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Tuesday, 5 March 2013

FRA's good loss making deal

Zambia has sold 20,000 metric tonnes of maize to Tanzania at a cost of US$7 million (or US$350 per tonne). This is under a special bilateral agreement that was facilitated by the countries’ heads of State. An agreement was signed in Lusaka last week at the Food Reserve Agency (FRA), which will allow Zambia to supply the commodity to Tanzania despite a ban of maize and mealie-meal exports. The transaction is meant to "assist Tanzania in meeting its maize shortages” . Tanzania responded, "We are really grateful for this show of love". This is a loss making deal, but it is a lot better than GRZ critics have suggested. Here is why. 

FRA buys maize from farmers at US$265 per tonne. Distributing and storage costs are around US$80 per tonne. Its total cost is therefore US$345. This rises to US$365 if exporting within SADC. So by selling this maize to Tanzania at US$350, we lose US$15 per tonne.

BUT compare this to selling it domestically. FRA sells the maize to millers at US$ 140 per tonne. In total it makes a loss of around US$205 per tonne. So in short, we lose more by selling it to Zambian millers than subsidising Tanzania consumers. Now remember that Zambia has lots of excess maize - some of it becomes rotten. So by selling it to Tanzania we are merely getting rid of the excess maize in storage which usually becomes rotten. When that is considered, the deal looks even better.

What about the maize shortages? Zambia has no maize shortage. It has a shortage of mealie meal in some areas. Not the same thing! That is a millers' problem. We actually have too much maize. The bigger issue of course is that we should not be making losses at all. It is important to get agriculture policy back on track along the lines I have previously suggested - see the post Securing our Food

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