r. Document of The World Bank FOR OFFICIAL USE ONLY Report No. 5556-ZA ZATBIA AGRICULTURAL PRICING AND PARASTATAL PERFORMANCE STUDY June 14, 1985 Eastern and Southern Africa Projects Department Southern Agriculture Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its eontents may not otberwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Units = Zambian Kwacha (ZK) and Ngwee (n) US$1.00 = ZK2.40 ZK1.0O = US$0.417 WEIGHTS AND MEASURES 1 kilometer (ki) = 0.62 miles I square kilometer 100 hectares (ha) 1 hectare (ha) = 2.47 acres 1 kilogram (kg) = 2.2 pounds 1 metric ton (ton) = 1000 kg. = 2,204 lbs. 1 liter (1) 1.05 U.S. quarts ABBREVIATIONS BOZ Baxikc of Zambia CIDA Canadian International Development Agency c.i.f. Cost Insurance and Freight FCV Flue Cured Virginia (tobacco) FIPS Fertilizer, Implements, Pesticides and Grains Division of NAMBOARD f.o.b. Free on Board rPS Hand Picked Selected (groundnuts) ENDECO Industrial Development Company, Limited LINTCO Lint Company of Zambia, Limited PKAWD Ministry of Agriculture and Water Development NAMBOARD National Agricultural Marketing Board NCDP National Commission for Development Planning NCZ Nitrogen Chemicals of Zambia, Limited NIEC National Import and Export Company, Ltd. PCU Provincial Cooperative Union ROP Refined Oil Products (1975) Limited TAZA Truckers Association of Zambia US United States ZCF Zambia Cooperative Federation ZAMSEED Zambia Seed Company Limited ZAMHORT Zambia Horticultural Products Board ZCCL Zambia Coffee Company Limited ZINCO Zambia Industrial and Miniug Corporation, Ltd. ZNWC Zambian National Wholesale Company, Ltd. FISCAL YEAR January 1 - December 31 FOR OMCIL USE ONLY AGRICULTURAL PRICING AND PARASTATAL PEIREOHMNtCE TABLE OF CONTENTS Page Summary and Recommendations i I. Agricultural Pricing Methodology A. Introduction 1 B. Objertives 2 C. Crop Budgets and Parity Prices 5 D. Subsidies 13 E. Distributional Impacts of Regional and Cost Recovery Pricing 14 Il. National Agricultural Marketing Board A. Introduction 19 B. Structure and Organization 20 - Department Description 21 - Branches 24 C. Policy and Institutional Environment 25 D. Performance and Performance Indicators 30 E. Recommendations 45 III. The Lint Company of Zambia Limited A. Introduction 50 B. Struc-ture and Organization 51 C. Policy and Institutional Environment 57 D. Performance and Performance Indicators 60 E. Recommendations 68 IV. ROP (1975) Limited A. Introduction 75 B. Structure and Organization 76 C. Policy Institutional Environment 79 D. Performance and Performanee Indicators 81 E. Recommendations 88 Annexes and Maps ANNEX I Crop Budgets and Prices 91 ANNEX II NAMBOARD Financial Tables 113 ANNEX III LINTCO Financial Tables 127 ANNEX IV ROP (1975) Ltd. Financial Tables 142 I Thdoa!no hasa mided disNuto and my be used by rints only in theprfomnnnc of tfI dE iwddtes.toxnonW wt oterin be disod thout Wodd Bank utbornloin| Table of Contents (continued) Mp IBRD 17340, July 1983 Project. File Papers Paper No. 1 Zambia: National Agricultural Marketing Board Paper No. 2 Zambia: NAMBOARD Paper No. 3 Zambia: Lint Company of Zambia, TLtd., Analysis of Its Performanre and Its Determinants Paper No. 4 Lint Company of Zambia-LINTCO Paper No. 5 Zambia: Refined Oil Products (1975) Ltd. Paper No. 6 Zambia: ROP (1975) Ltd. ZAMBIA AGRICULTURAL PRICING AND PARASTATAL PERFORMANCE SUMMARY AND RECOMMENDATIONS 1. The Government has begun formulating and implementing a policy and institutional reform program. This is manifest in the price policy reform already undertaken. Wholesale and retail prices of all agricultural commodities, except maize/maize meal prices, have been decontrolled, Government tractor-hire charges have been increased and the marketing ref'orm has been initiated by transferring NAMBOARD's intra-provincial marketing functions to the Cooperatives. The need for further reform is evidenced by the maize and fertilizer (the other major price controlled commodity) subsidy budget of K150 million for 1985. 2. Subsector studies on marketing and marketing institutions have been undertaken, including; transport, storage, operational costs of animal product parastatals and cooperatives, development policy options and management information studies. Further studies are planned on specific marketing institutions, on crop production functions to derive supply response coefficients and regional cost differentials, and on agricultural mechanization and land policy issues. 3. Consistent with Covernment objectivesl/ and the priority recommendations of the World Bank2/ this study aidresses allocative efficiency in pricing and improve- marketing efficiency in two parastatal marketing institutions (NAMBOARD and LINTCO) and a corporate marketing company [ROP (1975) Ltd]. In the longer run, these efficiencies can be sustained only by terminating the administered pricing systems and monopolistic market structures enjoyed by parastatals/cooperatives, by improved sub-sector planning and continuing macro-economic reform, particularly exchange rates. Specific conclusions and recommendations follow: Pricing. (i) Agricultural price policy applicable to major cash crops and food staples has consisted of uniform prices based on production cost and administered marketing margins. The policy was implemented through parastatal marketing institutions, Provincial Cooperative Unions, NAMBOARD and others in a near-monopoly market structure. The authorized margins for maize and fertilizer have been inadequate to cover marketing costs. Consequently, substantial fiscal outlays have been required for marketing subsidies. 