Combined Country Report for SACAU AGM

THIS IS A COMBINED REPORT BETWEEN

COMMERCIAL FARMERS’ UNION

AND

ZIMBABWE FARMERS’ UNION

COUNTRY REPORT

UPDATE ON THE ECONOMY AND AGRICULTURE – March 2010

Introduction

This report covers the macro-economic environment that all farmers operate in,

production trends of the main agricultural commodities, and current constraints to

productivity.

In 2009 the Zimbabwe economy began to grow in real terms after many years of poor

results. It was the first time that the economy had registered real growth since 1997. The

reversal followed an IMF calculation of a -14.1% shrinking of the economy in 2008. In

making his annual budget speech in December 2009 the Minister of Finance revised the

growth rate of Gross Domestic Product (GDP) in 2009 from 3.7% upwards to 4.7%. This

prediction was based on growth rates of 10% for agriculture, 2% for mining, 8% for

manufacturing and 6.5% for tourism. He then went on to predict a positive growth in GDP

of 7% in 2010. Agriculture, manufacturing, and tourism are each expected to grow in 2010

by 10% while mining is projected to grow by 40% on the back of much improved gold and

platinum performances.

Although we are only three months into the new year it is apparent that the projection is

probably over-optimistic with the different sectors growing at lower rates than predicted.

The main constraint to growth currently is lack of liquidity in money markets and the

difficulty in obtaining credit to finance operations in the productive sectors. The target of

raising capacity utilisation to 60% plus from below 30% in the manufacturing sector has

proved to be illusive in the face of shortages of inputs and raw materials and deteriorating

infrastructure.

Although real growth in GDP is being experienced there has been deterioration in external

sector performance in 2009 mainly because of the fall in agricultural exports. Between

January and October last year exports dropped from USD 1.2 billion to USD 1.0 billion

when compared with the same period the previous year. Imports declined from USD 1.5

billion to USD 1.3 billion over the same period with a resultant negative balance of trade

for the year. Foreign debt including arrears is pegged at over USD 5.4 billion. Export

projections for 2010 indicate that there is likely to be an improvement on the back of

buoyant mineral prices and a larger tobacco crop.

The focus of the 2010 budget was reconstruction, equitable growth, and maintenance of

macroeconomic stability. The revenue target announced was USD 1.44 billion and

expenditure USD 2.25 billion with a deficit of USD 810 million (or 14,6% of GDP). There is

little doubt that if these targets are reached they will contribute towards an acceleration in

inflation. Priority areas of expenditure are education (22% of total), health (15%), and

agriculture (10%). The wage bill is expected to drop to below 30% of the total. In line with

growth objectives capital development expenditure will also comprise 30% of total

expenditure. Within this latter item power projects, roads, railways, aviation, water and

sanitation, and communications are all catered for.

With regard to funding the deficit Zimbabwe will be relying on pledges from some of its

regional partners as well as the sale of SDR’s made available by the IMF to plug some of

the gap.

Inflation

Rampant price hyperinflation prevailed until January last year. The primary underlying

driver of inflation was high money supply growth resulting from uncontrolled government

spending. The RBZ had to resort to printing vast quantities of new banknotes to meet

government payment commitments and the continued RBZ funding of quasi fiscal

operations. Since the abandonment of the Zimbabwe dollar in February 2009 and the

adoption of hard currencies as official mediums of exchange hyperinflation has

disappeared and month on month inflation oscillated between -3.1% and +1.0% between

January and October with the annual average for the year expected to be around a

negative level of -5.5%. Inflation in 2010 is projected to accelerate but remain within single

digit levels at about 5.0%

Interest Rates

With the advent of hard currencies becoming legal tender all interest rates are now

anchored to LIBOR. Broad borrowing costs are around 8 – 12 % p.a. with the highest rates

reaching over 20% p.a.

