Market_Mechanisms_Assessment_Final_2-13.pdf

JULY 2009

This publication was produced for review by the United States Agency for International Development. It was prepared by DAI under subcontract to ACDI/VOCA with funding from the Accelerated .

USAID/ZIMBABWE

MARKET MECHANISMS TO ACHIEVE

FOOD SECURITY ASSESSMENT

DRAFT REPORT

JANUARY 2012

This publication was produced for review by the United States Agency for International Development. It was prepared by ACDI/VOCA and Catholic Relief Services. The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

USAID/ZIMBABWE

MARKET MECHANISMS TO ACHIEVE

FOOD SECURITY ASSESSMENT

DRAFT REPORT

CONTENTS

ACRONYMS

EXECUTIVE SUMMARY

I. INTRODUCTION

BACKGROUND

OBJECTIVE OF THE STUDY

TECHNICAL APPROACH

METHODOLOGY

II. VALUE CHAIN ACTORS’ ROLE IN THE MOVEMENT OF FOOD

INPUTS

PRODUCTION

LOCAL TRADE

CROSS-BORDER TRADE

PROCESSING

III. CROSS-CUTTING ISSUES

ENABLING ENVIRONMENT

VALUE CHAIN SUPPORT SERVICES

IV. SUMMARY AND CONCLUSIONS

V. RECOMMENDATIONS

ANNEX A. MAIZE PRODUCTION BUDGET

ANNEX B. U.N. COMTRADE DATA ANALYSIS

ANNEX C. REFERENCES

ANNEX D. LIST OF INFORMANTS AND SITES VISITED

ACRONYMS

AFSMS Agriculture and Food Security Monitoring System AGRITEX Agricultural Technical And Extension Service AMA Agricultural Marketing Authority COMESA Common Market for Eastern and Southern Africa COMEZ Commodity Exchange of Zimbabwe CFU Commercial Farmers Union DCA Development Credit Authority EU European Union FAO Food and Agriculture Organization FEWSNet Famine Early Warning Systems Network FFP Food For Peace FNC Food and Nutrition Council FRA Food Reserve Agency FTLRP Fast-Track Land Reform Program GDP Gross Domestic Product GMB Grain Marketing Board GMO Genetically Modified Organism GoZ Government of Zimbabwe LZ Livelihood Zones MIS Market Information System MoAMID Ministry of Agriculture, Mechanization and Irrigation Development MT Metric Tons NGO Nongovernmental Organization SADC South African Development Community USAID United States Agency for International Development WFP World Food Program ZFU Zimbabwe Farmers Union ZimACE Zimbabwe Agricultural Commodity Exchange ZimVAC Zimbabwe Vulnerability Assessment Committee

EXECUTIVE SUMMARY

Zimbabwe is emerging from a decade of economic and political turmoil. By 2008, hyperinflation was officially calculated at 11.2 billion percent, gross domestic product (GDP) contracted at an annual rate of

17.7 percent,1 unemployment was high and approximately 45 percent of the population was in need of food aid.2 Since the formation of the Government of National Unity in February 2009, the subsequent adoption of a multicurrency regime and the liberalization of some agricultural policies, the economy has begun to stabilize. There have been improvements in the economic situation, and in 2011 Zimbabwe’s GDP is estimated to have grown 9 percent, up from 8.1 percent in 2010 and 5.7 percent in 2009.3 That said, after a decade of economic instability the majority of Zimbabweans remain poor and food insecurity is still a critical issue.

The agricultural sector has a new structure. While the sector previously was dominated by large-scale commercial farming, 98 percent of farmers are now smallholders operating on 73 percent of the agricultural land.4 Market systems that functioned in the past no longer are the most efficient systems for this new structure. To create an efficient agricultural marketing system, market actors and support services must adjust their systems to efficiently engage with large numbers of smallholder farmers.

The objective of this study is to provide insight into market mechanisms in Zimbabwe. It looks at scale, geographic distribution, efficiencies, and constraints to traders and other stakeholders in the movement of food from surplus to deficit areas for a positive impact on food security. The recommendations below offer suggestions for improving current programming, encouraging good practices and supporting new initiatives that could create better food-security outcomes. They also suggest strategies to improve policies.

On-farm productivity. The low yields and volumes of agricultural production in Zimbabwe today increase the cost of food—directly through high production costs and indirectly through high transaction costs of moving smaller volumes of commodities to markets. Low productivity is driven by lack of access to inputs, information about good agricultural practices and resources for on-farm investments. Productivity is particularly low in the smallholder sector, especially in the newly resettled areas. An increase in farm-level productivity and a reduction of the costs of production will improve food security by increasing the volume of food available in the market. It will also increase market efficiency by moving larger volumes of food through the system, which will reduce transaction costs. This will result in lower food costs and better access to food. Increased efficiency will be achieved by facilitating access to inputs and adoption of good agricultural practices. Attention should be focused on smallholder farmers.

Large trader engagement in rural areas. Large traders traditionally have not been interested in marketing directly to rural populations because of the high transaction costs of making more, smaller sales. In Zimbabwe today, large traders have the incentive to engage in these areas because these markets are cash based, and traders are constrained by access to finance. In addition, higher prices in rural areas may compensate for the initially higher transaction costs while traders develop more efficient systems.