1/ Republic of Zambia; Restructuring in the Midst of Crisis, Vol. 1, Development Policies and Objectives, May 22-24, 1984, P. 32. 2/ World Bank Report No. 4764-ZA; Zambia, Policy Options and Strategies for Agricultural Growth, June 11, 1984, P. vi. - ii - (ii) To obtain more efficient resource allocation in agriculture and provide improved production incentives to farmers, a pricing methodology based on provincial parity prices is proposed. The parity price conditions are relaxed to meet the objective of maize self-sufficiency with minimum resource use. To effectively implement the pricing methodology, marketing reform (institutional and structural) and exchange rate liberalization must be implemented concurrently. (iii) Application of the methodology indicates that, with the exception of sunflowers and soyabeans, the major cash crops can be produced efficiently and profitably at parity prices despite marketing inefficiencies and an overvalued currency. The higher parity prices that would result from improved marketing efficiency and a more appropriately valued currency would make cash crop production even more profitable. Also, the methodology indicates the regional comparative advantage/disadvantage of crop production, particularly with regard to cotton which incurs high transport costs. (iv) The price level for self-sufficiency was not identified as the actual level required to induce smallholders to produce beyond subsistence needs but w411 depend, inter alia, upon the returns to labor from alternative crops, labor utilization within the farming system, access to land and supplemental labor. Rowever, a set of theoretical provincial prices for maize self-sufficiency was derived to illustrate the costs/benefits of self-sufficiency. Differentiated prices would improve resource allocation and farm income would increase or decrease depending upon location; aggregate farm income would increase a modest K6 million (3%). This K6 million represents a transfer from the transport sector and, given the foreign exchange intensiveness of transport, represents a foreign exchange savings of K4.5 million. While these savings are important, priority should be accorded other reforms, such as parity pricing of cash crops, which have greater benefit implications. (v) Self-sufficiency maize prices and subsidy elimination will have adverse welfare impacts on urban consumers. Even for Western Province consumers and the very poorest urban group (lowest income decile), the welfare implications will not be severe or unmanageable as maize consumption levels can be maintained with modest expenditure increases. However, to mitigate the shock of large price increases, a subsidy phase- out period of three years is recommended. Also, it is recommended that the subsidy focus on the lower quality roller meal. - lil - Marketing. (vi) In the short term, marketing efficiency can be improved through institutional reform of the parastatal agencies. But in the longer term a competitive market structure must be actively encouraged to ensure efficiency within the marketing system and the passing on of efficiency benefits to farmers. Market structure reform should focus on multi-channel marketing and be phased with subsidy elimination. It will, however, require considerable time for the private sector to develop effective alternative marketing institutions. The multi-channel, competitive marketing structure would be comprised of private, cooperative and parastatal marketing institutions. However, parastatal organizations can be competitive only if Government permits them to operate commercially. Governuient should minimize its intervention in parastatal marketing organizations. Where intervention is deemed necessary, it should be channelled through the Boards of Directors, thereby retaining appropriate lines of cowmunication, authority and responsibility. (vii) Foreign exchange availability and access are serious constraints to efficient parastatal marketing and processing operations, demanding foreign exchange planning by the parastatals and coordinating requirements with the central bank. An appropriate exchange rate must be maintained to ensure that efficient resource allocation is maintained and agricultural production/marketing operations remain financially viable. (viii) Planning is urgently needed in all of the subsectors, not only to identify its role in agricultural development but also to define the role of parastatal marketing agencies in the subsectors. A role for NAMBOARD is proposed below but needs to be specified in the context of foodgrain sector planning. Similarly, a cotton subsector plan is needed to indentify production targets, production and processing location, and a spectrum of marketing issues including processing location, associated infrastructure investment requirements, roles of the public and private sector, downstream marketing/processing requirements and export/ import substitution