Principle 7 : Concern for Community
5.1 Review of strategic agricultural marketing policies
144 | P a g e
CHAPTER FIVE:
ZIMBABWE AGRICULTURAL COOPERATIVES – A LITERATURE REVIEW You have little power over what’s not yours. — Zimbabwean proverb145 | P a g e agricultural markets. Additionally, I attempt to discuss the problems encountered in the policy as well as how they give scope for the formation of cooperatives.
Zimbabwe is organised into natural regions depending on the amount of rainfall and temperature and which determined the degree of intensity of farming that each region could support. On one end was Natural Region 1 (NRI) which is the wettest, had the highest number of estates and is suitable for specialized and diversified farming (owned by companies and white settlers). The NRII is ideal for intensive farming while NRIII has semi-intensive agriculture. The NRIV had semi-extensive while NRV was mostly in the CAs and is suitable for extensive livestock rearing (Vincent & Thomas, 1960). These classifications affected agricultural production and hence affected agricultural policy, for example in the 1980s, in response to improved government subsidy support, the most substantial increases in maize production occurred in the regions with medium to high agro-ecological potential (Stack, 1994, pp. 258-262).
Although maize was already being consumed by the Africans when the white settlers came (maize arrived in Africa through trade with the Portuguese in the 15th century), it quickly became a very profitable crop for the white settlers. They produced the crop for export, especially into the British starch industry. In the settler Rhodesia, between 1906 and1932, exports of maize grew at an average of 18.8% per annum until the 1930s (because of WWII and the global economic depression) (Masters, 1993). After the world war, production and marketing of the crop improved until the liberation struggle in the 1970s as most rural farmers and some commercial farmers abandoned their farms in fear of the armed struggle.
The pattern of production before and after independence has been differentiated. Noteworthy is the increase in contribution of small-scale agriculture to total agricultural production after 1980, mainly because the colonial restrictions had been removed (Binswanger-Mkhize &
Moyo, 2012, p. 47). Due to increased support through massive government subsidies (and better output prices) for the small-scale maize production prior to the liberalisation, production doubled as more small-scale farmers (from 5% to 10% in the 1979-1985 period) started to market their output (Muir-Leresche & Muchopa, 2006, p. 300; Eicher, 1995, p. 808). Maize production by small-scale farmers increased from 10% to 40%; it grew from 7% to 53% for cotton, 41% to 53% for groundnuts between 1980 and 1987 seasons respectively. After ESAP, maize production by 25% declined due to reduced support for maize production coupled with two significant droughts (Stack & Sukume, 2006, p. 567). Agriculture played a significant role
146 | P a g e in the Zimbabwe economy of the 1980s through exports. Although it contributed approximately 14% to GDP, it formed about 40% of the total Zimbabwe exports. Additionally, agriculture was a significant absorber of labour and drove a significant amount of indirect economic activities through its linkages with other sectors of the economy, such as the manufacturing industry.
The biggest issue was how the state and all relevant stakeholders should develop and maintain a viable and robust agricultural marketing system. Some scholars (Masters, 1993, p. 239) encouraged the government to open more and allow for private-sector competition into the maize marketing system since it was state-run, just as we saw in the rice marketing system in Japan. Some studies have shown that although maize liberalisation improved maize prices, expanded rural trading, processing, farmer commercialisation and improved grain supply to private millers in urban areas (Muir-Leresche & Muchopa, 2006, p. 307), the increase could not off-set the rising cost of production which overall affected rural farmers (Makamure, Jowa,
& Muzuva, 2001, p. 8). Maize output in Zimbabwe is also greatly affected by drought especially in the late 1980s and the 1990s with the severest drought year of 1992/3 resulting in maize imports rising to 1.8 million tonnes (Binswanger-Mkhize & Moyo, 2012, p. 55). Another drought which occurred against the backdrop of the land reform in 2003 also had devastating effects on the amount that the country had to import (and food aid), however, maize imports have stabilised from 2003. In the 2011 season, growth in maize production made sure that the maize policy further reduced maize imports and saw vanishing of food aid (ibid).