Currently, the main markets for large and mid-sized traders are primarily in Harare and other major urban centers, but some traders are interested in expanding their markets into rural areas, including food-deficit areas since these are cash markets. This is a high-risk investment, because they would need to develop

International Monetary Fund. World Economic Outlook Database. 2011. Web.

2 FAO/WFP Crop and Food Supply Assessment Mission to Zimbabwe. Special Report. June 2008. Rome: FAO.

Print.

Zimbabwe Vulnerability Assessment Committee (ZimVAC). Rural Livelihoods Assessment July 2011 Report. Harare:

Food and Nutrition Council (FNC), SIRDC. 2011. Print.

4 Vimbai Vudzijena. Zimbabwe Agrarian Sector Baseline Information Study. Harare: World Bank, 2009. Print.

new systems to reduce the transaction costs of working with large numbers of suppliers and customers.

Since both farmers and consumers would benefit from reduced food costs, a development partner could buy down the firms’ risk of pilot testing these systems.

Small traders’ role in moving food to deficit areas. Small traders play a critical role in moving food to deficit areas.

Their business is based on spatial arbitrage, so they are drawn to market opportunities in deficit areas where food prices are higher. Small traders currently are moving food from surplus areas, as well as imported food from the urban centers, to deficit areas. Their transaction costs are high, driven by the high cost and unreliability of transport, lack of access to credit (which limits the volume of each transaction), and the lack of accurate and timely market information beyond that provided by their personal networks. Addressing the critical constraints of finance and market information would greatly improve the efficiency of distributing domestically produced and imported food into deficit areas.

Purchasing power. Purchasing power is driven by household income and the cost of food, which is particularly important because Zimbabweans spend approximately 75 percent of their income on buying or preparing food. Although the average rural household’s income increased by 31.8 percent over the past two years to $58 per month,5 food prices are high and have increased by 15 percent over the past year. In food deficit areas, prices are higher than the national average.

Constrained purchasing power is a key driver of food insecurity and provides a disincentive for traders to engage in low-income areas. Some food aid programs are experimenting with targeted vouchers to enable holders to buy food in the local market, which should strengthen local food marketing systems.

Households in food-deficit areas need support to increase their incomes through livelihood activities appropriate to their Natural Regions (agroecological regions) so they ultimately can be weaned off food assistance. At the same time, increasing the efficient production and marketing of food crops will reduce food costs, allowing households to obtain more food with the same resources.

Government policy. Since 2009, the GoZ has implemented new protectionist measures in an attempt to shelter the agricultural sector during this recovery period. Tariffs have been imposed on a variety of raw commodities and processed food products. There currently are tariffs on key food commodities: cooking oil, maize meal and wheat flour have tariffs of 15, 25 and 25 percent, respectively. The impact of these tariffs is increased food costs for consumers and a disincentive for investment in processing where firms currently rely heavily on imported raw commodities with high tariffs. A re-evaluation of trade tariffs should create a better balance between the goal of protecting domestic production and the goal of reducing food prices to improve food security. In addition, the Grain Marketing Board is setting prices for some key commodities at higher than import parity price. This is disruptive to the market because it makes it difficult for traders to purchase commodities at market rates. Setting prices above market rates further erodes trust between farmers and traders because farmers think the traders are taking advantage of them. This practice creates inefficiencies in the market system and also should be re-evaluated.

Finance. Nearly all market actors involved in food trade note that lack of access to cost-effective finance is a critical factor constraining their growth. Of the little agricultural finance available, most goes toward funding operational costs of large processors and traders. There is some finance available to small traders through microfinance institutions and the USAID–funded AgriTrade credit facility, but it is not sufficient.

There was an estimated shortfall in the demand for credit of $136.58 million for smallholder agriculture in 2010/11.6 In particular, small traders have very limited access to finance and play a critical role in the

5 Zimbabwe Vulnerability Assessment Committee (ZimVAC). Rural Livelihoods Assessment July 2011 Report. Harare:

Food and Nutrition Council (FNC), SIRDC, 2011. Print.

6 Fintrac Inc. and IRD. Zim-AIED Program. “Demand and Supply of Short-term Credit for Zimbabwe’s Smallholder Agricultural Commodity Value Chains.” Harare: USAID, 2011. Print.

movement of food from surplus to deficit areas. AgriTrade is providing credit to these important market actors.

Market information. Access to accurate and timely market information is critical to efficient market systems.

Currently, the main source of market information is through personal networks. The ZFU disseminates Weekly Market Guides that provide information on prices and market opportunities, but their distribution is limited. As a result, traders cannot easily take advantage of opportunities for spatial and temporal arbitrage, which increases the transaction costs of moving food from surplus to deficit areas.

There is a need for more transparent information on prices and market opportunities to reduce the costs of bringing buyers and sellers together. Establishing an electronic market information system, as described in greater detail in the report, will greatly increase farmer and trader access to real-time market data and efficiently match buyers and sellers. The impact will be reduced transaction costs and better efficiency in the market system through access to new markets, better outcomes in negotiations and better timing of marketing to increase revenue.

Transport. There are many categories of transport providers in Zimbabwe today, but traders note that many are unreliable, not available to rural areas and expensive, particularly if the trader must pay for an empty backload. As the volume of trading domestic products increases, there will be increased demand for reliable transporters willing to travel to rural areas. There is an opportunity to share information on trade volumes with the transport sector to facilitate the development of new options to meet this demand.

