Does farming pay?

Clifford Shambare

Part Two.

In this part of the article let us begin with the environment in which the farming is being done. Here we have pertinent variables starting with climate. This determines the amount of moisture available to the crop or animal being farmed.

The second one is the type and/or quality of the seed or genetic material being used. The other one is the quality and quantity of the other inputs such as fertilisers and chemicals. In this respect, we have natural and artificial fertilisers.

The other is the level of management of the operation. This covers the know how and/or technological level of the managers concerned. And yet the other is the financing and finally, the market for the produce, be it cereal/grain, milk and meat and so forth.

Looking closely into these variables in the case of Zimbabwe, only climate is beyond the farmer’s control. Today it is not amiss to assert that black Zimbabweans are on average, good farmers.

In the same vein, it cannot be amiss to posit that their biggest challenge is how to acquire the capital required in this capital intensive business. This part of the story has come about from the history of this country. This is a history in which there was, and still is, a transition from peasant to commercial agriculture.

The attitudes of these categories of farmers to their vocation, differ somewhat.  And attitude affects the level of ambition of the entrepreneur, farmers included. This ambition in turn, affects the risk aversion of the farmer. This in turn affects the extent to which he is prepared to spend money for farming purposes, whether it his own or is borrowed money.

When considered collectively, these farmer categories have a critical bearing on the overall fortunes of this economy.

In order to clarify this argument, let us go a bit deeper into this matter, starting with the peasant farmer. This type of farmer requires considerably less amounts of capital. For example, his machinery is mainly composed of a plough and cultivator (optional), oxen or donkeys (minimum two), a Scotch cart (optional).

And although he may need to use herbicides, he can weed by hoe. For fertilisers, he may use organic manure or artificial fertilisers. In the past, before the advent of hybrid seeds, he used to acquire his seed by selecting some from his previous year’s crop. Now this practice is no longer advisable because of the degeneration that comes about from repeat plantings of hybrid seed.

Ironically, this practice of seed selection is used by the modern seed breeders who have literally stolen his seed bank and patented it thereby making it impossible for him to use it as his gene/seed bank.

Because his capital outlay is generally low, his profit level, although relatively easy to achieve, is also low. In the past, he could live off this input/output scenario but today, because of the general rise in the cost of living, he is finding it difficult, if not impossible, to do so.  As a result, his role in contributing to the food needs of the nation has also fallen drastically over the years. His position has been worsened by the inexorable rise in population growth and urbanisation.

However, with the new organic craze in the developed economies, his position may change sooner or later. But if he takes this route, in order to survive in the modern farming world, he will still need to acquire some kind of sophistication to enable him to fit snugly in that world. The aspects of presentation, packaging and branding, and marketing are where these developments will be required on his part. This means that, like the commercial farmer, he cannot just sit back in his vocation. He has to move on technologically.

Now, let us move on to the commercial farmer. This is the category that definitely needs relatively large amounts of capital in its several forms — that is machinery, money and technology.

This is where trouble starts for the Zimbabwean commercial farmer. Today in this country, these forms of capital are very scarce. Under what can be described as ‘normal circumstances’, in this case, banks should lend the farmer this capital but then circumstances are not normal. Zimbabwean banks are averse to lend money to investors in general, let alone farmers.  The reasons for their attitude are partly political and partly because of the attitude of the [potential] investor himself. The later is a persona non grata — a bad debtor borrower who as a habit of not wanting to pay back debt.

The later part of this challenge makes up a negative feedback loop (see below).

Then there is the phenomenon of corruption that has literally paralysed the economy. This is a phenomenon from which both the banker and the investors are caught — almost trapped in on a regular, if not daily, basis. This situation throws the economy into a dilemma. Here the bank should thrive from the savings of the investor public while the latter should be able to borrow from the bank to finance his farming, among other business activities.

Sadly, this is a condition in which the authorities seem to be paralysed. They know the country is currently under economic sanctions that are based mainly, on the deprivation of investment to same. Logically, this is a condition that calls for ingenuity on their part. This should involve a strategy that calls for the creation of alternative [agriculture] funding vehicles. These are alternatives that also call for thrift and a strict (financial) management regime.

That said, these conditions are not unique to Zimbabwe. Other economies, especially the developed and emerging ones, have over the years, designed tailored and consequently, functional agricultural funding systems.

But so far, Zimbabwean authorities have failed to demonstrate this capability; witness what has happened to the Command Agriculture Programme. This is a case which I have referred to several times in these articles, so there is no need to repeat it here.

