BY MTHANDAZO NYONI THE Zimbabwe Farmers Union (ZFU) says government should consider indexing the Zimbabwe dollar denominated producer prices to the stable United States dollar to maintain value in the current inflationary environment.
Inflation, which has been on an upward trend since last year, has eroded grain producer prices set by government each year, thereby making farming unviable.
For the 2020/21 marketing season, the maize producer price was announced in local currency at $32 000 per tonne. At the time of announcing this price it was equivalent to US$378 per tonne using the prevailing official exchange rate of $85 to the greenback.
The producer price was maintained over the marketing season.
In December 2021, the official auction rate was $109 to the US dollar. At this rate, the US dollar equivalent of the producer price was US$293.
This was a loss in value of 22% in the same marketing season, according to ZFU chief economist Prince Kuipa
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In an analysis of the effect of inflation on the controlled maize producer prices, Kuipa said pre-planting prices were announced to influence the decision of farmers to grow or not to maize and traditional grains.
He said a final producer price was announced before the beginning of the marketing season to incentivise farmers to sell.
Lat year the pre-planting price announced at the beginning of the 2020/21 growing season was maintained as the final producer price for the 2021 marketing season.
“Further analysis shows that farmers also lose value within a single marketing season. The government should consider indexing the Zimbabwe dollar denominated producer price to the stable US dollar to maintain value in the current inflationary environment,” Kuipa said in a paper published in the ZFU latest magazine.
“The monetary authorities should find a lasting solution to the widening gap between the official and parallel foreign exchange rates. There is need for policy consistency regarding the procurement of grains. The government has gone full cycle over the years, from controls to liberalisation and back to controls, thereby crowding out private players in grain production and marketing.”
He said the parallel exchange rate was an important variable when analysing farm profitability.
“Input suppliers and other agricultural service providers index their Zimdollar prices to the USD using the parallel market rate (which is illegal but prevalent). In some cases, retailers refuse payment for equipment or spare parts in Zimdollars, preferring instead USDs. Their argument is that they are not able to obtain the USD on the Reserve Bank of Zimbabwe auction system hence the need for customers to pay for inputs in USD,” he said.
“Most of these inputs are imports that require foreign currency. The parallel market rate has always maintained a significant premium over the official rate. As such, farmers who are paid in Zimdollars must convert their money to USD at the parallel market rate thereby losing value in the process.”
Kuipa said the real value at the parallel market rate was far much lower than when the producer price was converted at the official auction rate.
“While it may appear that farmers are getting good prices at the official rate, the rate that they face on the input market is the parallel exchange rate which in effect pushes their earnings far below the import parity price,” he said.
The government set producer prices for maize and traditional grains for the 2021/22 marketing season at $75 000 per tonne, up from $58 553 for maize and $70 263,90 for traditional grains set earlier.
Agriculture is the backbone of Zimbabwe’s economy, providing employment and income for 60 to 70% of the population, supplying 60% of the raw materials required by the industrial sector and contributing 40% of total export earnings.
The sector also contributes approximately 17% to the country’s gross domestic product, according to the Food and Agriculture Organisation of the United Nations
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