Zimbabwe maize subsidy adds $118 million to mounting debt

Zimbabwe’s budget deficit will increase by nearly $120 million this year due to a maize subsidy, Reuters calculations show, in a scheme critics of President Robert Mugabe say will be open to abuse and saddle a troubled economy with more debt.

Facing an election in 2018, Mugabe says the subsidy will make Zimbabwe self-sufficient in the grain and help struggling farmers.

Mugabe’s government announced the scheme last year as part of a ‘Command Agriculture’ drive, saying it would pay farmers $390 a ton for maize this harvest to encourage farmers to plant. Nearly 70 percent of Zimbabwe’s population is rural-based and survives on agriculture.

The government has not said what it will do with the maize it has bought – essentially who it will sell to and for how much. That information is needed to work out how much the scheme will cost the government.

However, the Grain Millers Association of Zimbabwe, a grouping of the 100 biggest private millers, has agreed to buy 800,000 tonnes of maize from the state for $194 million this season, or $242.50 a ton, its chairman, Tafadzwa Musarara, told Reuters.

At this price, the government would lose $147.50 for every ton it buys from farmers and sells to these private millers, totaling $118 million, according to Reuters calculations.

Finance Minister Patrick Chinamasa did not respond to Reuters requests for comment on the subsidy calculations.
The final cost could be much higher if the government buys more grain, with the southern African nation forecast to grow 2.1 million tonnes of maize this year, financial analysts said.

Zimbabwe is already in arrears for $7 billion of international debt – around 50 percent of GDP – and its domestic debt burden is growing rapidly as Mugabe’s administration runs ever larger budget deficits.

Domestic debt now stands at $4 billion after a 2016 deficit of $1.4 billion – from an initial forecast of just $150 million. This year’s deficit forecast is $400 million. The budget does not include any ‘Command Agriculture’ spending.

Chinamasa issued a statement in the state-owned Herald newspaper on June 28 defending the maize subsidies:

“The command agriculture program was designed to (mobilize) sustainable and affordable funding for our agriculture so as to ensure food security, eliminate imports of food, to increase exports from this sector and reduce poverty.”

Despite government assertions that the subsidies will help farmers and feed the nation, opposition leader Morgan Tsvangirai said the scheme is typical of the practices that have taken root during Mugabe’s 37 years in power. He said it would benefit ruling ZANU-PF party members who acquired land after the violent eviction of 4,000 white commercial farmers from 2000.

“Who is benefiting? The same ZANU-PF elites who took the land,” Tsvangirai told Reuters. “The Treasury has to fork that out and it’s not sustainable. It’s a fiscal nightmare.”

Chinamasa said in his statement that concerns about mismanagement had been dealt with and all beneficiaries of the agriculture program would be held in a database.

Mugabe, 93, and who has been in power since independence from Britain in 1980, has personally defended the maize subsidy but the World Bank says paying above the market rate is not the answer. “Government intervention is both expensive and inefficient, especially the use of price support, as floor prices are set far higher than import-competing prices,” it said in its latest Zimbabwe report published in June.

An International Monetary Fund source, who declined to be named, said the subsidy would be difficult to monitor, funds could be funneled to political interests and crops could be smuggled across borders.

The ‘Command Agriculture’ drive includes farmers receiving seed, fertilizer and chemicals with the proviso that they sell part of their crop to the state as repayment.

Mugabe says the policy is the reason for Zimbabwe forecasting a maize harvest of 2.1 million tonnes this year, enough to meet local demand for the first time in 16 years.

The IMF source and an agriculture expert at a Western aid agency said the forecast was more to do with heavy rainfall. Neighboring countries have also had bumper crops this season.

Zimbabwe has since 2001 relied on imports and foreign donors to meet demand for maize. Drought, lack of financing and Mugabe’s seizures of land from white farmers that hit commercial agriculture were blamed for low grain production over the years.

Zimbabwe has banned grain imports to protect local farmers, just one year after a devastating drought left more than four million people in need of food aid.