Eddie Cross: Living on the edge
The Sword of Damocles.
For those who are not familiar with the above saying, it is used to describe a situation where a heavy fighting sword is hung by a thread from the roof over the head of a person who was strapped down underneath it and awaiting death. The Zanu PF regime is in just such a position and during the Minister of Finance’s address to Parliament last week, he held a knife against that thread and threatened to cut it and in so doing, in my view, he would signal the death of Zanu PF and his own regime. The issue he was talking about was one that I have addressed several times before – the price of maize.
Maize is that stuff the Americans call corn and feed to their hogs and cows. In Africa – certainly southern Africa, it is the primary food staple and we eat huge quantities of it every day. It is cooked as porridge and eaten with some form of “relish”. Perhaps oil and vegetables, a bit of meat with some gravy or sour milk, sometimes even rough peanut butter. The great majority of Zimbabweans have not “eaten” if they have not had “sadza” at least once a day. Most poor families would have cold sadza for breakfast (left over from the evening meal) and then at least one large meal at lunch or in the evening with hot sadza as the main course.
We eat 115 kilograms of maize meal per capita per annum. It is therefore a very important component of daily life and the key to the tenuous stability of Zimbabwe lies in the fact that it is cheap and reasonably available. But there is a price to pay for this and no one – except poor old Herbert, dares to talk about it.
The facts are as follows: -
1. We need 1,2 million tonnes of maize a year for human consumption –
assuming no cross border activity.
2. We need another 600 000 tonnes for animal consumption as stock feed.
3. We need about 100 000 tonnes a year for industrial use – the production
of breakfast cereals and snacks, starch and alcohol.
4. We produced last year, about 700 000 tonnes of maize in Zimbabwe, we
imported over 1 million tonnes and maize was constantly in short supply.
5. This past season the government claims a crop of 1,7 million tonnes but
most observers think the actual crop is less than 900 000 tonnes and the expectation is that we will again have to import over a million tonnes.
6. The Grain Marketing Board has a total monopoly over maize grain imports,
purchases and sales. The Police and the military enforce this.
The economics of this trade are astonishing – even in a country and a continent where politically inspired skewed economic policies are rife. The South African grain industry grew a crop last year of over 10 million tonnes and with domestic consumption at about 7 million tonnes, had a significant surplus for export. This gave rise to price levels in South Africa at import parities and generally below R1000 per tonne. At one stage the price was as low as R700 per tonne and this threatened the viability of the whole industry.
This past year, South African farmers have cut back on their maize plantings and will produce less than 6 million tonnes – output will be below consumption for the first time in many years. As a result prices have risen sharply and are now running at about R1500 per tonne. South Africa is now importing grain from abroad (mainly yellow maize for stock feed) and is continuing to export white maize to the region.
This price translates to a landed cost of maize imported to Zimbabwe of R1750 per tonne. Transport charges from silos in South Africa to the closest silos in Zimbabwe have to be paid in foreign currency. This suggests a local landed cost of Z$60 million at bank rates and Z$140 million at parallel market rates. Local producer prices are currently set at Z$31 million per tonne.
These price profiles must be set against the selling price that has prevailed now for a considerable period of time of Z$600 000 per tonne or R17,50 per tonne – 0,1 per cent of the actual cost of imports and 0,2 percent of the local producer price.
This enormous price differential (administrative costs at the GMB are 10 times the selling price) leads to massive market distortions – cross border trade is huge as the cost of maize meal in Botswana and South Africa is equal to about Z$280 000 per kilogram compared to Z$18 000 to Z$28 000 per kilogram in Zimbabwe, depending on source and quality. Technically there are no reasons why a local farmer should not sell to the GMB. On paper the retail price of maize meal is so low that the GMB price should be very attractive. In practice this is not happening – deliveries to the GMB have been less than 100 000 tonnes total so far this year. With stock feed compounders paying the full price for imported maize and sourcing all their foreign exchange to do so in the parallel market, they offer high prices to producers even though this is illegal. Roadblocks are routinely manned by GMB staff to prevent this trade, but it happens – the differentials are just too great.
