The Impact of the Kwacha Appreciation on Zambian Agricultural
Sector as discussed at the ACF on the 9th of May 2006
The dramatic appreciation of the Kwacha which started in
November last year and is still to continue is found to have a
heavy impact on the competitiveness of agricultural production
in Zambia according to a study conducted by the Zambia National
Farmers Union on the Food Security Research Project. The
methodology, analysis and preliminary results of the study were
scrutinized by a team of technical experts drawn from the public
and private sector. The meeting aimed at ensuring the validity
of the adopted approach as well as debating the interpretation
of projections. The main points of the discussion were:
v
The success story of the agriculture in the past decade or so is
reversed under the current exchange rate regime and additionally
aggravated by falling commodity prices on the world market for a
number of products.v
Reduced prices for inputs do not off set increased costs of
production (mainly labour costs). Exporters with high local
costs like in the sugar or honey sub-sector will be harder hit
than sub-sectors with high costs for imported inputs like cut
flowers and coffee.
v
If the trend of the strong Kwacha will continue agricultural
production in Zambia will loose its competitiveness on the
international market and export companies will be likely to
shift their production elsewhere.
v
As a result of production shifting outside the country a large
number of smallholder farmers growing export crops through
out-grower arrangements will loose their cash income basis. The
predictions range from 200 to 250 thousand smallholder farmers.
v
For example a cotton farmer may earn a quarter less for a days
work when the Kwacha will go back to 3500 Kwacha / $US compared
to last year (when it was at 4500 Kwacha/$US). In case the
Kwacha will appreciate to 2500 (which is at the moment more
likely than going back to 3500) the farmer will only get half of
what he had last year. Will cotton farmers want to work for 2800
Kwacha a day?
v
In the longer term a strong Kwacha will also impact on the
agricultural production for the domestic market. Maize on the
world market will undercut prices for the crop on the domestic
market leading to increased imports. That in turn will suppress
domestic production and income earning opportunities for a large
number of smallholder farmers.
The full report including in depth analyses and recommendations
will be launched soon and made available through the ACF.
