‘Grain overpriced’ . . . Move to trigger mealie-meal, beer, stockfeed price increases

via ‘Grain overpriced’ . . . Move to trigger mealie-meal, beer, stockfeed price increases | The Herald August 15, 2014

PRIVATE grain traders are set to mount a legal challenge on the constitutionality of the $390-per-tonne minimum maize and sorghum price set by Government.
The Herald Business understands the grain buyers were contemplating filing an urgent High Court application seeking the “suspension” of the Statutory Instrument.
This would be followed by another application at the Constitutional Court challenging the constitutionality of Statutory Instrument 122 of 2014 with regards to it abridging the constitutional right to freedom to contract amongst other discrepancies.

The development comes after Government gazetted the SI compelling buyers to procure grain at a price pegged by the Minister of Agriculture, Mechanisation and Irrigation Development.

Under SI (122) of 2014, Agriculture Marketing Authority (minimum Grain Producer Prices, 2014), the minister may announce the minimum producer price of maize, sorghum, pearl millet, wheat and finger millet at the beginning of the marketing season.

“Any company or individual that engages in the buying of grain from producers at the price less than the minimum price or designated buying point shall be guilty of an offence and liable to a fine not exceeding level four or imprisonment for a period not exceeding three months or both such fine and such imprisonment with the grain so purchased forfeited to the State,” according to the Statutory Instrument.

However, the gazetting of the Statutory Instrument seems to have unsettled grain buyers who have resolved to take the matter to the courts seeking the suspension of the SI.

“We have engaged lawyers to challenge the Statutory Instrument,” said one source who requested anonymity.
“We would want to file an urgent High Court application today at 10am for the suspension of the SI pending determination of the matter.

“This will be followed by an application at 2 in the afternoon at the Constitutional Court challenging the constitutionality of the Statutory Instruments with regards to it abridging the constitutional right to freedom to contract among other discrepancies.”

At $390 per tonne for maize, grain buyers have argued that the farmers could still be viable at a far less producer price.
For instance, with production cost estimated at $817 per hectare, the expected return per ha is 91 percent. At a producer price of $260 per tonne and $817 per ha, farmers could still achieve a return per ha of 27 percent. In addition, buyers are also arguing that Zimbabwe has the highest maize producer price in the region, ahead of Zambia at $220 per tonne and South Africa $210.

Zambia has also pegged minimum price for sorghum at $220 per tonne and $259 in South Africa.
While production costs for both crops are relatively lower in these countries compared with costs incurred by local farmers, the buyers insist that does not justify the $390 minimum price set by the Government.

“There is no economic justification for a price of $390.
“The production yield used by the Government is for three tonnes per hectare. That cannot be applied to commercial farmers who produce at an average of four tonnes per ha. Rural farmers are already subsidised by Government through inputs,” another source said.

The traders argue that the $390 producer price will have ripple effects on consumers as it will cause an increase in the prices of cereal end-products. This includes a 4 percent increase in all sorghum product prices. It will also result in a 15 percent reduction in sorghum volume and a $4,5 million decline in VAT and corporate tax due to Government.

Council levies would also fall by $350 000. Low demand would slow capex investment that would have stimulated the economy.  Lager prices would also increase by 3 percent and this may result in 6 percent reduction in lager volumes while VAT, excise and corporate tax will fall by $4 million.

The Grain Millers Association of Zimbabwe and Grain Traders Association met on Wednesday to review the Statutory Instrument. The two business member organisations said while they supported the land reform and the continued agricultural support to farmers, especially resettled farmers through various initiatives such as contract farming, they have serious reservations in the Statutory Instrument.

“The SI empowers the minister to announce minimum producer prices of grain at the beginning of marketing season and outlaws any other pricing arrangements,” said GMAZ Mr Tafadzwa Musarara.

“In the absence of grounds granting exceptions, this provision criminalises contract farming which requires parties to agree on pre-planting prices.”
He said the Government recently admitted that there was no fiscal space to provide for farming inputs on loan to farmers for the 2014 /15 farming season.

This means that private initiative must come in to provide loan inputs under contract farming. If contract farming is dis-enabled as it is the case now, maize production would be way below national requirement, a situation which could lead to serious food shortages.

He added that the SI literally directs all companies or individuals seeking to buy grain to register with AMA as buyers.
“No exclusion or exemptions given,” said Mr Musarara. “The Agricultural Marketing Authority Act defines a buyer as a ‘person (who) by himself or his agents, carries on the business of buying any agricultural product’.

“Without providing minimum transactions thresholds, this definition also include hundreds of thousands of Zimbabweans who are in the informal business of making maputi, rearing even 10 chickens, goats, pigs, beef and any other micro-businesses who will simply close down if forced to register as buyers and made to pay $1 000 at AMA to register as a buyer before making purchases of as low as $10.

“The SI does not discriminate or exempt petty transactions from such laborious formalities and unfairly encumbers small time maize buyers without the wherewithal to do so.”

In addition, Mr Musarara said the price of $390 per tonne of maize would create serious and unprecedented inflationary pressures in the economy as it will trigger the prices of milk, maize meal, eggs, poultry, beef, beer, baby food, livestock feeds and many other very important basic necessities to go up by more than 20 percent.