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Focus on Competitive Advantage

One of the main concerns surrounding the outbreak of the Coronavirus has been low productivity as output in different sectors of the economy drops. This does not only apply to factories but also includes primary activities such as farming. Piggy expects rapid population growth and increased economic prosperity to create substantial demand for food in the future. Over the last century, the global population has quadrupled. In 1915, there were 1.8 billion people in the world. Today, according to the most recent estimate by the UN, there are 7.3 billion people — and we may reach 9.7 billion by 2050. This growth, along with rising incomes in developing countries (which cause dietary changes such as eating more protein and meat) are driving up global food demand.

Population Growth Trend

Source: UN Population Division

Food demand is expected to increase anywhere between 59% to 98% by 2050. In Sub Saharan Africa (SSA), a major constraint is that total food production (primary crops and meat) has been growing but at a very slow rate of less than 1.0% per year. This is rather alarming considering the fact that food production growth rate is not statistically different from the population growth rate. This has raised concerns about SSA’s ability to self-insure against food insecurity.

That said, there an opportunity for a country like Zimbabwe to increase its food production output given that it can translate to increased demand for its agricultural produce. There is no Silicon Valley in Zimbabwe, but agriculture can grow the economy and generate the much-needed foreign currency. The advantage here is that Zimbabwe has arable land. In economics, competitive advantages are conditions that allow a country to produce a good of equal value at a lower price or in a more desirable manner. These conditions allow the productive entity to generate more sales or superior margins compared to its rivals.

Zimbabwe should focus on its competitive advantage by increasing capacity and productivity on farms. Piggy thinks that there is need for a thorough audit to be done on farm ownership. The agricultural sector in Zimbabwe collapsed following the Mugabe-sanctioned seizure of mostly white-owned commercial farms for redistribution to black subsistence farmers. This process was not only chaotic but also uneconomic as land fell in the hands of (i) cell-phone farmers (individuals without any skills or farming experience) and (ii) capital constrained farmers (without the resources to undertake proper commercial farming activities).

There is need for reviews here! Cell-phone farmers should release chunks of undeveloped land to the government while some of the subsistence farmers should be allocated “portions that they are able to chew”. The Ministry of Agriculture , alongside the Zimbabwe Investment and Development Agency (ZIDA) can also engage regional agricultural companies such as Bolux (Botswana), Bakhresa (Tanzania), Zambeef (Zambia), MeatCo (Namibia), Agriteera (Mozambique) and Lonrho (SSA) or any other groups that have a track record in agriculture and food production by offering long term leases on land. Such measures will guarantee that productivity is maximized while adequate revenues are generated to capacitate the subsistence farmers. Overall, Piggy expects governments in SSA as well as Non-Governmental Organisations (NGOs) to intensify efforts to support agriculture and food production. Climate change-driven shocks such as the drought and Cyclone Idai in Zimbabwe have also served as a good lesson on the need to support local farming initiatives. ZSE-listed SeedCo Limited is set to benefit from such efforts. The stock also offers exposure to SSA through its stake in SeedCo International. We rate the stock BUY

For investors on the ZSE, Piggy believes you will never go wrong with Food and Consumer Stocks. Remember what made Warren Buffet rich!

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