Posted on January, 10, 2023 at 09:39 am
The successful introduction of controlled commodity trading on the Zimbabwe Mercantile Exchange (ZMX) trading platform comes at an opportune time for the Grains Marketing Board (GMB) to effectively manage the Strategic Grain Reserve (SGR) for food and nutritional security.
ZMX is a private entity with shares held by the government. It has handled over 220 000 tonnes of grain since its launch with warehouse receipts issued mainly on maize.
During the 2023 budget presentation last year, Professor Mathuli Ncube, Minister of Finance and Economic Development, remarked: “The direct marketing regime to ensure food security through CGR and limiting the role of GMBs, has limited the role of private players in this sector. enhance the role. This is in line with GMB’s strategic functions of price stabilisation, food security and grain storage.
The GMB is mandated to hold financial resources equivalent to 500 000 tonnes of maize and 450 000 tonnes of grain in the form of a national SGR. As the sole trader of controlled declared food grains as per statutory instruments (SI), GMB is mandated to purchase controlled commodities at gazetted producer prices and sell them at prescribed selling prices.
The government is facing a ‘food price dilemma’ and is under pressure to ensure that maize producers get higher prices while keeping millet prices at affordable prices for consumers.
At the start of each marketing season, the government announces the producer prices at which the GMB buys grain from farmers. The pricing formula is mostly determined by the cost of production plus a 15 to 25 percent margin. Various stakeholders in the value chain will then evaluate the derived prices in terms of being lower or higher than those in the field. On the other hand, millers get subsidized maize grain from the GMB.
An analysis of the last 10 seasons showed that for the first five seasons, maize producer price was not a challenge for farmers as they were paid a higher price than the import parity price.
The GMB set a minimum price of maize at US$379 per tonne in the 2013/14 marketing season, compared to US$390 for four consecutive seasons from 2014 to 2017.
However, high market prices and import restrictions created arbitrage opportunities in the local maize market cost the Treasury, resulting in increased informal maize imports, as well as increased propensity for discretionary public funding. The government’s ability to generate revenue from formal business activities was reduced against increased expenditure from consumer subsidies. Commercial financial markets were crowded out by the private sector as the government borrowed money from the domestic market by issuing treasury bills and other instruments to finance purchases related to maize by the GMB.
Maize producer prices set for the 2018/19 marketing season were below inflation requiring constant adjustments by the government to keep pace with currency depreciation.
It fixed the maize grower price based on cost of production and 15 per cent return on investment and benchmarked to import parity prices prevailing in April 2019 with a starting price of $726 per tonne. As a result of exchange rate fluctuations, the producer price was increased to $1,400 in June and further adjusted to $2,100 in July, rising to $4,000 in October.
Statutory Instrument (SI) 145 of 2019 criminalizing private trade in maize did not unlock private sector financial resources for grain imports, but instead created an artificial demand for subsidized maize from the GMB earlier than normal, thereby There was a burden on the treasury.
The government set the maize producer price at $12,329.72 per tonne for the 2020/21 marketing season and added a 30 percent incentive on top to entice farmers to deliver to GMB. Price The resulting price rose to $21 000 and was later revised to $32 000.
The maize producer price for the 2021/22 marketing season was set at US$58,553, 25 and reviewed to between US$90 and $75,000 for the 2022/23 marketing season. The local currency component has since been increased to $100 000.
Despite all these reviews, farmers still complain that the price is low. This points to the need for a sustainable marketing system that is effective, less expensive for treasury and market driven and ZMX trading comes to the fore. For the success of this ZMX (in which the government has a share) trading platform it must be adopted by all players, maintain correct grades, be cost effective and transparent.
Source: Business News