I. INTRODUCTION

1.1 BACKGROUND

Zimbabwe is emerging from a decade of economic and political turmoil. Political instability and the Fast- Track Land Reform (FTLR) program, initiated in 2000, led to the collapse of the commercial farming sector in Zimbabwe, which began the shift from the country being a food exporter to a net food importer. By 2008, hyperinflation officially was calculated at 11.2 billion percent, GDP contracted at an annual rate of 17.7 percent,7 unemployment was high and approximately 45 percent of the population was in need of food aid.8 Since the formation of the Government of National Unity in February 2009, the subsequent adoption of international currency and liberalization of some agricultural policies, the economy has begun to stabilize. GDP growth reached 5.7 percent in 2009 and 8.1 percent in 2010.9 Industry capacity has increased from an estimated 10 percent in 2008 to around 50 percent in 2011.10

While there have been improvements in the economic situation, after a decade of economic instability the majority of Zimbabweans remain poor and food insecurity is still a critical issue. The Zimbabwe Vulnerability Assessment Committee (ZimVAC) estimated that around 9.6 percent of the population would be food insecure between October and December 2011, a number that is likely to increase to 11.5 percent during the peak hunger period.11 After 10 years of dependency on food aid and ongoing political uncertainty that creates economic uncertainty, agricultural markets still are recovering. Zimbabwe will not be able to go back to the same systems as before the crisis, since many of the key actors in agricultural markets no longer exist. Instead new actors are emerging to match supply to demand and create an efficient agricultural marketing system. This report presents the findings of a study of market mechanisms in Zimbabwe and their potential impact on food security.

1.2 OBJECTIVE OF THE STUDY

The purpose of this study is to better understand how development actors can use a market-led facilitative approach to expand existing incentives to engage market players in deficit areas of Zimbabwe to improve food security. Its objective is to provide insight into market mechanisms in Zimbabwe. It looks at scale, geographic distribution, efficiencies, and constraints to traders and other stakeholders in the movement of food from surplus to deficit areas for a positive impact on food security.

1.3 TECHNICAL APPROACH

In implementing this study, ACDI/VOCA applied a participatory, market-oriented value chain approach.

The value chain approach is a powerful tool for identifying end-market opportunities, analyzing incentives, risks and behaviors within markets, and revealing opportunities and root constraints. This approach provides insight into individual value chains as well as a framework for examining systemic issues that cut across many value chains, including the enabling environment and supporting markets. The enabling environment includes laws, regulations, policies and trade agreements that can either facilitate or hinder market efficiency. Supporting markets provide services to the value chain and, in the case of

International Monetary Fund. World Economic Outlook Database. 2011. Web.

8 FAO/WFP Crop and Food Supply Assessment Mission to Zimbabwe. Special Report. June 2008. Rome: FAO.

Print.

9 Zimbabwe Vulnerability Assessment Committee (ZimVAC). Rural Livelihoods Assessment July 2011 Report. Harare:

Food and Nutrition Council (FNC), SIRDC. 2011. Print.

10 Ministry of Finance and the Confederation of Zimbabwe Industries in FEWSNet. “Zimbabwe Food Security Outlook: October 2011 to March 2012.” Harare: USAID, 2011. Print 11 FEWSNet. “Zimbabwe Food Security Outlook: October 2011 to March 2012.” Harare: USAID, 2011. Print.

Figure 1. The Value Chain agriculture, include finance, transport and market information services (MIS). Figure 1 shows how these elements of the value chain interact.

This study used the value chain approach to provide a framework for a systemic analysis of the agricultural marketing system in Zimbabwe.

While the study looked at individual agricultural products, the focus was on identifying the opportunities, constraints and incentives for market actors that cut across value chains. The study focused on maize, wheat, sorghum, millet, soybeans, groundnuts, sugar beans, cowpeas, tomatoes and cabbage. These products were selected because of their importance in the Zimbabwean diet (maize, wheat), their importance to food security (sorghum, millet, cowpeas, sugar beans) and their potential to generate income for purchasing food (soybeans, groundnuts, tomatoes, cabbage).

ACDI/VOCA adopted the FEWSNet Structure-Conduct-Performance model to assess each level of the value chain. This model measures market performance to determine whether markets achieve socially desirable goals such as the availability of a sufficient quantity, diversity and quality of goods to satisfy demand at prices that are fair to traders, producers and consumers.12

The study also was informed by an understanding of food security and vulnerability across diverse livelihoods and agroecological regions in Zimbabwe. In investigating the potential impact of market mechanisms on food security, the study took a broad approach and looked at all three dimensions of food security. These are:

• Availability. Sufficient quantities of appropriate food from domestic production, commercial imports or food aid are within reach or within reasonable proximity.

• Access. Individuals have sufficient income or other resources to buy or barter for appropriate levels of food.

