THE successful introduction of controlled product trading on the Zimbabwe Mercantile Exchange (ZMX) trading platform comes at an opportune time for the Grain Marketing Board (GMB) to effectively manage the strategic grain reserve (SGR) for food and nutrition security.
ZMX is a private entity in which the Government has shares. It has traded over 220 000 tonnes of grain since its roll out with warehouse receipts mainly issued on maize.
During the 2023 budget presentation last year, Finance and Economic Development Minister Professor Mthuli Ncube commented: “Direct marketing arrangements and limiting the role of GMB to ensuring food security through the SGR, will enhance the role of the private players in the sector. This is consistent with GMB’s strategic functions of price stabilisation, food security and grain storage.”
The GMB is mandated to hold 500 000 tonnes of maize and equivalent financial resources for 450 000 tonnes of grain as the national SGR. As the sole trader of grains declared controlled in accordance with statutory instruments (SI), the GMB is mandated to buy the controlled commodities at the gazetted producer prices and sell them at the stipulated selling prices.
The Government is confronted with a ‘food price dilemma’ and is under pressure to ensure that maize producers receive a higher price while also keeping mealie-meal prices at tolerable prices for consumers.
At the beginning of each marketing season, Government announces producer prices at which GMB purchases grain from farmers. The pricing formula is mostly determined by production cost plus a 15 to 25 percent margin. Various stakeholders in the value chain will then rate the derived prices in terms of either being low or high compared to those in the region. On the other end, millers get subsidised maize grain from GMB.
An analysis of the past 10 seasons has reveal that the maize producer price was not a challenge to farmers for the first five seasons as they were paid a price higher than the import parity price.
In the 2013/14 marketing season GMB set the maize floor price of US$379 per tonne, while for the four successive seasons from 2014 to 2017 it was US$390.
It however carried costs to the Treasury as the high market prices and import bans created arbitrage opportunities in the local maize market resulting in increased informal maize imports, as well as an increase in the propensity for discretionary public funding. The ability of the Government to get revenue from formal trade activities was diminished against increasing expenditures from consumer subsidies. The private sector was crowded out in the commercial financial markets as Government borrowed money from the domestic market through issuing of treasury bills and other instruments to finance maize related purchases by the GMB.
The maize producer price set for the 2018/19 marketing season was under surge from inflation necessitating continuous adjustment by the Government to keep pace with currency depreciation.
It saw the maize producer price set based on cost of production plus a 15 percent return on investment and benchmarked to the import parity prices prevailing in April 2019 with an initial price of $726 per tonne. As a result of exchange rate volatility, the producer price was increased in June to $1 400 and further adjusted in July to $2 100 rising further in October to $4 000.
The Statutory Instrument (S.I.) 145 of 2019 criminalising private trading of maize did not unlock private sector financial resources for grain imports but instead created an artificial demand for subsidised maize from GMB earlier than normal thereby overburdening the Treasury.
For the 2020/21 marketing season the Government set the maize producer price at $12 329, 72 per tonne and also added a 30 percent incentive on top in a bid to entice farmers to make deliveries to the GMB. The price resultant price rose to $21 000 and was later reviewed to $32 000.
The maize producer price was set at $58 553, 25 for the 2021/22 marketing season and it was reviewed upwards to US$90 and $75 000 for the 2022/23 marketing season. The local currency component has since been increased to $100 000.
In spite of all these reviews farmers still complain that the price is low. This points to the need for a sustainable marketing system which is effective, less costly to the Treasury and market driven and ZMX trading comes to the fore. For success of this ZMX (of which Government has a share) trading platform it has to be embraced by all players, maintain correct grades, less costly and transparent. – The Herald
