Causes of food inflation in Zim


THE World Bank recently released a report of countries hardest hit by food inflation in the world. Zimbabwe tops that list with food inflation of 353% in the month of August 2022, beating Lebanon (240%), Venezuela (131%), and Sri Lanka (91%) to the top post. The three countries above are synonymous with economic instability and widespread food shortages.

Despite prolonged economic instability, Zimbabwe has not experienced food shortages in the local market in the past few years largely due to the dollarised nature of the local market as that tends to stabilise supply.

Harare has been a net importer of cereals since 2006 with maize production averaging 1.3 million metric tonnes (MT) per year in the past 10 years. This is against national demand of 2.2 million MT for domestic, animal feed and industrial demands. Wheat production has averaged 133,000 MT for the past 10 years against a national demand of 450,000 MT per year, while soyabean production averages 58,000 MT for the same period against a national demand of 250, 000 MT per year.

Real decline in yield

Yield per hectare for maize (the staple crop) remains very low with average national yield less than 0.9 tons per hectare (lower than the African average of 1.8 tonnes/hectare). The yield is also lower than Southern African peers who are largely affected by the same climatic conditions, with Namibia, Malawi, and Mozambique at 1.2 tonnes/ha, Tanzania at 1.4 tonnes/ha, Zambia at 2.8 tonnes/ha and South Africa at 5.3 tonnes/ha.  Interestingly, since the year 2000, Zambia has tripled its maize production with an average of 2.9 million MT per year in the past 10 years alone and constantly exporting maize to its southern neighbour. The decline in yield means that Zimbabwe has to rely on other countries for food imports.

Huge import bill

To augment limited local production, Zimbabwe is heavily dependent on importing food and cereals from countries such as Ukraine, Argentina and consistently from selected Southern African Development Community (Sadc) countries such as Malawi, Zambia, and South Africa.

Imports for the three main commodities (maize, wheat, and soya) cost the country at least US$500 million per year for the last seven years. Crude soya bean oil cost the country US$223 million in 2021 alone, making it the third biggest import after diesel and petrol. Rice imports (US$118 million) and raw milk imports (US$41 million) add to the huge import bill. This is before processed cereals and other agricultural commodities are factored into the import equation.

Over the years, the country has been even importing millions worth of fresh commodities such as oranges, apples, pears, onions, potatoes, grapes, and other vegetable products which should ordinarily be uncompetitive to transport into the country. The huge import bill directly translates to high cost of production for local food manufacturers.

For primary production, Zimbabwe relies on imported fertilizers and agricultural chemicals. In 2021, fertilizer imports eclipsed US$236 million with urea costing US$99.7 million while Ammonium Nitrate cost US$85.3 million. With global prices for Ammonium Nitrate (AN) soaring to over US$1,400 per tonne, local farmers need on average US$80 to buy a bag of 50kg AN or urea fertilizer.

Zimbabwe’s demand for fertilizer in a good farming season is about 600 000 tonnes (both basal and top dressing), of which 70% goes towards government subsidy programmes. The overreliance on fertilizer imports (which are influenced by geopolitical events) means that local farmers cannot produce at a low cost, and this translates to high food prices. 

High cost of production

Critical to the cost of production on the farm and in the industry is the cost of fuel. With petrol retailing at US$1.53 per litre and diesel US$1.74 per litre in Harare, Zimbabwe has the most expensive fuel prices in the Sadc region and among the highest in Africa. Zambia fuel costs US$1.36 per litre, Botswana US$1.31, Mozambique US$1.36, Namibia US$1.19, and South Africa US$1.30. For the five countries, import duties and other levies (total taxation) constitutes an average of US$0.22/litre, while in Zimbabwe taxes and levies cost at least US$0.43 per litre. The cost of fuel makes it more expensive to farm, transport farm produce, process, and manufacture food in Zimbabwe than in other markets regionally or globally.

Limited mechanisation

Large scale production in agriculture requires mechanization to increase yield per hectare, reduce production cost and improve efficiency. Yield per hectare locally is very low because most small holder and small-scale commercial farmers rely heavily on manual labour and other traditional methods of farming that are not efficient. Zimbabwe needs over 30,000 tractors, thousands of combine harvesters and other farm implements that are key to reducing manual labour.

