Maize imports to worsen the budget deficit by at least RTGS$700m :UPDATE & ANALYSIS

HARARE- Zimbabwe is expected to endure one of the worst drought seasons in 10 years. Maize which is the staple crop accounting for close to 75% of grain production is projected to come off sharply from the average attained levels between 2017 and 2018 in production terms.

Data shows the 2019 harvest at around 750,000 tonnes, according to the latest crop assessment report commissioned by the Ministry of Agriculture, will be 60% below an average of 1,900,000 tonnes achieved over the last 2 years.

The expected production level before moderation, will result in a shortfall of almost similar margin at 750,000 metric tonnes given the total annual consumption levels of 1,500,000 metric tonnes.

Maize production in Zimbabwe has averaged 1,000,000 metric tonnes per annum between 2009 and 2018, a period of 10 years, which implies that Zimbabwe has not been food self-sufficient since dollarization.

Production only surpassed demand levels in 2 of the 10 years, that is in 2017 and 2018. The highest production level was attained in 2017, over which 2,100,000 metric tonnes was produced.

The accumulation of surplus produce over the last 2 years has resulted in reserves growth which the government had initially pointed would be sufficient to cover the supply deficit over a period of 13 months.

Earlier in April government said it had reserves almost enough to match the supply gap advising that food security was not a threat in Zimbabwe. The UN however had a different assessment and in the respective month warned that over 5 million Zimbabweans, which is almost a third of the population, are at the risk of hunger, given the drought impact on production.

Last week visiting President, Magufuli of Tanzania, said his country will export around 750,000 tonnes to Zimbabwe in remarks which probably emerged from indoor discussions over the food risk crisis facing Zimbabwe, with his Zimbabwean counterpart President Mnangagwa.

In a report published by Bloomberg, a senior official of the Ministry of Agric quoted as having said the Board will soon float an international tender for the importation of 750,000 metric tonnes of maize, without giving specific timelines.

Equity Axis has done a simulation on the projected output, deficit and import levels as presented below.

The assessment is that Zimbabwe will not avoid the move to cover the production shortfall although in the very immediate months, reserves will be utilised to partially offset the deficit. Given the macro economic developments in the last 9 months demand for maize grain has risen as cost of alternatives spikes. For an average Zimbabwean, consumption of bread and rice is slowly becoming a luxury due to affordability constraints and the effect is that of increasing demand for maize related product particularly mealie meal as a substitution. Given the surge in demand, it is prudent to project that reserves will soon be run over and the country will find it inevitable to resort to imports given the exposure till the next harvest. We therefore project a net importation cost of $187.5 million for 750,000 metric tonnes of maize. This would be the third largest import bill of maize since 2009.

In RTGS terms at the going rate, this would cost government about $1 billion or an equivalent of 1% of the revised 2019 budget, which is yet to be officially announced. A further breakdown of the numbers shows that in RTGS$ terms the per tonne costs will be $1400 and given that in April government set millers prices of $442, it implies that the government subsidy would cost the fiscus RTGS$958 per tonne or RTGS$718,5 million at the last interbank rate of 5.6 for the USD to RTGS$. It is worth noting that this figure may either go up or down depending on the exchange rate which presently has not yet stabilised. Government believes a price of above 4 is not sustainable and even at this rate the fiscus would be at least RTGS$500 million worse off and that would have an impact on the realised deficit position at year end.

It is however likely that government would be forced to revise the April gazetted prices upwards in light of the exchange rate dynamics. Farmers will likely bargain higher or channel their produce directly to millers or middlemen at more favourable prices. Government’s need to control the market would force it to increase its offer to near the $1000 mark for a tonne of maize. The producers or millers discount of 38.5% which signifies the net loss is likely to be maintained on the varying producer prices.

-Equity Axis News

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Equity Axis is an online financial media service platform focused on African markets offering real-time stock quotes, news, analysis and data.

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