The Agricultural Marketing Authority Act (1967) was established to control and oversee the running of most agricultural boards (Cold Storage Commission, Sugar Industry Board, Cotton Marketing Board, Dairy Marketing Board, Tobacco Marketing Board, GMB). Of interest to my study was the establishment and running of the GMB. The Zimbabwe grain and maize markets were under the control of the state through the Grain Marketing Board (GMB; formally known as the Grain Control Board when it was established in 1931) (Eicher, 1995, p. 811).
The GMB had a highly centralized system which was the only channel for farmers to sell their products to consumers. Although there were three channels that farmers could use, namely i) through the GMB depots (in rural and urban areas) ii) through to the collection points of GMB or iii) through GMB approved grain buyers, all the grain had to pass through the GMB. The approved buyers had to submit all the maize to the GMB who would sell it to the consumers/industry (just as in the case of the Japanese rice industry). No private sales were permitted, just as in the case of Japan, with the only difference being the fact that the MAFF
147 | P a g e approved private-buyers were cooperatives and not individuals. In terms of pricing, the government oversaw the processes of pricing in the period 1980-1990. However, government expenditure in agriculture grew in the first six years after 1980 (Makamure, Jowa, & Muzuva, 2001, pp. 11-12) and then fell into perpetual decline during the ESAP era. From the year 2000, due to the withdrawal of the private sector from agricultural finance, government spending started to increase (see more detail in Section 5.5.1a.5.5.1 on page 175).
The Grain Marketing Board
The first set of regulations in the grain markets were introduced when the Grain Marketing Board (GMB) was established in 1931 . Although the board was formed as a temporary measure to whither the harmful effects of the great depression, it stayed until present-day Zimbabwe (Eicher, 1995; Mudege, 2005, p. 79). It sought to keep prices of grains (mainly maize) artificially higher than the world prices and hence shielded the local farmers from the depression (Masters, 1993, pp. 229-230), just as in the case of Japan during the Food Control Act. However, the farmers in this period were predominantly white large-scale farmers who had huge state-support through finance (subsidies), inputs, outputs and export incentives. The structure of the GMB maintained a dual pricing systems for large-scale white farms and also another for the black farmers in tribal trust lands and instituted white-settler economic dominance over the blacks (Bratton, 1987, pp. 181-182). The country had a hard time recovering from the great depression and the world war such that by the 1940s, it was importing most of its food. It is during this time that the government decided to establish a Native Development Fund in which 10% of all the produce from black farmers were put into this fund.
The GMB was establishing large-scale storage infrastructures along areas populated by white-settler farmers, further disadvantaging the native farmers. Moreover, with the adoption of the Native Reserve Act of 1961, the situation worsened as native farmers were moved further away from the easily accessible marketing channel (Masters, 1993) s. It is on record that the GMB policy was extremely biased towards the commercial white-settler farmers.
The GMB had a monopoly on the market which was protected by law; no other player could buy and distribute maize (pre-independence to 1993, and 2002 to 2008) (Muir-Leresche &
Muchopa, 2006; Binswanger-Mkhize & Moyo, 2012, p. 65). The pattern observable in these periods mimics that of the Japanese government during the rice control era. The attainment of independence in 1980 resulted in a relatively upward movement as the country stabilized, and farmers went back to their once abandoned farms. Additionally, more smallholder farmers
148 | P a g e adopted the latest seed varieties and fertilizers, and more low-risk credit was availed to them (Masters, 1993, pp. 231-232).
Figure 5.1: Distribution of maize in the maize marketing system (1930-1993 and 2001-2008)
Source: Created by author based on various sources
Since the GMB controlled the pricing system, their pricing mechanism was such that the price set would be just high enough to incentivize the farmers to sell to the GMB while at the same time, not too low to proliferate the black/parallel market (Herbst, 1988, pp. 280-281; Muir-Leresche & Muchopa, 2006, p. 303). Upon the attornment of independence in 1980, the new socialist government continued with the policy and sought to bring more small-scale farmers into the marketing system through establishment of new seasonal grain buying depots (Eicher, 1995, p. 812). This process was almost similar to the Japanese post-war food control system.
