Market: Backbone for agric transformation

16 Feb, 2017 - 00:02 0 Views
Market: Backbone for agric transformation A market is a place for exchanging agricultural commodities, not storing them

The Herald

A market is a place for exchanging agricultural commodities, not storing them

A market is a place for exchanging agricultural commodities, not storing them

Charles Dhewa
There is no longer any doubt that Command Agriculture and a good rainfall season will trigger an over-supply of commodities into markets and storage facilities at household level this year.

It is therefore, critical for policy makers to urgently switch their attention from production to marketing and food preservation issues.

The majority of farmers not participating in command agriculture and other contract arrangements will compete for the same markets with those who have been contracted.

Parastatals like the Grain Marketing Board and a few processing companies can only handle limited commodities. Many farmers who are always motivated to produce diverse commodities in large volumes will continue resorting to the informal market.

Unfortunately the informal agriculture market is yet to receive the amount of support commensurate with the role it plays in the agriculture sector. As a result, farmers continue to face numerous market related challenges along all value chains.

A glimpse of the new agricultural scenario

Over the past decades, Zimbabwean agriculture has changed markedly in terms of actors and commodities.

Since 2000 there has been a drastic change in farmer characterisation and farming systems.

Previously, the major actors were communal smallholder farmers, resettlement farmers, small-scale commercial farmers and large scale commercial farmers (mostly white).

Commercial farmers used their Union to forge strong links with buyers and processors. In fact, the Commercial Farmers Union had shareholding in most processing and buying companies, forming a formidable vertically integrated value chain.

On the other hand, communal farmers were not properly organised through their unions for coordinated marketing through the Grain Marketing Board, Cold Storage Commission and other parastatals.

Very few black farmers were involved in horticulture so the Horticulture Promotion Council was largely an institution for white commercial farmers who exported fruits, flowers and other horticultural commodities.

Given that the majority of black farmers had to balance the production of a few commercial commodities and diverse traditional food security crops which also found their way to the market, market gluts reared their ugly right from the dawn of organised agriculture.

The GMB and CSC could not take all commodities from millions of black farmers. This gave birth to informal markets and a string of private livestock marketing channels.

While informal agriculture markets have co-existed with formal markets for generations, the informalisation of the economy in the last few years has prompted a new growth pattern and structure for these markets which now handle more than 60 percent of agricultural commodities in Zimbabwe.

A significant proportion of the middle class who used to buy from supermarkets are now getting their diverse food choices fulfilled in informal markets.

Most of these changes have happened unnoticed due to lack of a culture of gathering evidence and tracking progress.

Policy makers have almost been caught by surprise. Suddenly, there is a realisation that it is no longer possible to use colonial marketing structures and systems that were designed for a few farmers to handle commodities and concerns of diverse black farmers, producing diverse commodities.

Some of the farmer categories now include communal smallholder farmers in dry land, communal farmers in irrigation schemes, communal farmers in both dry land and irrigation schemes, resettled farmers (those resettled just after independence), A1 farmers, small–scale commercial farmers, various versions of A2 farmers ranging from those on 20 hectares to 700 hectares and, a few large scale commercial farmers.

Many commodities are also coming from a ballooning urban agriculture sector, Arda estates as well as farms owned by institutions like the Prison Services and Agricultural colleges.

Surplus agricultural commodities from all these sources are finding their way to the informal market were formal markets are too small for such an avalanche of commodities.

Towards a robust agricultural commodity exchange

A key emerging challenge is the huge knowledge gap in terms of planning and coordinating all this production, logistics and marketing.

Due to the inadequacies of the previous marketing structures, the market has shifted from formal to informal. Consumers and consumption patterns have also shifted accordingly.

These dynamics have exposed the absence of broker who can pull all these activities together so that value chain actors can make sense of what is happening.

Taking into account the diversity and volume of commodities being handled by informal markets, it is critical to think of modernising the marketing of agricultural commodities through an embracive agricultural commodity exchange.

In the 1990s, Zimbabwe had a small agricultural commodity exchange called the Zimbabwe Agricultural Commodity Exchange (Zimace), mainly used by white commercial farmers.

Besides complementing other marketing channels like the GMB and contractual arrangements between processing companies and farmers, Zimace focused on a narrow range of commodities such as maize, wheat and soya bean.

