Remodeling command agriculture

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Victor Bhoroma

There is no doubt that command agriculture has boosted Zimbabwe’s food security and improved capacity utilization in the local industry since its launch in 2016. The program has managed to record significant gains than its predecessors which are Operation Maguta launched in the 2005/06 agriculture season and the Farm Mechanization program launched by the Reserve Bank of Zimbabwe (RBZ) in 2007. In the past 2 agricultural seasons, maize production has exceeded 1.2 million tonnes which marks a significant improvement from the 511 000 tonnes recorded in the 2015/16 season. The national demand for maize stands at 2.2 million tonnes per year. As far as wheat is concerned, less than 100 000 tonnes of wheat were produced in 2017. This year, the country has produced 186 243 tonnes of wheat during the 2017/18 season with 80% of the tonnage delivered from farmers contracted under Command Agriculture. The country requires 460 000 tonnes of wheat every year to meet local demand. Soya bean deliveries stood at 31 000 tonnes as of October 2018, against a target of 220 000 tonnes annually for food, animal feeds and industrial processing.

Command agriculture has been extended to tobacco, livestock, milk production, horticulture, rice and fisheries in the 2018/19 agriculture season in a move which will undoubtedly create thousands of jobs locally and boost capacity for all the enterprises involved. The country’s treasury has allocated close to $1 billion to the Agriculture sector for 2019 and the government is targeting over 2.2 million households with agriculture subsidies in the same period.

Besides marginally improving food security, creating demand for agriculture inputs for local producers and creating employment for over 2 million farmers in the countryside. Command agriculture has major loopholes that have left the country reeling under billions of domestic debt. These debts make the program unsustainable even though the idea is noble at face value. The major loophole is in the government buying prices which are way above the market prices, which creates arbitrage opportunities for rent seekers. This year the Grain Marketing Board (GMB) was buying maize from farmers at $390 per tonne, 30% more than the world prices. Wheat price were pegged at $500 per tonne, way above the current market price of $400. Similarly soya is being bought at $780 per tonne, 33% more than the local market prices and almost double the regional price where local manufacturers import soya at $400 per tonne. The results are not desirable as government ends up incurring massive losses to buy and sell the produce. Early this year, the Grain Millers Association of Zimbabwe (GMAZ) bought maize from the GMB at $242 per tonne after the farmers were paid $390 per tonne. The loss per tonne amount to $148 and translate to millions when wheat and soya are also factored in.

Another loophole comes in through massive default rates by farmers and absence of mechanisms to enforce the contract entered into between the off taker (financier) and the farmer. There have been reports of farmers converting free inputs given under the program such as diesel, fertilizers and seeds to the black market for short term benefits. Contracted farmers have also been diverting produce to the black market through side marketing. The culture of viewing government subsidies as a charitable benefit is quite entrenched and it has bordered on patronage lines thereby making it difficult to control. Farming is a business where the loans availed to improve agriculture production need to be paid back and defaulters should not be heaped with more loans that leave the government in massive debts. The 2018 budget statement noted that over 45% of the farmers who benefited from the program in the 2017/18 season had not paid back the loans. The default rate will surely go up next year as authentic farmers emulate defaulters who continue to get freebies at the expense of the tax payer.

Further headaches from command agriculture come from the fact that the country’s import bill for maize, wheat and soya has not declined to match the cost of financing the program. While billions have gone into funding the program since its launch in 2016; the country has been importing an average of 800 000t of maize, 250 000t of wheat and 270 000t of Soya each year worth over $700 million. While the government may not expect to make a profit out of its program, it seems the country is double sinking through domestic debt and a high import bill for the same crops under command agriculture.  These three loopholes should be enough to move the government into remodeling the noble program by involving banks and insurers so as to tighten the screws on default rate and financial losses.

The 2019 budget statement indicated that treasury is going to remodel the whole program so as to crowd in the private sector funding and improve accountability. If executed well, the model will involve private sector (Banks, insurance sector, agriculture processors, manufacturers, inputs producers and non-governmental organizations) pre-financing farmers with the Government providing guarantees. Agriculture loans would now be extended based on bank’s risk assessment and government targets that emanate from extension services ground work. Involving banks and the insurance sector takes into account the farmer’s credit rating, maximum possible output and market prices of the crop among other key aspects that matter to improving command agriculture efficiency.

On the face of it, Command Agriculture is noble policy and can uplift economic growth. However it requires strong administration, monitoring and contract enforcement to ensure that farmers repay the loans. All these things cannot be done by the government alone when it plays the regulator, financier, buyer and marketer roles in the program. The government has to minimize its roles which are crowding out private players, promoting corruption and patronage in inputs distribution. Unless if the program is remodeled, it will gradually lead to unplanned long term catastrophe were debts and the import bill grow each successive year.

Victor Bhoroma is business and economic analyst with expertise in business management aspects. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on vbhoroma@gmail.com or Skype: victor.bhoroma1.