Threats to agric sector viability in Zim

Threats to agric sector viability in Zim

Source: Threats to agric sector viability in Zim | The Herald

In order to encourage local millers to support Command Agriculture or contract farming, the GMB is selling maize to the millers at $240 per tonne

In order to encourage local millers to support Command Agriculture or contract farming, the GMB is selling maize to the millers at $240 per tonne

Dr Gift Mugano
Zimbabwe’s agricultural sector is on the rebound. However, notwithstanding the impressive performance of the sector especially on the crops side, there are a number of factors which need to be attended to if we are to guarantee the sector’s growth. Factors weighing down the agricultural sector include low productivity, environmental challenges and climate change, pricing regime, high cost of inputs and utilities, funding challenges, access to information and the Grain Marketing Board commercial milling activities. Ironically, Zimbabwe agricultural challenges are by and large challenges the African continent is grappling with. It is a continental problem.

Low productivity

Low productivity is entrenched across all areas, that is, crops and livestock and has ripple effect of:

  • Incessant imports of milk, vegetables, fruits, fertile eggs, potatoes, etc. From a trade perspective, if imports persist they will undermine the going concern of existing players (from the competitive angle) with the end result of the total demise of the respective sector.
  • Lack of competitiveness, according to Michael Porter, productivity is identical to competitiveness. By virtue of the fact that our economic players within the agricultural sector are producing at sub optimal level, it therefore means that their final cost per unit is very high.
  • Weakening of value chains, importation of products which are supposed to be produced locally cripple business of the players across the value chain. These players could be chemical suppliers, transporters, agro – dealers, etc.

If this challenge is not addressed it will definitely, in the medium to long term work against the sustainability of this sector.

Environment and climate change

In as much we are celebrating successes of crops like tobacco are we cognisant of its impact on the environment? The fact that the majority of the tobacco farmers are communal farmers who have no capacity to buy coal, all particularly in the absence of an effective transport system, means that forests are not spared when it comes to curing tobacco? In as much as there is a programme of tree planting, at what rate does tree planting move versus deforestation? In the medium to long term, are we not going to see twin evils of desertification and shortage of firewood to cure tobacco which will definitely result in reversal of gains recorded in the tobacco sector? These questions need answers from players in this sector. Climate change, in recent years climate change has negatively affected our agricultural sector through ineffective rainfalls and vulnerability on the length of the seasons.

Climate change rains a threat to agricultural viability. Hence, mitigatory measures such as development of seeds with early maturity, drought resistance crops and provision of irrigation should be a priority.

Pricing regime

Maize price floors are a serious challenge to the competitiveness of all players across the value chain. The Government of Zimbabwe has set the price of maize per tonne at $390. Regional prices are $150 and $137 per tonne in South Africa and Zambia, respectively. The landed price of maize in Zimbabwe is around $240 per tonne. Currently, in order to encourage local millers to support command agriculture or contract farming, the GMB is selling maize to the millers at $240 per tonne. Ministry of Finance pays $150 as a subsidy. This scenario is problematic from three fronts.

  • First, the subsidy under the current fiscal constraints cannot be sustained. Going into the future, Government will not be able to continue to fund inefficiencies. If this happens, what happens to sustainability of the agricultural sector? This pricing regime is a threat to agricultural viability.
  • Second, let us assume that God once again smiles on us and give us good rains and we work as team Zimbabwe under command agriculture and through individual efforts and produce another bumper harvest, we will have to export maize. What will be our selling pricing to the region? Obviously, we cannot sell at $390. Is the Ministry of Finance going to subsidise the region? The answer is obviously no. What is means is that we will be stuck with our maize. If this situation happens, which is most likely, it will threaten agricultural viability and will take us from self-sufficiency to food insecurity.
  • Third, other players in the maize value chain (which are not millers) like Nestle are getting maize at $390. These companies are taking through put which is quite expensive and will have to compete with regional producers of say cornflakes both in the local and regional market. The current maize price is undermining local producers’ competitiveness.