proposals. The oilseed subsector also suffers from the lack of planning. The capacity to process cottonseed is grossly inadequate and the processing capacity for sunflower seed is underutilized. Government must ensure that appropriate incentives exist to produce and process local oilseeds. - iv - NAMBOARD. (ix) Regardless of the market structure, and particularly with a competitive system, NAMBOARD requires a clearly defined role, a set of objectives and a corporate plan. Short of dissolution, a spectrum of possible roles range from residual buyer/seller to a fully commercial entity. The latter option is recommended. To perform effectively, NAMBOARD must be restructured administratively, organizationally and financially. Management authority must be consistent with responsibility and management performance must be appropriately rewarded. Staffing must be reviewed and reduced/redeployed. Operations must be made more efficient in: purchasing, by using weighbridges; handling, through increased use of mechanical aids; storage, by increasing throughput (may require some storage divestiture); and transport, through rationalized transportation planning and coordination. Improved financial restructuring would include: (a) the conversion of long term debt to equity; and (b) provision of some equity working capital to reduce the reliance on overdrafts and subsidies. (x) NAMBOARD must establish greater control over its activi- ties. Management information systems and cost accounting systems must be developed (with external assistance if necessary) and applied uniformly throughout the Corporation. Management must be provided with essential and consistent operational information to plan and organize physical (packing materials, transport, etc.) and financial tseasonal overdrafts and foreign exchange) requirements in a timely and orderly manner. LINTCO. (xi) The role of LINTCO in the cotton sub-sector needs to be specified and LINTCO needs to be financially restructured consistent with the proposed role. Corporate planning must go beyond production targets and technical equipment planning and include long term strategies. A program for ginnery siting and production consolidation is urgently required. Planning should be in the context of a competitive marketing and processing structure with consideration given to the divestiture of some functions. An improved accounting and control system is needed to identify cost irregularities, interpret variances and provide management with decision information. Development of its own export promotion/marketing capacity should also be planned. (xii) Government and LINTCO must address the deterioriating cotton quality problem. Appropriate varieties must be developed/ segregated, multiplied and seed retained for distribution through a modal bulking system. Seed Cotton classification and price differentials by grade are needed to provide incentives to produce improved quality through pest and disease control. Seed cotton production must be consistent with ginning capacity to ensure proper ginning and quality maintenance and the grades must be separately ginned to maintain consistent lint quality. LINTCO should retain its primary functions in promoting cotton production and marketing but Government should refrain from requiring LINTCO to undertake development roles for new commodities such as coffee which would reduce its capacity to handle cotton efficiently. ROP (1975) Ltd. (xiii) The role of ROP (1975) Ltd. vis-a-vis the private sector needs to be determined. The reasons for low eapacity utili- zation must be identified and improved technical operation and capacity utilization sought. Technical equipment investment, capacity expansion and investment location must be accompanied by technical feasibility studies. Additional equity capital would be needed to accommodate additional capital investments and/or commodity purehasing. Foreign exchange planning should be coordinated with the central bank to permit imports on a pipeline basis and improve stock control. Scale economies are evident; therefore, it is crucial that adequate oilseed supplies be acquired and foreign exchange be allorated to permit high capacity utilization. Oilseed procurement planning should be within a rompetitive market structure; production contracting with growers should be considered and given the excess cottonseed supply, and third party crushing should be employed. As cottonseed quality deterioriates rapidly in storage, the seed should be exported to Zimbabwe for crushing and the crude oil should be returned. Crushing and transport costs would be recovered from the sale of cottonseed cake/meal. (xiv) Imported vegetable oil should be limited to low cost crude (basically unrefined soyabean or rapeseed oils). To pre- clude artificial vegetable oil shortages, Government should permit bulk sales to wholesalers/retailers for onward sale with consumers providing the container. As a further rost saving measure, unrefined oil sales should be permitted. A marketing capacity should be developed to handle the increasingly important nilseed cakes. ZAMBIA AGRICULTURAL PRICING METHODOLOGY A. Introduction 1.01 Price policy in Zambia has recently undergone considerable reform through consumer (retail) price liberalization. Prices