• Utilization. Food is used properly, which means proper food processing and storage techniques, adequate knowledge and application of nutrition and child care techniques, and adequate health and sanitation services.13

1.4 METHODOLOGY

ACDI/VOCA launched study activities in Zimbabwe in October 2011, which were conducted through a series of steps shown in Figure 2. They began with a desk study to review existing research. This provided background for stakeholder interviews with a variety of market actors, including traders and other aggregators, commercial buyers, input suppliers, producers, consumers, financial institutions, and policymakers and government entities such as the Grain Marketing Board (GMB). During the interview and data collection process, ACDI/VOCA undertook visits to key physical market sites, as well as major deficit areas. The full interview and site visit list can be found in Annex D. The team also used relevant strategies from the Bellmon analysis, including the seasonality of production, trade and demand; location of key market infrastructure; and triangulation of both quantitative and qualitative data sources to reach

12 FEWSNet. “Structure-Conduct-Performance and Food Security.” Washington, D.C.: USAID, 2008. Print.

13 USAID. “Definition of Food Security.” Policy Determination PD-19 (1992). Print.

an educated determination when reliable data was not available. An analysis of U.N. Comtrade data also was conducted and the results integrated into the report. The findings from desk research, interviews and field visits were analyzed and synthesized for presentation and discussion in a half-day consultative workshop with major stakeholders to help them make informed recommendations. The results of this meeting have been incorporated into the final report for USAID/Zimbabwe.

It must be noted that there is very little existing quantitative information on markets in Zimbabwe. Where data does exist, it is not always reliable. The study presents the quantitative and qualitative information judged to be reliable. It was gathered from desktop research, interviews and focus groups. Anecdotal information is used to fill in gaps in available information.

The data collection for this report took place between October and November 2011, and the data offers a snapshot of the market situation. This is the time of year when households start to prepare their fields for planting in the upcoming rainy season. There is not much agricultural produce being harvested, except for some horticultural products, so it is not a particularly active time for the markets. However, this is when food-insecure households begin to run out of their own maize supply from the harvest in April. It is a time just before the market demand for food products increases for the festive season and onset of the lean season.

The report is structured to align with the elements of the value chain. The following section presents a discussion of the value chain actors’ role in the movement of food at each level of the value chain, encompassing inputs, production, local trade, cross-border trade and processing. The next section focuses on issues that cut across all value chains, including the enabling environment and value chain support services. The following section presents a summary and conclusion. Recommendations are in the final section.

Figure 2. Study Methodology

Work Planning

Commodity

Selec:on

Desk Study

Stakeholder

Interviews

Field Visits

Data Analysis

Synthesis

Consulta:ve

Workshop

Report

Wri:ng

Presenta:on

Weeks 6-‐7 Week

Week Weeks 2-‐4

Weeks 1-‐2 Week

II. VALUE CHAIN ACTORS’

ROLE IN THE MOVEMENT OF

FOOD

This section is organized by value chain function, starting with an overview of the food insecurity situation in Zimbabwe, followed by the critical opportunities and constraints for input and farm-level production as they relate to food marketing. The subsections focus on the structure, conduct and performance for each relevant function of the value chain—local trade, cross-border trade and processing. The local trade section focuses on the supply of product driven by local traders, as well as the demand for product in food-deficit areas, which is driven by household purchasing power.

2.1 FOOD INSECURITY

The 2011 ZimVAC assessment estimated that around 9.6 percent of the population would be food insecure between October and December 2011.

Because food insecurity is seasonal, it is estimated that this number would increase to 12 percent during the peak hungry season between January and February 2012.14 This is an improvement over previous years as shown in Figure 3. Food insecurity levels differ greatly around Zimbabwe depending on the relative agroclimatic conditions, income levels and existing market linkages.

Masvingo, Matabeleland North and South provinces have the highest levels of food insecurity, while Mashonaland East and West provinces have the lowest. The map in Figure 4 on page eight depicts the geographic distribution and scale of food insecurity during the peak hungry season.

2.2 INPUTS

This study did not conduct a full assessment of the inputs subsector in Zimbabwe since this has been covered fully in other studies. The focus here is an assessment of the inputs subsector as it relates to the movement of food from surplus to deficit areas. Zimbabwe was previously a net exporter of grains and other food crops, but is now a net importer. To improve the efficiency of the flow of food products and to reduce the cost of food, Zimbabwe needs to increase farm-level productivity and the volumes of production. Inputs are critical to achieving both these objectives.

Before the FTLR program, the average rate of fertilizer application in communal areas was 15 kg per hectare, although large-scale commercial farmers accounted for more than 80 percent of fertilizer purchases and had an application rate of 290 kg per hectare.15 In the 1990s, hybrid seed was planted on 90

Zimbabwe Vulnerability Assessment Committee (ZimVAC). Rural Livelihoods Assessment July 2011 Report. Harare:

Food and Nutrition Council (FNC), SIRDC. 2011. Print.

15 FAO. “Fertilizer Use by Crop in Zimbabwe.” Land and Plant Nutrition Management Service, Land and Water Development Division. Rome: 2006. Print.

Figure 3. Prevalence of Food Insecurity

ZimVAC. Rural Livelihoods Assessment July 2011 Report.

Harare: FNC, SIRDC. 2011. Print.

percent of the maize area, and Zimbabwe was self-sufficient in the production of most of its fertilizer requirements. Since then, input use has decreased due to the economic crisis, and by 2006 FAO estimated that only one-fifth of smallholders used fertilizers at all. The dramatic reduction in the use of inputs was driven by increased cost, lack of availability and deteriorating financial resources of farmers. There was a major decline in local fertilizer production starting in 1992.16 At the same time, the local seed industry collapsed once its grower base of commercial farmers was disrupted.