It wanted to expand the GMB network to include rural maize markets as a way of fixing the historic racial and social injustices of the colonial era. However, their efforts were mainly affected by the droughts in 1983-1984 and 1987, and the economy stagnated. In addition to increasing balance of payments deficits and foreign currency shortages, this formed one of the reason why the state eventually adopted and implemented the disastrous Economic Structural Adjustment Programs (ESAP) in the early 1990s.
The large-scale farmers drove the 1960s boom in production, but the small-scale farmers took centre stage, especially after independence. The trajectory taken by the agricultural production
State Large scale
white farmers Processors To retailers
To consumers
Small scale
native farmers
Retailers
To consumersTo farmers
149 | P a g e and marketing over the last six decades can be pinned on the behaviour of the GMB pricing system (Masters, 1993, p. 232). As with the Japanese rice production system, the GMB officials negotiated with farmer representatives (farmer unions) when setting up prices and in other policy-related issues. It is important to note that these farmer unions were not cooperatives and the large-scale farmers mainly dominated them, and hence they mainly represented the interest of the large-scale farmers (Masters, 1993, p. 232; Moyo S. , 2000a). The prices were usually set towards the start of the harvesting period; hence, farmers got into production of the maize without output prices information. Before 1980, the price of maize output was a function of the cost of production, however, from 1980 onwards, it was based on the freight on board (FOB) of a tonne of maize. By 1990, about 66 depots (an increase from 34 in 1980) were fully operational with about just under half being in the rural areas (Masters, 1993, p. 230). However, private sales and transportation of grains was still unlawful; this meant the pre-independence GMB structure (Figure 5.1) remained in place, industrial millers had to buy from the GMB, and small-scale and large-scale producers had to sell to the GMB.
The GMB employed the pan-territorial and pan-seasonal pricing system in which the grain was bought at the same price across the whole country and throughout the year, respectively. This closely resembled the Japanese food control system in which rice had no quality standards and was purchased at the same price. During the era of the regulated market, price setting was done by the government through the GMB monopoly which consulted farmer organisations such as Commercial Farmer’s Union (usually with little small-scale representation) From the government perspective, the rationale was to protect those farmers in highly productive areas from lower prices immediately after harvest (Muir & Takavarasha, 1989, p. 111). Additionally, the system would also protect the working class in the urban areas for social and political reasons (Muir-Leresche & Muchopa, 2006, p. 305; Chayanov, 1991, p. 56; Bates R. H., 1981;
Herbst, 1988, p. 266). However, the fact that the net sellers of grain were the small-scale producers meant that they were taxed, while large-scale farmers who were producing other high-value crops and livestock were subsidized in purchasing this maize (Muir-Leresche &
Muchopa, 2006, p. 300).
Here we see the disadvantage of poor organisation of the farmers, if they had proper representation in the decision-making echelons, as happened in the case of Japan, they could have managed to negotiate for a better pricing model which would benefit the actual producers.
In 1988, the producer-surplus loss for small-holders accounted for 17% of their produce; this means they were being paid 17% less than they should have been under non-pan-territorial
150 | P a g e pricing system(Muir-Leresche & Muchopa, 2006, p. 302; Masters, 1993). At the same time, the system was subsidizing the large-scale farmers by 9% (ibid). Pan-territorial pricing affected farm-gate pricing and consumer prices which encouraged parallel market activities as intermediaries found it profitable to buy in the CA and sell to millers in urban areas. If a strong cooperative had been in place, things would have panned out differently.
