Rethinking the state’s price control role amid liberalisation – 2

By Anna Tibaijuka

In last week’s article, I argued that liberalisation did not eliminate the role of government; it changed it. The challenge is no longer whether government should intervene in markets, but how and when.

No sector illustrates this dilemma better than agriculture.

Agriculture remains Tanzania’s largest employer and the principal source of livelihood for millions of rural households. Yet no issue generates more political debate than the price farmers receive for their crops. Every harvesting season, the same question resurfaces: should government determine what farmers are paid, or should prices be left to the market?

The answer requires both history and economics.

For many years after independence, producer prices for major export crops were administratively determined. Cooperative unions and marketing boards became the exclusive buyers of crops such as coffee, cotton and cashew nuts. Their responsibility was to purchase produce from farmers at official prices before selling it on domestic or international markets.

The policy sought to protect farmers against exploitation and unstable world prices. In principle, it was a noble objective. In practice, however, official producer prices were often set above what marketing institutions could sustainably afford. Cooperatives were required to purchase crops at government-approved prices even when export markets could not recover the costs. The predictable result was mounting financial losses, delayed payments, heavy borrowing and, eventually, the collapse of many cooperative unions.

The lesson was clear. Good intentions cannot repeal economic realities.

Market liberalisation introduced an important change. Private buyers entered the market and competed with one another. Farmers could sell at the farm gate, receive immediate payment and choose the buyer offering the best combination of price and convenience. Competition created incentives for efficiency throughout the marketing chain.

Yet, over time, elements of centralised marketing gradually re-emerged.

Today, several cash crops are marketed primarily through Agricultural Marketing Cooperative Societies (AMCOS) and the Warehouse Receipt System (Stakabadhi Ghalani). Farmers deliver their produce to designated warehouses and receive warehouse receipts. The crops are later auctioned to licensed buyers, after which farmers are paid. Government also announces indicative prices intended to guide the market.

The Warehouse Receipt System has important strengths. It improves grading and quality control, enhances traceability, strengthens farmers’ bargaining power and can produce better prices when international demand is favourable. Collective marketing also reduces opportunities for dishonest traders to exploit isolated farmers.

These are significant achievements that should not be dismissed.

However, no marketing system should be judged solely by its intentions. It should also be judged by the incentives it creates and the choices it leaves to farmers.

Many farmers require immediate cash after harvest to repay seasonal loans, pay school fees, purchase farm inputs or meet household expenses. Under warehouse marketing, payment often depends on the completion of auctions and administrative procedures. Even relatively short delays can impose severe financial hardship on households with limited savings.

Equally important is the question of competition.

When farmers are required to market through a single institutional channel, competition among buyers is inevitably reduced. The very essence of a liberalised market is that buyers compete for farmers’ produce—not that farmers compete for access to a single marketing system.

This does not mean the Warehouse Receipt System should be abandoned. On the contrary, it remains an important marketing option for farmers who believe collective marketing offers them better returns.

The real policy question is whether it should be the only option.

A more balanced approach would allow different marketing systems to coexist.

Farmers who prefer warehouse marketing should continue to use it.

Those who prefer immediate farm-gate sales to licensed private buyers should equally enjoy that freedom.

Competition between marketing systems may ultimately benefit farmers just as competition between buyers benefits consumers.

Some may argue that unrestricted farm-gate buying risks side-selling, tax evasion or deterioration in product quality. These concerns are legitimate, but they can be addressed through licensing, quality standards, inspection and effective regulation rather than by eliminating competition altogether.

Government’s responsibility is to establish fair rules for all participants, not necessarily to prescribe a single marketing model.

The objective of producer price policy should therefore extend beyond announcing indicative prices. It should focus on creating markets in which farmers enjoy genuine choice, prompt payment, transparent pricing and healthy competition among buyers.

Experience around the world shows that prosperous agriculture depends less on governments fixing prices than on governments investing in rural roads, storage facilities, irrigation, agricultural research, extension services, market information and access to finance. These measures raise productivity and strengthen farmers’ bargaining power without suppressing competition.

Producer prices are ultimately a symptom of the efficiency of the entire agricultural marketing system. When markets function competitively and transparently, prices are more likely to reward productivity while remaining sustainable for buyers and exporters alike.

The challenge, therefore, is not to return to the administrative controls of the past, nor to embrace unregulated markets without safeguards. It is to design institutions that preserve competition while protecting farmers from genuine market failures.

In next week’s article, I turn to the consumer side of the equation. Why does government regulate fuel prices, bus fares and other essential services? Where is the line between protecting consumers and distorting markets? And, why should government protect competition rather than competitors?

Those questions are becoming increasingly important as Tanzania continues its journey toward a modern and inclusive market economy enunciated in its Vision 2050.

Prof Anna Kajumulo Tibaijuka is a former Tanzanian Cabinet minister and former United Nations Under-Secretary-General and Executive Director of UN-HABITAT