of most food commodlties have been decontrolled, enabling cost recovery prices to be charged. Only maize/maize meal remain controlled throughout the marketing system. Similarly, the farm level prices of a number of agricultural commodities have been decontrolled. This is applicable to all animal/ animal product prices and sgoe crop commodities - although horticultural crops were never subject to price control. However, the major food grain and export crop prices remain controlled. Consequently, a systematic procedure for identifying appropriate price levels is needed which will assist in achieving Government production and income objectives. Also, given the considerable (and probably unsustainable) fiscal burden of current subsidies, the time is appropriate to explore actively the possible means the Government might eventually employ to further reduce controls (and the implicit costs) and to encourage development of a fully competitive market system. 1.02 The past pricing regimes have occasionally been marked by producer prices higher than consumer prices; this in fact will be the case for maize in 1985/86. This pricing results not only in a price differen- tial subsidy exceeding total marketing costs but also increases the quan- tity of maize to which subsidies apply. It provides a disincentive for farmers to retain maize for their own consumption as the opportunity cost of retention (consumer price) is lower than the selling price. Thus, it is financially attractive to sell all the maize and repurchase one's consump- tion requirements and, indeed, to recycle it if possible. Heretofore, pricing methodology has focussed on the domestic cost of production as the basis for determining panterritorial producer prices. Costs of production were reviewed annually using aggregate crop budgets (for both smallholders and large commercial farmers) to which a margin was added to derive the proposed crop price. Individual crop budgets for the various provinces or agroclimatic zones were not available. This methodology did not reflect the appropriate opportunity cost of commodity production either to the country or to the region. The methodology proposed in this report for determining producer prices is based upon efficiency criteria which will optimize resource and product allocation between export and import substitution commodities and will also minimize Government cost. The efficiency criteria could be relaxed to address the objective of self-sufficiency in food staples. 1.03 The previous pricing mechanism and the monopoly market structure have been costly for government, distorting resource use and retarding the development of alternative marketing institutions. Government subsidies to NAMBOARD were reduced from KilO million in 1980 to K33 million in 1983 (plus K50 million to the cooperatives), but are budgeted at K150 million for 1985; this represents an enormous fiscal drain. The effort to maintain -2- low consumer prices for food coupled with panterritorial pricing has directed resouree use away from food production and has stimulated excess input use and production output in distant areas, creating unnecessary social costs in transporting inputs and outputs. These structures together with pervasive Government intervention in the marketing institutions have created disincentives to managerial effiriency and diluted management autonomy and authority. 1.04 With a completely competitive marketing system, a pricing method- ology would not be required as the price signals generated by demandjwould create a supply response. Without the competitive market structure, a methodology is needed to improve the efficiency of resource use. It is important to improve the marketing efficiency of the existing structure to approximate more closely the efficiency of a competitive system. An efficlicey based pricing methodology is necessary but not sufficient to ensure that resources are allocated optimally as the marketing institutions and structures must also be efficient. B. Objectives 1.05 Price policy is one of many policy variables used in a develop- ment strategy. It can be used in varying degrees to achieve a number of objectives but is more efficient in some roles than in others. It is important to identify objectives which price policy can assist in achieving and acknowledge that price policy is an inappropriate vehicle for achieving other desirable objectives. Some objertives which are price policy foci are incompatable with other objectives and when pursued simultaneously reduce the efficiency of price as a resource allocator. 1.06 Government has defined its major objectives for the agricultural sector over the next decade as follows: (i) 'to achieve a satisfactory degree of self-sufficiency in the production of major staple foodstuffs, partirularly maize, cassava and sorghum...; (ii) to expand production of export commodities in order to increase the sector's contribution to the country's balance of payments ...; and (iii) to increase production of import-replaring commodities with proven domestic comparative advantage, especially dairy products, poultry products, and vegetable oils and cakes...'1/ 1.07 The strategy proposed to achieve these objectives is to improve incentives for economically efficient farming through improved producer prices. Price distortions are major impediments to agricultural growth, but rectifying these distortions is insufficient to stimulate growth when other distortions exist. Thus, pricing reform is only one necessary component of a reform package. Marketing reform, exchange rate adjust- ments, prompt payment for produce, and input and incentive goods avail- ability are necessary romplements to effective pricing reform. 