Given the breadth and diversity of Zimbabwean agriculture following land reform, we urgently need a commodity exchange that reflects our agricultural growth and complexity.

The need for an agricultural commodity exchange, complete with warehousing facilities and an efficient knowledge sharing system has become glaring following an increase in the diversity of farmers.

Meeting the needs of a hybrid economy

With informal markets becoming a hybrid economy that meets the needs of both the formal and informal economies as well as the needs of the middle class and low-income earners, an agricultural commodity exchange will be the ideal platform for brokering transactions and relationships among all actors ranging from farmers to all kinds of consumers.

Although informal markets are taking a central role, there is no actor playing the coordinating role from production, logistics, aggregation and marketing.

A few private companies have emerged to play the aggregation role, mostly in a piece-meal and fragmented fashion. They can only go as far as their resources and vision allows.

It means, a total picture remains difficult to get. Agricultural actors continue to swim without a sense of their water in terms of its size and quality.

Another gap is information asymmetry with information held in isolated pockets and clusters of farmers.

Actors have insufficient information for their own requirements and continues to speculate. This has contributed to high post-harvest losses due to lack of timely information, lack of reliable markets, proper logistics and warehousing facilities.

An agricultural commodity exchange will bring together value chain actors towards developing a robust process flow. That will smoothen production, logistics, handling, aggregation, marketing and processing. This can easily be supported by evidence gathering through ICTs which can provide production statistics, price trends, profiles of buyers, sellers, financing and consumption patterns.

The commodity exchange will also pull together value chain actors like input providers and financiers so that they provide coordinated support services in ways that reduce operational costs for input suppliers, processors, financiers and farmers.

Marketing-related losses will also be reduced.

Policy makers will be able to plan based on accurate expected harvests at a given time. The exchange will also simplify revenue collection for the Government.

Towards addressing food and nutrition security, the commodity exchange will make it possible for policy makers to see food reserves — enabling good decisions on how much to import or export.

More importantly, the exchange will inform and provide advisory services to investors. At the moment, investors keen to invest in agriculture have no idea where to start. Due to lack of decision-making evidence, they wonder whether they should start investing in production, logistics, processing or export.

The commodity exchange will also facilitate win-win agricultural outcomes by providing a ready market for buyers, sellers, input suppliers, equipment manufacturers, financiers and other actors.

Win-win business models will be built around all these players. The models will be needs-based and contextual-driven in line with particular commodities and areas. For instance, a model can be built around tomatoes in Mutoko with communal farmers.

Another one can be built around potatoes in Mazowe with A2 farmers. These models will evolve into clusters that can be built around regions, for instance Masvingo and Mashonaland Central according to commodities in which each of them has competitive advantage (small grains and potatoes, respectively).

Warehousing facilities as part of the commodity exchange

Through the warehousing and cooling system that will be part of a commodity exchange, our food system will evolve from depending too much on the consumption of raw commodities to addressing the seasonal nature of most of our commodities.

We now have many SMEs involved in food processing activities like peanut butter processing and oil expelling. These need consistent supply of raw materials which can be guaranteed by a warehousing system.

In order to regulate supply and demand, we have to ensure a market takes particular volumes per day. A market is a place for exchanging agricultural commodities not storing them.

When farmers have exhausted their stocks, they should go and take from the warehouse.

At the moment, farmers heap all their commodities in the informal market until they are bought.

Warehouses will be used for regulating the marketing to avoid shortages and gluts. That will ensure price stability, leading to good returns to the farmer and ultimately a sustainable agricultural sector.

It is not good for consumers to enjoy low prices when the farmer gets little. This has short and long-term impacts because when the farmer fails to go back to the field, next season there will be a shortage of commodities in the market, leading to high prices.

Everyone will be negatively affected. Farmers will use whatever little food they produce to feed their families first before taking excess produce to the market. That will result in malnutrition among many people, especially those not able to produce their own food.

 Charles Dhewa is a proactive knowledge management specialist and chief executive officer of Knowledge Transfer Africa (Pvt) (www.knowledgetransafrica.com) whose flagship eMKambo (www.emkambo.co.zw ) has a presence in more than 20 agricultural markets in Zimbabwe. He can be contacted on: [email protected]; Mobile: +263 774 430 309 / 772 137 717/ 712 737 430.

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