Untapped Potential in the Agro Processing Industry
Patience Hamayobe
Agriculture and agro processing are important to Zambia’s economy. Agriculture and agro processing contributed about 7.3% and 3.2% to gross domestic product (GDP) in the second quarter of 2021, respectively. Agriculture employs 67% of the labour force and supplies raw materials to agro-processing industries. The agro-processing industry is an industry that transforms and enhances the quality of, and the demand for, products originating from agriculture. In simple terms agro processing adds value to agricultural produce. This sector has the potential to provide employment for the rural population in off-farm activities such as handling, packaging, processing, transporting, marketing of food and agricultural products. The sector is also an important contributor to Zambia’s exports. In 2020, the agro-processing industry accounted for 3.5 % of total manufacturing exports.
The development potential of the agro processing industry in Zambia is largely associated with the relative abundance of agricultural raw materials and the low-cost of labour. Agro processing makes intensive use of these abundant raw materials and unskilled labour. However, an efficiently functioning agricultural industry, which supplies inputs in adequate quantities and at the right quality, is required for the realisation of this potential.
The agriculture sector in Zambia, unfortunately, has not developed enough to meet industry needs. The development of the agriculture sector tends to be affected by lack of consistency in the distribution of fertilizer schemes, unpredictable rainfall patterns and inadequate farmer training programmes. Negative developments in the agriculture tends to impact negatively the agro-processing industry by starving it of the much-needed raw materials.
The outbreak of the Coronavirus pandemic (COVID-19) added another layer of difficulty to the agro processing industry. Since the outbreak COVID-19, Zambia has experienced increased levels of perishable waste and disruption of markets due to social distancing and other COVID-19 mitigation measures. Additionally, macroeconomic variables such as the exchange rate, interest rates and inflation were negatively impacted by COVID-19. As a result, the cost of production for the agro-processing industry increased, making local products less competitive compared to imported products.
Given the importance of the agro-processing industry to the Zambian economy, the Minister of Finance proposed important growth-enhancing measures in the 2022 National Budget. These include zero-rating Value-Added Tax on selected agricultural equipment and accessories (manure spreaders and combine harvesters) and suspension of customs duty on importation of refrigerated trucks. Much as the proposed measures will go a long way in assisting the agro-processing industry, they are not enough. It is, therefore, important that government takes aggressive measures to addresses the factors affecting the growth of this industry. Furthermore, government needs to address the challenges facing the agriculture sector as it is an important source of raw materials for the agro-processing industry.
In conclusion, the agro-processing industry plays a vital in Zambia’s economy through its contribution to job creation, exports and value-addition to primary products originating from the agriculture sector. The development of the agro-processing industry in Zambia is, however, affected by several factors which include an ineffective agriculture sector. It is therefore, important, for government to take an holistic approach to addressing challenges facing the agro-processing industry, if the industry is to reach its full potential.
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