By Nancy Marangu, Kimwaga Mhando and Jacinta Mwau
Maize production is regularly a loss-making endeavor in many East African countries. Smallholder farmers lose approximately 20% of their maize crop due to post-harvest losses: 1 in every 5 bags produced by a farmer annually, or 2.4 million MT of maize lost from the East African Community (EAC)’s cumulative maize production per annum, worth over $620 million. The value of these losses is furthermore, out of the 6.4 million MT of maize produced annually, the country loses 1.3 million MT, projected at Tshs 640 billion ($275 million). Therefore, such losses exacerbate food insecurity, undermine intra-regional trade and sink farmers deeper into the poverty trap. Post-Harvest Losses (PHLs) in East Africa can be attributed to insufficient post-harvest management and deplorable storage practices by farmers on one hand. On the other hand, climatic effects aggravate pest pressure which leads to food shortage, resulting in hunger, disease, and food safety risks within households. Subsequently, PHLs, lead to low-income levels among farmers due to a lack of capacity to scale their businesses. Adversely, PHLs result in food insecurity and abject poverty in both countries.
Therefore, to reduce and mitigate PHLs, Hermetic Storage Technologies (HSTs) safeguard crops from pests and contamination. The use of HSTs has proven to be environmentally-friendly, pesticide-free, sustainable, and safe. Hermetic bags are the most widely-used HSTs compared to plastic and metal silos. The products are not only effective in eliminating post-harvest losses, but also a safer storage option since they prevent the contamination of food grains with toxic pesticide compounds.
While adoption of these products is growing steadily, uptake remains very low, partly because of their high price which is five times higher than the price of a conventional polypropylene (PP) bag. The high price is in turn at least partly attributed to Value Added Tax (VAT), which has subsequently been pinpointed as the main policy-related limiting factor inhibiting substantial adoption by farmers and thus perpetuating post-harvest losses in the region.
In this regard, at current prices and levels of adoption, EAGC estimates that the governments of Tanzania and Uganda earn US$ 2.1 million and 495,000 respectively from VAT on hermetic bags sold in the maize value chain. However, this comes at a significant cost, which includes, reduced food safety due to aflatoxin contamination in conventional storage, resulting in approximately US$ 5.3 million and US$ 577 million annually in lost trade opportunities in Tanzania and Uganda respectively. This furthermore, contributes to an aflatoxin-induced liver cancer disease burden (4,825 new cases annually) that costs the economy US$ 1.1 billion3 in Tanzania and 3,700 aflatoxin-induced liver cancer cases in Uganda.
It is worth noting that post-harvest losses of maize in Tanzania and Uganda cost these countries between US$ 177.7 and 195 million annually in Tanzania and US$ 146 million in Uganda which contributes to food insecurity and malnutrition. In turn, con summers end up absorbing the cost of grains lost through PHLs resulted by higher prices in both Tanzania and Uganda, on one hand. On the other hand, if VAT is removed and uptake of hermetic bags subsequently increases among smallholder farmers, up to 160,000MT of maize worth US$ 24 million will be saved annually in Tanzania and another 65,000MT worth US$ 12.9 million every year in Uganda. Over the 3-year lifespan of the average hermetic bag, this would translate to 480,000MT and 195,000 MT of maize saved from losses in Tanzania and Uganda respectively.
Economically, the implications of VAT exemption on hermetic storage bags will in the longer-term result in firstly, increased tax revenue from increased volume and value of maize traded since the adoption of hermetic bags is expected to save and put on the market an extra 160,000MT and 64,950MT of maize in Tanzania and Uganda respectively. Assuming 10% of the value of this extra grain is realized through direct tax revenue (through increased sales of hermetic bags, job creation, withholding tax, crop cess by local government authorities and other forms of revenue), the government is likely to collect US$ 2.4 million and US$ 1.2 million in Tanzania and Uganda respectively which are higher than the revenues to be foregone by dropping VAT. Secondly, An increase in export earnings to boost the country’s balance of trade due to increased export trade could translate to additional foreign currency earnings worth US$ 20.8 million and 8.4 million for Tanzania and Uganda, respectively.
Significantly, the non-monetary benefits will include enhanced domestic food security and price stability by improving household and national food stocks. Moreover, reduced demand for imported inputs due to reduced PHLs will in turn improve efficiency in the use of farm inputs. What is more, enhanced food safety by virtue that hermetic storage bags do not require the utilization of pesticides and other chemicals required to keep rodents and pests away. Hermetic technology has the effect of eliminating pests without the utilization of foreign agents, especially pesticides which would significantly reduce the pesticide residue and avert health complications for both humans and animals. This ensures a healthy productive nation and reduces the impact of health complications on the nation’s population. Furthermore, increased cost-effectiveness of government support to agriculture whereby resources directed to production, such as fertilizer subsidies, generate the desired level of marketable production.
Additionally, increased adoption of hermetic storage by farmers helps them to comply with standards by preserving grain quality and controlling the spread of aflatoxins when combined with other good post-harvest practices (such as ensuring grain is well dried and clean before storage). Helping farmers adopt hermetic storage can potentially help to reduce some losses for the economy while boosting their incomes and strengthening food security.
To ensure sustainability, East African countries are encouraged to zero-rate VAT on hermetic bags, other hermetic storage technologies, and post-harvest solutions in general. Removing VAT will have an immense positive benefit to smallholder farmers, the economy, and overall tax revenue for the government through other channels. Removing taxes alone is not sufficient. Development partners are encouraged to continue supporting market-led interventions that stimulate the adoption of hermetic storage products and other post-harvest solutions. Such support is critical to incentivize innovation by private sector players and build a critical mass of users of these products that will make such innovations and interventions sustainable in the long term. Whereas encouraging all grain value chain stakeholders in East Africa are highly encouraged to support structured trading systems as they provide an incentive for quality and thus influence demand for hermetic storage.
