cotton acreage reflected at least in part changes in the relative prices of the competing food crops”.: Unfortunately no evidence is provided to support this, whereas the majority of writers on peasant farming in the tropics stress the opposite, the tendency for subsistence food production to be carried on quite separately from cash crops.

In a n y case it would not make sense to explain fluctuations in nutiorvrl cotton production in this way. The considerable internal trade in foodstuffs in Uganda

‘The Noa-Economic Factor in +aomic Development”, in Proceed- of the Conference on the Teaching of Economs in African Universities, Du es Salaam, forthcoming.

choice between rood crops rod C d I crops

t P . * &vinetone, 352*

: p.1352.

m Z N G BOARDS AND PRlCE FUNDS IN UGANDA, 19SO-196Q: A COMMENT 89

occurs because of local variations in annual output: but it is the existence of cash crop earnings which makes it possible for areas short of food to import from surplus areas. One cannot think of an eventuality which would make the thousands of cotton producers cut back cotton acreage in order to grow food: to whom would they be supplying the food? If the staple food crop, millet, of the cotton growers failed they would most likely have to import temporarily from Kenya (using cash incomes from cotton) and hope for better climatic conditions for their next millet crop.

Encouragement of food crop production The authorities arc taken to task for the use of the Price Funds “for a curious mixture of incentive and disincentive”.* We are told that the Government deliberately held back cotton and coffee production in the early 1950’s in order to ensure adequate food production in order, linally, to permit industrialisation.* This is simpIy not true. If it were, firstly, it would surely have been possible to quote official statements of such an intention, and such statements would in fact have been quoted by such authors as Wrigley, Ehrlich and Walker who have discussed these po1icies.t There was a concern that the sharp increase in earnings in the early 1950’s would be wasted in high food prices (inflation) due to inelastic food supplies and on imported consumer goods. But secondly, the authors’ suggestion is illogical or requires illogicality by the authorities. There was not at the time, and there never has been in the post-war period, evidence of serious food shortages in Uganda. And the industrial labour force could have been supplied with food as and when it developed, since there is no long gestation period for food production. In fact the development of manufacturing industry has not increased the employment of industrial labour any faster in Uganda ‘than in other developing countries. So that not only did the greatly increased demand for food not materialise, but industrialisation could have proceeded very much faster without any problem of food supply. Certainly there was no need to anticipate a problem which can in principle be dealt with as it arises. For the authors to state categorically that “Clearly food production would have suffered without this policy” . . . and “. . . diversification into food production was therefore desirable”: is ill-advised, even if the policy had been pursued, which it was not!

Excessive taxation The authors imply that they consider that the total burden of taxation during the period, inclusive of contributions to Price Funds, was excessive though they do not sptclfically say so: “many thought that the Funds themselves were a form of excessive and unequal taxation”,$ taxation “which may possibly have been unfair”. In fact the rate of investment varied between 14 and 20 per cent of G.D.P. in Uganda during the 195O’s, which is not bad, but not necessarily enough for maximum development: Tanzania, next door, has recently achieved 23 per cent and is planning to maintain a rate near to 25 per cent over an extended period.

Diversion of fands to industrial development As the authors say, “the real question becomes whether or not the benefits derived from the development projects were worth the costs”. Yet there is no mention of the infrastructural requirements of the period (to which the funds were allocated) or, although they obviously disapprove of the diversion of funds

p. 352. t In publications cited below. : p. 352. 9 p. 351.

1. LIMNGSfONE 90

from agriculture to industry, of the possibly valid casc for industrialisation; or of the case for diversification, if not into industry, away from dependence on two crops (which infrastructural improvements would facilitate, though not directly bring about).

Yet clearly there was then, as there is now, a strong case for diversification away from th is dependence, given the gloomy outlook for coffee and the dis- couraging one for cotton. Uganda could have been much more favourably placed in competing with Kenya for new industry today if it had been more successful in the early 1950’s in establishing an industrial sector. The means employed, rather than the objective itself, might have been responsible for the comparative failure: efforts were concentrated on providing infrastructure in the hope that private fomgn investment would be attracted, rather than attempting more directly to establish new enterprises.

Fpnds 8 Wthd Of t8MtiOO What can certainly be questioned is whether price funds arc a good mode of taxation. There may of course be political advantages in letting growers think they will eventually receive full payment, not only to make this more acceptable at the time but also to minimise disincentive effects of taxation. In fact it is more likely that supply responses are bascd only on the immediate payment made.

One major disadvantage is that this mode of tax collection does not make for efficient spending of revenue, since it becomes unclear how much is genuinely available as development expenditure, and for what purposes it may be used. The existence of Assistance Funds worth f 18 million in 1961 raises the question of why they were not at the theoretical level of zero required by the authors for efficient stabilisation over the decade, but also of what the benefits from efficient investment of this sum might have bcen.

The uncertainty of where and how the Funds could be used is indicated by the fact that it was made known that the part of the Funds not repaid to the growers directly “would be used to finance projects of benefit to the cotton and coffee growing areas”.+ This is not what happened, but from the statement of the 1962 Commission of Inquiry into the Cotton Ginning Industry that: “The Principle now seems to be firmly established that the funds should be regarded as belonging wholly to the growers and should be used solely for their benefit . . .”f it is fairly clear that the planners themselves were not clear that the funds were not available to them for investment anywhere. If there had been any commitment to regional planning at the time this could have been a distinct handicap.

Another aspect is that where taxation is carried out indirectly via marketing boards, there is a greater chance of taxes falling unevenly, since the policies of two or more marketing boards may not be in step-particularly since the tax effect is obscured by genuine stabilisation payments. There may result a mis- allocation of resources or inequitable distribution of income as between pro- ducers of two commodities coming under different boards. Thus, in areas where coffee and cotton can be grown by the same producers as alternatives, divergent commodity policies can alter the relative net prices paid to producers, and thus the allocation of resources between them; where they are grown by distinct sorts of producers divergent policies can afkct income distribution between the

C. C. Wridey, Crops atad Wealth in Uganda: A Short A g r h History. Kampala, 1959,

t Report of the Commission of Inquiry into the Cotton Ginning Industry of Uganda. Govern- p. 70. quoted by the authon. p. 351.

ment Pnnter. 1962, quoted by authors, p. 351.

MARKmNG BOARDS A N D PRICE FUNDS IN UGANDA, 19S04960: A COMMENT 91

two groups of producers, if public expenditure beneficial to both is financed especially by one group.

In the period 1954-1960, the authors have calculated that cotton growers paid 24 per cent of earnings as export duties and coffee growers 20 per cent. One can ask why it should have been that way round. However, a proper comparison should be of total deductions, net of the genuine stabilisation element, for the decade or for successive periods of five years or so (this being a reasonable maximum period over whch to attempt stabilisation).

Some W comments The last part of the article calls for only a few additional comments. It is extremely unlikely that one Publicity Secretary for each Board could launch a “massive publicity campaign” with any marked effect on product quality, since it is apparent that the entire extension service of the Ministry of Agnculture has failed to achieve this up to now.*

It is true that even for relatively homogeneous or clearly graded commodities sold internationally a country can acquire a good name, or a bad one, and in that sense it may be possible to talk about a “Uganda product” for cotton and coffee. But this is likely to determine its level in the world market, and not, as the authors suggest, any inelasticity of demand at this price.

The authors allege that “once the Funds and Boards were established, there was little or no further discussion of their basic utility”, and “the basic institutions seemed to rise monolithic above all criticism”.t There is no doubt that economists would have spent more time discussing the Ugandan example if this had not been so similar to the West African cases which had generated so much argument. But strangely, though reference is made to Wrigley’s work, none is made to that of Walker and Ehrlich,: despite their systematic treatment of the subject. Moreover the authors themselves state that “peasants . . . and economists . . . alike mistrusted and denounced the Funds”.

The authors close by hoping that their paper “will lend a greater appreciation of the past on which a flourishing tomorrow can be built”. Another look at the past might be needed.

Research into the effectiveness of agricultural extension has recently been canied out in all t h e East African countries.

t p. 356. : !See D. Walker and C. Ehrlich, Stabilization fi Dcvclopmcnt Policy in Uganda: An Appraisal. Kyklos. 1959, Fax. 3 ; and D. Walker, Marketing Boards”. in Problems in Economic Dcvclopmcnt (E. A. G. Robinson, Ed.), London, 1965. Dr. Ehrlich has also written a Ph.D. thesis on the history of cotton production and rnarketmg in Uganda which has unfortunately not been published.