Dismantling the GMB monopoly – The Zimbabwe Independent

Tatenda Nyakufuya ex-banker
A FEW weeks ago, the Grain Millers Association of Zimbabwe announced that it would buy up to 400,000 tonnes of grain from neighboring Zambia and Malawi this year. This is despite previous projections that the harvest of the last agricultural cycle would have been sufficient to meet the human and livestock needs of all countries.

It was with a mixture of shock and awe that the chairman of Grain Millers announced that he was “delighted” to import maize. Maybe if there had been a drought in the area, it would have been understandable.

However, Zambia and Malawi are very close to us and we share more or less the same rainfall and climate patterns. How the country has come to import grains, a traditional strength of agriculture, from its regional peers raises inherent questions that should be inspected.

It is an established fact that the Zimbabwean climate is conducive to grain production. Over the years, the country was able to produce enough grain and even have a surplus that was used for reserves and export processes. Unfortunately, there has been a steady decline in the size of the country’s performance over the years, with the exception of the 2017 season when there was a special program.

It is difficult for individual farmers to participate in international markets as they may not be able to meet the minimum purchase orders required by grain trading exchanges.

With this in mind, in 1931, the GMB’s predecessor, the Maize Control Board, was formed. It was a good development at the time in the 1930s but the configuration of the institution can no longer meet the needs of the 2020s.

The GMB’s official website states that their mandate was to have the “responsibility of granting local maize growers their fair share of local and export markets and also to provide them with a guaranteed outlet for their surplus maize produced”. It was indeed a lofty goal, but over the years the grain giant has morphed into a different creature where farmers’ demands for a fair share of their produce have been largely ignored.

Markets are generally efficient in establishing the true prices of goods. There are several exchanges around the world that specifically trade grains. This then forms what is called an international price for a specific product or commodity. One of the closest international grain exchanges we have in the country is the South African Futures Exchange (Safex). A futures exchange in short, deals with contracts to be delivered on a certain date in the future. If you grow your grains on a specific date, you know when you will harvest, so there are always different delivery dates on exchanges depending on expected harvest dates.

The current price of white maize, which is the main product we also grow here, is around ZAR 4,450 per tonne, equivalent to around USD 290. This is what local farmers will demand when asking for fair prices. This is also roughly the price the Grain Millers Association will pay when importing corn into the country.

For a country struggling with intense foreign exchange shortages, this is a mini-fortune. Local farmers have the ability to grow maize and be paid in local currency as long as prices are fair. However, this is not currently the case. The GMB enjoys a monopoly in purchasing the country’s major grains. It is illegal to sell corn to any person or entity other than the GMB. The flip side is that the GMB also decides not only what price it will pay, but also when it will pay it. This leaves the local farmer exposed to the confusion of the falling exchange rate.

The current GMB purchase price of around ZWL$58,000 per ton, or between $111 and $180 depending on the rate used, is well below the international price and does not provide an incentive for farmers to continue farming.

It is therefore surprising that the authorities are prepared to pay more to offshore farmers who are already doing well, and then pay a pittance to local farmers who are struggling to earn a living. Worse still, farmers face uncertain cash flow issues because they never know the actual payment dates and in business, cash flow is everything.

This pricing and payment model discourages the cultivation of cereals which are crucial for the country.

It is common knowledge that the local currency is very unstable. Unfortunately, GMB’s price adjustment is not smooth enough to reflect this reality. Prices are set and maintained for far too long periods of time and unrelated to prevailing conditions on the ground. An inflation-indexed pricing mechanism would probably work well if the scheme were to be maintained. If farmers were to get a value based on prevailing market rates, then a huge rock on their back would be removed.

It may be too late to start making changes to this juggernaut that is proving to be a hindrance to crop production. Drastic solutions such as removing the business activity function and concentrating the functions of GMB as a core strategic reserve unit are probably best. As long as the monopoly exists, it will remain subject to the vices of greed and corruption.

There have always been whispered stories about the corruption within the institution that renders it ineffective in performing its duties to the best of its ability.

There have been stories of guards being bribed to log more than actual tonnages due to a lack of electronic recording equipment at depots, stories of books coming in and out without actual deliveries, especially when they had an atrocious pricing system where their sell rate was lower. than the rate of purchase, stories of gross mismanagement and incompetence, stories of stolen corn and inputs under the guise of instructions from “big names” in the company.

The stories are endless and would take days to explore. They are not, however, without substance, because as they say, there is no smoke without fire.

Dismantling the GMB’s monopoly and opening it up to private actors will have far better benefits than the challenges that threaten to torpedo the GMB into a hunger institute.

Private actors would be able to pre-finance farmers who still struggle to find money for inputs and encourage the cultivation of cereals throughout the country. This would actually reduce the subsidy burden on the government as it would not need to supply inputs to a large portion of the farmers. Farmers would become self-sufficient, a condition they are currently unable to achieve due to the low producer prices offered by the GMB which lock them into a perpetual cycle of poverty.

Agriculture is big business. If production levels improve and farmers get a fair share of prices, we could actually produce a surplus and add maize to the export basket, thereby generating more foreign exchange and easing pressure on demand for scarce resource.

With farmers having more income, they will then be able to improve the industrialization levels of their land and be able to produce more than they currently are. Additionally, once private actors can participate, we could move to year-round contract farming using irrigation towards the dream of real bumper crops.

The beauty of markets is that once there is an improvement in the supply of the commodity, prices would actually fall, thus eliminating the illegal parallel marketing activities that are currently taking place.

However, this is only possible if we face the reality that it is time to get rid of the albatross around our necks in the form of GMB.

Nyakufuya is a businessman and former banker