Let’s face it, agriculture in Zambia is not easy. Over the past two years especially, farmers were stuck on a rollercoaster ride that went predominantly downwards. The rise of input costs and the fall of prices of commodities such as maize, soy beans and wheat made life very difficult for farmers. On top of that, droughts, erratic rainfall, power shortages and diseases caused serious losses.

The Kwacha was on a steady upwards curve against the major currencies, but it fluctuated too much to make comfortable and lasting decisions. The price of imported inputs didn’t adhere to the strengthening Kwacha either. These adversaries also had a serious effect on agricultural banks which were confronted with increasing non-performing loans.

Stanbic Bank invested significantly into Zambian agriculture and agro-businesses and they remain committed to their long term objectives to grow the sector, despite the recent headwinds. Stanbic Bank Zambia Agribusiness recently hosted a road show to address some of these current challenges. Every speaker could conclude with a positive message or a very exciting opportunity for Zambian agribusinesses.

Things can only go better from now on

Victor Chileshe is Stanbic Zambia’s Head of Global Markets . He presented a brief of the past 6 months’ performance and the outlook for the next two quarters of the year. He could point out a few promising indicators. Zambia is still on a path of economic growth.

The appreciating Kwacha has a very positive effect on macroeconomic Stability and inflation still remains in the single digits. Zambia’s external debt stabilised over the past three years due to the strengthening Kwacha and positive GDP growth. Growth in consumer demand and business activity prompted Zambian companies to hire more people over the past two months, which is the fi rst back-to-back job creation since early 2016.

Have a say in your harvest price

It became quite clear that price mitigation by stakeholders is key to long term sustainability in the sector. The time has come for agribusinesses to take control of the price of their stored grain. Chris Sturgess, Director: Commodities and Key Client Management at the Johannesburg Stock Exchange (JSE), and Jacob Mwale, Executive Director, ZAMACE Ltd, were also invited to share some exciting news with Zambian farmers.

Stanbic Bank Zambia is working closely with ZAMACE and the JSE to ensure Zambian producers and processors can access the JSE through listed brokers and local clearing accounts. They explained how hedging of Zambian commodities on the JSE can improve commodity price discovery for producers and processors as well as mitigate price risks with delivery in local ZAMACE certified warehouses, issuing warehouse receipts and to ensure the value of the listed contracts are balanced on a daily basis.

Chris and Jacob, together with various sector stakeholders, have been working on this plan for the past four years and Stanbic Bank believes that market forces are finally aligning to roll out the long awaited Zambian contracts listed on the JSE. The contracts are listed as 10 tonne units for Zambian maize, soy beans and wheat to improve participation and liquidity of contracts. Once Zambian contracts have sufficient liquidity on the market, the JSE will roll out more options which will further improve the tools available to producers and processors.

Chris cautioned the audience that the exchange does not guarantee the highest or lowest price, but that the exchange brings buyers and sellers to a single platform to allow market forces to determine the price. Given regulatory requirements as well as improved liquidity of ZAR contracts, stakeholders will be able to roll out ZAR contracts quicker while working with Stanbic Zambia Global Markets Department to hedge currency risk once a willing buyer and seller agrees to a contract.

USD contracts are the longer term objective, but the benefits of higher liquidity and participants on the ZAR contracts will greatly benefit the price discovery of Zambian contracts on the exchange. Jacob shared practical examples of trading with warehouse receipts over the past 2 seasons. The next step for interested participants is to get in touch with a listed JSE broker and get signed up.

Embrace long term crops

Ken Pope is the Senior Agric Manager for Standard Bank of South Africa and he introduced another opportunity to Zambian farmers – a look into the avocado and nut industry. He shared information about the international nut market, covering international players and consumers of the produce. The key financial aspects to look at when considering these long term crops were also discussed.  High and medium income countries are currently dominating the production of these crops, but the contribution of lower income countries are increasing.

The two largest producers of nuts are North America and West Africa. High and medium income countries are still the biggest consumers, which means that these crops have the potential to become high earning export crops for Zambia. Macadamia nuts are a relatively small player in the world nut supply, but a number of useful characteristics promise expansion into the world markets.

Prices in USD terms have remained relatively stable over the last twenty years with increases een the last five years as the Chinese markets discovered macadamias. This nut is produced on highly productive land in South Africa, replacing products such as sugar cane, bananas and timber. South Africa is currently the largest macadamia producer in the world, but new plantings in China and Australia indicate that China will be the largest producer by 2024, but still likely to remain a net importer.

“Given that the current average value for mature macadamia orchards is R325 000, it would be fair to say the seller will not see a true return by selling mid-term,” Ken says.

“Looking at the income capitalisation method of value, depending on how you value the average cost of capital, the value could lie between R400 000 and R600 000 per hectare if you base it on 30 year returns,” Ken says.

Ken touched on some of the key variables that could impact on the performance of the crop, including external factors like exchange rate and international prices as well as factors within the producers’ control, like yield and crackout percentage. Ken says that here are no shortcuts with crops like this and trees should be ordered from accredited nurseries.

“Making a mistake during the establishment phase will be a mistake you will have to live with for the next 30 years, so make sure you research the crop well before commencing establishment. Starting with a smaller area before expanding to larger areas is recommended to ensure you learn the trade at a lower expense than at larger scale that can come at exponential cost.”

It is a patience game and there will be several long years of no income. Ken also warned farmers that quality is a critical success factor and that you only have one chance to build your name out there.