Exchange Rates

With the abandonment of the Zimbabwe dollar exchange rate fluctuations have a relatively

minor effect on inflation. The main import source is RSA (more than 50% of the total) while

prices in Zimbabwe are almost inclusively quoted in US dollars so Rand/USD exchange

rate fluctuations do have some effect on prices.

Agricultural Production

Most of the country received normal to above–normal rainfall in the first half of the 2009/10

summer season favouring increased plantings and early development of the main season

grain crops (mostly maize). Rainfall diminished and became more erratic and scattered

from mid–December to mid–January in most parts of the country. The southern half

suffered most from the prolonged dry spell, as it extended to mid_ February.

Consequently, the cropping season’s prospects, which were better than last season’s

because of expected better access to inputs, were dampened significantly. The

government with assistance from donors had been implementing several input support

programmes which had targeted a total of 1.3 million communal farmers for the 2009/10

season, a much higher number than was assisted in 2008/09. However, the impact of these

programmes on production was seriously impaired.

Table 1 in the Appendix depicts total national output for the main commodities up to last

year (2009) with production estimates being made for 2010. Data shown are based on

assessments gathered from various sources. It is interesting to note that cereals output

(maize, sorghum, millets and wheat) for 2010 is projected to be less than a million tonnes,

mainly due to the effects of reduced plantings and the impact of the mid season drought.

Projections for 2010 wheat production remain subdued due to uncertainty in the supply of

power from ZESA.

The erratic rains from mid – December 2009 affected the establishment of the soyabean

crop and production is expected to be lower than last year. The early rains in most parts of

the groundnut producing areas saw an increase in plantings. However the prolonged dry

spell in most of the North, Eastern and Southern provinces extending to mid-February

affected pod development and hence output is expected to be lower.

Favourable terms of trade for tobacco have renewed interest from both producers and

tobacco merchants which has seen an increase in flue cure tobacco plantings in all

sectors. Flue cured tobacco output is expected to increase by up to 50% on last year’s

production.

Cotton output is expected to down compared to 2009 due to a decrease in plantings.

Viability problems arising from low prices, and yield stagnation affected production

decisions. It is critical that the Zimbabwe cotton sector improves its international

competitiveness through adoption of productivity enhancing technology (b-tech cotton).

Sugar output is anticipated to increase beyond the current 280,000 tonnes mainly because

of buoyant international prices. A static position is expected for other perennials like tea

and coffee. Production of horticultural commodities has declined significantly in recent

years and recovery will be slow because of the long term nature of citrus production and

the high capital costs involved in flower production.

Beef off-take from the commercial sector is expected at the same level as for 2009 as

rebuilding of the herd continues in the A2 and large scale commercial sectors. Off-take

from the small scale sector is expected to increase slightly especially in those areas that

are experiencing food deficits as households dispose of livestock to meet food

requirements. Annual milk production is expected to decline further as viability problems

continue to haunt the dairy industry. Recovery of both beef cattle and dairy production will

be slow because production cycles are lengthy.

Food Security

The Government implemented a number of grain market reforms in 2009 to liberalize the

market, including the free movement and buying and selling of grain in the country and

designation of the Grain Marketing Board (GMB), as a buyer of last resort to maintain a

floor price.

Aggregate cereal production in 2010 is projected to be below 1 million tonnes, a level that

is well below domestic consumption requirements of over 2.3 million tonnes and leaving a

deficit of over 1.4 million tonnes to be met by imports in the 2010/11 marketing year (April

to March). This gap in domestic supply is likely to trigger price increases in cereals to

levels around import parity due to the liberalization of the economy. Commercial imports

in the 2010/11 season are expected to account for a significant part of this import

requirement. The duty-free status of basic food commodity imports, that was applicable

throughout 2009, therefore needs to be continued until next year. Cereal food aid from

donors will also continue to be required to enhance food security.

Challenges:-

commercial agriculture in Zimbabwe. There is an acute under-utilization of land

and resources in the commercial farm areas, and farming operations are still being

disrupted. The sub-sector is therefore faced with the following main challenges: