Agriculture key to Zim economy

Source: Agriculture key to Zim economy – The Zimbabwe Independent May 27, 2016

We often hear the mantra that Zimbabwe was the “bread basket” of Africa. That is nonsense of course, but it does carry some weight in that there is little doubt that agriculture was an anchor industry for the Zimbabwean economy up to 1997. The question is what made it such a key sector and can we ever recover that role for the industry.

Eddie Cross

First, there was the structure of the industry – 700 000 small scale peasant farmers on 16 million hectares of land, 65 000 small scale commercial farmers on about four million hectares of land and 6 000 large scale commercial farmers on about eight million hectares with two million hectares held by large scale estates and wild life conservancies.

Production per hectare of agricultural land was just short of US$100. Output per farmer was US$4 100 per annum. Total employment created was about 1,2 million jobs.

In the mining industry, the GDP contribution is generally thought to be four times the gross value of output and if this is applied to agriculture it puts the direct and indirect contribution to the GDP to about US$12 billion. A lot of this output value is generated in the informal sector and is not captured by the statistics; even so this calculation suggests that agriculture was by far and away the largest driver of the GDP in 1997.

Since then, gross output in an average season has declined by over 70%, suggesting that today it is worth less than US$950 million, with a GDP contribution of US$3,8 billion, including the informal sector. With the total number of farmers now reaching 922 000, this suggests, output per farmer has declined to US$1 030 – a quarter of the 1997 output.

It is generally accepted that 60% of all industrial raw materials came from agriculture in 1997. If industrial output constituted 30% of GDP in 1997, then 18% was dependent on agriculture. The industrial sector was occupied largely with the supply of inputs and services to agriculture, and in processing the raw materials produced by farmers into value-added products either for export or for local consumption.

In addition to these contributions, the annual wage bill of US$1 billion made a substantial contribution to the retail industry and taxation. The banking sector advanced US$1,7 billion in seasonal funding to farmers for cropping purposes and another US$500 million in medium-term (5 years) financing. Long-term bond financing is impossible to estimate but must have been considerable, with the value of farmland under large scale commercial farmer occupation at about US$3,2 billion and contributing the majority of the equity involved in bank finance.

Current formal sector GDP is no more than US$12 billion to US$14 billion. Therefore, any major recovery in agricultural output would have the capacity to double GDP in fairly short order. This lends credence to those who argue that agriculture must form the basis of any economic recovery programme. The question is how to achieve such an objective. The main reason for the collapse of agriculture in Zimbabwe has been the so called “fast track land reform programme”.

What this did was to displace virtually all established large scale commercial farmers who had been the mainstay of the agricultural economy up to 1997. But it was not only their displacement that undermined agricultural productivity, it was also the manner in which the exercise was carried out.

In the years prior to 1997, the purchase of land for resettlement (3,8 million hectares) and the transfer of ownership of commercial farms to the emerging black middle class, who had been born in Zimbabwe (1 200 farms by 1997 – 20%) had not affected overall output. In fact, agriculture was a regular contributor to national growth.

Rather it was the allocation of the land and assets on these farms to people with no knowledge of agriculture, little motivation except the desire to get something for nothing and occupy a weekend shooting box. This was accompanied by the total destruction of value for agricultural land – no one was buying and nobody could sell anything. Farms were stripped of their assets and everything of value was abandoned. Over 70% of the commercial farms taken over during the programme are now vacant and derelict.

Banks owed money against title deeds could not recover their loans, which were so devalued by 2008 that they were worthless. When finally the GNU was established and some sanity returned, the problem was that no-one could borrow to fund recurrent costs. Some recovery took place when firms in the cotton and tobacco industry entered the field and started financing crop production, but the recovery was short lived and output is again declining in these sectors.

Ideally, what should happen now is that all those settled on the land should get some form of secure tenure. This must be negotiable and the market for farmland re-established so that both entry and exit is possible. Eventually some form of tenure is also needed in the communal areas, but the programme should start with the commercial farmland.

Then these new farmers must be made to pay for the farms they occupy because eventually the original owners will have to be compensated and only the value of the land can provide the basis for that. This will then force those who are not farmers to leave the land and allow the real ones to acquire the land and start to put it to us.

This would create the capacity to borrow short, medium and long term financing for agriculture and gradually lead to the resumption of basic production.

In all countries, the percentage of people, who are real farmers and can make agriculture work in a highly competitive world, are really tiny.

In South Africa 100 firms produce 70% of farm output, in the USA only 3% of the population is in farming.

In Europe it is slightly higher – but not by much. It will take many years to get back to where we were in 1997, but once we start, the process will accelerate and take on a life of its own. But it all begins with a return to the rule of law, respect for property rights and the granting of negotiable tenure rights over land.

Cross is an Economist, Industrialist and member of parliament for Bulawayo South. New perspectives articles are co-ordinated by Lovemore Kadenge, president of the Zimbabwe Economics Society (ZES) email kadenge.zes@gmail.com, cell +263 772 382 852.