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Living
on the Edge
Eddie Cross
August
05, 2006
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: -
- We need
1,2 million tonnes of maize a year for human consumption - assuming
no cross border activity.
- We need another
600 000 tonnes for animal consumption as stock feed.
- We need
about 100 000 tonnes a year for industrial use - the production
of breakfast cereals and snacks, starch and alcohol.
- 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.
- 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.
- 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: -
- 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.
- 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).
- 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.
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