proceedings of the national consultative workshop … · the stakeholder workshop placed specific...

OPENING SESSION

Section One

Page 3

WELCOMING REMARKS By Professor Sam Moyo, Director, SARIPS

Professor Moyo noted that this first FANRPAN stakeholder consultation represented the first major

attempt to give the network a direction.

Broadly, the FANRPAN Network seeks to inform the policy making process at all levels, including

policy analysis, implementation and monitoring and evaluation. It will operate proactively as a

mechanism for strategic thinking and policy reflection in Zimbabwe and the region. The specific

objectives of the Network are to:

Provide a forum for policy dialogue and advocacy among the scattered stakeholders;

Improve policy research analysis, formulation and monitoring around key themes and to

improve the quality and focus of such work;

Develop strengthened human and institutional capacity for policy analysis and research; and,

Develop a research agenda and strategies appropriate to the country and the region.

The objective of the first Stakeholder Workshop was to develop strategies as a group which would

guide the Network and enable the secretariat to, plan their work and raise resources. In light of this, a

number of questions were raised:

How the network could facilitate and mobilise human and financial resources;

The need to organize appropriate policy briefs and monitor and assess their impact;

The need to facilitate information sharing and the communication of results through the

development of an information culture;

How to build skills and develop institutions that would complement those already existing;

The need to monitor the development of FANRPAN, including the development of a

database information system to track the needs and activities of Network members and

international players.

FANRPAN would operate along the following themes:

Poverty related issues of food security and rural economic growth;

Trade arrangements - tariff and non tariff barriers;

Issues of natural resource management, including land tenure, property rights and

biodiversity;

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Economic reforms, both externally conceived structural adjustment programmes and

homegrown reforms;

Institutional reforms, including those concerning intellectual property rights.

The stakeholder workshop placed specific emphasis on the theme of trade arrangements and tariff

and non tariff barriers. There is tremendous opportunities for expansion and the creation of new trade

in the region and it was important for the network to mobilise resources for interaction between civil

society, the private sector and government.

Professor Moyo expressed the hope that all present would follow through with the initiative and

assist in strengthening the FANRPAN network.

OPENING ADDRESS Honourable Joseph Made, Minister of Lands, Agriculture and Rural Resettlement

It gives me great pleasure to be invited, not only as guest of honour, but also to share my ideas and

participate as much as possible by highlighting some of the key issues of concern in the agricultural

sector in the sphere of promoting trade and expanding our exports at this juncture of our historical

development. It is most encouraging that the Zimbabwe chapter of the Food, Agriculture and Natural

Resources Policy Analysis Network (FANRPAN) is under the stewardship of SARIPS, which is

already operating in the region and promoting development through a multi-pronged approach of

sharpening analytical skills for building policy analysis and capacity building through its research,

training and dialogue activities that cover areas such as governance, peace and security, economic

policy, gender, social policy, environment and land reform in Southern Africa. This workshop is,

therefore, part of the broader SARIPS dialogue activities involving stakeholders, academics, civic

organisations and policy makers drawn from different backgrounds.

The theme of this workshop on Agricultural Trade with Specific Focus on the Region is very

appropriate as it seeks to bring together the operatives on the ground to identify the problems they

face on a daily basis and map out strategies to solve pertinent problems affecting agricultural trade in

Zimbabwe and the region. As you are all aware, the Economic Structural Adjustment Programme

(ESAP) that our government embarked upon in the early nineties has impacted both positively and

negatively on the Zimbabwean economy and regional agricultural trade. There has not been any

follow up based on stakeholder consultation to take stock or seek new strategies to invigorate and

improve on this policy framework. This consultative forum is an important step to collectively

address issues affecting agricultural trade, identify what has been done and not done, and assess

performance now and for the future.

As we undergo a rapidly changing environment we need to look at the overall regulatory framework

and the performance of key players across the board. We need to come up with an agenda that offers

us scope to move forward by addressing policy constraints, implementation mechanisms and

evaluation of agricultural trade in Zimbabwe and the region. Gone are the days when we could seek

to address our trade regime by looking at input supply only. We need to look at the demand side of the

equation and the willingness of our neighbours to cooperate with us to ensure our survival. This is,

perhaps, a strong link which FANRPAN introduced, through networking across the region and

seeking common strategies for closing the gaps and building regional capacity. I understand that the

FANRPAN project is a regional initiative that has nodes in eight SADC countries. It brings together

technocrats from the public, private and non governmental sectors involved in advocacy issues in the

agricultural sector in Zimbabwe and the region.

