Low commodity prices: Crisis?


WHAT comes to your mind when you hear the word commodity? To most of us, it is maize. Indeed, maize is a commodity. A commodity is defined as any homogenous good traded in bulk on an exchange basis.

The fact that it is not differentiated and is bulk makes it have a compromised price in most instances.
Every year, farmers’ blood pressure is always at its peak in June as this is the time when Food Reserve Agency (FRA) announces its prices for various crops. This year’s maize price was lower than last year by K25. As expected, many farmers have cried foul; indeed, no one expects to sell a product lower than the last price it fetched the previous season, especially when the production costs are always going up.
When I shared on my Facebook page (The Agribusiness Focus) the justification for the low commodity price, many thought I was siding with FRA. My writing is not influenced by anyone. I write as I perceive things and what is transpiring regarding world prices. Let me share with you some commodity prices currently trending in the region. I can safely say apart from east African countries that had a bad season, all the countries in the region have been hit by this ‘crisis’ of low commodity prices.
As I am writing this article, I am with over 200 farmers here in Malawi who are also crying about the low prices. In Malawi, a kilo of maize is fetching K0.66 and a bag is at K33 equivalent to our money. I took time to go to Kanengo area, where most agribusiness merchants are based, and found them buying at a slightly better price of K52 per bag.
For this price, I found over 100 trucks in a queue waiting to have a turn to sell. Some of the drivers had been on the queue for over seven days and travelled from places as far as 300 kilometres. The smallholder productivity in Malawi is not different from that in Zambia. There are a lot of things that the two countries share including negative vices such as corruption, load-shedding and many others.
I further took time to look at the input prices, especially fertilisers, and my finding was that a bag of fertiliser fetches between K250 to K300 per bag though the NPK ratio for basal fertiliser is slightly different with a ration of 23:21:0, while Zambia is 10:20:10. Though Malawi produces its own seed, some of it is imported from Zambia and one expects that it will cost slightly more than what it does in Zambia due to the transport cost.
Malawi, just like Zambia, produced more than what it can consume. However, the government has effected an export ban for maize grain. This means the traders that have the capacity to export cannot explore that possibility for better prices, unlike Zambia where we have the opportunity to export to east Africa. With all factors against the farmer, what can he do? Stop producing?
Like we all know, commodity prices are always fluctuating, and the only thing we need to do to improve our farm profitability is to enhance our production efficiency, spread the risk by growing more than one crop on our farms and explore the prospects of adding value to our produce. The consolation is that agriculture is the only industry whose produce will always have a market. People will always eat regardless of prices of commodities.
One thing I can share with you is that soya prices have been very good for the past three seasons and that compelled a lot of farmers to go into soya production. This year, the price has not been that good and many farmers may go into vegetable and groundnut production, as well as cotton, whose prices look so encouraging this year.
The prices of soya and maize may go up next year. In Zimbabwe, the price of soya is very good because there is a short supply of the commodity. If you can find a way of exporting your produce, look to Zimbabwe, although I hear there is an import ban.
This has been a bad year for agricultural commodity prices for the farmers. However, in business, there are always times that you lose. It is the reason why I always talk about improving our efficiencies because if we were harvesting over five tons per hectare, even at K60 per bag, we can get something. The other side of the crisis is an opportunity, let us explore it!
This author is an agribusiness practitioner.

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