But the main impact lies with the GMB which, even though the World Food Programme is importing food to feed up to a third of our population, must itself import about 50 000 tonnes of maize a month to meet domestic needs for human consumption. The numbers are frightening: -
1. At official foreign exchange rates of 250 to 1 for new dollars to the US
dollar, the cost of imported maize to the GMB is Z$62 500 new dollars per tonne. Add to this handling charges of Z$10 000 per tonne and the cost out of a GMB silo is Z$72 500 per tonne.
2. The GMB recovers only Z$600 per tonne from sales leaving a deficit of
Z$71 900 per tonne or Z$3,6 billion new dollars a month. (US$14,4 million).
3. The cost of these direct imports will be US$150 million a year resulting
in combined losses of Z$43,2 billion new dollars.
With total foreign exchange availability to the Zimbabwe government via the Reserve Bank at about US$560 million per annum – all at about Z$250 to 1, it is most unlikely that the hard currency for these essential imports by the GMB will be available – competing demands for fuel and electricity and other essential imports will consume most available resources. I still think it likely that someone or another government is in fact funding the supply of maize to the GMB at present. Traders tell me they have no idea where the money is coming from. One local maize importer says he knows but will not tell me who it is. Whoever it is should take note that a new government here will never repay such loans – designed, as they are, to simply extend the life of a bankrupt and repulsive regime.
For the rest, it’s back to that statement by old Herbert and his threat to “review” the selling price of maize to millers. When he said that I bet every Zanu PF leader in the country shivered. Can you imagine what would happen if a 10 kilogram bag of this basic essential suddenly rose in price by 10 times. There would be a revolution. Herbert knows that time is running out – such distortions in prices simply cannot be sustained indefinitely and there are limits to the pockets of foreign donors. But for Zanu PF, the sword of Damocles hangs by a slim thread, rubbed day-by-day, hour-by-hour, by the winds of inflation.
E G Cross
Bulawayo, 5th August 2006
Technorati Tags: Zimbabwe, Zimbabwe Economy
For those who are not familiar with the above saying, it is used to describe a situation where a heavy fighting sword is hung by a thread from the roof over the head of a person who was strapped down underneath it and awaiting death. The Zanu PF regime is in just such a position and during the Minister of Finance’s address to Parliament last week, he held a knife against that thread and threatened to cut it and in so doing, in my view, he would signal the death of Zanu PF and his own regime. The issue he was talking about was one that I have addressed several times before – the price of maize.
Maize is that stuff the Americans call corn and feed to their hogs and cows. In Africa – certainly southern Africa, it is the primary food staple and we eat huge quantities of it every day. It is cooked as porridge and eaten with some form of “relish”. Perhaps oil and vegetables, a bit of meat with some gravy or sour milk, sometimes even rough peanut butter. The great majority of Zimbabweans have not “eaten” if they have not had “sadza” at least once a day. Most poor families would have cold sadza for breakfast (left over from the evening meal) and then at least one large meal at lunch or in the evening with hot sadza as the main course.
We eat 115 kilograms of maize meal per capita per annum. It is therefore a very important component of daily life and the key to the tenuous stability of Zimbabwe lies in the fact that it is cheap and reasonably available. But there is a price to pay for this and no one – except poor old Herbert, dares to talk about it.
The facts are as follows: -
1. We need 1,2 million tonnes of maize a year for human consumption –
assuming no cross border activity.
2. We need another 600 000 tonnes for animal consumption as stock feed.
3. We need about 100 000 tonnes a year for industrial use – the production
of breakfast cereals and snacks, starch and alcohol.
4. We produced last year, about 700 000 tonnes of maize in Zimbabwe, we
imported over 1 million tonnes and maize was constantly in short supply.
5. This past season the government claims a crop of 1,7 million tonnes but
most observers think the actual crop is less than 900 000 tonnes and the expectation is that we will again have to import over a million tonnes.
6. The Grain Marketing Board has a total monopoly over maize grain imports,
purchases and sales. The Police and the military enforce this.