1/ Republic of Zambia, Restructuring in the Midst of Crisis, Vol. 1, Development Policies and Objectives, Consultative Group for Zambia, May 22-24, 1984. p. 32. - 3 - 1.08 The pricing methodology proposed in this report is based on effieient resource use (allocative efficiency) in production and marketing, and if fully implemented would eliminate subsidies. The methodology also addresses food grain self-sufficiency. By using efficiency criteria to determine price levels, overall achievement of a set of objectives is optimized although achievement of single objectives may not necessarily be maximlzed. Subsequent chapters will review individual marketing Institutions. Efficieney Prices 1.09 Where allocative efficieney is not generated by eompetitive market forces, the appropriate price references are a set of border prices (for tradeable goods) based on an appropriate exchange rate. The relevant border prle, import or export (depending upon the nature of the commod- ity) represents the social opportunity cost (benefit) of using (producing) the commodity. If the use (production) of the commodity impacts upon exports, an export border price is assigned and if it impacts upon imports, an import border price is used. The border price represents the cost of resources used In the production (and transport) of the particular commodity, if world trade is a feasible option. 1.10 To derive Zambia's import and export border prioes, c.i.f. and fe.o.b prices can be used if the commodities are artually imported or exported. Where the commodity is a potential import or export, the border price must be derived from an internationally quoted price (e.g., a Rotterdam or London price) appropriately adjusted for quality differen- tials. The import border price is obtained by adding to the international price, the cost of transport between the point of the quoted price and Zambia's border. These costs are normally foreign exchange costs and include: ocean freight, port handling charges and inland transport to Zambia's border. Import parity prices ran be derived for all in-country locations by adding the incremental transport and marketing charges incurred in moving the commodity from the border to the desired location, normally the major consumption centers. To obtain the parity price of a processed commodity,the in-country processing costs would be deducted as well. The value of the imported commodity is converted to local rurrency at the border and, although there is a foreign exchange component of these costs, subsequent additions and deductions are in local currency. The exchange rate must reflect the true value of the currency to ensure that the financial prices closely reflect the economic prices, as it is the former which provides signals to farmers. 1.11 The costs of ocean freight, port handling charges and inland transport to the border %ould be subtrarted from the international price tn obtain Zambia's export border prices. Internal parity prices could be derived by subtracting the appropriate transport and marketing charges (including relevant processing charges). 1.12 This methodology would derive prices which reflect the trading opportunities or competitiveness of Zambia. However, for this to be conceptually valid the foreign exchange rate and costs of marketing activities used in deriving parity prices must reflect the -true value of the currency and represent efficient resource use. As competitive market forces often do not prevail, the costs incurred by existing monopoly/ -4- monopsony marketing institutions are used as proxies in the following computations and the transport rosts used are rates fixed by Government rather than competitive or negotiated rates (para. 2.37). Pure efficiency pricing requires the exclusion of marketing inefficiLencies in parity price computations, but in a practieal sense they must be included if marketing subsidies are to be eliminated. Concurrent reform in marketing institu- tions and structures is required to improve marketing efficiency; thus: (i) distortions and inefficiencies in private and parastatal marketing institutions must be identified and eliminated; and (ii) multi-channel marketing must be encouraged to create competitive efficieney ensuring that the benefits of pricing reform reaches the farmers. 