The level of mechanisation has a positive impact on reducing production cost, increasing output value, income and return rates for all types of crops. The local banking sector and private financiers could play a key role in funding irrigation and mechanisation; however, the lack of title deeds or collateral reduces any appetite to lend to most indigenous farmers.

Dead capital, idle land

 Over 60% of Zimbabwe’s arable land (2.5 million hectares) is not being utilised for agricultural production. Similarly, the utilisation of existing water bodies such as lakes, dams and rivers, and underground water bodies such as aquifers and others through boreholes remains precariously low. There is potential to irrigate more than 2 million hectares of land. However, less than 206,000 hectares are currently under irrigation. A significant portion of Zimbabweans do not believe agriculture is a viable business, hence most communal land lies fallow.

Additionally, resettled farmers have no bankable title to their land which makes it worthless in asset terms and difficult to access credit from financial institutions. The few 99-year leases issued to selected farmers are not legally transferable, hence they have no appeal to the banking sector in an environment where confidence and policy consistency are in short supply.

The law spells out that the government can withdraw the lease and reallocate at its own discretion. This means that all the poorly resourced resettled farmers cannot fully develop their farms, invest in immovable property, or seek funding as there is no guarantee to the property. Nonetheless, efficiency in land utilisation for food self-sufficiency is the most efficient way to control food inflation and manage extreme poverty.

Economic instability

Zimbabwe’s monetary, fiscal, and agricultural policies on grain marketing have not been stable or friendly to the farmer.  This is the major reason why several small holder farmers have given up large tracts of land for other income generating activities such small scale mining.

Constraints faced by farmers range from high levels of inflation caused by central bank money printing (increase in prices of inputs and services), inefficient foreign exchange market, delays in payments by government agencies, export bans, overregulation, and lack of access to independent markets for remote farmers.

A plethora of statutory instruments and laws are instituted to protect government monopoly on grain marketing to the detriment of farmers, agro-processing businesses, and the economy at large. Hence, economic instability dents agriculture viability for local farmers and increases Zimbabwe’s propensity to rely on imported food.

Climate impact

Food insecurity in Zimbabwe is closely tied to drought occurrence due to the country’s overreliance on rain fed agriculture and limited irrigation capacity. It is estimated that over 60% of the country receives rainfall levels that are not adequate for crop cultivation. Like most Sub-Saharan Africa countries, Zimbabwe experiences frequent and severe droughts.

The country is very vulnerable to the prospects of climate change which impact key enablers such as hydroelectric power generation. Therefore, food prices increase in years that Zimbabwe receives below normal rainfall. Implementing irrigation schemes does not only guarantee food security but it allows for all year-round production (stable local supply) by local farmers who currently rely on rainfall and are being adversely affected by droughts.

Impact of the war

The war in Ukraine is raising food prices across the world due to supply and trade bottlenecks. Developing economies such as Zimbabwe are being hit hardest due to their reliance on the two warring parties for fuel and grain imports. Ukraine is the world’s largest producer of sunflower oil. Combined with Russia, it is responsible for more than half of global exports of vegetable oils and over 36% of the world’s wheat. The war, as well as sanctions against Russia, have resulted in a massive decline in the supply of major staple foods. This has led to a rise in food prices globally (not just in Zimbabwe). Reducing food inflation has become the number one priority for most governments.

Low agricultural productivity in Zimbabwe has led to amplified poverty levels and overreliance on imports to meet demand and alleviate hunger. The country spends close to a billion annually to agriculture commodities that could be grown locally and curb the increase in food inflation. Agriculture provides 57% of raw materials used in the manufacturing sector which means that the huge food import bill carries with it imported inflation and exposes the country to global shocks such as the one caused by the war in Ukraine. Food inflation in Zimbabwe can be managed.

Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). — [email protected] or Twitter @VictorBhoroma1.

 

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Source link : https://www.newsday.co.zw/theindependent/opinion/article/200000930/causes-of-food-inflation-in-zim

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Publish date : 2022-09-23 13:24:15

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