What’s eating into farmers’ margins? A ZATT perspective.

Taruvinga Magwiroto

One of the important aftermaths of the land reform has been the emergence of a new class of farmers, popularly known as “new farmers”, who come from all sections of Zimbabwean society, but often with no prior experience or training in agriculture. Ian Scoones (2014) has argued that since new farmers tend to be younger, ambitious and better connected to urban centres with access to modern ICTs, they can form the bedrock of Zimbabwean agriculture if given the right support. Others have expressed skepticism about entrusting national food security to novices and part-timers who are in it for speculative purposes. These opposing views reflect the polarized, polarizing and politicized nature of post land reform Zimbabwe.

However way you look at new farmers, common to all of them is an aspiration to make some money out of farming. Thus, without exception, they all need to understand some of the factors that contribute to reducing farmers’ margins.

As a starting point, the idea behind any business is to create value (goods/services) by expending resources, then selling those goods/services for a profit. Margins, the difference between your costs and your income, are important in any business. Margins are critical because they reflect the bottom line. When all is said and done, the business person asks themselves, “Did I manage to cover my costs (break-even)? Did I make a profit? Did I make a loss?” The common experience of most farmers is that they have not been making as much money as anticipated. What could be happening?

So what is eating into farmer’s margins?

This question was posed on the high-level Zimbabwe Agricultural Think Tank a few days ago and some really interesting responses emerged. I synthesise the responses below.

  • Technical inefficiencies at farm level – poor timing of operations; inattention to detail; lack of commitment; poor reading of the policy environment all contribute to poor technical performance.
  • Lower yields than the potential of the farm – from whatever causes. This is based on the understanding that yields must conform to relevant/normal production standards (for example, yield per ha; calving rates; mortality rates etc)
  • Expensive loans & poorly structured finance
  • Absence of value addition
  • Weak negotiating power at the market place (farmers are price takers) – this point is especially true where farmers are not well-organized.
  • Lack of access to lucrative markets (e.g. lack of transport; poor road networks)
  • Policies unfavourable to farmers (e.g. GMB-RBZ-Banks conundrum)
  • High transaction/compliance costs (too many or too high licence fees e.g. tobacco, dairy, beef)
  • Absence of political will: no political champion to push farmers’ issues
  • Weak farmers’ organisations
  • Middlemanism – market conditions favouring the emergence of middlemen who eat into farmers’ margins
  • Exchange rate volatility

In the final analysis, factors affecting farmers’ margins can be categorized into: individual competence; cost of compliance; exchange rate volatility; agricultural finance; absence of negotiating leverage; poor yields; and lack of countervailing power.

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