1.13 To derive the parity price of import substitution commodities, it is important to ensure that the item which is being replaced is appropriately identified. The item being replaced in import substitution is not necessarily the sae commodity which will be produced in Zambia. This is particularly applicable to vegetable oilseeds. While Zambia may produce soyabeans, sunflower, groundnuts and cottonseed (as a by-product), the derivation of an appropriate parity price is based not on the international price of these oilseeds but on the international price of the least expensive crude vegetable oil whicJh Zambia is prepared to import (for practical purposes this is likely to be soyabean oil which is widely traded and readily available). Regional Prices 1.14 While it is conc-eptuaUly possible to derive parity prices for all locations, it is impractical to compute and administer a set of prices for all procurement points. Therefore, regional price differentiation should be defined as provincial center pricing. Provincial hinterland pricing should be based on the incremental marketing and transportation costs Incurred in transferring the commodity to the provincial center. However, market depots in surplus provinces may have higher maize prices than the primary provincial centers if located nearer deficit provinces. Uniform Provincial pricing could be an intermediate step eliminating a major share of the efficiency losses. The intra-provincial efficiency losses could be recovered in a subsequent step, basing prices on full marketing and transport costs. But, unless all marketing institutions were eligible for transport subsidies (with the inherent bureaurratic difficulties), monopoly parastatal marketing (with inherent inefficiencies) would remain. 1.15 For import substitution crops, the parity price at the major consumption center(s) would be the initial point for computation of regional prices. From this parity price, a transport and handling eharge should be deducted for each region (province) based on the distance of the regional transshipment point from the consumption center(s). These transport and handling charges should represent the differences in prices between the regions but would not represent the parity price which would apply to farm level produce. The additional transport and marketing charges ineurred in the region would be deducted to arrive at the parity price for produre delivered to depots. The actual price differentials between regions, therefore, would be greater than just the interregional transport and handling charge. -5 1.16 For export pari_y crops, the border price in local currency is the initial computational point. From this price the various transport, handling and processing costs must be deducted to obtain a regional (provincial) parity price applicable to the major transhipment point. The additional transport and marketing charges incurred in the region would then be deducted to arrive at the parity price for produre delivered to depots. The location of processing facilities impacts strongly on the costs for various regions. These are fixed in the short run, but obviously should be considered in future investment plans. Floor prices are assumed necessary to protect smallholder farmers from exressively volatile price fluctuations. Border prices should be based on the best estimate of the average near term priee and should not reflect every priee movement. Food Self Sufficiency 1.17 Border prices are important when food self-sufficiency is a price policy objective only to the extent that they identify the effiEiency cost of self-sufficiency. The issue is to determine a price which will result in adequate food production and marketed surplus regardless of whether it uses resources efficiently. Self-sufficiency is an import substitution issue if the self-sufficiency price is below import parity price. If this price is above the import parity price, it would be more resouree efficient to import the food rather than to produce it and. the difference between the two prices would represent the ineremental opportunity cost (per unit) to the economy of pursuing the self-sufficiency objective. 1.18 The determination of a self-sufficiency price is imprecise and its ultimate level will be determined by successive approximations as supply price elasticities and cross price elasticities are unknown. Food self-sufficiency in this methodology will focus on maize. As con4umer prices are decontrolled, the price of maize will increase and the quantity demanded may decline depending upon the relative prices of alternative staple foods. Zambia is currently about 85-90% seif-sufficient in maize, requiring the importation of 1.0-1.5 million bags annually to meet consumption needs. C. Crop Budgets and Parity Prices 1.19 Crop budgets for all controlled crops are contained in Annex I and, exrept for the food staples, import/export parity prices are derived. An import parity price is also derived for ammonium nitrate fertilizer. Provincial parity prices are derived for fertilizer and the crops which are .,pplicable to the Province. Gross margins are then computed for the budgets using parity prices. Fertilizer Pricing 1.20 Government is faced with a pricing paradox in establishing an appropriate price for fertilizer. Cost recovery pricing of domestically manufactured fertilizer would be above the parity price of imported fertilizer and would increase crop production costs unnecessarily. Conversely, if domestically manufactured fertilizer is priced at import parity level, Nitrogen Chemicals of Zambia Ltd. (NCZ) would incur losses and possibly go out of business (although recent devaluations may have inereased the import parity priee to the level of domestic production c.osts). - 6 - 1.21 If it is decided that domestic