Today in this country, almost everybody involved, at least to some degree in this industry, is aware that the county’s agriculture industry is fast approaching a state of collapse. But then, a close look into the matter shows that most of the ingredients are there (see above).

So now, under such circumstances, it is logical to assume that the challenges are mainly to do with the attitude and consequent behaviour of those involved.

In order to appreciate how easily one can fall off the rails in this industry and should, therefore, not take success for granted — let us examine critically this case through some examples. Here let us consider three crops from three categories — that is grains, oilseeds and vegetables.

Maize is heavy feeder which requires not only relatively large amounts of fertilisers, but of the right nutrient balance. Usually in this country, potash is the scarcest component which can only be acquired through importation.

But of course, barring moisture inadequacy, there are other limitations; soil depth, clay content, and acidity, and temperature — both soil and atmospheric — being the most critical ones.

So applying this logic, under our environment, it is theoretically possible, as has sometimes been claimed, to get maize yields as high as 10 tonnes per hectare. However, in practice, it is very rare to get such high yields. For example, in such an agriculturally advanced African country as South Africa, in their estimates, they use an average yield of maize just above three tonnes per hectare.

So in our analysis here let us continue to assume a yield of 3.5 tonnes per hectare for maize.

It costs roughly US$1000 to till one hectare of maize. So like in any such a case, the final price of the crop matters much here. Currently, government, through the GMB, is paying the farmer US$90 plus $100 000 per tonne of the crop. Now, the most challenging part of this equation relates to the exchange rate of US$ and the Z$.

Currently this rate is hovering around US$1: $450 at the auction floor. In the black market it is 1: 800 plus. The challenge for the farmer therefore, is what to expect regarding his returns from a crop such as maize.

In order to throw a bit of light on our case here , let us do some estimates based on two extreme scenarios. Using the official position figures, the maize break even yield would be approximately 3 tonnes per hectare. Under current (and ideal) circumstances this would be the normal situation.

However, conditions on the ground are quite different to this scenario. So in order to estimate the effects of this scenario, let us continue with our computations here.  In this case $100 000 will translate to US$ 125.00. Add US$ 90 to this amount and you get US$215,00 per tonne of maize.

Compared to the import parity of maize that is currently hovering around US$ 180 and 280 this seems a reasonable position for the Zimbabwean farmer to be in. And here it is reasonable to assume that government is using such logic in their decision to pay the farmer the said price.

However, on the ground there is a serious challenge for the farmer here. This challenge is due to the high exchange rate instability in which the economy is currently stuck. Under such conditions it is possible that by the time the farmer makes his final deliveries the exchange rate may be well over 1:1000. In fact, in some cases, such a rate is being mooted or assumed.

For example,  the Newsday newspaper is specifying its price as $1000. If you buy in foreign currency the price is US$1. So, in a way, this paper is [attempting to] drive the exchange rate in the negative direction. (Here remember the phenomenon of inflation through consumer expectations?) In this case I well remember the same paper claiming that ‘there should be no Zimbabwe dollar by the end of September 2022’.

This is where the political phenomenon of this matter comes in. If this latter scenario has the day, the price of maize will end up around 190 per tonne or thereabouts.

However, interestingly, when thrust into the international cereal market, this is still a normal situation. But in Zimbabwe this is not the case, but why so? In order to clarify the matter, let us continue with our analysis here.

You see, if you consider the maize production cost profile and this price, you can easily see where the challenge lies. At a cost of US$1000 per hectare and a price of 190 per tonne, the farmer’s break-even yield is 5.62 tonnes per hectare. But on the financing side there is an interest rate that is hovering between 15 and 200 percent with an average of 49.17 percent between 2019 and 2022.

So if we use the average interest rate, it will cost the farmer roughly US$1 500 per hectare. This gives us a break even yield of 7.9 tonnes per hectare. Obviously, under such conditions, only the cream of the country’s farmers can make it growing this crop.

But still, when thrust onto the world farming scenario, this is not an abnormal situation. So why complain? You may want to know.

This is where governments should come in with farmer subsidies, a system and/ or concept that has been mired in much controversy and politics for quite some time now. But why so?

You see, developed economies that are the leaders in this and many other economic matters, have all along, been aware of this challenge, so they have devised ways of dealing with it.

(This aspect of subsidies has been covered in Part One of this article.)

 

Clifford Shambare is an agriculturist cum economist and is reachable on 0713971083.