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Problems in implementing programmes to control or stabilize staple food prices in Jamaica

Vernon Allen

Introduction
Imports
Processed staple foods
Agricultural output
The food intelligence division
Monitoring supply movements

Introduction

Jamaica is an island of 4,411 square miles with a population estimated to be approximately 2.1 million at the end of 1976. The 1970 census indicated that over 41 per cent of the population lived in towns. There has been, for a long period, a drift from the rural to the urban areas, and this percentage may have increased. More than 830,000 among the population (46 per cent) were under 14 years of age according to the census.

Of the total land surface, only 1.2 million acres, or 486,000 hectares,* are considered arable. Nonetheless, agriculture, forestry, and fishing accomodate a little more than 31 per cent of the labour fource of 890,000. The amount of arable land available per person is just over half an acre, and each member of the labour force has fewer than five acres on which to work. The 1970 agricultural census recorded almost 200,000 farms, 145,000 of which were less than five acres, and only 300 farms were 500 acres or more. Thus, farms under five acres represented 78 per cent of the number of farms, but they accounted for only 15 per cent of land being farmed, whereas farms of 500 or more acres - representing 0.16 per cent of the number of farms - occupied 45 per cent of the land under cultivation.

As is usually the case in countries with a historical background like Jamaica's, the large farms produce export oriented crops, while the small farms grow most of the food for internal consumption.

Per capita national disposable income stood at U$1,223 (US$906) at the end of 1976. Of which U$932 represented personal consumption expenditure ($1 US = U$1.35). Like land distribution, income distribution is also very skewed, with a very high

1 hectare = 2.47 acres concentration of the disposable national income in comparatively few pockets.

Efforts by the Government to control or stabilize staple food prices express themselves in four institutions or agencies: the Prices Commission, the Agricultural Marketing Corporation (AMC), the Jamaica Nutrition Holdings (JNH), and the Food Intelligence Division-Ministry of Industry and Commerce. These agencies will be discussed within the context of attempts to solve the problems of undesirable movements in the prices of staple foodstuffs. Generally, problems of food prices derive, inter alia, from the openness of the Jamaican economy; traditional dependence on imported foods; adoption of advanced but inappropriate technology; disharmony of processing techniques with local agricultural production; maldistribution of income; high levels of unemployment; inappropriate, inefficient marketing and distribution structures; dietary habits that favour imported food items to the disadvantage of agricultural production; and lack of data suitable for the development of economic studies for the formulation of appropriate food policies.

Because this paper is biased toward empirical rather than theoretical considerations, some of these problems will be viewed from within the framework of the institutions established to solve them.

The most important sources of food supplies are imports, processed staple foods, and agricultural production.

Imports

Before 1974, importation of foodstuffs was managed entirely by private firms, except in the case of a few agricultural items like onions and red peas that were imported only by the Government-established Agricultural Marketing Corporation. Importing firms had well-established contracts with the United Kingdom, Canada, the United States, New Zealand, and a few other countries. In some cases, importing firms were subsidiaries of exporting firms. There was little, if any, exploration of other supply sources because of the links established and developed over the years. Both the pattern of trade and trading policies were fashioned by, and for, the benefit of importers and exporters, with minimal consideration of their effects of the nutritional status and standard of living of the population as a whole.

In 1974, the Jamica Nutrition Holdings, Ltd. was incorporated by the Government of Jamaica to:

(a) engage in bulk purchases of grains and other nutrition-related raw materials;

(b) operate a stabilization fund related to these bulk purchases and deal in commodity futures markets in order to protect the national economy from rapidly fluctuating commodity prices and simultaneously research sources of cheaper basic foods;

(c) assist in the development of a National Nutrition Programmer and (d) establish and manage plants for processing soybeans, milk, cassava, and bananas, respectively.

