7 January 2014

Zimbabwe: Nation Aims for Commodities Exchange

Photo: International Center for Tropical Agriculture
Women farming (file photo).

ZIMBABWE'S hopes of establishing an Agriculture Commodity Exchange (ACE) by March 2014 have been dampened by persistent low grain and cereal output, analysts say.

The southern African country must address production challenges as part of a broader strategy to revive agricultural production to peak levels and sustain the exchange, said Takunda Mugaga, senior reseacher at Research firm Econometer Capital Global (Econometer).

“A depressed supply does not make setting of a commodities exchange feasible so it has to be addressed,” said Mugaga, who also sits on the board of Zimbabwe's largest industry body, the Zimbabwe National Chamber of Commerce.

The country has been pushing since 2011 to establish a commodities exchange to address crop-pricing problems and stimulate production, but the project is yet to take off due to lack of funding and bickering within the government.

In recent years more farmers have left their land lying idle after failing to get a good return on their investment due to existing low prices on the market.

A number of subsistence farmers have resorted alternative means of income generation, outside agriculture, after their deliveries went for more than a year without being paid for by the state buyer of last resort.

The government in May disbursed $500,000 to establish the ACE, indicating the exchange should be operational early 2014.

Mugaga added the country needs the project, given huge financial demands for a more efficient automated modern exchange.

“It promotes the fair determination of commodity prices without distortions from government intervention such as subsidies and price controls,” Mugaga said.

Analysts said the exchange would also put an end to illicit and opaque trading practices such as the creation of artificial shortages.

Harare-based independent economist John Robertson agreed low crop output will hinder the success of ACE and hopefully force the government to address policy problems affecting agriculture.

“Obviously not many farmers are growing food commodities because they need financing given that they can no longer offer land as security after the land reform,” Robertson said.

The fastback land reform programme of 2000 displaced most of the 4,500 commercial farmers who were active at the time, rendering tens of thousands of people jobless, according to the Commercial Farmers Union (CFU).

“What we need is land back on the market with a real value because farmers need to pay wages before they get payment for their crop,” added Robertson.

Five years ago, the Ethiopian government set up its Ethiopia Commodity Exchange (ECX) which, according to chief strategy officer Abenet Bekele, processes 5.7 million bags of crops annually, from 12000 clients, through 347 brokers.

‘We act as middleman and we just make sure goods are sold and paid for.

We are a nonprofit organisation,” said Bekele last week told a group of reporters in Addis Ababa.

ECX has 17 warehouses across Ethiopia and allows farmers to store their crop for 20 days during which they will be on sale.

Bekele however added that setting up ECX had its fare share of challenges ranging from infrastructure, lack of funding and international prices.

These goods are for export so they are affected by international prices, there is also need for warehouse space, telecomm facility and power supply,” he added.

In terms of warehouse space, Bekele said, ECX was currently looking at subcontracting private players as demand has grown threefold since the exchange was set up.

He said the exchange also had competition from private buyers.

Creation of the ACE has been one of government's key priority targets with Agriculture Minister Joseph Made recently saying it should be completed to address pricing challenges particularly in the cotton and wheat sectors.

CFU immediate past president Dion Theron said Zimbabwe's total agricultural output in 2000 stood at 4.3 million tonnes (t) with a value of about $3.5 billion, but it had plunged by 73 percent in 2011 due to a general lack of funding and poor producer prices.

Zimbabwe Commercial Farmers Union president Wonder Chabikwa last month said wheat farming was too expensive and no longer viable.

He said farmers fork out US$2,915 to produce one hectare of wheat against a sale price of US$466/t. CFU president Charles Taffs said Zimbabwean wheat producers get an average of 2t/ha.

In May, Zimbabwe's state owned crop buyer of last resort the Grain Marketing Board increased the buying price of maize by close to 30% to US$378, 86/t for the 2013-14 marketing season compared to last season's figure of US$265/t, but farmers have already said the new price remains unattractive and way below their proposed US$400/t minimum price and US$460/t average price for maize in the upcoming season.

Agriculture is a key pillar of Zimbabwe's economy to the extent the government officially revised downwards its 2013 economic growth targets from the initial 5% to 3.4% - largely as a result of the slump in commodity prices on the international market coupled with rising production costs.

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