GRAIN TRADERS ASSOCIATION OF ZAMBIA

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GRAIN TRADERS ASSOCIATION OF ZAMBIA

• Factors contributing
• to Zambias 2010 maize bumper harvest
• what next?
• Pamodzi Hotel , Lusaka, Zambia
• 23 September, 2010

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Grain Traders Association of Zambia

• Established in October, 2005
• GTAZ is a self regulating traders association
• Objectives
• To promote commodity trading
• To promote sound trading rules and regulations
• To encourage the development of small and medium
  traders
• To work with government and other stakeholders to
  improve the agriculture sector in Zambia

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Grain Trades Association of Zambia

• GTAZ has diverse membership both Zambian and
  International companies
• gt Local Zambian companies
• gt Multinational companies (grains cotton)
• gt Regional players

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Services offered by GTAZ members

• Procurement
• Selling
• Storage
• Fumigation
• Logistics
• Commodity Brokering
• Input finance
• Cross boarder trade

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List of Members

• CHC Commodities
• Zdenakie Limited
• Quality Commodities
• Seaboard
• Cargill
• Nachel Distributors
• Farmers Builders Suppliers

• Afgri Corporation
• Export Trading
• Dunavant
• Olam Zambia
• Nyimba Filling Station
• Bulero General Dealers
• Napire General Dealers

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GTAZ Operating Locations

• Kapiri Mposhi
• Mkushi
• Kalomo
• Choma
• Mazubuka
• Gwembe
• Monze

• Chipata
• Katete
• Petauke
• Lundazi
• Mumbwa
• Lusaka
• Kabwe

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Commodities Traded

• Maize
• Soya beans
• Wheat
• Beans
• Groundnuts
• Sunflower
• Rice
• Sorghum
• Cowpeas
• Soya/Cotton cake

• Non Grain
• Fertilizers
• Seeds
• Agrochemicals
• Cement

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GTAZ contribution to the Sector

• Employment Opportunities
• Liquidity in the market
• Bridging the market (producer processor)
• Moderating influence (producer processor)
• Infrastructure investment (New storage)
• Tax contribution forex generation
• Multiplier effect
• Major clients to FRA (Sheds)
• Transporters
• Fumigation companies

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Possible Reasons for this Large Crop

• Expansion of Fertilizer Input Support Programme
• Expansion of agricultural extension services
  through MACO
• Very attractive FRA price
• Favorable weather patterns

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Challenges

• Uncertainty in the market
• Export Import bans
• Quantity to be procured by FRA vary in season
• Government interventions (FRA)
• Exchange fluctuations
• Road infrastructure
• Legislation (credit act)

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Results of intervention

• FRA uniform buying price
• Results into crowding out private sector from
  buying along the line of rail
• Current FRA purchase of maize
• - FRA price K1,300/kg - 265/mt
• - GTAZ/MAZ , - K820/kg K930/kg, 170/mt -
  190/mt
• gt Large volume of maize purchased by FRA
  resulted in reduced purchases by traders because
  of the threat of FRA selling maize in the local
  market below cost or even selling maize for
  export at a discount hence making it
  uncompetitive for Zambian traders to sell their
  maize at a profit.

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Example

• FRA procurement price K65,000/50kg bag or 260/mt
  farm gate
• Maize bought July/August 2010
• Stored, Financed for 2 months
• Transported from satellite depots to district
  holding depots main consumption areas
• Associated costs Interest 1 per month, storage,
  handling, fumigation, transport shrinkage

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Illustration
      US
FRA procurement price - FRA procurement price - FRA procurement price - 260
 Maize per metric ton  
Cost of holding grain Rate Months Total
   
Interest 1 per month 2.75 2 5.5
Storage own 0
Handling rebagging 3
Shrinkage 2 5
Grain bags 7
Fumigation 1.5 1 1.5
Transport 40
   
Grand total 62.0
   
Realistic Market Price 312.0
   
Current Selling price 204
   
Profit     -98.0
      US
GTAZ market price - GTAZ market price - 180
 Maize per metric ton  
Cost of holding grain Rate Months Total
   
Interest 1 per month 2.75 2 5.5
Storage 3 2 6
Handling rebagging 3
Shrinkage 2 5
Grain bags 7
Fumigation 1.5 1 1.5
Transport 0
   
Grand total 28.0
   
Realistic Market Price 208.0
   
Current Selling price 204.0
   
Profit     -4.0
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What Next? Alternatives

• FRA to procure limited maize from areas that are
  not economically viable for private sector to
  operate (i.e. for strategic reserve only)
• Contract private sector to procure maize and hold
  in stock on its behalf
• Use ZAMACE for the sale of FRA maize
• gt Price discovery
• gt Transparency
• FRA to adopt a more supervisory/regulatory
  function
• gt Assess stocks quality in the country

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Benefits

• Government use less resources to achieve same
  objective
• Use private sector resources expertise to
  secure strategic reserve
• Remove uncertainty
• Encourage private sector participation

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Government

• Government to concentrate on developing
  conditions that can enable private sector
  function in a predictable competitive way-
• Good monetary policies, low interest rates
  stable exchange rates
• Consistent imports export policy (open
  borders)
• Implementation of Agriculture Market Development
  Plan (AMDP)
• Continued dialogue with industry stakeholders
• Improve infrastructure to enhance trade activity
  at the borders
• Open up government fertilizer supply program to
  more players

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Private Public Partnership

• GTAZ maintains that FRA has a role to play in
  the market
• However GTAZ proposes that FRA considers working
  with the private sector, by using market
  instruments to secure and maintain strategic
  grain reserves in a more cost effective way and
  with least distortion in the market.

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What Next?

• Steps to consider to avoid repetition of FRA
  having to purchase in excess of 700,000MT
• FRA floor price must be closer to market prices
• Artificially high FRA prices create the
  conditions of dependency by farmers who access
  subsidized inputs and expect uneconomically high
  prices for their grain

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What Next? Cont.

• Whilst setting FRA floor price, due consideration
  must be given to the real costs of production
  (independent study by FSRP was carried out this
  year and indeed FRA which indicated that a floor
  price of K55,000/bag would have provided a
  reasonable return to the farmer) and not a price
  that would appease one or two stakeholders
• Encourage participation of private sector by
  limiting FRAs mandate to strategic reserves and
  allowing FRA to set a floor price closer to the
  market prices to avoid distortion and unrealistic
  expectations from FRA at a huge cost

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Thank you

• GRAIN TRADERS ASSOCIATION OF ZAMBIA
• Plot number 14072 Lumumba Road
• Lusaka, Zambia
• Tel [phone]
• Executive Officer
• Jacob Mwale