• WHAT CROPS SHOULD BE TRADED ON ZIMACE BY SMALLHOLDER FARMERS
  • Agricultural Commodity Prices Analysis For 1996/97 Marketing Year
  • [Storage Profitability Assessment]

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WHAT CROPS SHOULD BE TRADED ON ZIMACE BY SMALLHOLDER FARMERS

Although all crops could be traded on ZIMACE, it is very important for the farmers to do an economic analysis to assess which crops could be marketed through the Exchange profitably. Due to market liberalisation, there are a number of players in the marketing of agricultural commodities. Each of the players, especially the buyers always try to get the largest slice of the cake, leaving the producer with a very small piece. Therefore, it is advisable for the farmers to first do some margin analyses to assess the profitability of each channel, taking into consideration transport costs, grading system, levies charged, payment system and any other marketing costs.

Agricultural Commodity Prices Analysis For 1996/97 Marketing Year

The final price received by a producer is determined by location, packaging, market levies and the quality of the product. Commodity prices offered through different channels during the 1996/97 marketing year, that is, from 1 April 1996 to 31 March 1997, are given in the tables below:

Table 1: GMB, Private Buyers and Local Trading Commodity Prices

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Table 2.
Average Monthly Prices ($Z per Metric Tonne) for Commodities Traded on ZIMACE

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Cotton was being sold to two companies, that is Cotton Company of Zimbabwe and Cargill. The average prices for grade A was $5.61 and $5.70 per kilogram respectively delivered to the company depots. However, other middlemen going into cotton growing areas, mainly for smallholder producers were giving farmers $3-$4 per kilogram.

For ZIMACE, there are bid (buyer), offer (seller) and forward prices for every Friday of the week. Availability of these prices only guide the market players of the price to be accepted. Thus, the prices in the table below is for the deals which actually went through the Exchange.

A comparison of all the commodity prices in tables 1 and 2 show that ZIMACE was trading on higher prices than GMB, except in the month of June 1996, when maize was traded at $1 063/tonne lower than the GMB price of $1 200/tonne. The main reason for a lower price in June 1996 was that the market was still saturated with the commodity as this is the time when many producers were marketing the commodity. Producers get more money when commodities like groundnuts, wheat and small grains are locally traded. In the case of groundnuts, farmers get much more money when they process the groundnuts into peanut butter, which is sold in nearby urban centres. It is therefore advisable that farmers stick to local trading with crops like groundnuts, wheat and smallgrains as this helps in overcoming some of the marketing problems associated with formal marketing. However, it has to be borne in mind that local trading is only viable when the commodity is not in abundance. In any case, crops like groundnuts and smallgrains are never produced in abundance given the preference which farmers give to the maize crop.

Deals which usually go through the Exchange are for white and yellow maize, wheat and soyabeans. Therefore, farmers should consider marketing their maize, soyabeans and wheat through ZIMACE for them to benefit fully. Though farmers get higher prices when wheat is locally traded, this is only feasible with little quantities. Farmers in small scale irrigation schemes usually have problems finding a market for their wheat crop bacause of bigger volumes, thus ZIMACE could be the answer.

For cotton , there is now stiff competition between Cotco and Cargill, with the later promising to pay producers part of the payment in foreign exchange. Thus, farmers should make use of these two marketing channels. With sunflower, new market opportunities are coming up with the expansion of the small oil expression outlets. Some of the outlets are being operated by some smallholder farmers’ groups in areas like Shurugwi in Midlands province and Chivi in Masvingo province. There are also other companies who are buying sunflower and groundnuts basing on the percentage of oil in the commodity.

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Table 3: PRICES (Z$ per Tonne: A grade ) DIFFERENCE FOR WHITE MAIZE: ZIMACE versus GMB

From the price differences in table 3 above, farmers would have made a lot of money by marketing through ZIMACE during the month of April. However, experience is that very few smallholder farmers, if any, would have dried their maize for sale by this time. This opportunity can easily be exploited by those in small scale irrigation schemes, who usually harvest their maize crop around January and February.

