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Agriculture pricing policy incoherence disturbing



Brett Chulu

THE 2020-2021 agricultural season is underway, but there is policy confusion over pricing and the silence on this matter is even more confusing.

A post-cabinet briefing on 1 December last year announced a policy decision to guarantee producer prices for maize, small grains and soybean. Later in that week, the pre-planting guaranteed producer prices were pegged as follows: Maize ZW$32 000 per tonne; traditional small grains ZW$38 000 per tonne; and soybean at ZW$48 000 per tonne.

No sooner had these guaranteed prices been announced than Treasury announced that a commodity exchange supported by a regulated warehouse receipting system would be launched in March of this year. The contrast makes the pricing policy inconsistency stand out like a sore thumb. The guaranteed producer price is the antithesis of the free market pricing system the commodity exchange and warehouse receipting system are premised upon.

We expected the latter to become the definite pricing discovery framework the nation would adopt, given that it is a component of the National Development Strategy One (NDS 1 2021-2025). NDS 1 is very explicit in that the commodity exchange and warehouse receipting system would be established.

It is going to be very interesting to see what will happen at the time farmers start selling their grains  and oilseeds as the agricultural commodities exchange will be in place as per the Treasury timeline. Will the government make an about-turn and renege on the guaranteed prices it pledged in December in deference to the invisible hand of the commodity exchange?

It will take unusual political courage to undo that commitment as it has potentially serious political costs attached to it. Yielding to political pressure will send the signal that the new path set out in NDS 1 will be veered away from when political expediency demands it.

Early into the implementation of NDS 1, a glaring and unexpected inconsistency is being allowed to take root. One of the warnings issued in this column  on NDS 1 was that there is a big difference between an intended strategy and the actual strategy.

It is a common challenge in strategy where established routines developed to implement past strategies persist in the era of a new strategy. A  new strategy needs new routines. It seems, at least on the agricultural commodities pricing policy, old habits are persisting and threatening to suffocate the development of new actions. There is a 900-pound gorilla in the room this column trained on in connection with the setting up of the agricultural commodity exchange and the warehouse receipting system–how NDS 1 planned to deal with the Grain Marketing Board (GMB).

The GMB monopoly created by statute has to be first reversed and a new legal instrument birthed to bring life to the free-market vehicles of the agricultural commodities exchange and the warehouse receipting system. We had suggested in this column that the  GMB be repurposed to become the warehouse receipting system regulator, weaned off completely from the buying and selling of agricultural commodities.

When we peel away the layers of the policy incoherence, we see an underlying economics ideological contestation. John Maynard Keynes, the Eton and Cambridge-schooled mathematician-turned-economist once remarked: “Practical men who believe themselves to be quite exempt from intellectual influence are usually the slaves of some defunct economist.” When it comes to agricultural economic policy, we are either the slaves of Adam Smith or Karl Marx or John Maynard Keynes or Milton Friedmam.

Thought slaves to Smith are unshakably enamoured  to the idea that the government should not have a hand in the working of the markets. Those under the intellectual servitude of Karl Marx will defend with all their passion that the government must move the markets at its whim. They would gladly agree with Keynes who famously quipped that “Capitalism is the belief that the nastiest of men, for the nastiest reasons, will somehow work for the benefit of us all.”

Keynes was not a Marxist at all–he was peeved by the thought that government should not play a direct role in the economy. Keynes veered from Smith and popularised the idea that a government should intervene in the economy at critical times. 

The American economist Milton Friedman, from the other side of the Atlantic, pushed back at Keynes but not close to Smith and advocated for minimal government involvement in the markets. The ideological wars within the decision-making assemblies in our country are driven by these four philosophical loyalties.

In the immediate years before the Transitional Stabilisation Programme (TSP)(October 2018-December 2020) the power brokers within government had fealty towards Keynes and Marx, hence the relentless printing of money and heavy agricultural interventions. The TSP sought to pull us away from Keynes and Marx towards Friedman. NDS 1 would mark a clean break from Marx and Keynes, flipping our economic ideological fealty to Friedman.

Keynes and Marx appeal to many politicians as they give politicians scope to intervene in the markets to safeguard their political interests.

In agriculture, the European Union has largely pitched its ideological tent with Keynes, hence the numerous price support and subsidies for the EU farmer. Friedman is not the favourite guest of many politicians. This is the backdrop of the agricultural pricing conflict that is currently playing out in Zimbabwe.

The ideological war between our policymakers needs an expedited “peace” deal. Friedman should be prepared to postpone his ambitions this year; he will most likely be forced to acquiesce to the guaranteed price policy. Friedman’s vision of an untethered agricultural commodities price discovery mechanism by way of dismantling the GMB monopoly, setting up the agricultural commodities exchange and warehouse receipting system might have to be deferred. 

We sign off with Keynes. He once said, “The markets are moved by animal spirits, not by reason.”  Some in our government would agree with him. Some would not. If those with real power in our government like Keynes, we will continue on the worn out path of price support and subsidies. He also mused that, “The biggest problem is not to let people accept new ideas, but to let them forget the old ones.” Which problem referenced by Keynes would our Treasury want us not to forget? 2021 is still young.