I had an article in the guardian yesterday about tomatoes. Lots of blowback. Apparently, people care a lot about their tomatoes. So much so that someone suggested the article was sponsored. Sorry to burst the bubble guys but it wasn’t sponsored. Another said I was opposing government policy for opposing sake, and not offering any solutions. Ouch. Low blow, but I guess I had it coming. So, policy suggestions? Here it goes. But first some questions.
The first question is WHY TOMATOES?
Think about it for a second. Of all the products that we could be producing why was tomato paste singled out as the product that requires a special intervention policy. Are we charting a path to jollof independence? Is tomato the key to development? What was it?
It is an important question because we understand opportunity cost. Time is limited. Money is limited. Land is limited. For every second, naira, or hectare we use on tomatoes, is a second, naira, or hectare that we can’t use doing something else. I hinted at that yesterday in the article. Farmers have to choose what to grow and if they use all their land to grow tomatoes then they can’t grow soybeans, which may turn out to be more valuable. Or maize, which may turn out to be more valuable.
The same also applies to the future imaginary tomato concentrate producers. They have limited capital, limited time, and limited other things. Every unit of these things used to turn tomatoes into concentrate is a unit that can’t be used turning maize into maize flour, or turning plantain into plantain chips, or turning cashews into packed cashew nuts or turning wood into toothpicks, or plastics into whistles… I could go on. All these other things could turn out to be more valuable than tomato paste. So back to the question, why tomatoes?
Just to throw another spanner in the works, valuable products change so frequently. Today the most profitable product could be pure water, tomorrow its soybeans, next week its cashew nuts, and then its paper, and so on and so forth. An interesting article related to that here. So really, why tomatoes?
The logic of opportunity costs, and the volatility in value is why most economists would almost never actually argue for special intervention policies targeting particular products. If the chosen product is not the best thing you could be doing then you are probably losing. And for any given product, it’s probably not the best thing you could be doing. And if by some fluke it is this year, it won’t be next year. Also, we kind of suck at predicting the best future products.
Why didn’t I “suggest a policy alternative”? Because you should not be having special intervention policies targeting particular products anyway. Or maybe I did already say that here http://guardian.ng/business-services/policy-for-the-future-lessons-from-bitcoin/
Still though, WHY TOMATOES?
I haven’t answered that question. How did the federal government decide that tomatoes was the thing that required a special policy? Was there any kind of research done to determine that tomatoes were it? Any kind of policy debate?
Admittedly I was not in the room when it was decided that tomatoes were it but I do have an idea how it went down. A story from a few days ago gives some hints. Excerpts below:
“I remember when I was minister of Agriculture in Nigeria. Aliko Dangote was there, and he was our biggest importer at the time, and he and I used to have all the time to dialogue,” Adesina said.
“One day, I was in my office, about 10 O’clock, Aliko walks in, Ngozi was minister of finance. Aliko bangs on my door and said ‘minister I came to see you’, and I said ‘what are we going to disagree on this time?’
“He said no, I have actually looked at the policies, and the policies you put in place for import substitution are very right policies. So, I have changed my business model from being an importer to being a local producer.”
Adesina narrated the role Dangote played in his happiest day as a minister in Nigeria.
“I said what exactly are you going to do. He said I will put in $300 million into producing and processing rice in Nigeria. I said yippee! I went home, I told my wife, my best day as minister,” he said.
“He comes back three months after that, he says I have changed my mind, I said ‘what in the world happened?’ He said no, I have changed my mind from $300 million to a billion dollars.
“If they continue that policy, he would probably be the single largest producer of rice in the world, in about four years. The reason why I was so excited about that is that agriculture is cool, agriculture is a business…agriculture pays.”
Coincidence? I think not. But we can guess the answer to WHY TOMATOES. Also we are still importing just as much rice via Benin.
Ordinarily it wouldn’t matter what policy makers and rich industrialists do in their private meetings but most times their decisions affect everybody, especially when they unite to ban or raise import tariffs on something. The first effect of this policy is that you will pay more for tomato paste, and tomatoes. And even if some local production springs up it will still be a net welfare loss. I wrote about that a few weeks ago regarding the rice policy. The mathematics is the same.
The truth is, anytime you hear of a special intervention policy, it is probably you being taken for a ride by your government in cahoots with rich industrialists with influence. We talk a lot about the jobless growth and rising poverty of the past two decades but perhaps it’s time we start to think a bit harder about why that happened.