production is in the national interest and fertilizer demand is partially met from that source, it should be parity priced to minimize the distortion. There may be political reasons to have domestic control of a portion of the fertilizer supplies, in which case the approach to pricing is similar to pricing for self- sufficiency. There may also be social benefits such as employment which exceed the subsidy cost. Further, if the fertilizer pradu^tion facility is perreived as an infant industry, requiring protection until it 'matures' and reaches a scale of production which would reduce unit produrtion costs, a temporary subsidy could be justified. The subsidy element necessary to enable NCZ to cover costs should be acknowledged and budgeted. However, efficient fertilizer production and subsidy elimination should be a high long run priority. 1.22 The methodology for fertilizer pricing is applicable to any type of fertilizer but only Ammonium Nitrate has been analyzed, as that is the only fertilizer manufactured in Zambia (Annex Table I.1). Compound fertilizers blended by NCZ from domestically manufactured and imported materials should also be import parity priced. Cotton Pricing 1.23 A long-term strategy for cotton development should be identified and a set of policies enacted to achieve the strategy, prior to defining the analytical framework of the pricing methodology. Zambia is both an importer and an exporter of rotton - an exporter of cotton lint but an importer of cotton yarn, fabrics and garments. Government should plan to use domestically produced cotton in textile manufacturing for local use unless Zambia can engage in lint quality arbitrage (not currently feasible). The development strategy would require a number of feasibility studies for downstream investments. Whether cotton lint should be priced on an import or export parity basis depends upon whether self-sufficiency in cotton products plus an export surplus will be achieved or whether imports of cotton products will be only partially substituted. Alternatively, a time strategy for import substitution reverting to export could be phased with a price basis shift. The data in Annex Table I.2a implies a phasing. Given the lack of downstream processing capacity and the magnitude of production, Zambia will export lint and import fabrics in the current season. Thus, a 50:50 weighted average nf import and export parity prices was used. However, production growth has been very rapid and planned production in the next few years should exceed domestic demand, making Zambia a net exporter. Thus rotton lint was priced at export parity in Annex Table I.2b. Cottonseed oil was priced at import parity and cottonseed cake was priced at the domestic sales price in both scenarios. If cotton lint were pereeived solely as an import substitute, the farm priee (at Provincial level) would be 36.6n/kg (35%) above the export parity farm price. 1.24 The methodology uses a lint price (ex Europe) which is considerably lower than the standard 1-3/32- middling price quotation. This reflects the lower quality of Zambian cotton lint relative to the quality of internationally quoted lint. This identifies an area where additional work should focus - quality improvement (para.3.67a). Improving the quality to a level comparable with other developing countries would increase the farm level parity price by 5.5 n/kg (5%). - 7-- 1.25 The analysis also points out the exceptionally high cost of seed cotton transport and marketing. It is clearly necessary to concentrate production around a ginnery to minimize the transport rost of seed cotton which is about 200% more expensive than the transport of other agrirultural commodities as it has a higher mass to volume ratio. The Northern Province receives higher rainfall making it less suitable for cotton, and when coupled with the long transport distances for ginning suggests it is improbable that cotton ran be produced efficiently in that province. Oilseed Prieing 1.26 Zambia currently imports both refined and crude vegetable oils consisting of the spectrum from high-quality, expensive oil such as coconut oil to low value soyabean oil. If Gnvernment proposes to maintain a supply of high quality vegetable oil, domestic oilseed should be parity priced with the equivalent crude oil (e.g., oilseed groundnuts and cottonseed should be parity priced with the respective oils). 1.27 Technically most edible oils are interchangeable in end-use, although differences in refining costs may limit certain oils for certain uses. There are three price groups of edible oils: the high price group containing groundnut, eottonseed and coconut oils; the medium price group containing soyabean, palm, sunflower and rapeseed oil; and the low price group ronsisting of the fish oils. Substitutability in practice is illustrated by the high correlation coefficients of vegetable oil prices - most of which are 0.95 or higher. The October 1984 international prices (ex Rotterdam) of vegt:able oils which are produced in Zambia were: Groundnut oil - $834/T Sunflower oil - $702/T Cottonseed oil - S770/T Soyabean oil - $679/T 1.28 The prices for low value, low quality oils are projected to be about $700 per ton. This statistic has been used to derive parity prices for all the oilseeds, including the premium oilseeds, groundnuts and cottonseed. If the equivalent premium quality oil price were used to derive a parity price for groundnuts and cottonseed, respective prices of $1,000 and $850 would be the applicable international prices. These values would result in a parity price of an additional K17/bag (18%) of groundnuts and 3.3n/kg (3%) of cotton. 