CFU produces its 1998 Commodity Viability Document

To quash “press reports and public opinion” which have stated that farmers are to blame for food price hikes, the Commercial Farmers Union has produced a 25-page report on the Viability of Agricultural Commodities in which it argues that farmers are not price setters but price takers and are influenced as much by the consumers’ pocket as they are by supply and demand.

The report argues that farmers have to borrow money for at least nine months in the year and 85 percent of the commercial farmers borrow money to finance their seasonal cash flow requirements. With interest around 38 percent farmers are generally earning only 30 percent of the consumer’s dollar with the rest spread amongst the margins and costs charged by processors, brokers, traders and retailers.

“It is generally either not understood, or overlooked, that farmers take enormous risks, especially with dryland cropping and this risk should add to the justification for a reasonable and fair profit or return on their investment,” the report argues.

“This is especially so since the commodities we produce are more competitively priced than unsubsidised imported commodities. It would be foolhardy for Zimbabwe to fall into the same trap other African countries have by becoming import dependent. Politically, it may appear convenient in the short term to use subsidised commodities to lower food prices but, in the long term, Zimbabwean processors will eventually be paying import parity prices to provide competition against imported goods when local farmers are no longer producing.”

The report says that farmers are dealing with real prices influenced by supply and demand many of which they have no control over. When food prices rise, therefore, political intervention may be popular but it impacts negatively on the market. It says farmers are doing a lot to ensure viability and this includes reducing borrowings as much as possible without slowing down development of their farms, increasing productivity, reducing labour costs, implementing more vigorous budgetary controls, recycling certain parts and equipment and using more efficient equipment.

The report gives a detailed breakdown of the current viability status of each crop as of June this year. The key maize crop for example, the report says, has a yield per hectare of 8.5 tonnes for irrigated crop and 5.5 for dryland crop. The price was pegged at $2.40 a kg giving a gross income of $21 505 for irrigated crop and $13 915 for dryland crop. Total variable costs per hectare come up to $11 990 for irrigated maize and $7 994 for dryland maize giving a return per dollar invested on variable costs of $1.79 for irrigated maize and $1.74 for dryland maize.

There is, however, a further charge of $1 670 per hectare in interest on borrowed money for irrigated maize and $1 150 for dryland maize. This reduces the return per dollar after interest but before overhead costs to $1.58 and $1.52 respectively.

The report says on-farm overhead costs can vary from 25 to 55 percent, further reducing the margins. The overhead costs include bank charges for farm bank accounts, vehicle repairs other than tractor repairs, repair and maintenance of farm buildings, accountancy charges, consultancy charges, telephone, rural district council rates and taxes, and manager’s fees.

Because of the variable costs involved, the report says, using farmers to subsidise basic food prices for urban areas is risky and likely to stifle production. “What is required to ensure food security is a programme to encourage the production of grain commodities in Zimbabwe, mainly white maize, wheat and yellow maize for stockfeed. By achieving surpluses in these commodities, prices to consumers will decline significantly. It is worth noting that farmers are already bearing the cost of liberalisation whereby it may take up to 12 months to completely market a crop. This incurs higher interest charges and other costs for storage and handling in addition to all the other input cost increases on-farm.”

The report says maize production by commercial farmers declined from 155 000 hectares planted in 1995/96 to 110 000 hectares this year.

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