Gilbert Muponda AS the National Development Strategy 1 (NDS1) is based on industrialisation of the economy, it is imperative to transform the economy from being primary-based to more value added industrial production, especially for the agriculture sector.
It is important to upgrade the level of secondary level production in agriculture as more than 60% of Zimbabweans are engaged and employed in the sector.
In addition, agriculture contributes close to 20% of the gross domestic product (GDP), which can easily increase to more than 25% if value addition is aggressively pursued.
A modern economy cannot rely on producing raw materials without serious value addition as such an economy would be exposed to the vagaries of commodity price volatility, which impacts negatively on the country’s currency.
According to the Agricultural Marketing Centre, adding value is the process of changing or transforming a product from its original state to a more valuable state.
Many raw commodities have intrinsic value in their original state. It is achieved either through processing, drying, packaging, extracting or any other process that changes raw agricultural commodity into new finished product.
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A simple example is maize, which is grown, harvested and stored on a farm and then fed to livestock on that farm creating additional value instead of just selling maize unprocessed.
Value is added by feeding to an animal, which transforms the stock feed maize into animal protein, which is more valuable.
It is important to identify the value added activities that will support the necessary investment in research, processing, production and marketing.
The application of biotechnology, the transforming of food from raw products for the consumers and the restructuring of the distribution logistic systems to and from the producer all provide opportunities for adding value for Zimbabwean farmers and industry.
A wider application of value added concept is to economically add value to a product by changing its current place, time and from one set of qualities to other characteristics that are more preferred in the marketplace resulting in higher income and profits.
As a specific example, a more narrow definition would be to economically add value to an agricultural product (wheat) by processing it into a ready product (baking flour) desired by customers (bakeries).
Producers involved in adding value should think of themselves as members of a food company that process and market products to consumers.
Often, this involves building processing infrastructure in the producers’ geographical regions to process locally produced crops or animals.
However, another modified variant infrastructure has occurred, which involves building the processing plant wherever it is most feasible and profitable, such as closer to where the final products will be marketed.
The produce-to-sell models of the commodity business is now slowly becoming a thing of the past replaced by value addition driven models which seek to unlock value previously passed on to middlemen.
Due to the continuous shifting towards a globalised economy, the international market for value added products is growing. Market forces have led to greater opportunities for product differentiation and added value to raw commodities.
Producers involved with adding value will become more than commodity producers absorbing all the shocks brought about by global markets in this ever changing agriculture sector.
They have to think of themselves as producing for end users instead of selling just raw commodities.
This encourages farmers to move along the value chain towards the product end user, creating opportunities, incremental revenue and profits.
Adding value to agricultural produce can be achieved in a number of ways but generally falls into one of two main types: Innovation or coordination. The main challenge and opportunity is to evaluate what, where, how and who can efficiently perfect and improve the marketing functions and get rewarded in the process with higher profits and greater revenue streams, which would otherwise be grabbed by an alert middle man/woman.
Innovation focuses on improving existing systems, steps, processes, procedures, products and services or creating improved ones resulting in increased profits to the entrepreneur and greater benefits to the consumer.
Often, successful value added concepts and ideas focus on very narrow, highly technical markets where competition is relatively low. Innovative value added activities developed on farms or at agricultural experiment stations are sources of national growth through changes either in the kind of product or in the technology of production.
As such innovative ideas should be encouraged, nurtured, supported resulting in, value addition processes becoming a natural result.
In Zimbabwean, agricultural sector innovation also can come from research about alternative crops that can be grown successfully by producers to replace traditional crops.
Value added producers are able to economically profit by growing these alternative crops instead of traditional crops, which may have limited markets and profitability.
The Russian military operation in Ukraine has shown a clear huge market of wheat, which Zimbabwe can easily grow through the right investment in irrigation capacity and proper mechanisation at the right industrial level.
For Zimbabwe, alternative crops that show great potential include industrial hemp for its super food qualities, fibre and medicinal uses, and castor bean for its oil.
Industrial innovation shifts towards processing traditional crops into non-food end uses.
These value addition innovative processes use the research, development, focus and investment that have been placed on developing industrial, non-food uses for historically and traditional agricultural products.
Several innovative processes have been developed to transform traditional crops into non-food products. Relevant case studies and examples of such innovative ventures include producing ethanol from sugar cane and maize, biodiesel from soybeans.
The Green Fuel Project in the low veld is a clear practical example of agricultural innovation bearing fruit. Brazil has achieved major strides in agricultural innovation with fuel coming from crops at an industrial scale, which has some lessons for Zimbabwe.
These achievements do not happen by accident or overnight but are rather products of hard work and serious political will to set up a solid agricultural base driven industrialisation.
Fundamental changes through coordination are altering and shifting traditional marketing relationships, which link consumers, food retailers and wholesalers, food processors and producers.
Few entities possess all of the different skills and resources necessary for processing, marketing and business management, as well as maintaining efficiency with their production processes and business.
Therefore, a coordinated effort is critical to increase market efficiency or cost reduction. Many observers believe that both upstream and downstream linkages of processors will continue to increase in the 21st century.
A well-structured and efficient vertical integration set up aligns and controls all of the aspects of a production and marketing system under single ownership.
The key critical factors aligned and controlled are price, quantity, quality and transactional terms of trade to create trading advantage.
Producers, who invest in value-added projects beyond their farm, lead the market to become more vertically integrated. A totally integrated system can provide consistent quality from the field to the shelf, eliminating middlemen/women and even saving money for consumers.
Integration downstream towards consumers by producers commonly involves an equity investment for processing, sometimes by means of a producer owned business.
Entrepreneurs need to examine value-added processing and marketing expenses. Cost minimisation in production must be achieved. Due to globalisation only low cost and large scale, efficient producers will be able to survive and compete in production agriculture.
This is so because the competition in another continent can easily supply the same product at a fraction of the cost. Adding value cannot replace the efficiencies of production achieved through superior technology and economies of scale.
- Muponda is an economist and entrepreneur. He holds a B.Comm (Finance) and an MBA. He can be reached at gilbertmuponda@gmail.com.