Since 2009, inputs have been increasingly available in the market. Improved seed, fertilizer and chemicals have been imported, and local production capacity has improved. Input availability was facilitated further by the SNV–implemented Restocking Rural Agrodealers Program, which provided wholesalers with donor-funded insurance and rural agrodealers with training so wholesalers would be encouraged to provide them with consignment credit. In 2011, approximately 29 percent of households were using basal fertilizers and 32 percent were using top dressing. The highest rates of adoption were in the Mashonaland provinces, which had rates of 37–51 percent for basal fertilizers and 49–53 percent for top dressing.17 At the start of the 2011/12 growing season, around 84,515 metric tons (MT) of maize seed were available from seed companies and GMB stocks. This was more than adequate to meet the national requirement of 50,000 MT. As a result, the government lifted the ban on seed exports.18

The availability of seed for secondary crops such as sorghum, millet and groundnuts was not as great as that for maize, but farmers usually rely on retained seed and farmer-to-farmer exchanges for these crops.19 In 2011, only 18 percent of farmers reported purchasing seed for small grains.20 While farmers have access to this seed, it generally is not good quality. The genetic strength has deteriorated, and there has been little research in new seed varieties within Zimbabwe. There is a need to introduce new varieties of these crops to Zimbabwe and follow them through the process to have a new seed approved, which can take three years.

A critical factor for improving yields by increasing efficient fertilizer use is the purchasing power of households and their ability to pay for inputs. This issue is discussed in detail in the Local Trade section below, but it is important to note that many households do not have the cash to purchase inputs at the beginning of the production season.

2.2.1 OPPORTUNITIES FOR IMPROVING ACCESS TO INPUTS

Smart subsidies for access to inputs. Given that many households do not have the cash to purchase inputs in the open market, there is a need to improve their purchasing power. For vulnerable households that are constrained by age, illness or other shocks, there is a rationale for providing a targeted subsidy to them for the purchase of inputs. That said, there is already significant farmer dependency on free handouts, so subsidies need to be distributed through the market and reduced over time. They should also require a farmer contribution to ensure long-term sustainability of adoption rates. The use of vouchers to provide free or subsidized inputs strengthens existing commercial supply channels to these areas. An estimated 45 percent of donor inputs for distribution in the 2011/12 growing season are distributed through vouchers that can be redeemed through local agrodealers.21 While this is a strong step in the right direction, it

16 Price Waterhouse Coopers. “Zimbabwe Agricultural Sector Assessment.” Zimbabwe Multi-Donor Trust Fund.

September 2010. Print.

17 Ibid.

18 Agriculture Monitoring and Evaluation Sub Committee. “State of Preparedness for the 2011/2012 Season.”

Harare: Agriculture Coordination Working Group, 2011. Web.

19 Ibid.

20 Zimbabwe Vulnerability Assessment Committee (ZimVAC). Rural Livelihoods Assessment July 2011 Report. Harare:

Food and Nutrition Council (FNC), SIRDC. 2011. Print.

21 Agriculture Monitoring and Evaluation Sub Committee. “State of Preparedness for the 2011-2012 Season.”

Harare: Agriculture Coordination Working Group, 2011. Web.

should be expanded further. This major influx of cash into the inputs supply systems will help strengthen networks and expand businesses at all levels of the chain.

Import new seed varieties for food-security crops. To improve farm-level productivity, new varieties need to be imported for crops such as groundnut, sorghum and millet, the availability of which is limited. These new varieties will need to be approved by the Ministry of Agriculture, Mechanization and Irrigation Development (MoAMID). This process takes up to three years, but would deliver significant benefits to farmers and improve the availability of key foods in food-deficit areas where farmer-to-farmer trade dominates marketing.

2.2.2 CONSTRAINTS TO IMPROVING ACCESS TO INPUTS

Minimize the negative market impact of free inputs. Free and subsidized inputs from the GMB and development organizations are distributed in food-deficit areas, which results in depressed market prices and disruption of the input markets. In the 2011/12 season, there will be an estimated $192 million22 in input-subsidy programs, as detailed in Table 1. This surpasses the $117 million distributed in the previous season. The late delivery of government and donor input programs contributes to low productivity, since it results in late planting.

Table 1. Input Distribution Programs for 2011/12 Season

Funder Value of Program Number of Farmers Benefitting Program Activity

GoZ (through GMB) $45 million 253,100

Vulnerable households receive free inputs while other farmers receive a 50% subsidy

GoZ (through GMB) $30 million TBD

Intended to allow farmers to collect inputs from GMB to cancel the debt of unpaid maize from last season

Donors, development partners $90 million 276,000

Food crop inputs–45% through vouchers; technical assistance and market linkages.

Presidential Well Wishers $27 million 712,400 Food crop inputs, cotton inputs

Agriculture Monitoring and Evaluation Sub Committee

2.3 PRODUCTION

This study focused on the aspects of production related to increasing the flow of food from surplus to deficit areas. This subsection presents an overview of the farming structure in Zimbabwe and key production issues related to improving the market efficiency of food crops to deficit areas.

2.3.1 FARM STRUCTURE

The structure of the farm system in Zimbabwe has changed dramatically over the past decade due to the FTLR program. This in turn requires adjustment by food markets. There are now essentially three categories of farms described in Table 2 below—large-scale commercial, medium-scale and smallholder.