Cost drivers across value chain

Unsustainable prices and unavailability of key inputs and utilities such as fertilisers, water and electricity are threats to agricultural viability. With respect to fertilizers, it is an open secret that Zimbabwean fertilisers is more than two times expensive as compared to regional counterparts. The root cause of this is centre around obsolete technology which is used in manufacturing fertiliser at Sable Chemicals. In order to address this anomaly Government need to make a deliberate move to invest into a new plant at Sable Chemicals. It is our hope that the new thrust (outline by the Reserve Bank of Zimbabwe in its recent mid-term monetary policy review) of the Industrial Development Corporation of becoming a Development Financial Institution will consider the fertiliser industry as one of its strategic focus.

The cost of utilities like electricity are a major threat to agricultural viability. According to the Zimbabwe National Competitiveness Report, the contribution of electricity to the farming sector’s total cost is 20 percent which is quite significant. Unlike in the region where say in Zambia and South Africa, the cost of electricity is reduced on volume basis, Zimbabwe pricing model remain stagnant. For example, Zimbabwe electricity price remains at 12,72 per kilowatt hour cents regardless of amount used will in South Africa the rate can go as low as 2,7 cents on a volume basis.

With respect to water, Zimbabwe charges a fixed charge of $80 per cubic meter whilst in Zambia and South Africa they do not provide fixed charges. Now imagine the impact of our water pricing structure to the agricultural sector which requires a lot of water.

Grain Marketing Board commercial milling activities

GMB is a statutory body established in terms of the Grain Marketing Act (Chapter 18:14) (“the Act”), to regulate and control the prices and marketing of certain agricultural products and their derivatives.

However, GMB in recent years unilaterally diversified from its statutory mandate by venturing into commercial maize milling which has presented more problems than good for other maize milling players.

With respect to commercial milling of maize, GMB is conveniently drawing on the Strategic Grain Reserve delivered by farmers without any corresponding payment to treasury. This prevailing situation means that GMB has an unlimited financial muscle or costless credit facility which is giving it a competitive edge over the rest of the players in the milling industry (Ministry of Finance, 2017). As a result of this privilege, GMB has taken the milling industry by storm and its market share and milling volumes has increased by 37 percent. Coincidentally, National Foods’ market share has also come down to 37percent. It therefore means that GMB and National Foods’ market share, combined, now sits at 74percent. This leaves the majority of the milling industry having to fight for the remaining market size of 26percent (GMAZ, 2017). The remaining millers, the majority of which will have to fight for the remaining 26percent will not building enough sales and sustain their support to Command Agriculture especially after taking into account the fact that private millers are ‘forced’ by GMB to sell below cost and run a loss of $22 per tonne (GMAZ, 2017).

What need to be done

  • Increasing agricultural production can only be achieved through sustainable agricultural intensification. This means fostering access to inputs — including the use of “smart” subsidy policies, encouraging the adoption of innovations and securing access to resources for women and young people in particular, possibly by law. Support should be offered as a matter of priority to family farms that make optimal use of land and labour on small surface areas.
  • Improving the structure and functioning of markets is based on eliminating market failures (monopoly situations as in the case of GMB, absence of services such as credit, insurance, etc.), the production of public goods (transport infrastructure, access to energy and water, information on prices, etc.) and market regulations addressing in particular distortions caused by international markets and price volatility.
  • Tackling intense competition from the region and the globe through international negotiations to improve access to developed and emerging countries and promotion of local products through local content regulations.
  • It is also vital to secure the rights to land, water and range land, whether those acquired within the customary framework or those formalised by modern law.
  • Operationalisation of the commodity exchange which will help in provision of markets, unlocking of finance through the warehouse receipt system and reducing post-harvest losses.
  • Liberalisation of the agricultural sector including leaving pricing in the hands of the market.

Together we make Zimbabwe great.

  •  Dr Mugano is an Economic Advisor, Author and Expert in Trade and Competitiveness Strategy. He is a Senior Lecturer at Zimbabwe Ezekiel Guti University and Research Associate of Nelson Mandela Metropolitan University. Feedback: +263 772 541 209 or [email protected]