(This was based on a press query by Times reporter Stanslous Ngosa)

The economic downturn experienced in the past 18 months has had both positive and negative impact on agriculture in Zambia. On the positive side, we should know that food is a non-discretionary item of household expenditure. For this reason, demand for agricultural commodities has been maintained, to the benefit of farmers and the upstream food processing industry.

A few farmers with capital intensive agriculture means have been able to tap into the global market where the prices of food doubled. The government’s concessionary tax policy on imported machinery during this period of the recession greatly assisted farmers capitalizes their investments.

On the downside, the economic recession generally led to high cost of inputs, especially those imported. This was because during this period, the Kwacha depreciated by about 60 percent and seeing that inputs such as fertilizer, fuel, chemicals and machinery is imported, the impact on the cash flows for most farmers was significantly negative. In addition, local inputs such as energy and labour also rose. This is despite agriculture enjoying marginal concessions on the cost of electricity.

Much more seriously, the cost of capital went up by over 50 percent. Prior to the recession, the real interest rates were about 19 percent. These short up to 31 percent by the beginning of 2009. Worse still, 80 percent of the farmers had dollar-denominated debt. With the appreciation of the dollar, farmers whose cash flows were in Kwacha could not find enough cover to service the debts with local and international creditors. There were other farmers who had also locked in their prices through the forward markets. The prices in which they locked in ended up being much lower than the spot price given that global food prices went up beyond what was anticipated. In other words, the Zambian farmers did not really exploit the opportunity of rising global food prices.

Solutions: there is need for Zambia to gradually move towards protectionism so that our farmers are more competitive. With the Comesa Customs Union, most farmers will need to remain highly competitive by registering their output under the highly sensitive goods arrangement. There is also need for increased funding in the 2010 budget towards infrastructure, development of market linkages, information networks which will bring rural farmers on board, reduction in the cost of energy and support towards extension advisory services.