The GMB’s production cost schedule was dominated by storage cost, especially after bumper harvests. Additionally, because after independence, they had to collect maize from even more remote areas, the cost of operations (including logistics) rose and became a significant expense to the GMB account. Before 1980, the GMB operated at break-even pricing and passed the profits of its monopoly to the consumers or the suppliers of the grains. However, with the rising cost, coupled with a firm stand on keeping consumer prices low, they had to run deficits which would be covered by the government subsidy (Masters, 1993, p. 234; Muir & Takavarasha, 1989; Muir-Leresche & Muchopa, 2006, p. 306). This was done in the 1990s and 2000s. In a way, both price and non-price factors affected the maize marketing system in Zimbabwe before and after independence. The sales of maize to the GMB is seasonal in the sense that farmers try to discharge all their output soon after harvest since the price is constant throughout the year.
This could have been the same situation found in the cooperative movement where it pays back its members dividends when it makes profits. Farmers also demand GMB to protect them using the strategic grain reserve in times of grain shortages (when prices went up) (Makamure, Jowa,
& Muzuva, 2001, p. 24).
Liberalization of agricultural markets
There has been two broad deregulation of maize markets in Zimbabwe since independence, the first during ESAP and the second during the 2009 dollarization period. In the late 1980s, the Zimbabwe economy was experiencing stagnation and the import substitution policy which the government had not alleviated the situation. With the recommendation and support from the World Bank (WB) and the International Monetary Fund (IMF), the government adopted ESAP, which was meant to resuscitate the economy. The ESAP was implemented officially in October 1991, and its principal objective was to reduce the amount of government intervention in the whole economy. It took the form of a five-year plan (1991-1995). It basically resulted in the cutting down of the number of ministries and the amount of resources that went to ministerial activities. For agriculture, liberalization was interpreted as a deliberate reduction of the
151 | P a g e government’s role in production, distribution and marketing of agricultural inputs and commodities as well as their role in guaranteeing output markets. The GMB had a monopoly in purchase, sale and exports of maize grain until 1993. The market was regulated again from 2001 (through the Statutory Instrument 235A of 2001) where it had to regulate movement of grains (Muir-Leresche & Muchopa, 2006, pp. 301-316) until deregulation occurred again during dollarization in 2009 (Binswanger-Mkhize & Moyo, 2012, p. 63). This was in line with World Trade Organisation (WTO) requirement since Zimbabwe was a signatory of the organisation (just like Japan).
Before ESAP and deregulation, government intervention was justified on the basis of i) ensuring that farmers got fair prices, ii) ensuring that urban consumers got cheap priced food, iii) maintenance of food security and grain reserves, iv) taxation of the agricultural produce.
Makamure et al. (2001) concluded that liberalization had worsened the plight of farmers, especially for less-tradable crop producing farmers (maize, sweet potatoes). This then affected food security. This can be seen or explained by the fact that these small-holder farmers in the CAs did not own private land title (required by banking institutions in order to access loans);
hence, there was no way that they could have benefited from the liberalization.
Liberalization eroded the viability of farming (inflation, interest rates, taxes) because the key stakeholders in the agricultural marketing system were not consulted during the reform formulation of the policy (Makamure, Jowa, & Muzuva, 2001). Such interest groups included farmer and producer organisations (Zimbabwe Farmers Union-ZFU, Commercial Farmers Union-CFU, Indigenous Commercial Farmers Union-ICFU, Cooperatives), agro-industrialists, and individual farmers. In Zimbabwe, large-scale farmers have their own associations different from that of the small-scale farmers with little to no inter-association networking for a common goal.
The liberalization of the marketing system also involved a few other policy incentive instruments such as the Export Retention Scheme (ERS), which encouraged exporters by allowing them to retain a certain (up to 30% depending on agricultural sector) proportion of the exports in foreign currency (Chayanov, 1991, p. 61; Rusike & Sukume, 2006, p. 287;
Murisa, 2009, p. 53). Also, the Open General Import License Scheme (OGILS) enabled free importation of several commodities (Makamure, Jowa, & Muzuva, 2001, p. 18; Chayanov, 1991, p. 64). There was the Export Support Facility for funding imports of raw materials for export-oriented production. Most importantly, the devaluation of the Zimbabwe dollar made
152 | P a g e exports to be extremely valuable and worked as an excellent incentive for exporters. The sad part was that many of the small-scale farmers had low access to land title (required by banks) and hence they could not access funding to sell their goods on the international markets. Thus, such acts did not yield desired outcomes. The greatest mistake that the ESAP policy had was to assume that all market participants had equal opportunities. In terms of marketing, the smallholder farmers were considerably affected when the GMB removed its temporary collection depots which were close to their places of agricultural production, and this increased their cost of production (transaction costs). By 1996, there were no GMB collection points in the rural areas which virtually back-rolled the gains of the 1980s (Makamure, Jowa, & Muzuva, 2001, p. 20).