From its incorporation to the end of 1977, the JNH shared the business of importing food items with private traders, but since the beginning of 1978, this public sector company has been the only one to import food items into the country. Comparison between the import prices paid for skimmed milk by private traders and the JNH in 1976 showed a significant difference of approximately 7 cents per lb.

The level of reliance on imported foods is indicated by the fact that in 1975, of a total import expenditure of U$212.6 million for all consumer goods, $118.1 million was for food.

World inflation and other problems have severely affected foreign exchange availability, and foreign exchange budgeting has had to be introduced. Imports of food were reduced drastically to just over U$70 million in 1977. However, internal prices are not automatically reduced by the JNH with reduction in import prices. Nevertheless, the prices of wheat, maize, skimmed milk powder, butter oil, and whole milk powder have been stablized since 1974. In addition, during 1977 U$3.33 million of the Company's revenue were used to subsidize the prices of flour, condensed milk, edible oils, some poultry meat, and the wharfage fees on imported staples.

Subsidies in 1978 approximated U$15.6 million, and involved the prices of soy products, animal feeds, fish products, milk products, edible oils, flour, baby foods, corn, and some other staples.

Internal trading is done almost exclusively by private firms. The distributive chain is a long one, and its structure has been well developed over a long period. Figure 1 illustrates the structure of the distribution system.

Distributors are large enterprises that, having obtained a license to import, place an order with the JNH and take possession of the goods when they arrive at port. Distributors sell in bulk to wholesalers, large retailers, and institutions. There are about 20 distributors in the country.

Wholesalers, of whom there are approximately 100, buy from the distributors and break bulk to sell to retailers, chiefly small, and institutions. Whereas distributors are concentrated in the city of Kingston, wholesalers are scattered all over the country, but are usually located in the larger towns.

Retailers range from very large supermarkets in the city to small establishments selling less than U$1,000 worth of food per year in the rural areas. There are about 500 large retailers and 13,000 small retailers of varying sizes.

In addition, there are thousands of itinerant and occasional vendors called "higglers" who purchase from whomever they can to sell in the streets and local markets. These vendors often do a flourishing business in times of scarcity, when their prices are often far higher than the controlled prices.

Toward the end of World War I I, the Government of Jamaica set up a Food Control Distribution Department that was converted, in 1971, to the Prices Commission with expanded responsibilities and functions. There are now some 67 items under specific price control. The Prices Commission must investigate all requests for price increases and must satisfy itself that such price increases are unavoidable and ultimately in the public interest. Policing the system is very difficult and costly, and particularly when essential goods are in short supply, somewhat ineffective.

The Prices Commission and the Jamaica Nutrition Holdings are not expected to interfere directly in the internal distribution of food items, but rather they seek to solve problems of high prices, monitor kinds of food imported, and control internal prices through the distributive systems.

To alleviate the pressure of high and rising prices on the lower-income groups, an attempt has been made to channel supplies of staple foods to low-income areas at subsidized prices through "special" shops and mobile units operated by the Agricultural Marketing Corporation. This has met with limited success and the system is now to be reviewed.

A more comprehensive method of dealing with the problem is now being devised in the form of the Food Intelligence Division in the Ministry of Industry and Commerce. This system will be outlined and discussed later on in this paper.

Processed staple foods

There are about 25 fairly large establishments engaged in the processing of staple food items. These firms import their machinery, technology, and most of their raw materials, principally from the United States. Raw materials are usually in a semi-processed form.

Movements in the prices of imported raw materials are immediately reflected in consumer prices, and there is little that the Prices Commission can do to hold down prices in the face of a critical unemployment situation.

Production systems and schedules are not harmonized with local agricultural production; thus, the very desirable boost that the agro-industrial sector could provide for agriculture is all but lost.

There is also little recognition of the nutritional requirements of the population, and in effect the food-processing sector of the economy is largely an enclave using non indigenous capital, technology, and inputs geared to meet the consumption patterns of a large sector of the population that prefers, and seeks to obtain, imported food items. Food processors are the leaders in marketing foodstuffs, and the extent to which expenditure is diverted from locally-produced items has yet to be determined. Outlets for processed foods are the same as for imported foods (figure 1).

