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Peter Gambara
THE Minister of Lands, Agriculture, Fisheries, Water and Rural Development, Dr Anxious Masuka, and the Minister of Finance, Economic Development and Investment Promotion, Professor Mthuli Ncube, last week jointly announced the marketing price for winter wheat for the 2023 season.
They explained that, to arrive at the producer price, they used a cost-plus pricing model based on an agreed average yield level.
A cost-plus pricing model first looks at how much it costs to plant a hectare of the crop.
Based on a predetermined yield level, it is then possible to calculate the break-even price.
A 15 percent rate of return is then added to the breakeven price as payment to the farmer.
The average yield is based on statistics of wheat production over the past few years, as well as the potential yield levels of local wheat varieties.
This is provided by technical experts.
The average yield level adopted this year was 4,62 tonnes per hectare.
Based on this yield level and cost of production, a recommended producer price of US$520,25 per tonne was announced.
This obviously raises interest and questions among wheat farmers. Central to the debate will be whether the announced wheat producer price is fair. Firstly, it has to be pointed out that farmers have options to sell to four different markets, based on how their wheat was financed.
Those financed under the climate-proofed Presidential Input Scheme (Pfumvudza/Intwasa) are expected to sell to the Grain Marketing Board (GMB).
Self-financed farmers have the privilege of choosing where to sell their wheat, whilst those sponsored by AFC or CBZ should be guided by their banks as to where to sell.
This is done so that the financial institutions can place stop orders on that wheat.
Growers sponsored by private contractors are obviously expected to deliver to the contractors.
Besides buying wheat sponsored under the Pfumvudza/Intwasa programme, the GMB remains a buyer of last resort of wheat that is not contractually tied. Private contractors can also opt to sell their wheat to the GMB. The GMB will also provide warehouse receipt services to organisations like the Zimbabwe Mercantile Exchange. It will buy wheat at the Government-announced price per tonne, broken down into 75 percent in US dollars (US$393,9 per tonne) and the remaining 25 percent in the local currency (equivalent of US$131,3 per tonne).
The fairness or otherwise of a producer price is usually gauged against the import parity price (IPP).
This is the cost of landing imported wheat in Zimbabwe.
The challenge is that different economists will always come up with varying IPPs.
However, this varies from US$344 to US$480 per tonne.
A number of local millers are offering as low as US$360 per tonne as they claim this is what it is costing them to land the wheat in this country.
Farmers will obviously see this as too low.
When we further analyse the GMB price of US$390 in US dollars and the balance in Zimbabwe dollars, some farmers will argue the parastatal will use the bank rate to convert this into the local currency.
The bank rate last week stood at US$1:$5 591,96, whereas the parallel rate has now shifted to between US$1:$7 000 and US$1:$7 500.
If we take the higher end of the rate, this means the part the GMB will pay in the local currency will be equivalent to US$131,3 x $5 591,96/US$7 500 = US$96,90.
If we then add this to the US$393,9 that is being paid for in US dollars, the total will be US$486,90. This is obviously above what is being considered the wheat IPP.
Farmers can never get this price from the local millers.
The only challenge with delivering produce to the GMB is the parastatal’s history of late payments to farmers.
The summer season starts in a few weeks and farmers will be eager to use proceeds of the winter wheat crop to sponsor their summer programmes.
Farmers, therefore, have to implore Government, through the GMB, to expedite payments to farmers.
Should this happen, the GMB becomes the market leader, with the rest of the millers following behind, and that will obviously benefit farmers.
* [Include writer’s bio]
Online Reporter