Prime
Govt should consider agricultural price support
A farmer in a banana plantation.
What you need to know:
- The issue: Agricultural price support.
- Our view: The way to go is to stabilise prices, ensure continued production of both food and cash crops, guarantee food security and a steady inflow of export earnings.
The price of cocoa at farms in most parts of the country have dropped more than twice in the last one month. By the close of April, the cost of a kilogramme of the commodity stood at Shs31,000.
But it dropped to Shs27,000 at the beginning of this month, before falling further to Shs15,000 per kilogramme last week. It is the sharpest fall in years.
Figures from the United Nations International Trade Statistics Database show that cocoa beans have been one of the country’s six biggest exports, accounting for at least $60 million, about Shs226 billion a year.
The rapid fall in prices is a big threat to both the production of the crop and the economy as a whole. Farmers, as is often the case when farm gate prices slump, are sure to abandon cocoa growing in favour of more lucrative options.
That will in the long term mean that the country’s export earnings take a direct hit. That would not be good news at a time when government is talking of stimulating economic growth by increasing export earnings.
The problem though, is that it is not cocoa alone that has been affected. The farm gate price of sugarcane has also slumped, which has left many sugarcane farmers contemplating quitting sugarcane production because they cannot break even anymore.
Sugarcane is a raw material in the production of raw sugar, which accounts for $61.7 million (about Shs232 billion). Export earnings are again under threat.
It would be disastrous if the country were to experience slumps in the production of some of these crops. We should not allow to find ourselves in a situation where prices of agricultural products fall so low that it becomes difficult for farmers to afford to grow cash and food crops.
Food demand is inelastic. People will, regardless of the price, buy more or less the same amounts of food because they only need so much of the same.
We should also bear in mind the inelasticity of the supply of food. As we have seen whenever there is a bumper harvest of, say maize, prices fall so low.
The situation calls for serious government interventions to stabilise crop prices. We should consider the possibility of introducing agricultural price support to limit the amount by which the price of a commodity can fall.
The way to go is to stabilise prices, ensure continued production of both food and cash crops, guarantee food security and a steady inflow of export earnings.