Large-scale commercial farms were the main target for redistribution under the FTLR program and the majority of farms were in Mashonaland Central, East and West Provinces. There are 16,000 A2 farms, the larger of which are considered large-scale commercial. 23 Medium-scale farms include smaller A2 farms and small-scale commercial farms. A2 farms, one of the two classifications of resettled land under the

In this report, all dollar denominated currencies are USD.

23Price Waterhouse Coopers. “Zimbabwe Agricultural Sector Assessment.” Harare: Zimbabwe Multi-Donor Trust Fund. 2010. Print.

Table 2. Farm Structure Size Category Percent of

Farmers Percent of

Land Estimated No. of farmers Percent 2010/11

Maize Production

Large-Scale Farms

Large-scale commercial and large A2

0.5 % 19.3 % 3,691 plus larger A2 farmers

73 %

Medium- Scale

Small-scale commercial and smaller A2

1.5 % 7 % 8,000 plus smaller A2 farms

22 %

Smallholder

Communal areas, A1 and old resettlement

98 % 73 % 1.1 million communal farmers plus 237,000 old resettlement, plus 146,000 A1 farms

4 %

Vimbai Vudzijena. “Zimbabwe Agrarian Sector Baseline Information Study.” World Bank. June 2009. And Ministry of Agriculture, Mechanisation and Irrigation Development. Second Round Crop and Livestock Report. Harare. 2011.

FTLR program, are new, medium-scale commercial farms of 15–250 hectares in Natural Region I, and up to 2,000 hectares in Natural Region V (see Table 3 for a description of the Natural Regions of Zimbabwe). To facilitate commercial farm activity, most A2 farms are located in Natural Regions I and II, with 74 percent of all A2 farmers in Mashonaland Central, East and West Provinces. There are also 8,000 small-scale commercial farms located throughout Zimbabwe that were freely purchased.24 Smallholder farms include communal farms, former purchase areas, and old resettlement and A1 farms. Communal farm production is mainly subsistence with limited quantities of surplus released to the market.25 Nearly 74 percent of all communal land is in the relatively less-arable Regions IV and V. Former purchase areas are freehold land bought from the government. Old resettlement includes farmers resettled between Zimbabwean independence and the start of the FTLR program. A1 farms, the other classifications of resettled land under the FTLR program, are new small-scale farms of 5–6 ha mostly in Natural Regions I and II.26 Forty-six percent of all A1 farmers are in the Mashonaland Central, East and West Provinces.

Table 3. Zimbabwe’s Natural Regions Agricultural Region Production Potential

Region I: Specialized and diversified farming

Crops including tea, coffee and other plantation crops Intensive livestock production Fruit production

Region II: Intensive farming Crops and intensive livestock production.

Region III: Semi-intensive farming Livestock production Fodder crops and marginal production of maize Cash crops, maize, tobacco and cotton

Region IV: Semi-extensive farming Livestock production.

Drought-tolerant crops—sorghum, millet

Region V: Extensive farming Extensive livestock production

Zimbabwe’s agricultural land has been divided into five agroecological regions defined by their relative productivity potential based on soil types, rainfall patterns and other climatic conditions. These Natural Regions are described in Table 3. Critical to understanding the market dynamics of moving food from surplus to deficit areas is the geographic connection between areas of inherent high productivity, those of food insecurity and key consolidation centers. See Figure 4 for a map of Zimbabwe’s Natural Regions overlaid with projected food insecurity at the peak of the 2011/12 lean season. The location of the GMB silo depots are an indicator of major buying activity. The map shows that the areas with the highest proportion of food-insecure households at the peak of the lean season are mostly located in Natural

24 Vimbai Vudzijena. “Zimbabwe Agrarian Sector Baseline Information Study.” World Bank. June 2009. Print.

25 Fintrac Inc. “USAID Office of Food For Peace Zimbabwe Market Analysis.” Washington, DC: USAID, 2010.

Print.

26 Vimbai Vudzijena. “Zimbabwe Agrarian Sector Baseline Information Study.” World Bank. June 2009. Print.

Regions IV and V, where production potential is limited to livestock and drought-tolerant crops. The GMB silos and other market infrastructure are concentrated in Natural Regions I and II, the areas with the most productive potential. This depicts the disconnection between areas of food deficit and market infrastructure.

2.3.2 FOOD PRODUCTION

Maize is the most important crop in Zimbabwe for food security. It is grown by an estimated 80 percent of farmers and is the major staple crop.27 Most farmers in Zimbabwe do not produce enough maize to feed their households for the year. During the lean season, a majority of households have consumed their stored maize and rely on buying food in the market. In October 2011, the majority of households were dependent on the market to purchase food.28 The availability of competitively priced food in local markets is necessary to ensure food security.

Food availability in local markets has greatly improved over the past few years, due in part to increased local production and better efficiency in market systems. In February 2011, at the height of the hungry season, FEWSNet reported that food availability was not a major challenge. In October 2011, maize was found in 84 percent of the monitored market sites in food-insecure areas, and the remaining 30 percent of sites were close to those with availability.29 Sorghum and millet are key food-security crops mainly grown for household consumption in dryer areas such as Masvingo and Matabeleland North and South.

Cowpeas are another crop grown primarily for household consumption. These crops are not often seen in markets.

Maize production in the 2010/11 season increased by nine percent compared to the previous season, reaching a total of 1,451,629 MT. That said, yield estimates are notoriously unreliable and other stakeholders estimated actual production at closer to 700,000 MT. The estimated increase over the previous year mostly can be attributed to a 16 percent increase in planted area and improved yields in high-production areas.30 However, national average yields fell to 700 kg per hectare in 2010/11 compared with 1.2 MT per hectare achieved in 2001 (see Fig. 5). This dramatic reduction in maize yields is similar to other crops.