Zimbabwe Agricultural Commodity Exchange
As prospects of a growth from the ESAP become deceptive, the Zimbabwe Agricultural Commodity Exchange (ZIMACE) facility emerged in 1994 through private sector and state negotiations to try and provide the farmers with an alternative to the unfavourable markets (Muir-Leresche & Muchopa, 2006, p. 316). Producers would get bids and offers for their produce from buyers or brokers in attendance, reducing the gap between supply and demand (Makamure, Jowa, & Muzuva, 2001, p. 44). The platform grew because it gave farmers some form of security and transparency as they were trading through legally binding contracts. Maize and other grains such as wheat and soybean formed the bulk of goods traded on this platform and the traded volumes increase year in year by an average of 35% between 1994 and 1996 (Makamure, Jowa, & Muzuva, 2001, p. 45; Muir-Leresche & Muchopa, 2006, p. 316).
However, such platforms, although functional, could not accommodate all producers from all sectors and membership mainly consisted of Delta beverages, Olivine Industries, large-scale millers and LSCFs. During the ZIMACE era, there was as a rise in the number of middlemen who bought maize from the CA and sold to agribusinesses. In this situation, there is need to consider farmers in groups with group leaders being responsible for these negotiations for the entire farming community to benefit and to develop. This would also reduce the transaction costs of negotiation on the part of brokers, producers and the government. This gives scope for the cooperative model because it reveals that institutional groups at grassroots level improves structural organisation necessary for agricultural development. The small-scale farmers benefited from ZIMACE through accessing base price information for their commodity.
Therefore, a group of farmers in Gokwe had formed an organisation to have concerted efforts when selling on the ZIMACE platform (Makamure, Jowa, & Muzuva, 2001, p. 45). If farmers
153 | P a g e operate within a group, the 14 days payment period is easy to accept as compared when they are individuals.
Maize policy after the FTLRP
After the implementation of the FTLRP, the government took control of the maize markets (through the apparatus of the GMB). The GMB received subsidies from the government, bought maize at controlled prices and sold it to the millers at subsidized rates. This affected profitability of the maize producers as seen through just over half of the A1 (53%) and A2 (58%) farmers were selling through the GMB (Binswanger-Mkhize & Moyo, 2012, p. 65). The policy soon after the reform punished the farmers and protected the urban consumers, and this is in stark contrast to the rice policy in Japan where prices are still kept artificially higher for the benefit of the grain producers.
After dollarization in 2009, maize markets were liberalised, which saw the increase in importation of cheaply produced grains from the region. Although this improved access to grains, it negatively affected local producers as they had to compete from cheaper processed GMO maize from South Africa. Although the markets were liberalised, GMB still plays a significant role in the market primarily through the maintenance of the strategic grain reserve (290 thousand tonnes). One of the latest and most interesting developments in the maize policy is the Targeted Command Agriculture Programme or better known as Command Agriculture.
It is a Zimbabwe government-led Special Maize Import Substitution ‘contract-farming’ scheme for large and small-scale farmers using domestic finance capital resources. It brings state, private sector and farmers together to produce food (Mazwi, Chemura, Mudimu, & Chambati, 2019, pp. 6-9). Prior to such a program, the private sector was involved in maize markets through complex supply chain interlinkages (small-scale agricultural producers, traders and millers); however, for the first time, their participation has been observed in financing the production of maize under ‘contract-farming-type’ arrangements.