Care needed for farm producer subsidies

03 Dec, 2021 - 00:12 0 Views

eBusiness Weekly


Last Word

By becoming intelligent over how it supports farming, and by formalising systems and cleaning out a large block of the previous corruption, the Government is allowing the bulk of farmers to move up the scale and at least grow enough food for their own families with something left over for sale, while getting the medium scale commercial farmers, those with capital, to grow their businesses.

But there is need for adjustment, need to be more precise over how to fund commercial operations and a need to move beyond remaining ad hoc arrangements into sustainable and viable business systems.

Zimbabwe’s farmers are basically divided into two groups and different approaches are needed.

The large majority of farmers are small-scale farmers operating under a variety of land tenure, but without title deeds. 

There are the communal lands, the old “native reserves” where people were dumped in colonial times when half the country was grabbed for sale to immigrants. Some are in pretty ropey areas, a few were carved out of better land, but since the pressure came from the British Colonial Office, with even sympathetic officials far away with small-scale maps and a total lack of knowledge of tropical farming systems, the result was dubious. Farming systems were developed by a small group of missionaries and dedicated civil servants, but the general attitude was to ignore them until after independence and even then until very recently required funding for farm operations, and particularly for required infrastructure like irrigation, was not as high a priority a it should have been.

To these have been added two sets of resettlement land. There are the “old resettlement areas”. These tended to be on the edges of the former commercial area and had been largely abandoned during the liberation war. Infrastructure was always on the weak side and some of the land was pretty marginal. This was the main reason why the land was easy to acquire as the white farmers retreated into the better developed areas. While a lot of talk was made about how they could be developed, there was not a lot of money.

The larger block of small-scale resettlement land are the A1 farms from the 2000 land reform. Again many of those granted land were expected, in practical terms, to develop their small farms themselves with only modest assistance. Some managed, but many did not.

For both communal and the small-scale resettlement farms a lot depended on whether there were urban wage earners and if the farmers were in the tobacco area, where to give the private sector its due, there was that determined effort to move into contract farming that did start pumping skills and wealth into these areas. Problems may have arisen over the near collapse of non-contract tobacco farming, which means that the pricing mechanism set by the auctions has become less effective, But generally the system needs tuning rather than replacement and offers a model for others.

Cotton, which had been and should have remained the other major cash crop, and which did bring some prosperity to some forgotten areas, ran into its own troubles. The conversion of the old monopolistic Cotton Marketing Board into a private company, followed by a bunch of newcomers into the business, should have worked quite well if the later tobacco contract model was followed.

Unfortunately there was no regulator and enforcer, like the Tobacco Industry Marketing Board in tobacco, and some of the newcomers were not the most ethical businesses and the whole industry basically collapsed. It is only now that the true extent of the mess, with the gross underfunding of Cottco, the successor of the old CMB and the largest survivor of the collapse, is being seen and some emergency budgeting put in place. One of the ways out of the problems might be to put in place a cotton version of the TIMB, so at least there is an efficient regulator and referee. This would allow respectable and knowledgeable investors to join Cottco in a viable industry.

Pfumvudza/Intwasa has been a success and the Government is quite correctly building on that success. 

There has been criticism that the inputs are free to farmers, that is they do not have to be repaid. But a fairly simple system is in place to ensure that they are properly used, with farmers having to undergo training, be certified that they have a farm or access to land and are resident on that land, and critically make the land preparations in advance. 

This subsidy, and economically that is what it amounts to, is properly budgeted and funded. Unlike consumer subsidies, which pay farmers the proper price for their crops but sell these cheaply, the producer subsidy produces minimal distortions. We do not get people running black markets in subsidised meal, for example, nor farmers buying subsidised human food to feed their pigs. A degree of enforcement to ensure that the inputs are actually used on the farms they are assigned to appears to work.

Most of the budget can come from empowering producers rather than giving food relief. It costs less to help people grow their own food, with the opportunity to sell surpluses, than to hand out food to families that have wasted a lot of labour to produce some withered stalks. And by empowering the farmers with skills, business practices and the like doors are opened for extra production for pure profit.

We need to remember that a small farm properly managed can produce the food a family needs with some left over for sale, but that the percentage of the crops that are retained on farm is quite high. This makes repayment schemes unviable although the same farmers could be encouraged to expand operations with more commercial funding since that extra will generally be sold.

So Pfumvudza/Intwasa needs to be retained as a long-term programme but more and more seen as the anchor of the small-scale sector rather than the whole of the small-scale sector. Other schemes, such as credit and access to mechanisation and irrigation can be used to move the Pfumvudza/Intwasa farmers up the line.

Where we appear to be running into some viability problems is with what is supposed to be a largely commercial sector, the A2 resettlement farmers plus the small group of “purchase land” farmers from the old days, plus the smallish group who still have a larger farm with title deeds. 

Command Agriculture and its more commercial successors has pushed production right up. But the system is not working as well as should be as a business enterprise. These farmers, once they have got going, will retain only a small percentage of production and the vast bulk of what they grow is supposed to be sold and the credit granted repaid. 

Repayment now appears to be a problem along with some improper pressure on who qualifies and who does not.

Support is still needed for these farmers, especially with highish although falling inflation and the resultant commercial interest rates. But a lot of that support needs to be modelled on how the old white commercial farmers were supported for many decades, and they got a lot of support. This is where the Land Bank comes in, the tax concessions for investment and what amounts to interest subsidies. 

Properly farmed the farms in each zone that meet the maximum sizes now set should be highly profitable, but this does mean that the profits should be generated in non-business ways. To be sure the farming operations need to be capitalised, and the farmers need access to short-term inputs credit and longer term finance for things like fencing, irrigation and mechanisation. But those schemes need to be administered in a businesslike way with the support coming more from Government capitalising the schemes and raising the capital totals each year, rather than what amounts to an annual producer subsidy.

There have been reports, based on what was produced and what was sold to the GMB, that there is a high level of side marketing. This can be formalised in a businesslike way if you think about it. In theory it does not really matter whether a farmer sells maize to the GMB or a miller, but any loans need to be listed and be repaid.

When we are down to only a few tens of thousands of farmers with larger commercial farms the administrative costs are trivial compared to the millions under Pfumvudza/Intwasa producing smaller quantities. A lot of the record keeping could now be digital on open access data bases, making it easy for the final buyer to implement a stop-order scheme. 

Even if there was a need for producer subsidies, and there might well be especially in these early days, these could then be applied properly and be budgeted and accounted for. But for most of these farmers the subsidies are more likely to be on the cost of financing, which would at least ensure that the organisation allocating finance made the proper checks first, 

Pfumvudza/Intwasa works so well because it was set up from scratch, replacing a host of ad hoc schemes that did not really work very well and it adopted a simple system to ensure that farmers were genuine, trained producers who were ready to do the work. A more commercial scheme needs to adopt, in the more sophisticated environment, similar concepts. Tinkering with what was inherited by the Second Republic is probably less effective than putting in a proper scheme from the beginning.

Taxpayer support for farming might be necessary, but it needs, as with Pfumvudza/Intwasa, to be accurately budgeted and the cost-benefit analysis done. 

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