Agricultural output

There has been no direct attempt to control or stabilize the prices of locally grown agricultural products. The Agricultural Marketing Corporation (AMC) established by the Government in 1963 has as its objectives stimulation of local production of agricultural products by:

(a) providing an assured market for farmers'crops;
(b) provision of guaranteed minimum prices for a number of specified crops, if they meet the required standards;
(c) encouragement of the consumption of locally produced food crops;
(d) ensuring an even distribution of agricultural products throughout the island by providing food where demand exists;
(e) protecting the interests of consumers, generally by attempting to stabilize prices and by being the sole importer of specified staple crops;
(f) easing the burden of the rising cost of living among low-income groups, island wide;
(g) contributing to the campaign against malnutrition by making available to vulnerable groups inexpensive basic foods important for their nutrient content; and
(h) ensuring the viability of its operations.

The AMC has not been able to achieve these objectives. It has functioned largely as a buyer of last resort, and has not, over the years, controlled a sufficiently large portion of the market to influence prices significantly. Estimates place the AMC's purchases at between 12 and 18 per cent of the marketed portion of agricultural production.

There has been greater emphasis on the guarantee of "reasonable" prices to farmers than on holding down prices to consumers. In effect, indirectly, the offer of guaranteed prices, while of indisputable benefit to the agricultural sector, may have caused consumers to pay even higher prices, as the host of traders pay farmers amounts a little above the AMC prices, obtain the best products, and add margins to maintain their own profit levels.

The very complex distribution system of agricultural products is shown in figure 2. This is a substantially simplified model of the real system, in which there are over 14,000 "higglers" and over 32 channels along which products travel.

The scattered nature of production on nearly 200,000 farms, the pattern of on-farm production, with a large number of crops interspersed on a small plot, make reliable estimates of production extremely difficult. Lacking reliable estimates of production, and competing with a vast number of sellers who have established personal contacts with farmers and extend them services, such as reaping crops and making loans, the AMC finds it very difficult to fulfil its mandate.

The food intelligence division

The objectives of the system that is now being established are:

(a) the monitoring of supply levels and prices to provide warning signals of impending shortages, and the creation of mechanisms to deal with localized or country. wide food supply problems;

(b) developing knowledge concerning food distribution systems to influence their operation and to cause changes in the pattern of distribution whenever necessary in the national interest;

(c) conducting studies in demand and supply of food, particularly in relation to income distribution and effects of price movements for the development of a general food policy; and

(d) on the basis of information analysis, advising the Government on short-term policies in such areas as foreign exchange allocation for food imports, the determination of farmgate and market prices, and inter-governmental dealings in food.

Monitoring of food supplies and prices should be seen, not as a passive observation of movements in quantities and prices, but rather as a positively directed activity with clear objectives, chief among which is the formulation of policy to attain stated social, economic, and political goals.

Why monitor supplies and prices? What benefits are the country or society likely to gain from this activity? Jamaica carries inadequate stocks of foodstuffs and is dependent to so large an extent on imports that, given the critical nature of food supplies worldwide, the country is exposed to the risk of shortages.

On the other hand, there is the growing concern for social justice and the more equitable distribution of resources of all kinds. The traditional market structure frequently proves inadequate to the task of meeting the requirements of a changing society, and it must be modified to achieve the new purposes and objectives.

Properly devised, the monitoring system can substantially help in the more efficient distribution of food resources. It can be the instrument for harmonizing agricultural production strategies with import policies and the allocation of scarce foreign exchange.

If it includes nutritional considerations it can be a means for raising the nutritional status of the population and for achieving the change in dietary habits so necessary for the enhancement of agricultural and agro-industrial development.