The Zimbabwean economy is agro-based and, indeed, agriculture is the main foreign currency earner

for this country. Appropriate marketing strategies and relevant agricultural policies are the driving

forces in the revitalization of the agricultural sector in Zimbabwe. Zimbabwe has to remain the bread

basket for the region but this can only be sustained if we retain our competitive edge on the domestic,

regional and international markets. A number of factors have to be addressed for this situation to

obtain. The issue of land reform and increased agricultural productivity by all agricultural

participants, be they small, medium or large-scale farmers needs to be addressed as a matter of

urgency.

The land reform programme is a major issue in the definition, characterization and determination of

the performance of the agricultural sector in Zimbabwe and the whole of Southern Africa and

beyond. Government's policy on land reform takes centre stage at this point in time, as it seeks to

redress the historical land imbalances through the 'fast track' land resettlement model. It is not

surprising that this policy has its critics and opponents, some of who have vested interests in the

status quo, which are not beneficial to the disadvantaged majority. The issue, as far as we see it, is how

to best address an historical injustice that has been on the sidelines for too long and cannot be ignored

for the future peace and stability of the nation and region.

A second related problem is the fundamental issue of increasing our foreign exchange earnings, to

avoid the negative impact on trade, importation of new machinery and inputs for the agricultural

sector. The agricultural sector has always played a key role in attracting foreign currency to the nation

and this should continue into the next century. We cannot ignore the trade protocols that play a

fundamental role in regulating the trade regime in the region. As stakeholders, we need to ask

ourselves if we are sufficiently acquainted with these protocols and if they are of benefit to our

farmers. The regulatory system that is evolving has put a major squeeze on informal trade for

instance. Is this the direction we want to move in when a broad section of our communities are

involved in informal cross border trade? How can we formalize this trade to the benefit of both the

informal and formal sectors in Zimbabwe and the region?

Regional integration of the SADC states has also brought enormous challenges for agricultural trade

in Zimbabwe and the region. Issues pertaining to tariff and non tariff barriers, quotas, quality of our

agricultural products, incentives, phytosanitary regulations have tended to put in place more

controls and restrictions to promotion of trade in the region. In whose interests do these measures

work? As stakeholders, it is time for us to identify and improve on the regime of controls by directly

interfacing with our counterparts and to bring these pertinent issues to policy makers. To all intents

and purposes, we have been putting in place measures that hurt us and restrict our potential growth

to expand into international markets.

Indeed, all other regulatory instruments pertaining to agricultural trade in Zimbabwe and the region

have to be constantly scrutinized so that they do not impact negatively upon this strategic sector of

our economy. Therefore, it is appropriate that this forum come up with concrete and relevant

recommendations for policy making, not only in Zimbabwe, but also in the entire SADC region.

This stakeholder workshop should put in place a beginning for consolidating a stakeholder

perspective of the agriculture sector at a time when we are faced by numerous problems, which we

are capable of resolving. I wish you successful deliberations and hope that you will come up with an

agenda that will positively impact on Government, stakeholders and other players. It is my sincere

hope that the ideas generated at this important forum will be synthesized and forwarded to my

Ministry as policy making guidelines for implementation. I have no doubt of this, given the diverse

wealth of experience and perspectives from various stakeholders gathered here who are capable of

generating new ideas and recommendations will assist in reviving the agricultural sector.

I urge you all to feel free to interact openly with each other as you exchange ideas that will benefit

agricultural trade in Zimbabwe and the region. With these few remarks, I would like to officially

declare this workshop open.

ZIMACE, Its Formation and Role in The 'Liberalised Local Market' and Trade in the Regional Market By Mr Ian Goggin

Ian Goggin, Managing Director of ZIMACE gave the background to the Zimbabwe Agricultural

Commodities Exchange (ZIMACE). He explained that it originated in the 1990s when, in the context

of the Economic Structural Adjustment Programme (ESAP), Government indicated that the

agricultural marketing boards were likely to be dissolved. The general liberalisation of the

agricultural market was an adjunct to this. The need to be able to buy and sell without price controls

led to discussions with experts from various parts of the world, resulting in the creation of an

agricultural commodities exchange. The major players and financial backers at the beginning were

the Commercial Farmers' Union (CFU) and a private company, Edwards and Company.

A private company was formed employing a small number of brokers and began to trade in a manner

described as 'semi-transparent'. However, the volume of trade was too great for this type of

arrangement and the company eventually involved other players through selling of shares.

The exchange opened in March 1994 with the CFU and Edwards and Company as the major

shareholders, holding eight and seven seats respectively. CFU has since divested four of its seats and

these are now held by the major commodity associations. Edwards and Company has retained only

one seat. There are now 23 members of ZIMACE including the Grain Marketing Board (GMB), two

financial institutions, millers, traders and others.

The process of establishing the exchange determined that strict rules of guidance were needed in

order to create an orderly market that encouraged production and rewarded quality. It was necessary

to introduce an exchange that exhibited integrity, was available to all the people of Zimbabwe and

was acceptable to international traders. This was expected to benefit both producers and consumers

on the basis of free market principles.

