Farming inputs pricing matrix a disaster to agric revolution
ZIMBABWE'S agriculture sector viability is under serious threat from significant price increases of inputs such as seeds and fertilisers as companies seek to balance and remain in business trading under three tier exchange rates.
According to a snap survey on price of seeds, maize, wheat, soybeans as well as fertilisers, the prices have gone up by more than 100 percent in both USD and Zimbabwe dollar terms.
Seed maize is averaging $26 000 for a 25 kg, wheat at $14 000 while soya beans is at $28 000. In USD terms these seeds are averaging US$100 at interbank market rate.
Fertilisers on their part are averaging $19 000 for top dressing and urea while D costs $10 750.
In USD terms AN and Urea are costing US$76 while D is at US$43.
These prices will have a serious knock off effect on agriculture financing especially self-financiers.
On other hand this will result in more farmers turning to government for inputs which will further deteriorate government's debt exposure.
In 2022, the agriculture sector is expected to grow by a modest 5,1 percent attributable to expected favourable rainfall season and implementation of Government support programmes.
Government has also set a target of achieving a US48,2 billion agriculture economy by 2025 but the sector grew significantly in 2021 buoyed by a successful 2020/21 agricultural season.
Vince Musewe, an economist told Business Weekly that input costs are a key driver of the final shop price and this means that food prices will increase as farmers seek to recover costs.
“It also threatens farmer viability when unavoidable costs increase it. This will also have impacts on profitability and working capital required. If farmers fail to produce it threatens food security and in the event we have to Import that will further fuel food inflation,” he said.
He added that as more farmers turn to gov
ernment for inputs that would increase government debt to finance agriculture.
Before the onset of rains, Government distributes seed and other agricultural services through programmes such as Pfumvudza/Intwasa conservation scheme, Presidential Input Scheme, National Enhanced Crop Productivity Scheme (known better as Command Agriculture), more irrigation, the Livestock Growth Plan and the farm mechanisation programme.
President Mnangagwa in August 2020 launched the Agriculture and Food Systems Transformation Strategy which seeks to achieve the targeted growth by 2025. The strategy is a composite plan of action drawn from the Agriculture Recovery and Livestock Growth Plans.
SeedCo Limited in its 2021 financials highlighted that the significant disparity between the official exchange rate which is the benchmark of the Company's selling prices and the parallel exchange rate which is the benchmark of most of the Company's operating costs, including the cost of raw seed from growers, has put significant stress on margins and business model viability.
“This mismatch is now further compounded by the increase in finance costs following the policy rate hike from 40 percent to 60 percent by the Reserve Bank of Zimbabwe announced on 28 October 2021,” the company said.
Seed Co is one of the leading certified seed companies authorised to market seed varieties developed by itself, government and other associated seed breeders in its markets.
The company develops and markets certified crop seeds, mainly hybrid maize seed, but also cotton seed, wheat, soya bean, barley, sorghum and ground nut seed.
CFI Holdings on its part noted that while the economic environment benefited from relatively slower inflation in 2021 and increased use of foreign currency for domestic transactions, the environment remained hyper-inflationary and generally more challenging for business.
“Annual year on year inflation for the quarter to December 31, 2021 averaged 57.9 percent compared to 407.2 percent for the comparable prior period.
“During the quarter, the Zimbabwe Dollar depreciated by 24 percent on the auction market and inflationary pressures resurged on the back of sharp currency depreciation and the widening gap between the official and alternative markets exchange rates,” the company said.
CFI is a leading agricultural-based industrial holding company in Zimbabwe; primarily involved in manufacturing and selling fresh produce and manufacturing stock feed, as well as property management and letting.
Shareck Makombe, the Zimbabwe Commercial Farmers Union president said seed is not only an enabler, but a driver in the agricultural value chain, hence high seed prices will mean death of the sector.
“People will use open seed varieties compared to the hybrids and there will be no production to talk about,” he said.
He said these open seeds will be prone to diseases and lower yields which will affect the food value chain.
“Most farmers will not be able to go back to farming, hence price increases on seed is a bad story for farmers,” he said.
He noted that the increases have not only been limited to seed, but also other inputs such as fertilisers and chemicals.
According to Professor Gift Mugano, Zimbabwe's currency issues can only be resolved through researched policy interventions.
“You cannot tamper with currency, it's a very sensitive area, you don't use emotions, you use papers which are informed by evidence, consultations, and research and contextualise the Zimbabwe issue in a dialogue, with a sober mind in a social contract,” he said recently in an online interview