adminTendai Sahond Business Correspondent
Zimbabwe could replicate the success of contract farming by engaging in contract manufacturing in the food sector, Reserve Bank of Zimbabwe (RBZ) economic research director Mr Simon Nyarota has said.
Mr Nyarota said contract manufacturing could have significant downstream benefits to the economy.
“The success of contract farming tempts us to think that this concept can also be extended to the agro-manufacturing industries, with more downstream benefits to the economy.
Zimbabwe has always benefitted from strong sectoral linkages between agriculture and manufacturing, and these linkages can be further exploited through contract manufacturing in the food industry,” he said
Mr Nyarota said contract agro-manufacturing has many advantages including improved efficiency at agro-firm level, value addition, lowering costs and reducing complexities associated with access to global markets and technologies.
He said success stories on contract manufacturing show that food companies have been able to combine several production and marketing processes under one roof or chain, including packaging, labelling, storage and shipping of finished products.
“Contract manufacturing reduces food waste with additional spill-over benefits on food safety and environment,” he added.
Mr Nyarota said the current wave of downward correction of prices is inevitable as producers have to remain competitive against an influx of cheap imports.
“In tandem with trends in global food prices, the prices of food in Zimbabwe have also been on a sustained downward trend, of course weighed down by other domestic factors such as waning effective demand, substitution effects of cheaper imported food commodities and seasonal supply conditions.
“The country inherited very high price levels from the hyperinflationary era, and the current wave of downward correction is inevitable, if producers are to remain competitive in the face of influx of cheaper imported goods,” he said.
He said a recent study commissioned by Government revealed that the costs of production in Zimbabwe are much higher than those of the region, particularly the cost of utilities, resulting in higher final prices of goods and services, compared to those obtaining in neighbouring countries, resulting in less preference for locally produced goods.
Recent studies on competitiveness have concluded that most of the cost drivers in the economy originate from utility costs, largely emanating from goods and services provided by public entities such as parastatals and local authorities.
“In this regard, Government has already put in place mechanisms and structures to comprehensively address the underlying causes of unsustainably high prices in the domestic economy.
To complement these efforts, industries and food processors should interrogate their production, marketing and distribution models, to ensure that they are cleansed of inherent inefficiencies and unrealistic mark-up and profit margins,” he said.
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