ZIMACE was the first agricultural commodity exchange in Southern Africa. Zambia's commodity

exchange opened in June 1994 whilst South Africa opened in 1995. It was noted that South Africa's

exchange has been successful and that in East Africa, Uganda's exchange still has some potential to

succeed. The commodity exchanges in Zambia and Kenya have not been successful. In this context,

OVERVIEW OF AGRICULTURAL MARKETING

AND TRADE: PROBLEMS AND PROSPECTS

the importance of ZIMACE continues to grow internally, regionally and internationally. This is

reflected by the number of visitors to the ZIMACE website.

However, a continued lack of relevant market information has had a significant negative impact on

the agricultural market. The information that is available is frequently inaccurate or distorting. This is

exacerbated by a lack of support from the larger market based institutions and the fact that some

ZIMACE members are concurrently active in conducting trade off the floor.

There is a need to distinguish between the roles of a broker and a trader. Traders buy in bulk at a cheap

price and on-sell the commodity while a broker does business on behalf of a client and takes a

percentage for their services. Their interest, therefore, is in gaining the best deal both for the client and

themselves. With respect to maize, for example, prices have been low in 2000. This is partly because of

market forces, influenced by an oversupply of maize in the region but it can also be attributed in part

to one major trader forcing down the price in order to on-sell at a good profit.

The ZIMACE board has recently enforced a rule making it compulsory for members to trade across its

floors and all but three members have now elected to become broking members. These three must

operate through a member broker when they wish to trade on the ZIMACE floors.

ZIMACE currently provides both a spot and a forward market but is unlikely to take up dealing in

futures. It was suggested that the most practical course would be for the South African Futures

Exchange (SAFEX) to adopt this function on behalf of the region. The suggestion that ZIMACE be

adopted as a regional spot and forward market has not really been taken up at this stage but ZIMACE

hopes that this would create great opportunities in the region. This may most likely to be picked up by

the tobacco industry. Considerable expertise has been realised and some of the ZIMACE brokers are

now operating both on SAFEX and over the Internet.

There are currently eight different contracts on the Zimbabwe exchange for specific commodities and

one representing over 60 small commodities. Each contract contains details of quantity, quality, risk,

price and packaging. Arbitration is carried out in-house and its effectiveness has resulted in a decline

in the number of cases being brought because clear precedents have been set.

The GMB, a major player, has dual roles. The first is to exploit commercial opportunities on its own

behalf. GMB also acts as a strategic grain reserve for the government. This leads to a situation in which

the price of maize is effectively set by Government and is above the natural market price. There has

been some difficulty in separating these two functions as the GMB is also the buyer of last resort.

Trade volumes on ZIMACE have increased over the years and the value of the annual trade has risen

from US$ 1.38 million in 1994/5 to US$253.2 million in 1999/2000. ZIMACE is in the process of

introducing the ZIMACE Silo Certificate which will act as proof of ownership of a commodity and

thus offer security. This will be accepted by financial institutions as the basis for loans and it is

envisaged that a secondary money market could evolve from such a document.

In terms of regional trade, the opening up of the market was needed to create opportunities for

Commodities. To improve transparency and openness in agricultural trade, Mr Goggins suggested

the need to:

Liberalise the market entirely, as opposed to the current situation in which it is semi

liberalised and, therefore, open to abuse;

Ensure that decisions taken are adhered to so that, for example, permits are not issued and

then later withdrawn, as this is bad for the country's reputation.

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INPUT SUPPLY: AN OVERVIEW OF THE FERTILISER INDUSTRYBy Mr Baxter Mawoza

The fertiliser industry is important to Zimbabwe for a number of reasons:

60 percent of the population is engaged in agricultural production;

Agriculture provides 22 percent of the gross domestic product;

Zimbabwe is one of the top three tobacco exporters in the world.

Fertiliser therefore plays a vital role in farming production. Its use in agriculture has increased in

recognition of the need for higher yields. Zimbabwe provides a typical example of this. Since

Independence, 50 percent of the growth in agricultural output has been attributable to fertiliser use.

A number of factors affect the supply of this important product. Some of these were logistic issues

arising because many of the inputs of the fertiliser industry are imported. Other logistic problems

were:

Discharge delays at ports, noting that the natural port to use would be Beira but its low

capacity forces Zimbabwean importers to use other distant ports such as Durban;

Insufficient rolling stock;

Penalties charged when off loading from ships is slow;

High transport and time costs involved in bringing goods overland from South Africa; and,

Congestion at ports.

