The Rice Import Liberalization
Agenda in Liberia:
Some Critical Policy Issues
By Geepu Nah Tiepoh
In the January/March 1998 issue of this magazine, we had predicted that under the current rule of global capital, where a country's access to international finance is largely determined by its having "sound" macroeconomic and structural balances, post-war Liberia would have to adhere to the demands of global capital by instituting "appropriate" macroeconomic and structural adjustment. Well, our prognosis has come true. In fact, just as we were making this prediction, the government of Liberia was embarking upon an International Monetary Fund (IMF) staff-monitored program (SMP) of economic and financial policies designed to enforce discipline and reforms in the economy. One of the key structural reforms being implemented under this staff-monitored program is the full and speedy liberalization of rice imports to Liberia. According to this plan, which was reportedly conceived based on the liberalization experiences of Senegal and Gambia, the Taylor government has agreed, upon recommendation by a World Bank-financed team, to eliminate all "minimum import requirements, quality requirements (except as related to health and safety), and price controls" to the importation of rice by the end of June 2000. An action plan is also being devised to embark upon similar liberalization in the petroleum sector.
While the removal of rice import restrictions conforms to the current global policy trend towards agricultural trade liberalization, and while this strategy may lead to some short-term relief in the availability of rice for the Liberian population, one has to be concerned about its possible implications for domestic macroeconomic policy and the country's long-term quest for rice self-sufficiency. What are the reasons and forces behind this liberalization agenda? To what extent will the possible loss of government revenue from import liberalization affect the objective of fiscal restraint as demanded by the international financial community? How will the removal of import restrictions impact on the balance of payments, exchange rate policy, and domestic producer prices? Can the country successfully foster rice self-sufficiency in the midst of unmitigated foreign competition? Or is this the beginning of the end of Liberia's long-term dream for rice self-sufficiency? These are some of the issues addressed in this article.
Behind the Liberalization Agenda
The strategy of liberalizing rice imports to Liberia is underpinned by both domestic and international imperatives. Liberia's long history of poor economic development policies (especially misplaced agricultural priorities) has over the years resulted in periodic shortages in the supply of rice, the country's staple food crop. The concentration on merchandise trade in cash crops by the nineteenth-century Liberian Settler elite and the opening of rubber plantations in the twentieth century had driven the country off the course of subsistence agriculture and food production. Diversion of labor into the lucrative palm oil commerce, for example, created serious shortages in food production and caused balance of payment difficulties for the settler colonial regime (1822-1838). Abayomi Cassell (1970) observed that cultivation of rice declined in the coastal areas in and around Monrovia which were dominated by the palm oil trade. Moreover, as the Firestone plantations increased their labor intakes to meet the growing demand for rubber caused by World War II, rice production in Liberia drastically fell, and during the 1950s the country became and was to remain a net importer of rice.
Fortunately, during most of this period (1950s and 60s), Liberia could afford the importation of rice from the United States since the price of rice imports remained low relative to those of the country's main exports (rubber and iron ore). However, the eruption of global economic crisis in the 1970s reduced Liberia's export revenues and weakened the state's ability to import rice. In an attempt to deal with such revenue crises in the mid-1970s, the Tolbert government introduced a strategy of capitalized domestic production of rice geared towards promoting self-sufficiency in rice for domestic consumption. This strategy succeeded for a while in raising rice production in Liberia, but then it unraveled in the late 1970s as American higher interest rate policy prompted outflow of US dollars from Liberia and tightened credit to the mechanized rice sector that had relied heavily on international borrowing. The government decided to reverse the consequent decline in rice production through increased producer price incentives but was massively opposed, as such incentives were seen as an attempt to raise the profits of the farming political elite. During much of the 1980s, at least 25-35 percent of Liberia's total annual rice consumption came from food aid and commercial rice imports (Toe, 1994), as government's strategy for rice self-sufficiency became impossible in the midst of fiscal neglect of agriculture and rampant corruption.
After seven years of war and three years of Taylor rule, the IMF is saying that rice production in Liberia is recovering but still far behind its prewar level (thanks to the courage of Liberian peasants who are returning to the land after years of being deprived by warlords and criminals). Taylor's strategy for mitigating post-war shortfalls in rice production has been the use of monopoly licensing, such as the granting of exclusive rights to the Lebanese-owned company, Bridgeway Corporation, to import 75 percent of Liberia's rice intake. Such quota-based import controls have not only raised the spectre of further corruption in the economy but also brought higher prices for consumers.
