The real cost of food on the table

Among the saddest iconic stories to come out of MENA’s rapidly changing political landscape was the first: the dramatic self-immolation of a fruit vendor, Mohamed Bouazizi, and how his act was a response to government officials trying to confiscate the fruit he was selling, taking away from this young man the sole means he had found to support his family. This story has a lot more to do with food security in the MENA region than I initially realized.

Why do I say this? For Bouazizi, the rules and regulations surrounding fruit and vegetable markets in much of North Africa were rooted in the practice of using agriculture to raise revenues for municipalities. The "droit de passage" legislation requires produce to pass through municipal markets on the way to the consumer. Think of all the cash being passed from hand to hand each time a kilogram of tomatoes is sold and how difficult it is to account for it all. At the end of the day, some share of this cash is then passed along to the market inspectors or other public officials responsible for revenue collection.

 The real cost of food on the table
 Photo by Curt Carnemark

Morocco has already realized that there is a problem with this system and is starting to think about reform so that farmers, municipalities, and consumers all benefit. At the heart of the problem is a 7 percent tax on any transaction that takes place in a fruit and vegetable market in an urban municipality. So the small farmer near Meknes sells his tomatoes into the market in Meknes and there is a 7 percent tax on the deal. The trader that buys them then takes them to the wholesale market in Rabat, where they are sold again with another 7 percent tax, before they make their way into the hands of a small vendor who ends up peddling them from the back of his motorcycle. The effect of this kind of double taxation is that it lowers the prices for producers and raises the prices for consumers. To say nothing about what all this handling does to the quality of the produce. The latter partly explains why the fertile fields of North African countries that are able to put top-quality fresh produce on the shelves of stores in Europe (where legislation does not require passage through municipal markets at the point of retail sale) don’t seem to be able to put the same quality products in the stands in their souks.

The net result of the distortion is that producers have less incentive to bring products to market and consumers have less money available to put food on the table. And who is hurt the most by this kind of behavior? The small people of course, because small producers don’t have the economies of scale in production necessary to sell directly to supermarkets and other bulk retailers or to Europe. And small consumers often don’t have the transportation and time to go to supermarkets to purchase their food.

To be clear, this is not a plea to get rid of supermarkets and middle-men in wholesale markets. They all play an important role in delivering fresh produce onto the tables of those who want it. It is though a plea to take a long, hard look at how the rules and regulations of wholesale markets can be improved so that they serve their constituents better and ultimately encourage investment in agriculture.

Some people say that wholesale markets are an outdated way to do business. I say not necessarily. For example, in France, Spain, and Italy, wholesale fruit and vegetable markets are a critical part of the infrastructure to deliver fresh food to consumers. They play an important role in price formation and they are operated on a service basis where buyers and sellers pay a fee to enter the market or rent space in the market. In exchange for that fee the market provides them with basic services, infrastructure, and logistics platform where the participants they can ply their trade. While not without problems, this is a far cry from the run-down markets where revenues are collected but not reinvested in providing services or maintaining or improving market infrastructure.

Ongoing work in Morocco suggests that it may be possible to change the rules of the market in ways that result in more transparent price formation, less transaction costs, and ultimately higher municipal revenues (because of greater market use) through a fee for service rather than a taxation model. The result, hopefully, will be higher producer prices that encourage farmers to produce the most valuable products they can with their scare water resources and, lower consumer prices that enable people to have a well diversified diet. Achieving this result would be an important step towards encouraging investment in agriculture and increasing food security in the region.