An economist recommends the Zimbabwean government consider indexing the Zimbabwean Dollar-denominated maize producer price to the stable USD to maintain value in the current inflationary environment.
The Zimbabwe Farmers Union (ZFU) Chief Economist Dr Prince Kuipa says farmers are losing value through selling maize at the Zimbabwean Dollar and then accessing foreign currency to purchase imports at an illegal prevalent parallel exchange rate.
Input suppliers and agricultural service providers are already indexing the local currency prices to the United States Dollar using the parallel market rate and others are refusing payment in the Zimbabwean dollar arguing their failure to get foreign currency on the RBZ auction system.
Farmers mostly use imported inputs which require foreign currency.
There is a widening disparity between the parallel market rate and the official auction rate with the official rate trading at USD$1: ZWL$150 against the black market rate of USD$1: ZWL$350.
Authorities have been battling to contain foreign currency trade on the black market with little success.
Kuipa said, “The parallel market rate has always maintained a significant premium over the official rate. As such, farmers who are paid in ZWL$ must convert their money to USD at the parallel market rate thereby losing value in the process.”
“Whilst it may appear that farmers are getting good prices at the official rate, the rate that they face on the input market is the parallel exchange rate which in effect pushes their earnings far below the import parity price.”
The chief economist also showed how maize farmers were also losing value within a single marketing season due to inflation in the country.
“For the 2020/21 marketing season, a maize producer price was announced in local currency at ZWL$32,000 per ton. At the time of announcing this price it was equivalent to USD378.00/ton using the prevailing official exchange rate of ZWL$85.00 to the USD,” Kuipa said.
“The producer price was maintained over the marketing season.”
“In December 2021, the official auction rate was ZWL$109 to the USD. At this rate the USD equivalent of the producer price was USD293.00. This was a loss in value of 22% in the same marketing season,” explained Kuipa.
Besides indexing the Zimbabwean currency to the US Dollar, the economist also recommended monetary authorities find a lasting solution to the widening gap between the official and parallel foreign exchange rates.
The analyst also recommended policy consistency in the procurement of grain.
“The government gone full cycle over the years, from controls to liberalization and back to controls, thereby crowding out private players in grain production and marketing,” Kuipa said.
“If government maintains ZWL$ producer prices and the inflationary environment persists, farmers are encouraged to deliver their grain early in the marketing season to avoid losing out the value of their produce.”