The economics of this trade are astonishing – even in a country and a continent where politically inspired skewed economic policies are rife. The South African grain industry grew a crop last year of over 10 million tonnes and with domestic consumption at about 7 million tonnes, had a significant surplus for export. This gave rise to price levels in South Africa at import parities and generally below R1000 per tonne. At one stage the price was as low as R700 per tonne and this threatened the viability of the whole industry.
This past year, South African farmers have cut back on their maize plantings and will produce less than 6 million tonnes – output will be below consumption for the first time in many years. As a result prices have risen sharply and are now running at about R1500 per tonne. South Africa is now importing grain from abroad (mainly yellow maize for stock feed) and is continuing to export white maize to the region.
This price translates to a landed cost of maize imported to Zimbabwe of R1750 per tonne. Transport charges from silos in South Africa to the closest silos in Zimbabwe have to be paid in foreign currency. This suggests a local landed cost of Z$60 million at bank rates and Z$140 million at parallel market rates. Local producer prices are currently set at Z$31 million per tonne.
These price profiles must be set against the selling price that has prevailed now for a considerable period of time of Z$600 000 per tonne or R17,50 per tonne – 0,1 per cent of the actual cost of imports and 0,2 percent of the local producer price.
This enormous price differential (administrative costs at the GMB are 10 times the selling price) leads to massive market distortions – cross border trade is huge as the cost of maize meal in Botswana and South Africa is equal to about Z$280 000 per kilogram compared to Z$18 000 to Z$28 000 per kilogram in Zimbabwe, depending on source and quality. Technically there are no reasons why a local farmer should not sell to the GMB. On paper the retail price of maize meal is so low that the GMB price should be very attractive. In practice this is not happening – deliveries to the GMB have been less than 100 000 tonnes total so far this year. With stock feed compounders paying the full price for imported maize and sourcing all their foreign exchange to do so in the parallel market, they offer high prices to producers even though this is illegal. Roadblocks are routinely manned by GMB staff to prevent this trade, but it happens – the differentials are just too great.
But the main impact lies with the GMB which, even though the World Food Programme is importing food to feed up to a third of our population, must itself import about 50 000 tonnes of maize a month to meet domestic needs for human consumption. The numbers are frightening: -
1. At official foreign exchange rates of 250 to 1 for new dollars to the US
dollar, the cost of imported maize to the GMB is Z$62 500 new dollars per tonne. Add to this handling charges of Z$10 000 per tonne and the cost out of a GMB silo is Z$72 500 per tonne.
2. The GMB recovers only Z$600 per tonne from sales leaving a deficit of
Z$71 900 per tonne or Z$3,6 billion new dollars a month. (US$14,4 million).
3. The cost of these direct imports will be US$150 million a year resulting
in combined losses of Z$43,2 billion new dollars.
With total foreign exchange availability to the Zimbabwe government via the Reserve Bank at about US$560 million per annum – all at about Z$250 to 1, it is most unlikely that the hard currency for these essential imports by the GMB will be available – competing demands for fuel and electricity and other essential imports will consume most available resources. I still think it likely that someone or another government is in fact funding the supply of maize to the GMB at present. Traders tell me they have no idea where the money is coming from. One local maize importer says he knows but will not tell me who it is. Whoever it is should take note that a new government here will never repay such loans – designed, as they are, to simply extend the life of a bankrupt and repulsive regime.
For the rest, it’s back to that statement by old Herbert and his threat to “review” the selling price of maize to millers. When he said that I bet every Zanu PF leader in the country shivered. Can you imagine what would happen if a 10 kilogram bag of this basic essential suddenly rose in price by 10 times. There would be a revolution. Herbert knows that time is running out – such distortions in prices simply cannot be sustained indefinitely and there are limits to the pockets of foreign donors. But for Zanu PF, the sword of Damocles hangs by a slim thread, rubbed day-by-day, hour-by-hour, by the winds of inflation.
E G Cross
Bulawayo, 5th August 2006
Technorati Tags: Zimbabwe, Zimbabwe Economy