Low on-farm productivity across most food-security crops increases the cost of production, which contributes to high consumer prices and reduces household purchasing power, a key constraint to achieving food security.

The FTLR program did not improve on-farm productivity because many resettled farmers lack the resources and capacity to achieve good yields, particularly in their first years. In addition, economies of scale were lost for crops such as maize and wheat, which are more cost-effectively produced on large-scale commercial farms. In the 2008/09 production season, A2 farmers were using only 49 percent of their arable land, while A1 farmers were using only 53 percent.31 This has a particularly strong impact on

27 Zimbabwe Vulnerability Assessment Committee (ZimVAC). Rural Livelihoods Assessment July 2011 Report. Harare:

Food and Nutrition Council (FNC), SIRDC. 2011. Print.

28 FEWSNet. “Zimbabwe Food Security Outlook: October 2011–March 2012.” Harare: USAID, 2011. Print.

29 FEWSNet. “Zimbabwe Food Security Outlook Update: November 2011.” Harare: USAID, 2011. Print.

30 WFP. “Southern Africa Regional Food Security Update.” 2011. Web.

31 Tinashe Kapuya et al. “The Grain Industry Value Chain in Zimbabwe.” Harare: FAO, EU, 2010. Print

Central Statistical Office

Figure 5. Average Maize Yields

Maize Yield (Kg/ha)

Figure 5. Average Maize Yields soybean production since 98 percent is grown by A2 farmers. However, adoption by smallholders is increasing because soybeans are a good crop for maize rotation.32 It is estimated that there are now 50,000 smallholder soybean producers. Approximately 95 percent of the soybean produced in Zimbabwe is currently to produce cooking oil,33 and there is much potential for import displacement in livestock feed and other processed products. There is a need to unlock the potential of the newly resettled A1 and A2 farmers through greater access to resources and capacity building.

As a result of this decline in production and productivity, Zimbabwe has not produced enough maize to meet domestic requirements since 2001.34 Maize and wheat are not good crops to produce in Zimbabwe from a competitiveness perspective. The economies of scale required to make these crops competitive do not match the new farm structure in Zimbabwe, which is mostly smallholder farms. That said, the government of Zimbabwe has a policy of maize self-sufficiency. In addition, smallholder farmers and even many urban residents produce their own maize whenever possible, because it plays an important role in their diet. This is unlikely to change in the near-term given the recent unavailability of maize in the market for purchase, but ultimately, the best option from a competitiveness perspective is for Zimbabwe to be a net maize importer. Wheat is important for food security as it is a key staple food, but wheat is most effectively produced by large-scale commercial farmers using irrigation during the dry winter months. The recent shift to a greater proportion of small farms makes it unlikely that wheat will be efficiently produced in Zimbabwe. Therefore, the country is likely to remain a net importer of wheat.

2.3.3 OPPORTUNITIES FOR IMPROVING PRODUCTION

Improve productivity and reduce production costs. Low yields and high costs of production contribute to high consumer food prices in Zimbabwe today.

There is also market interference in price setting:

the government is setting market prices by adding a premium to producer costs (discussed below in detail). Increased food cost results in reduced purchasing power of households and greater food insecurity. Increased access to resources and adoption of good agricultural practices, including conservation agriculture, would ultimately increase the volume of trade and reduce food prices through lower costs of production and improved market efficiency. This is particuarly true with the newly resettled A1 and A2 farms that are currently operating well below their potential and that have low technical capacity and little access to resources

2.3.4 CONSTRAINTS FOR IMPROVING PRODUCTION

Agricultural sector constraints. There are many constraints to improving productivity of the Zimbabwean agricultural sector, including:

• vulnerability from a dependency on rain-fed agriculture;

• poor-quality soils in some areas;

32 Price Waterhouse Coopers. “Zimbabwe Agricultural Sector Assessment.” Harare: Zimbabwe Multi-Donor Trust Fund. 2010. Print.

33 Tinashe Kapuya, et al. “The Grain Industry Value Chain in Zimbabwe.” Harare: FAO, EU, 2010. Print 34 Ibid.

The Decision to Sell or Store Considering an average family of five has an annual maize requirement of 600 kg (10 kg per person per month), and that average yields are 700 kg per ha, it might seem that smallholder household food consumption needs are easily met. However, the decision to store maize for future consumption versus sell on the market depends on the family’s need for immediate cash and their perception of future risk. Right after the harvest, households may need to sell off a portion of their crop to access cash but later in the season producers have to buy food when market prices are higher. Traders described the challenges in sourcing local grain during the lean season. A trader in Mbare said, “Farmers have maize, but they are not selling. They are looking at the weather and thinking that they will wait and see what happens with the coming harvest.” The lack of rain in December 2011 increased households’ risk perception of the coming year, and increased the difficulty for traders to source grain to move to deficit areas.

• limited access to inputs and mechanization;

• late delivery of subsidized inputs,which results in late planting and contributes to lower yields;

• high cost of inputs compared to regional prices;

• electricity shortages interrupting irrigation systems and processing facilities;

• lack of property rights, which is a constraint to credit access; and

• limited access to extension services.