It is estimated that between 70 to 80 per cent of the business of general wholesale and retail shops is in food items. The systems of distribution are surprisingly complex and lead to very high prices and a good deal of waste that the country can ill afford. One of the objectives of a monitoring system should be to develop knowledge of the structure of food distribution in order to correct inefficiencies for the benefit of society. Too often gluts exist in one area of the country while there are severe shortages not many miles away. Too often overall shortages occur that could have been prevented if a mechanism for projecting supplies and requirements had been operating. These shortages seriously affect price structure.

One of the basic objectives of monitoring and projecting supply and demand requirements is the attainment of some measure of control over price movements, and, in time, the structuring of supplies and prices to the overall advantage of society.

Monitoring supply movements

Problems of monitoring the movements of available food supplies vary over time. Table 1 attempts to identify these problems, and to look at the usefulness of the data that may be collected within various time spans. Effective monitoring requires that minimum levels of supplies be established. In order to do this, a "basket" of basic items from all three sources-imports, processing, and agricultural production- will be compiled. In setting minimum levels, population, income, and occupational structure are relevant considerations, particularly if the levels are to reflect not merely the established consumption pattern, but nutritional and social equity considerations.

Initially, monitoring supplies would take into account overall population size and the age structure of the population; employment and occupational pattern of the population; income levels and distribution; tastes/traditional eating habits; economic factors (agricultural development strategy, effects on employment of substituting local food production for imports; foreign exchange availability); and social and political factors (level of state involvement in production and distribution, social equity considerations).

The mechanism for monitoring will be a function of prevailing conditions. In Jamaica there is now only one importer of food stuffs, the Jamaica Nutrition Holdings, Ltd., some 20 distributors, about 100 wholesalers, just under 500 supermarkets, and an estimated 13,000 retail shopkeepers. There are about 25 food processors and probably 150,000 farmers who sell to an estimated 14,000 "higglers" and to over 100 parochial markets (figures 1 and 2). Figure 3 illustrates the overall system for all three types of food sources-imports, processed foods, and agricultural production.

Information will be obtained by Field Officers from all distributors, wholesalers, and large supermarkets concerning stocks and movements of food inwards and outwards. Some 22 basic articles will be involved, and at the Head Office, accounts will be kept for each of these items on the basis of defined geographical areas. Other accounts will be kept for individual distributors and wholesalers in order to reconcile flows from and to these establishments.

In addition to information from large retail shops, a sample of small shops will be surveyed on a rotating sample basis. The purpose is to reconcile flows from wholesalers to retailers with what small retailers report as their receivals and sales.

Economists and statisticians working in the Division will establish minimum levels of supplies for the country as a whole, and for geographical areas served by wholesalers, on the basis of population concentration and structure, desired nutritional standards, levels of income, and the ability of the agricultural sector to produce items now imported or suitable substitutes.

Based on information received, each month a three-month projection will be made of supply availability, and corrective action will be recommended when these projections indicate impending problems. Recommendations will be made annually on the volume of items to be imported, based on the factors listed above.

The system for obtaining data on supplies of locally produced agricultural food items has not yet been devised, but a team of system analysts from the Government's Central Data Processing Unit has been assigned to this task. This is the most challenging area of the system, and involves close collaboration with a number of agencies, chief among which is the Ministry of Agriculture.

In the interim, data collected from the AMC on the volume and value of purchases, sales, and importation and export of over 50 food items on a monthly basis for the five-year period 1973 - 1977 are now being analyzed for initial studies.

There have been a few studies on food demand, chiefly done by economists attached to the University of the West Indies. Due to lack of sufficiently detailed data, all of these studies have had to be based on highly aggregated data. In addition, the investigators have tended to explore the possibilities of using techniques developed in more advanced economies on an experimental basis, which places quite severe limits on their applicability for policy formulation in Jamaica.

TABLE 1. Monitoring of Availability

FIG. 1. Flow of Imported and Processed Foods to Consumers

FIG.2. Flows of Locally Grown Agricultural Products

FIG.3. Food Supplies and Prices Monitoring System

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