United Refineries Limited (URL) and Surface Wilmar, two of the country’s biggest edible oils processors, announced this week that they will spend $30 million each on soya bean contract farming from this year to around 2023.
The companies process soya into cooking oil — probably their biggest product by volume and value — soap, margarine, soya chunks as well as protein that is used in the manufacture of stockfeed. Soya is therefore a strategic crop whose local production should be encouraged.
But in recent years, processors have struggled to secure enough of the crop locally as farmers are producing an average of 30 000 tonnes of it, far less than national annual demand of 300 000 tonnes. URL, Surface Wilmar and other companies in that industry are forced to import crude soya oil. But in the face of foreign currency shortage, the industry cannot raise the money on their own, thus they join the queue at the Reserve Bank. The challenge is that they have not been getting as much foreign currency as they need, hence the depressed capacity utilisation in the industry.
URL chief executive officer, Mr Busisa Moyo, said this year the company will sponsor 47 farmers to work 7 500 hectares under soya. He expects the growers to achieve about 50 000 tonnes.
“Our first year target is 7 500 ha of soya bean but it’s an ongoing journey for the next six to eight years where we would like to at least have farmers that are linked to us under this programme that will see us bringing in 50 000 tonnes,” he said on Monday.
“Our target is 25 000ha under this soya bean outgrowers’ alliance and we have just started the journey. This is an alliance so all of us (strategic partners) are investing into this programme so if you’re looking at 25 000ha as your final at a cost per hectare of $1 300, then you’re looking at somewhere in the region of $30 million as being the final investment that will be made.”
On Friday, Finance and Economic Development Minister, Professor Mthuli Ncube toured Surface Wilmar’s factory in Chitungwiza. A company executive told him that they have contracted 100 farmers to grow the crop.
Surface Wilmar chief executive officer, Mr Sylvester Mangani said:
“We are targeting to grow about 20 000 hectares in the next 12 months and we have already contracted 100 farmers to grow soya beans. In the next five years we are looking at doing 100 000 hectares and we have committed about $30 million to the project and bring in about 500 centre pivots, however, the delay in allocation of foreign currency by the central bank was causing delay.”
URL and Surface Wilmar have made very strategic decisions that will bring multiple benefits to themselves as businesses, the contracted farmers and the economy.
The companies’ active involvement at the earliest stage of the value chain will help them to achieve a more predictable supply of the raw material. Since they are the sponsors, they will know the average amount of soya they will get from their contracted growers. Since they are the sponsors who will work closely with farmers, it is also possible for them to achieve the crop quality they desire. Also, through contract production, the companies are better able to plan on a longer term basis instead of the current scenario where their plans are determined by foreign currency allocations from the central bank.
Apart from benefiting the companies, contract production benefits farmers as well. Contracted growers would be able to overcome the challenges they always face because of lack of resources and technical skills. Generally, most of our farmers cannot, because of resource poverty, grow specialised crops like soya on a large scale, concentrating only on maize, small grains and cattle.
Contract schemes such as the ones launched by URL and Surface Wilmar over the past few days will enhance contracted farmers’ access to resources. There would be dedicated agronomists working with them, thus farmers will gain at another level, that of acquisition of information and skills that are essential to soya production. The skills will be useful for them even after the contract schemes.
Furthermore, the farmer is guaranteed of a ready market for their produce since URL and Surface Wilmar will buy basically all of it. This predictability, just like to the sponsoring companies, enables the farmer to plan more efficiently.
The economy benefits from a stable edible oils value chain anchored on a viable contract farming system in that demand for foreign currency is ameliorated. The central bank gets more room to spend the foreign exchange on more critical areas, among them importation of medicines and electricity.
We foresee stable prices of cooking oil and stockfeed as well if URL and Surface Wilmar and other firms in their industry continue to strengthen this backward linkage on the value chain.
Tobacco growers are performing wonders not simply because the weather has been favourable but chiefly because of contract production. Some 82 percent of the tobacco that is produced in the country is farmed under contract. This has contributed to the record output achieved in the 2018/17 season, 237 million kg.
Soya bean production and the edible oils value chain can reach those heights too if more contract schemes are introduced.