But ineffective domestic agricultural policies and rice shortages are not the only reasons driving the government's liberalization agenda. The current wave of asymmetric world trade liberalization, in which African and other developing countries are being forced to open their markets unregulated to the products of industrial countries, is also pushing this agenda. While big economic powers, such as the US, EU, Japan and Canada have always insisted on protections for their vital industries, they and the international institutions they rule are enforcing the virtues of free trade and globalization in debt-ridden underdeveloped states like Liberia. The Uruguay Round of trade negotiations that ended seven years ago did almost nothing to reduce agricultural protectionism in these big producer countries. It is only a year ago, for example, that Japan finally agreed to allow importation of rice to that country, even then at very high tariffs. The US still heavily subsidizes its agricultural exports. French farmers would pour milk on the highways than allow government to reduce their farm subsidies. And yet the prevailing view among these economic powers and the major international institutions, such as the IMF, World Bank, and the WTO, is that African trade policies are protectionist and must be liberalized. This is despite the fact that there is nothing in the current Uruguay Agreement to stop Europe, for example, from dumping its subsidized food and meat on to the African market to the detriment of domestic producers (Tandon, 1999). Thus under the heavy weight of debt crises and self-inflicted civil wars, and led by their own ideological interests, most African governments (like the one in Liberia) have no choice but to implement the imposition of liberalization.
Critical Policy Questions
Whatever the motivation for the rice import liberalization agenda, its implementation will pose a number of critical policy questions for macroeconomic stability and Liberia's long-term dream for rice self-sufficiency. The first of these questions relates to the possible impact of import liberalization on government's revenue and its objective of fiscal restraint in the form of balanced budgets. Depending on the type and level of restrictions previously imposed on rice imports, the amount of revenue lost from removing these restrictions could be sufficiently high to destabilize the fiscal objective. In such a case, since there are always limits on raising additional tax revenues from other sources, and the government is highly indebted and is embarking upon a tight monetary policy, it is government expenditure that will have to sustain further reductions. It is unlikely, however, that elimination of import restrictions on rice alone will have a noticeable downward effect on government revenues since the government's import policy has been based on monopoly licensing, and much of the licensing fees or bribes collected might have not gone into public coffers in the first place. In this case, eliminating import quotas could only help improve the system by curtailing corruption, wiping out quota premiums (windfall profits) enjoyed by import monopolists, and making rice more affordable to the public. Nonetheless, the point being made here is the possibility of more government revenue loss and the resulting further cuts of public and social services, as import liberalization spreads to many more sectors including petroleum and others. Rice and petroleum will not be the only sectors to face import liberalization. Others are likely to follow.
Another potential and more serious policy challenge from rice import liberalization relates to how the elimination of import restrictions may affect Liberia's balance of payments and rice self-sufficiency objectives. Eliminating import restrictions and price controls will tend to encourage cheaper rice imports, possibly resulting in export dumping as happened during the 1980s with the dumping of French meat into the Sahel (Tandon, 1999). In the case of Liberia, however, the slow growth of the economy and lack of adequate foreign exchange could prevent this scenario at least in the short term, unless there are some exporting countries that are willing to increase the country's net foreign official reserve liabilities. In fact, there might even be shortages of rice under import liberalization, if the economy and export earnings do not grow enough, and there are no export lenders and other trade financiers willing to advance credit to the country. It is probably the fear of this possibility that has prompted the government to ask the World Bank to help in instituting a rice-monitoring system that will keep track of rice imports and available stocks in warehouses (IMF Staff Country Report, 1999).
On the other hand, if the import liberalization strategy extends to other sectors, as I believe it will, then the overall level of import restriction in the economy will substantially fall. Then as the economy grows and export earnings (foreign exchange) increase, the flow of imports may intensify. And if, for some reasons, more rice starts pouring on to the Liberian market, the population (especially those in the money economy) will feast for a while. But this feast will not last for too long, as import expenses begin to outstrip export earnings, and thus foreign exchange becomes more expensive in domestic currency terms. During the time this flow of rice imports lasts, however, it will have a discouraging impact on rice self-sufficiency in the commercial sector, since smallholder farmers will not be able to compete with foreign importers. It may also even discourage rural subsistence farming if the flow of cheaper rice is so strong that it penetrates rural households. If that happens, then Liberia will have reached a step closer to the evaporation of her age-old dream for rice self-sufficiency.
Importation of cheaper rice will not last for long, because it will most likely lead to the worsening of the country's balance of payments. The presence of binding external financing constraints will make it impossible for the country to maintain such worsening of its external balance, and also the government will not be allowed to resort to foreign exchange control or rationing. It may not also be allowed to return to import quotas. This means that the government's most likely choice will be to allow a faster devaluation of the Liberian dollar in order to discourage the flow of imports and improve the balance of payments. There is no room here to conduct a full analysis of the complex economic, social and political implications of devaluation. But it suffices to say that if the government devalues the dollar to limit rice imports, the domestic currency price of imported rice will rise. Domestic commercial rice producers will likely raise their prices as well since there is no reason to expect them to sell at a lower price, unless Liberians just prefer foreign rice. But in all of this, it is Liberian consumers (especially those in the cities) who will suffer the most from the higher rice prices. Such increases in domestic commercial rice prices could cause serious political agitation as in the 1970s, if those who own commercial farms are also in government. The Taylor regime must desist from this practice, and it must implement this strategy in a way that protects Liberia's rural subsistence farmers. The rural folks in Liberia do not want imported rice from Monrovia.
Geepu Nah Tiepoh is a development economist and consultant with ACLAD Development, Canada.
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