There have also been financial constraints in the procurement of fertilizer. When ESAP was

introduced in 1991, it was intended to alleviate the problems of the economy but the deficit faced by

Central Government has led to a rapidly increasing interest rate, from 40 percent in 1995, peaking at

60 percent in 1999 / 2000. As a result, companies have had to outlay increasing amounts for the

necessary inputs. The cost of foreign exchange has also increased sharply. Whereas the exchange rate

was Z$8 to US$1 in 1994, the rate in 2000 is Z$58 to US$1. This situation makes it hard for fertilizer to be

available readily as importers cannot obtain the foreign currency they need and this threatens their

operations viability. Customs tariffs are a further constraint. There is a 5 percent duty across the board

on all inputs as well as on the finished product.

Effective procurement of inputs depends on the capability and reliability of the supplier. Failure to

secure such a supplier has a number of interlinked implications, such as:

Stock shortages resulting in interruptions to production and sales;

Negative effect on return on investments due to high costs arising from unnecessarily high

prices; and,

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Declining market share as a result of inefficiency caused by procurement difficulties.

The major threats to input supply include that of possible sanctions, especially could affect imports

from the US and from Europe. However, some opportunities also exist. The first is in the area of

exports and could be exploited by local companies moving from only supplying the seasonal local

market, to exporting. The situation could also be alleviated through:

Direct purchase of goods from source i.e. cutting out the middle person;

Aggressive negotiation;

Conservative use of foreign exchange.

The fertiliser industry in Zimbabwe is controlled by four interdependent, local companies. The

Zimbabwe Fertiliser Company (ZFC) and Windmill are both reliant on forms of technology that

require inputs supplied by Zimphos and Sable Chemicals.

Sable Chemicals was formed in 1966, one year after Rhodesia's Unilateral Declaration of

Independence (UDI) in response to the threat of sanctions. Sable manufactures ammonia, from which

it then makes ammonium nitrate fertiliser. Sable Chemicals uses a high energy intensive process,

which makes the company the second largest user of electricity in the country after the City of Harare.

Eighty Seven percent of the energy required is used in the electrolysis process. This has proven to be a

leading cost driver as there has been a 226 percent increase in the cost of electricity between January

1999 and August 2000. There has, so far been no viable alternative to the production of ammonia

locally as imported ammonia is also very expensive. Natural gas was found in the Lupane area years

ago but the cost of getting it is too high for any one company to undertake alone. It was suggested that

Sable Chemicals could consider negotiating directly with other suppliers of electrical power in the

region.

Zimphos manufactures phosphatic fertilisers, the main inputs being sulphuric acid and phosphate

rock. Sulphuric acid is burnt to produce sulphur which then reacts with phosphate rock to make

super phosphate. The major cost involved is fuel, since it takes 25 000 litres of diesel to start the

sulphur burning plant. In addition, the plants use imported technologies that are now forty years out

of date. This means that spare parts have to be specially made at high costs and the company has to

face either long delivery times or the need to stockpile spares in case of breakdown. The major

opportunity for the company lies in the area of exports.

Windmill and ZFC depend on Sable Chemicals and Zimphos but also have to import boron, potash

and other chemicals. The major constraints they face are:

Shortage of local raw materials arising from the production constraints of their local

suppliers, Zimphos and Sable; and,

The continual need to purchase inputs while sales only take place during two periods in the

year.

Mr Mawodza suggested that the way forward lies in addressing institutional constraints as follows:

Dialogue with the Zimbabwe Electricity Supply Authority towards more favourable

electrical rates;

Government creating a conducive atmosphere for investment by establishing a free floating

exchange rate, reducing its deficit and addressing the current tariff regime; and,

The industry itself addressing its in-house problems.

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Discussion on the Overview of Marketing and Trade…

Chairperson, Sam Moyo highlighted that there was a series of problems spanning the

agricultural, industrial and energy sectors.

FANRPAN needed to come up with solid policy guidelines in support of Government's

recognition of the need to review the current agrochemical production system. FANRPAN

could assist by carrying out research into the alternatives and developing guidelines for

implementation.

ZIMACE was seen to have been very proactive but it was noted that farmers were currently in

a state of limbo because of the situation with GMB, which has accepted maize from farmers

but had been unable to pay them. It was suggested that ZIMACE use its regional contacts to

find a way out of this situation. In particular, it was pointed out that Kenya had a huge deficit

of maize in the 1999/2000 season. Though a policy decision from the Government would be

required to overturn the current ban on the export of maize, this was seen to be necessary, at

least as a temporary measure.

The non-payment of farmers affected many industries. This had a bearing on their confidence

in the market, leading to shortages in the seed industry. Maize was viewed as a good

commodity for production and handling by rural communities but fear was that should

farmers lose confidence in producing maize, Zimbabwe risked becoming a net importer of

basic commodities. There was need for Government to come up with a clear way forward.

ZIMACE could assist but it was felt that it could not replace the role of the GMB.

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