While Government is fighting running battles with miners on various fronts from beneficiation to Indigenisation, the agriculture (excluding tobacco) and manufacturing sectors languish in intensive care on the verge to total collapse. In our opinion, Government is now too focused on events in the mining sector at the expense of other crucial sectors such as agriculture and manufacturing.
Agriculture remains the backbone of the Zimbabwean economy and no sustainable turnaround of the economy will take place without a meaningful contribution from this crucial sector.
Zimbabwe’s competitive advantage from an agriculture perspective lies in the country’s large tracts of arable land (four million hectares) and its excellent weather that allows farming activities to be carried out throughout the year.
Against this background, it remains a concern that the country is unable to produce enough food for its citizenry and has to beg its neighbours each year to prevent a hunger catastrophe.
The performance of the country’s agricultural sector has been a mixed bag since dollarisation with cash crops such as tobacco performing exceptionally well on one hand, whilst food crops have significantly underperformed on the other hand.
The divergent performances between the two types of crops has mainly been attributed to the marketing system of the crops, with cash crops like tobacco having a comprehensive private sector-driven marketing system whilst the market for food crops is dominated by Government whose inefficiency always ensures that farmers are not paid on time, resulting in the reduction of food crop hectarage each year in favour of tobacco that offers higher profit margins.
Amongst the worst affected food crops is wheat, whose production has been in decline over the last decade and is currently on the verge of total collapse.
The country’s peak wheat production occurred during the 90s where in 1990, 1999, and 2001, annual wheat production peaked to 325 000 metric tonnes, 324 000 metric tonnes and 325 000 metric tonnes respectively.
Wheat production’s first steep decline occurred in 2002 after the Land Reform Programme when output halved to 150 000 metric tonnes, there after maintaining annual production figures above 100 000 metric tonnes until in 2008 at the height of hyperinflation where output dropped to 38 000 metric tonnes. In 2013, wheat production is estimated by Government to have declined to 24 700 metric tonnes from 33 700 metric tonnes in 2012. The decline was mainly attributed to the reduction in the area planted from 11 600 hectares in 2012, to around 8 500 hectares in 2013, as farmers switched to cash crops such as tobacco, whose profits per hectare are much higher.
The biggest challenge farmers’ face in the production of winter wheat is the cost as well as the erratic supply of electricity for irrigation.
Wheat takes around 140 days to mature with the crop usually planted during the second week of June each year, only be ready for harvesting towards the end of October, or beginning of November. At the beginning of each winter cropping season the local electricity supplier, (ZESA) always under Government directive, reassures wheat farmers that it will not load shed them, but usually half way through the season, ZESA will unilaterally increase the frequency of load shedding much to the frustration of farmers, who in most cases will be forced to abandon large portions of their fields because they are unable to irrigate.
Furthermore, using generator power during power outages for the purpose of irrigation only worsens the situation as the farmer’s costs balloon beyond their expected crop earnings.
The issue of power is a national problem that no longer can be ignored as it has significantly increased the cost of doing business in Zimbabwe. Government does not have the funds to build a new power station therefore only private foreign investors have the capacity to setup such massive infrastructure, but none will, even the Chinese because of the lack of foreign investment policy clarity.
Yesterday it was the British and Americans, today it’s the South Africans, tomorrow it could be the Chinese, because the country’s investments laws are not specific and do not protect any foreign investor’s assets. Therefore there is need for absolute clarity on the country’s investment policies or else no meaningful investment even from our friends from the East will come through.
Other wheat farming operational challenges include, lack of affordable capital, high labour costs, low mechanisation, and the absence of a reliable market for wheat, to name a few, which make wheat farming in Zimbabwe a nightmare.
Zimbabwe probably levies farmers the highest utility charges within the region, as according to the Ministry of Agriculture, electricity costs for irrigating wheat are approximately US$700 per hectare plus water costs.
Regional peers such as Zambia do not charge their farmers for water, thereby significantly reducing their costs of production.
According to the Ministry of Agriculture, it currently costs approximately US$1 200 to grow a hectare of wheat in Zimbabwe, compared to US$230 in Ukraine, US$580 in Russia and US$600 in Australia, to name a few, implying that from a cost perspective, farmers in Zimbabwe are just uncompetitive against market leaders in the production of wheat. With local wheat farmers’ average yield per hectare being three tonnes per hectare, this implies that at an average 2013 wheat price of US$280,20 per metric tonne, local farmers would earn US$840,60 per hectare which is way below their cost of production of US$1 200 per hectare.
Therefore under current circumstances, it does not make any sense to grow winter wheat in the country as farmers will definitely be destined to make a loss if they sell their produce at any price less than US$400 per metric tonne which would be their breakeven price at the current yield.
However, with global wheat consumption at 706,81 million tonnes outpacing production for a second consecutive year, leaving global wheat inventories at 172,99 million tonnes, the lowest since the 2008-09 seasons, it is only a matter of time until the price of wheat improves in favour of local farmers, and therefore there is still hope.
According to local millers, Zimbabwe requires between 400 000-450 000 tonnes of wheat each year, with at least 25 000 tonnes of wheat required monthly, because currently at least one million loaves of bread are being consumed on a daily basis in this country.
This means that after factoring in the need to blend local wheat with better quality foreign wheat for the purpose of improving the quality of the flour, the country during 2013 spent a minimum of US$150 million for the importation of wheat at an average landed wheat cost of US$400 per metric tonne, which under normal circumstances should have been produced locally. Although, US$150 million might not be much for a country with an import bill projected at close to US$8 billion, however, it is these little steps in the right direction that eventually lead to the ultimate correction of the country’s trade balance in the long-run. Another very important external factor that continues to dog winter wheat farming and the farming sector in general, is the land tenure issue, where currently farmers are not able to use their 99-year leases to access bank financing.
This means that farmers are forced to pledge their other properties that have bankable title deeds — if they are fortunate enough to have them – so as to secure loans for farming. This cannot be a sustainable means of funding agriculture in this country and why Government for some reason always flip-flops on the issue of land audits which is the prerequisite for the crafting of bankable deeds, does not make any sense.
Government also has to understand that agriculture in this country can only become successful when it is financed through the private sector, as Government because of its numerous social and economic obligations cannot afford to do so. Also under land tenure, wheat cannot be grown sustainably by small holder farmers like in the case of tobacco, as it requires vast tracts of land that allow a farmer to benefit from economies of scale that lower their cost of production per hectare. Furthermore, bankable title deeds that provide security of tenure will also encourage farmers to develop their farming land and infrastructure which will also improve yields and the collateral value of the property.
The marketing of food crops such as wheat and maize is also another serious problem for farmers, as currently the plight of food crop farmers is in the hands of a cash-strapped, top heavy, and inefficient Grain Marketing Board’s which never pay farmers on time.
The concept of time value of money is key to farming as farmers have to pay back their loans with interest, pay their suppliers, utilities, and employees, to name a few, all of which have to be done on time, with failure to do so resulting in penalties such as late payment charges and interest penalties. We therefore believe, like what has been achieved in the tobacco sector, that the marketing for food crops must be privatised through a commodities exchange of some sort where market forces determine the price.
Under the new marketing structure, Government’s role would be reduced to that of market maker and referee with mostly private players dominating the buy and sell side of agricultural commodities. This quick win, increases the speed with which farmers receive their cash for their produce, and similar to what is done in tobacco, bankers can structure loan facilities to farmers around such infrastructure, to the benefit of the hardworking farmer.
This article was written by Zimnat Asset Management for FinX