‘Agriculture not development activity but profitable business’

17 Sep, 2021 - 00:09 0 Views
‘Agriculture not development activity but profitable business’ Irrigation brings hope to farmers in the face of climate change.

eBusiness Weekly

Henry Masasire

The re-elected president of the African Development Bank (AFDB), Dr Akinwumi Adesina, famously remarked that “Agriculture is not a development activity or a social sector but a business and it must be treated as one to unlock wealth”.

The AfDB leader’s comment is particularly an important one for the African continent, which still spends significantly on imported foodstuffs. For instance, Afrexim Bank estimates that more than US$90 billion was spent on food imports in 2019.

The AfDB itself is forecasting that the food import bill will likely rise to US$110 billion by 2025 amid rising demand for food and changing consumption habits. While the world has made progress reducing extreme poverty rates from more than 50 percent to about 30 percent according to World Bank, a vast majority of people still face hunger in Africa. The problem is more pronounced in rural areas.

According to the United Nations, in 2018 approximately 256.1 million Africans did not have enough food, which translates to circa 20 percent of the continent’s population. This unfortunate statistic contrasts with Africa’s share of uncultivated arable land of about 65 percent. Despite having such a resource, there is nothing to show for it.

That is why the advancement of sustainable agricultural and rural development is of paramount importance if the 2030 Agenda for Sustainable Development Goals (SDGs) are to be achieved. This is very important for Zimbabwe whose food imports dominates the import bill. According to Zimstats for the first six months of 2021, the nation has spent circa US$350 million of its hard earned forex on food imports which is 60 percent of the total import bill. By end of year through estimations it translates to about US$ 700 million of the total import bill, an unacceptable amount for a country that was once the bread basket of Africa.

The southern African nation is an agro-based economy with majority of its population living in rural areas. Agriculture underpins the country’s economic growth, food security and poverty reduction with an estimated 70 percent of the population depending directly or indirectly on agriculture.

Zimbabwe has a total land area of 39 million hectares and from that 42 percent (16.2 million hectares) is earmarked for agriculture. Of that total, 4.1 million hectares are under cultivation while 12.1million hectares are permanent pastures.

Approximately 365,000 hectares of land is suitable for irrigated agriculture yet only 175000 hectares are currently equipped for irrigation. Clearly, more needs to be done if government’s target of 307 000 hectares under irrigation by 2023 is to be achieved. The alarming number of 4.3 million Zimbabweans that are food insecure according to FAO would be less if more is indeed done.

The country has huge potential to grow and export a variety of its agriculture produce that is preferred in major regional and international markets. However, in order for the nation to realise this potential and increase revenue in exports from agriculture, there is a need to change farmers’ mindset. They need to see agriculture as a business and they need to focus on niches that can be value-added into different high-end products.

Zimbabwe has had a run of debilitating trade deficits because it over relies on raw and semi-finished export products. The global pandemic Covid-19, has only made things worse. The virus spread containment measures that were put in place by many countries like South Africa such as border closures resulted in slowed economic activity and supply chain disruptions. This inevitably led to reduced demand for Zimbabwe’s raw export commodities hence less export revenues.

Zimbabwe’s dependence on raw commodities exports exposes the country to the high variability and instability of global commodity prices. Such external commodity price shocks have continued to negatively affect the Zimbabwean economy thus creating domestic fiscal deficits and balance of payment deficits. Such deficits and imbalances lead to reduced public expenditures, rising inflation and currency depreciation.

The country continues to lose billions of dollars because it exports raw and semi-processed commodities ranging from minerals to agricultural produce only to import some of them back as expensive finished goods. The country’s main agriculture exports include tobacco, sugarcane, cotton and maize.

On tobacco, the top agriculture export earner, Zimbabwe is losing circa US$27 per kg due to lack of value addition. For instance, in 2019 export average price per kg of unprocessed tobacco was US$5 compared to US$32 per kg for cigarettes. This translates to more than 80 percent variance of unrealised revenue from value addition.

Another quick example is from the cotton industry. In 2019, the international cotton price was about US$.90c per kg compared to the average price of an imported shirt at US$10. The country is thus losing close to US$30 per kg of exported lint as one kilogramme of lint can produce three shirts.  Not only export revenue is lost from cotton when value is not added. Other economic benefits lost include improved incomes, unrealised government revenue from taxes and employment.

The economics behind raw commodities and processed or value added commodities is this, while demand for raw commodities is elastic, demand for processed or value-added commodities is relatively inelastic. The price of cotton may decline, but never the price of textile and garments.

This situation thus calls for the crafting of policies that unlock the huge potential of the country’s commodities. This can be done by developing agricultural value chains and agro-allied industries that process and add value. This will go a long way in improving the nation’s competitiveness in global value chains, save foreign currency, raise incomes for local rural farmers and increase contribution to the nation’s GDP.

Furthermore, in order for the country to realise the agriculture potential, there is need for the expansion of the production possibilities of smallholder farmers. Climate change is a major threat to agricultural productivity while other challenges include low soil fertility, reliance on rain-fed systems, poorly functioning markets, farmers’ limited access to credit, limited access to technology, lack of knowledge and best practices among others.

With respect to climate change, government should promote climate-smart technologies and practices. The Pfumvudza concept introduced by Government in partnerships with NGOs, is a commendable move towards addressing climate change. The concept aims at climate proofing agriculture by adopting conservation farming techniques and involves the utilisation of small pieces of land and applying the correct agronomic practices for higher returns.

Another technique is adoption of small-scale irrigation practices which are touted as key to building climate resilience. While there are no easy solutions to climate change, the combination of farmer-friendly tools and opportunities for learning and networking could help build climate resilience.

Limited access to finance and high interest rate is another key challenge that afflicts agriculture. The country’s banking industry has over the years underserved the agriculture sector in terms of lending due to perceived risk of the sector. Thus new innovative approaches are needed to de-risk agricultural lending.

Zimbabwe can learn from its African counterparts through use of first loss guarantees. For example, a few years ago Nigerian commercial banks and the Government came together to form a facility called the Nigeria Incentive-Based Risk Sharing for Agricultural Lending (NIRSAL). The NIRSAL is a US$500million non-bank financial institution wholly owned by the apex bank of Nigeria and was specifically designed to redefine, measure, re-price and share agribusiness-related credit risk. Since its inception in 2013, the NIRSAL has facilitated N102 billion or equivalent of USD250 million dollars as loans from Commercial Banks across the various Agricultural Value Chains in Nigeria.

In terms of agriculture infrastructure financing, the Government through the Infrastructure Development Bank of Zimbabwe (IDBZ) can mobilize funding for climate smart agriculture ventures like solar irrigation from the Green Climate Fund (GCF). Recently, IDBZ was accredited to the multi-billion dollar global fund created to support the efforts by developing countries to respond to the impacts of climate change.

Agriculture is an economic pillar of Zimbabwe and it supports all livelihoods yet it faces unforgiving climatic conditions and other agriculture related challenges.

On that, farmers with assistance from Government and private players need to explore and use appropriate production methods that will ensure sustainable production and make it their business to feed the nation through value addition.

 

 

Henry Masasire is a Researcher and an Economist – Contact: [email protected]

 

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