Reduced demand to weigh down agric export returns – IH
FARM produce exporters are expected to record lower returns owing to commodity prices tapering off as consumer demand in major markets wanes, a new report shows.
In its agricultural sector outlook, local financial services firm IH Securities reported that slow growth in the world’s two biggest economies, the United States and China, had negatively affected commodity prices. Further, the continued effects of the Russia/Ukraine war have caused inflationary pressure in Europe, forcing consumers to cut costs.
China is Zimbabwe’s biggest export market for tobacco, one of the world’s largest agricultural commodities.
“We anticipate commodity prices to keep tapering off owing to slowing global economic growth. China’s economic growth turned negative in the second quarter, as Shanghai and some other large cities endured lockdowns pursuant to President Xi Jinping’s futile zero-COVID-19 policy,” local financial services firm IH Securities said, in its new agricultural sector report.
“The United States has also been increasing interest rates which discourages spending and leads to lower consumer demand. In Europe, the effects of the Russia-Ukraine crisis are likely going to see a slowdown in the region’s economic growth. It is on this background that we believe commodity prices will decrease, including agricultural commodity prices.”
IH Securities said the country exported tobacco worth US$820 million last year and US$102,2 million worth of cotton.
“With the country aiming to grow the industry to US$5 billion by 2025, there is a need to implement measures that alleviate the effects of climate change such as investing in irrigation equipment. However, with contract farming, which is the main financing framework for tobacco farming, being abused through double dipping, the industry is likely going to face headwinds securing significant capital injection from the private sector,” IH Securities said.
“Demand for the high quality handpicked Zimbabwean cotton has been increasing on the world market. It is on this background that the government and cotton sector players need to step up efforts to value add the raw cotton that is currently making the bulk of exports from the sector in order to increase earnings from cotton to clothing value-chain exports.”
The research firm noted that Zimbabwe’s agricultural sector is heavily dependent on climatic conditions as the country practices rain-fed farming.
“This was the case during the 2021/22 agricultural season as poor rains resulted in lower agricultural produce,” IH Securities said.
“However, above normal rainfall for the 2022/23 farming season is being forecasted which could potentially result in increased production. However, high fertiliser prices coupled with decreasing commodity prices could discourage farmers. We believe the government will continue implementing initiatives that reduce the cost of farming so as to encourage higher production. Assuming this plays out, we forecast increased agriculture production and a potentially reduced cereal import bill.”
In its 2021 annual report, Tobacco Industry and Marketing Board reported that the Far East has been the top-most destination for Zimbabwean tobacco since 2012, absorbing a high of 52% of total tobacco exports in 2016 and 40% in 2021. Of that market, China and Indonesia are the main buyers of Zimbabwean tobacco.
The board also revealed that the European Union and Africa are also significant destinations for Zimbabwean tobacco — absorbing a combined 38% of total tobacco exports in 2021.
On top of this, both tobacco and cotton farmers must also surrender 25% of their export proceeds to the central bank, a move that further lowers forex generation for the two crops.-newsday
