Editorial Comment: Bakers, millers MoU boon for agro-industrial sector

Wheat_P1210892The opening of the Zimbabwean economy since the currency switch in 2009 has been almost totally beneficial. But there have been some niggling problems, especially with local industries, with a tendency for people to import regardless of whether there are suitable local suppliers. In other cases a completely different financing system is required to replace what either broke down or was artificially supported without a good economic reason.

This is not to say that all local industries deserved to survive. Some palpably did not, since all they were doing was producing low-quality high-priced goods with owners stripping them of their assets.

But others, at least after some re-organisation, were clearly capable of producing the goods at prices equal to or below the imported cost of such goods.
Farmers are among the most obvious in this category, along with many of the industries that process their primary raw materials.

Farmers have two main markets: the local one, which basically absorbs most of the food they produce, and export, which these days is dominated by tobacco and cotton.

In the old days of a closed economy and subsidies prices, especially of food crops, were set without much regard to markets or their prices. Those days have gone. Farmers have to produce within the laws of economics.

But there are still some differences between those commodities sold locally and those sold as exports.

The biggest one is that if all of a Zimbabwean crop is sold locally the price needs to be equal to or lower than the landed price of imports, giving the Zimbabwean farmers a little leeway. This he loses when he exports; there the transport costs come off his price.

So, although wheat is more expensive to grow in Zimbabwe than in many other countries, there is a little give for the Zimbabwean farmer, if he can get the finance.
Well now that may be possible.

Bakers, the biggest user of wheat, and millers, the processors of wheat, have signed a deal that will see Zimbabwean bakers buy their flour from Zimbabwean millers. That contract, in turn, gives the millers the necessary security to offer growing contracts to wheat farmers.

Wheat is a low-risk crop since it has to be grown under irrigation. We imagine not all farmers will be able to grow wheat profitably, but we hope many will.

But in any case the deal benefits more than farmers. Some bakers were importing flour. And that was daft. Now millers can either import wheat, for local processing, ensuring that all processing jobs are done by Zimbabweans, or go further and add farmers to the beneficiaries. They will, for a while, have to do both.

But at least investors and bankers can now see long-term contracts and agreements and make sensible plans to grow Zimbabwean industry and finance raw-material suppliers.

We hope more such deals start coming through to be followed by more processing of even the export crops.
At least half of the value of our tobacco and tea exports is made up of processing value added before export, and even cotton is ginned and graded.

Now Zimbabwean farmers and processors have to go further and start working out ways of either expanding production of “ordinary” quality, or creating special high-quality products for niche markets.

Doing both would probably be the best.
With solid contract arrangements, financing now becomes a lot easier, with even the eventual foreign buyers being able to think about partial payment in advance to Zimbabwean processors, giving them the capital to lend on to trusted farmers.

These contractual arrangements seem the only way our agriculture and agro-industrial sectors are going to grow fast.

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