Addressing these constraints will improve productivity and ultimately increase farmer margins, improving incomes while at the same time increasing the availability of food products in the market.

2.4 LOCAL TRADE

In this study we define local trade as trade within Zimbabwe. There are two aspects to local trade: the supply side of moving food into deficit areas and the demand side, or the ability of households to purchase products in the markets. These two aspects are discussed below.

2.4.1 SUPPLY-SIDE: MOVING FOOD TO DEFICIT AREAS

Maize is by far the most-traded food-security crop in both the formal and informal sectors. Large traders report that approximately 75–90 percent of the volume of their total trade is maize, although they do trade other products at the same time. As a result, much of the discussion below focuses on maize, but integrates information on other food-security crops where differences exist. This section and those following describe the value chain in terms of market structure, conduct and performance.

2.4.1.1 MARKET STRUCTURE

This section describes the market structure, or the features of the market that influence competition between buyers and sellers. Local trade in food-security crops has evolved over the past few years as market actors begin to adapt to the new structure of the production and marketing systems. The local trade structure is still somewhat fluid, and what is presented below is the situation at the time the study was conducted. The categories of actors active in local trade of food products outlined in Table 4 and described in detail below include those in the formal market—the Commodity Exchange in Zimbabwe, the GMB and large and mid-sized traders—and those mainly active in the informal market, including small local traders, farmer-to farmer trade and wholesale markets.

Table 4. Grain Trade Trader Type Grain Sourcing Storage and Transport Grain Sales

COMEZ N/A N/A N/A

Grain Marketing Board

Buys grain at annually fixed prices at depots across the country

Storage capacity of about 3 million MT in silos and bag depots

Sells grain to processors, at bag depots in rural areas across the country, and processed grain under the Silo brand

Large and Mid-sized Traders

Mostly buy in minimum 30 MT lots, except some medium traders who set up purchase points in production areas and buy in small volumes

Large traders have their own storage or use storage services, while mid-sized traders move grain quickly without using storage. Some have their own transport while others hire

Sell predominantly to large processors in Harare

Small Traders

Buy in small volumes and move average 6 to 10 MT per lot

Rarely hire storage or transport, but find informal storage in shops or under tarps and flag down passing trucks to transport

Sell in deficit areas when demand is high

2.4.1.1.1 COMMODITIES EXCHANGE OF ZIMBABWE

The Zimbabwe Agricultural Commodity Exchange (ZimACE) was established in 1994 and operated until it was suspended by the government in 2001. That year, ZimACE traded commodities worth $677 million before it was abolished.35 In addition to providing a platform for trade in agricultural commodities, ZimACE also provided a market-based reference price for traders. In January 2011, the Commodity Exchange in Zimbabwe (COMEZ) was launched. COMEZ is a partnership between the government and private investors established by the Ministry of Industry and Commerce. COMEZ is designed to provide a platform for the trade of agricultural and nonagricultural commodities providing both a spot market as well as a futures market based on formal contracts. Initially COMEZ was to focus on grain, cereal and oil seed trade. As of January 2012, COMEZ has not been operational as the financing arrangements were not finalized before the launch and there is some discord about the role of COMEZ and that of the Agricultural Marketing Authority (AMA).

2.4.1.1.2 THE GRAIN MARKETING BOARD

The GMB is a government-owned firm operated by MoAMID. Its mandate is market stabilization, national food self-sufficiency (including establishing a national grain reserve), and commercial activities such as buying and selling grain through trading. GMB dominated local grain trade between 2001 and 2009 because it had a monopoly on cereal purchases during that period. In March 2009, private traders again were allowed into the market. GMB currently trades in maize, wheat, sorghum, millet, soybean, groundnuts, sugar beans, cowpeas, rapoko and sunflower seed.

GMB sets its buying and selling prices for crops at the beginning of the harvest, which is in April for maize. The price is fixed regardless of when or where it purchases or sells. When GMB had a monopoly on grain trade, they used a cost-based approach to determine the buying price, adding a margin of 20 to 30 percent to the costs of production.36 In interviews for this study, representatives said the factors they now consider in setting the price include the strategic importance of the crop, import parity price and return on farmer investment. In 2011 it was reported that GMB used a return-on-investment rate of 15 percent to determine the wheat price, which was higher than the import parity price. In 2011 the GMB buying price for maize was set at $285 per MT, while the import parity price from Zambia was $222.

Table 3 below presents GMB buying prices compared to the ZFU–reported markets prices for 2011.

While GMB offers a higher price than other market actors for some commodities, it is often unable to pay farmers on time because of liquidity constraints. Farmers who have outlaid the costs of production and transport to deliver their harvest to GMB wait months to get paid. In late October 2011, the GMB began a program to provide farmers with inputs in lieu of cash payment for the previous season’s crops, which were delivered up to seven months earlier.

Table 5. Commodity Buying Price

COMMODITY GMB PRODUCER 2011 per MT 2011 Market Price Low- High

2011 Market Price Average

Maize $285 $180–$290 $226

Sugar beans $800 $750–$1,200 $986

Soybeans $500 $450–$650 $524

Sorghum $150 $180–$285 $225

Groundnuts $300–$500 $400–$500 $450

Wheat $466 $400–$465 $443

35 Reuters. Zimbabwe to Trade Grains, Cereals, on New Exchange. Retuers. January 14, 2011.