Zambia’s wheat most expensive in region?
Published On March 31, 2021 » 500 Views» By Times Reporter » Business, Columns
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A FEW weeks ago, we featured a series of articles on government’s introduction of restriction on the importation of onion and table potatoes into the country.
The article dubbed, ‘Onion, potato importation ban: another view’ followed Agriculture Permanent Secretary Songowayo Zyambo’s letter dated February 8, 2021, to Zambia Revenue Authority (ZRA) commissioner general Kingsley Chanda.
There are some latest developments on that subject but today the article looks at another area, embarking on another series of articles, this time on the wheat market and marketing in connection
with the rising prices of wheat products, like bread.
To start with wheat which is, like maize, grown in Zambia is priced in United States dollar unlike the maize prices which are pegged in Kwacha.
Similarly, the wheat farmers in Zambia, mainly commercial ones adjust the price of wheat and the current price of US$450 per tonne was hiked some time back from US$370.
A basic research findings show that at $450-per-tonne, Zambian wheat is the most expensive in the region and yet its production has remained relatively low.
The country with the lowest-priced wheat in the region seems to be Kenya and Tanzania both at $270-$280 per tonne.
Trailing Zambia are its neighbours, Zimbabwe and Malawi at $340 per tonne.
The prices for the rest of the countries in the region fall between $270 and $450.
For Zambia, the paradox is that the prices of wheat have remained relatively high for some time now fuelled by perennial deficits because the local farmers cannot meet the local market demand.
Zambia consumes an average of 540 000 tonnes of wheat per annum but experiences a deficit of as high as 250 000 tonnes every year.
This is despite the high prices of commodity on the market which should have spurred production growth in the subsector.
Whenever a country has a major deficit and experiences higher prices in a product as essential as wheat, the automatic solution is importation, more so considering that neighbouring countries offer seemingly price-competitive wheat.
However, there are two factors against that: there is always an outstanding import ban on wheat and an added cost to importation which will be explained.
As the result of the perpetual deficit in the local wheat production, the government occasionally allows importation of wheat.
For instance, last time when the country experienced a deficit of 250 000 tonnes millers were allowed to import 150 000 tonnes as a stop-gap measure.
The imports were halted as soon as the harvest of the new crop started.
So in short, even if the growing of wheat in Zambia is highly-commercialised it has not been fully liberalised, creating some distortion in the system.
In fact, one player, the farmer, seems to call the shots because when there is a wheat deficit and millers want to import, they write to the Ministry of Agriculture which asks them to meet with the Zambia
National Farmers Union (ZNFU) on the matter.
If the ZNFU does not ‘endorse’ the proposal to import wheat into the country, even if there is need, the importation does not take place.
Then the next factor against importation of wheat is the current tax arrangement where Zambia has 20-per cent tax on wheat import which comes in form of 15 per cent import duty and five per cent surtax on importation.
A surtax is an additional tax on something already taxed, especially a higher rate of tax to act as a deterrent.
This indeed discourages importation, but at what and whose cost?
“It is true that wheat from South Africa costs about US$300 or so per tonne, for instance, but importing it to Zambia will cost an additional US$150 in import taxes.
So, we are asking for less despite the increase,” one miller said.
While the import duty and the surtax could have been well-intended by the government, it is seemingly being abused by the some players in two ways.
Firstly, the local farmers reportedly consider the 20-per cent tax as part of their mark-up factor when arriving at the total price of the wheat on the local market, apart from pegging the price in dollar.
Despite being a locally grown crop, of course with some imported inputs and implements just like any other commercial crop, wheat’s marketing is international, being treated like an imported product.
Again, while the maintenance of the ban on wheat could have been well-intended to protect the local industry, it has seemingly been used to run a monopoly business.
Like in any monopoly, while millers and consumers are not guaranteed of the regular supply of wheat and wheat products, respectively, at reasonable prices, the farmer is assured of a market for wheat, at
whatever price and regardless of the quality.
The current arrangement protects the financial position of a few commercial farmers who are involved in wheat production, with the consumers as the ultimate victims since the millers can pass on the
cost of monopoly business to them.
Look out for part II.
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