BACKGROUND
It is evident that Zambia will now have two consecutive seasons of a surplus in maize production. Prior to the onset of the current marketing season, the Food Reserve Agency offloaded maize onto the domestic market over the period January to end of March. This happened against all odds as there was enough maize in the domestic market but the effects of this are now being felt in that most early maize farmers are now unable to find any market for their maize which traditionally provides maize stocks to millers when the stocks run low over the period March to June. Farmers have been encouraged to grow early maize which is established under irrigation for six weeks prior to the onset of the rains. Early maize also requires huge investments in drying facilities as it is normally harvested in March / April with moisture content of +/- 20 % and has to be dried artificially to the desired moisture content levels of 12.5 %. The strategic importance of early maize in maintaining food security has been widely recognized. But now, the future for both early maize production and rain fed maize production hangs in the balance.
CURRENT PROBLEM
The Zambia National Farmers Union has observed disturbing maize marketing developments recently which should be addressed without delay. As announced by government, the maize marketing season was officially flagged off on 1st May 2010 which was a positive development as this should have effectively increased the number of participants in maize buying in the market thereby raising the demand for maize. To the contrary, the producer price for maize has declined at an alarming rate to levels that will not sustain future production of maize.
PRICING DEVELOPMENTS
A quick survey of the millers/briefcase buyers in the market revealed that in some cases the producer price of maize has come down and are in the range of K650 to K800 per Kg or K650,000 to K800,000 per tonne or US$130 to US$ 160 per tonne assuming a K5000 per dollar. Information from the ZNFU market price discovery information system also reveals that the maize producer price has tumbled from an average price of K64,000 per bag at the end of March to K37,500 per bag or K750,000 per tonne in the week beginning 10th May 2010. The Zamace price information point to similar trends as the recent sales registered have come down from $285 per tonne at the end of March to $249.47 per tonne as of 11th May 2010.
With the producer price of maize having come down, the current scenario reveals that at K800, 000 per tonne, millers are able to realize K1,695,400 or $339.08 from every tonne of maize based on a 52% extraction rate for breakfast meal or 20.8 bags, 30% extraction rate of roller or 12 bags, 15% maize bran or 6 bags and assuming milling losses of 3% and by applying the prevailing retail prices of K58,000 per bag for breakfast, K37,000 per bag of roller and K7500 per bag of bran. If the maize costs $160 per tonne and overhead costs are placed at $30 per tonne, the net profit realized amounts to $149.08 per tonne. These figures are alarming, a situation where net profits is as high as 78% of total costs is exceptionally high by any standard especially in the milling industry. We are totally dismayed that this situation has remained unchecked. When price sensitivities are run for all the maize by products, a 10% profit margin can be realized with breakfast meal trading at K35,000 per bag, roller meal at K22,000 per bag and bran at K6000 per bag. Under these conditions, it is evident that the current maize marketing arrangements do not benefit the farmer or the consumer. The farmer is faced with a producer price below the cost of production while consumers are exploited as the retail prices do not fall in line with the drastic drop in the producer price paid to the farmer? Who benefits then? This begs for a total review of the maize marketing policy environment.
WAY FORWARD
Based on these findings, we demand that these developments are dealt with firmly to save the grain industry from total collapse. It is clear that the farmer has become the sacrificial lamb under the current maize marketing arrangements because of the selfish motives of a few players in the value chain. When there is such irresponsible behaviour in markets, it is imperative that some regulatory mechanisms are introduced with the full participation of all the players in the industry. We are not in anyway advocating for a return to price controls but would like to see some sanity in the pricing of maize so that producers do not go out of business because of short term gains by a few players. Should this situation remain unchecked, maize production will drop drastically next farming season and the country risks having to return to importing maize when the country is best placed to grow more of it and export.
The cost of producing is ever going up as can be seen even from the recent rise in fuel prices, the increase in electricity tariffs which is on the horizon and yet the producer price is declining. Nowhere in this World are producer prices upheld below the cost of producing because it is a recipe for future disaster as production cannot be sustained. It is for this very reason that most countries channel public resources towards the purchase of excess agricultural commodities, then, look for markets at an appropriate time in order to safeguard domestic production for the future periods. Maintaining a good price incentive to producers at all times is what drives production. We therefore expect the Food Reserve Agency to be adequately funded so that it can participate effectively in buying any excess crop. Careful management of the current maize marketing should become a pre-occupation of all well meaning stakeholders in the maize industry so that a win win outcome for all is achieved.
JERVIS ZIMBA
PRESIDENT – ZAMBIA NATIONAL FARMERS UNION