Historical data with GMB shows that the peak marketing months by smallholder farmers are June, July and August. This is also evidenced by a lower price (Z$1 063/tonne) which was experienced on the Exchange in June 1996. From table 3, farmers would have been better off marketing through ZIMACE by delaying selling their maize by a month, though the price difference was not that much, but storage profitability needs to be assessed.

Assessing Storage Profitability

Generally, for grain crops a 5-17% post harvest price increase is needed to cover the storage costs, and anything above will be storage gain. Assuming $1 200 per tonne was the harvest price for grade A maize, the percentage price change for the months which would have required storing are shown in table 4 below.

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Table 4: Monthly Percentage Price Changes

The percentage price changes in Table 4 above indicate that farmers would have gained by storing their maize and start selling in December 1996 onwards. Assuming that a 5% post harvest price increase is required to cover the storage costs, farmers would also have gained by selling their maize grain in August, October and November.

Overall Storage Profitability Assessment

The storage profit/loss ratios in Table 5 below is computed using the following formula:

postharvest release price
harvest price + storage cost

If the ratio from the formula is equal to one (1), then storage is just profitable. If the ratio is greater than one (1), then a storage gain is being made, or excess profit is being made because unit returns are higher the costs. Conversely, if the ratio is less than one (1), storage is making a loss.

Note: Storage cost per month is calculated using the following equation:

(r+i) p(h) + s
12

where: r = rate of crop losses (12% over nine months)
i = interest rate (opportunity cost of capital) (28%, AFC rate for short term loans)
p(h) = unit market price at harvest (Z$1 200/tonne, GMB producer price)
s = unit operating costs per month (Monthly operating costs have been assumed to be zero).
Using the figures above, Z$40/tonne is the storage cost per month. The profit/loss ratios have also been calculated using Z$30/tonne.

Table 5: Monthly Profit/Loss Ratios

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From the ratios in Table 5 above, there are four months, that is September 1996, October 1996, November 1996 and March 1997, when farmers could have made a storage loss with a monthly storage of Z$40 per tonne. However, if the ratios are rounded off, then it would have been just profitable to market during these months. For the months of July 1996 and August 1996, it would have been just profitable to store maize for later sale without rounding off the ratios. Storage gains would have been experienced by storing and selling in December 1996, January 1996 and February 1997. There is only one month, September 1996, when storage would have made a loss with a monthl storage of Z$30 per tonne. It would have been just profitable (July’96 and October’96) to store maize grain whilst a storage gain would have been made in the other months (Table 5, column 3). Farmers are however advised to weigh the costs incured against the storage gains in order to make intelligent decisions.

Thus, it requires a lot of market intelligence for a farmer to market commodities profitably. Selling through ZIMACE is advantageous because the quoted prices above could be farm gate prices. As explained above, prices on the Exchange depends on the bargaining power of the producer and market conditions. On the other hand, GMB prices could be very tricky given the fact that they are pre-planned and the grading system does not favour the small holder farmers. Therefore, smallholder farmers still can benefit by marketing maize through ZIMACE, provided there is bargaining power, which can easily be strengthened through the ZFU structure.

**It has to be borne in mind that selling maize through ZIMACE is only viable if the prices are farm gate prices or when the producer is not required to transport the commodity for long distances. If the prices are for delivery in Harare, then it will be better to market through GMB, given that there are depots or collection points in all major growing areas. A farmer is advised to weigh the opportunist cost of marketing through ZIMACE or transporting the maize crop to the nearest GMB depot.

Price difference of soyabean between the ZIMACE and GMB prices ranged from Z$636 in April 1996 to Z$983 in September 1996 to Z$1 426 in March 1997. This gives an increase of 32%, 49% and 71% respectively of the ZIMACE price over the GMB price. In the case of wheat, there are no significant price differences between the ZIMACE and GMB, except in January 1997 (Z$3 886 price difference). However, farmers are advised to source wheat outlets through the Exchange given the total decontrol of wheat marketing for the 1997/98 marketing year. Since wheat export permits are to be given to anyone, it envisaged that the Exchange’s prices will be more lucrative than the GMB prices given the market intelligence of players on the Exchange.