Home » Business » Of AMA Bills and Misplaced Priorities [opinion]

It is believed that the Zimbabwean economy is premised on agriculture and mining. At one point some political party had a pay-off line “Land is the economy and the economy is Land”. The belief is that success in agriculture will cascade to other sectors in a way bringing in inclusive growth.

This is because agricultural output will benefit other downstream industries such as manufacturing.

In a way this is true if the growth rates that have been recorded since the adoption of multiple currencies are anything to go by.

Growth in agriculture nonetheless has not been consistent over the years owing to a plethora of manacles in the sector.

The key obstacle has been underfunding which many have attributed to the lack of title on land.

Banking institutions have been reluctant to extend loans to farmers as most of them do not have any collateral.

Contract farming on the other hand is under threat owing to the lack of integrity on the current batch of farmers. Side marketing has been on the increase particularly in cotton.

Other challenges include shortage of skill that has resulted in poor yields per hectare.

Inadequate preparations are the other thorn for the sector as the so called new farmers are always looking up to the government for inputs.

Over the past month, the Agricultural Marketing Authority (AMA) came on the market with the intention to raise $55 million to fund the purchase of grain.

The paper which is Government backed will have a tenure of 360 days and pay an interest of 10.5percent per annum.

Other sweeteners on the paper include having a tax exemption and prescribed asset status – obviously so that it appeals to pension funds. Additionally the bills carry a liquid asset status – to appeal to banks.

AMA, according to their website, is a statutory body established by an act of parliament (CAP 18:24) with a broad mandate to regulate the participation in production, buying and processing of agricultural products in Zimbabwe. The site further lists the functions of AMA as the following

Promote agricultural production of

i. Strategic crops (tobacco, cotton, sugar, soya beans, barley)

ii. Crops for the provision of food security (maize, wheat, sorghum).

iii. Livestock ( beef, dairy, piggery, poultry, small stock)

Borrowing and lending for agricultural production.

Promoting contract farming through encouraging private sector participation.

Promoting marketing and fair pricing of agricultural commodities.

Aise the Minister of Agriculture on formulation of national policies.

Coordinating the operations of statutory bodies charged with regulating and marketing of agricultural products.

The objectives that AMA aim to achieve are commendable. But in this particular instance, is issuing a bill to buy grain the right thing to do?

Under the proposed structure, AMA will pool funds on behalf of Grain Marketing Board (GMB) from the investors.

Use these funds to procure maize from farmers which will then be sold to millers.

The money to repay investors will come from proceeds of selling the grain to millers.

This article is not in any way meant to influence the success of the ongoing issuance of AMA bills.

However, it makes reasonable sense to take a step back and really assess what we want to do exactly.

From the structure that is being proposed, GMB is acting as a middleman between the millers and the farmers. One would think that this is being done to ensure that farmers get the best price for their crop.

However, what incentive would make a miller go and buy maize from GMB?

Why not go directly to the farmer? If any, what value addition is the grain marketing board going to add on the whole chain?

It would appear that GMB risks procuring maize from farmers which it might fail to offload to millers.

This may in turn affect repayment of the AMA Bills.

In addition, millers would rather go direct to farmers or import from the neighbouring countries where the cost is cheaper.

It also believed that Government set a floor price of $390tonne for maize. For starters the approach of using price controls will result in market inefficiencies.

Forces of demand and supply should be allowed to determine market prices. The price of $390 also appears to be unrealistic considering that maize coming from Zambia and South Africa lands in the country at prices ranging between $270 and $285.

At one point it was rumoured that government was considering banning imports so as to protect the local farmer.

Is this move necessary considering that imported maize comes at a lower cost?

If this rumoured policy is pursued it will create artificial shortages which will result in the cost of maize meal going up if local production fails to satisfy demand.

Rather, AMA should focus on other areas such as market regulation.

The cotton sector for instance is under threat as merchants are contemplating withdrawing funding from the crop due to growing incidences of side marketing.

It is alleged that some merchants only surface to buy the crop that they did not finance.

Tobacco marketing is another area where AMA can be helpful. It is alleged that buyers are colluding to depress prices.

Whilst the price that a farmer obtains is a function of the quality of the crop, the concerns have reached alarming levels and call for some level of investigation.

At this point instead of looking for funding to buy grain, one would think AMA should rather focus on sourcing money to boost crop production.

Raising funding for winter wheat production can be a starting point. Production for 2013 was estimated at 31 000 tonnes against a national requirement of 400 000 tonnes.

In addition, AMA may also need to find ways of improving quality of the crops especially on yields.

There is a growing need to improve on this area in most crops as a way of boosting future output as well as export proceeds.

On a positive note though, the issuance of this paper is being done in a manner meant to curb misuse.

This is so through the creation of a sinking fund which GMB does not have control over.

More so, the inclusion of a collateral manager to monitor and track grain movements which comes at a cost will help reduce leakages in the system.

While the other features of the bill may encourage its uptake, having the government as a guarantor dampens the appetite by investors.

Source : The Herald

Archives