This article was first published in Business Day.
Regardless of interesting climatic and infrastructural developments, policy uncertainty in Zambia remains a key concern, writes Wandile Sihlobo
As part of my functions at the Agribusiness Chamber (Agbiz) I recently engaged with agribusiness leaders in the agricultural inputs and insurance industries to share my observations regarding crop production trends in Southern Africa in the 2015-16 season.
My analysis revealed an interesting pattern, where the southern and western parts of Southern Africa were dry and warm and the northern parts of Zambia and East Africa saw higher rainfall — essential for agricultural production.
This rainfall pattern resonates with maize production estimates from the Bureau for Food and Agricultural Policy, which indicate that in 2015-16, Kenya’s maize production could reach 3.8-million tonnes, up by 6% year on year, while Tanzania’s maize production could reach 5.8-million tonnes, down by just 2% from the previous season.
In line with the rainfall trend, maize production in SA is estimated at 7.5-million tonnes, down 24% year on year, mainly due to drier conditions.
These observations of the vulnerability of agricultural production in certain regions of Southern Africa propelled an ongoing discussion among agribusinesses regarding their desire to expand operations beyond SA’s borders.
When asked which countries were likely to become bread baskets, and in turn, safer investment destinations regionally, logic led me to mention Zambia, Tanzania and Kenya. I based this view on a number of factors, the key ones being climatic and infrastructural development relative to other Southern African countries.
Investment, policy and climate
The Zambian government has also shown an appetite for foreign investment. Speaking recently at the Agri All Africa’s Zambian Seminar in Johannesburg, the Zambian minister of Lusaka Province, Japhen Mwakalombe, invited South African farmers and agribusinesses to invest in Zambia. He noted that the government was planning to start a number of projects aimed at improving road networks and railway lines, which might enable farmers to connect to regional markets.
Mwakalombe’s message is quite encouraging to local agribusinesses that have been looking at Zambia for investment opportunities.
Regardless of these interesting climatic and infrastructural developments, policy uncertainty in Zambia remains a key concern, particularly around agricultural market regulation.
Recently, Zambian Agricultural Secretary Julius Shawa cancelled previously issued maize export permits and further insisted that market participants forget about the export market and focus only on meeting domestic demand. This move was in response to concerns that maize exports were driving up domestic staple food prices.
On the one hand, the government’s action to intervene in the maize market shows it cares for consumers’ wellbeing. On the other hand, farmers and agribusinesses might see this as being negative for business confidence. Such government control could also be a disincentive to maize production.
Besides climatic endowment, policy certainty is important in agriculture as it allows businesses to make long-term plans and investments. To be able successfully to attract South African investment, Zambia needs to emulate the South African policy model on free markets in agriculture. Since the deregulation of agricultural markets in 1997-98, SA has been thriving on open markets, assisted by a number of regulatory institutions. These include the International Trade Administration Commission as well as directorates within the Department of Agriculture, Forestry and Fisheries.
In the 2016-17 marketing season, SA is set to be a net importer of maize due to lower production volumes. However, the country continues to export maize to regional markets, with the Supply and Demand Estimates Committee predicting that exports could reach 930,000 tonnes.
This has led to an increase in domestic maize prices, which are at about R3,600 per tonne for white maize (up by roughly 13% from the previous year) and about R3,250 per tonne for yellow maize (up by about 16% from last year).
These higher prices will incentivise domestic farmers to increase production in the 2016-17 maize production season. In fact, the International Grains Council estimates that SA’s 2016-17 maize production could reach 12.9-million tonnes, which would be a 72% year-on-year rebound.
Policy and infrastructure in SA are arguably the most developed in the region. Climate, however, remains a big uncertainty. As agribusinesses continue to look at the continent with an optimistic view to increase safer investments and market participation, the mix of policy, climatic and infrastructural endowment will increasingly influence investment decision-making.
African policy makers must look at the big picture of global business and trade, and now more than ever, these should play a part in ensuring policy certainty.
In the long run, regional consumers will be the main beneficiaries if agribusinesses get the necessary state support to thrive within Southern Africa.
• Sihlobo (@WandileSihlobo) is head of agribusiness research at the Agricultural Businesses Chamber.