IN December last year, Finance minister Mthuli Ncube (pictured) announced a plan to launch an agricultural commodities exchange, assuring the country that the prices of farm produce would no longer be fixed.
Last week, barely four months later, the state-run Grain Marketing Board announced producer prices for seven commercial crops. This is in addition to prices of maize and soyabean which are already controlled.
The government’s latest action defies economic logic.
Instead of setting and controlling prices, the authorities must operationalise the commodities exchange, facilitate an open market and allow price discovery.
As fate would have it, the calamitous impact of price fixing was laid bare this week when Lands and Agriculture permanent secretary John Basera testified before the National Assembly on the problems plaguing the cotton sector.
Shockingly, cotton farmers have still not been paid for last year’s crop.
The cotton fiasco provides vivid lessons on the importance of respecting the basic laws of economic logic.
In a series of costly blunders, the government set an unrealistic cotton producer price last year. It was way above the prevailing international market prices.
The Cotton Company of Zimbabwe — in which the state holds a controlling stake — is dead broke and has no money to pay for cotton delivered in 2020. As a result, the taxpayer must now fork out ZW$1.5 billion to pay farmers by mid-May.
Farming is business. How does the government justify a situation where farmers are unjustly deprived of their dues in such a heartless manner? Farmers need money for inputs, labour, bills, school fees and living expenses.
All these headaches could have been avoided through the operationslisation of a commodities exchange.
An open market enhances price discovery and lessens arbitrage, giving farmers better reward for their toil.
To be sure, a commodities exchange is not utopia; it is still a regulated platform, but the proper pricing of agro-produce enables farmers to plan their business in better ways. Even from a risk perspective, a commodities exchange makes it possible for farmers or traders to transfer risk to insurance companies.
This opens up opportunities for agricultural development and investment promotion.
An open trading platform also helps farmers in accessing credit facilities. Small-scale farmers should not remain small in perpetuity; they must eventually grow and contribute to overall economic transformation.
But for the farmers to maximise the benefits, they need to get organised. They can form marketing groups, arrange better storage facilities for their produce and empower themselves with better deal making skills.
In the cut-throat world of agricultural contracts, the sleek men in suits do not hesitate to dupe uninformed farmers.
The government must stop controlling prices and allow a free market to thrive.
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