1.29 To facilitate the efficient use of scarce foreign exchange, Government should limit vegetable oil imports to lower cost crude oils, such as soyabean oil. Domestic demand differentiates only marginally for premium quality oil and the domestic refining capacity is adequate to meet current needs. Under such conditions, domestic oilseeds would be parity priced with low-cost vegetable oil (e.g., oilseed groundnuts, cottonseed and sunflower seed as well as soyabeans would be oil equivalent priced with soyabean oil). Pricing on the basis of a low-cost vegetable oil would result in lower farm level prices, but more importantly, it would result in lower consumer prices and the more efficient allocation of resources in the production of the oilseed crop(s). 1.30 The crop budget and parity price tables clearly demonstrate that the least expensive way vegetable oil can be provided to consumers is through oottonseed oil extraction as an adjunct of cotton lint production - 8 - and through the production of groundauts. (Annex Tables I.2a, I.2b and I.3). The groundnut budget indicates farmers would reeeive a higher return to land and labor than with other oilseed crops. Further, oil can be expressed more easily from groundnuts than from other oilseeds and ground- nut oil extraction is ideal for small-scale and village extraction mills. Although extraction rates of village mills may be lower than those of larger central mills, the high cost of transport makes local extraction and consumption attractive for both consumers and produrers who are distant from the central mills, as is the case in the Eastern Province. The Tables also clearly indicate that sunflowers cannot, at current exchange rates, be efficiently and profitably produced as a vegetable oil source (Annex Table I.4). Soyabeans are currently priced above import parity but can be profitably produced at a parity price as an irrigated crop in rotation with wheat (Annex Table I.5). Wheat Pricing 1.31 Wheat should be priced on an import parity basis, as domestic production would replace imports and is not likely to become attractive for export. Domestic demand for wheat/wheat products currently exceeds supply at prevailing prices. Wheat can be efficiently produced and economically transported to consuming centers only when located relatively close to consumption centers; this is the case in Central, Southern and Lusaka provinces, at existing border prices (Annex Table 1.9) The import parity price for these provinces is above the current farm prire, making it a financially profitable crop. 1.32 Wheat is a winter crop normally produced under supplemental irrigation. It is suited to large-scale commercial farms. As wheat is consumed by the relatively affluent consumer, there is a fundamental problem in determining whether resources should be devoted to wheat production even though, on a strictly -efficiency' basis, it is an efficient resource user.It may be preferable to focus on alternative food crops and redirect resources away from wheat. Tobacco Pricing 1.33 As an export commodity tobacco, flue cured and burley, must be export parity priced. The rurrent producer prices of tobacco approximate the parity prires, based on export unit values. (Annex Tables I.7 and I.8). The export unit value of Flue Cured Virginia (FCV) is consistent with internationally quoted export unit value and those of other developing countries. However, the export unit value of Zambia's burley crop is considerably lower than that of the U.S. (the major burley tobacco exporter) and only about 70% of the export unit value received by Malawi. Part of this lower value is due to the production of a lower quality product. However, it is not clear that the quality issue is solely responsible. The relatively small quantity of exports and the monopoly marketing structure may also be responsible for the reduced price. Production is concentrated in the Eastern Province but the crop could be more widely grown; as a relatively high value crop on a weight basis it could be produced in the more remote areas. -9. Paddy/Rice Pricing 1.34 Zambia produces less than 20Z of the rice consumed in the coun- try, and imports are currently in excess of 10,000 tons. The import parity price of rice (paddy equivalent at province level) is similar to the prevailing producer price, depending upon the location (Annex Table 1.10). When rice is consumed in the area of production, its parity price is well above the prevailing producer price. The cooperatives incur partirularly high costs in the Northern and Western Provinces (the major production areas). Fixed costs and trading costs including transport are relatively high; although it may be difficult to reduce transport costs, the other eost components should be reviewed thoroughly to identify inefficiencies. Chalimbana Groundnut Pricing 1.35 The international price for ronfectionery groundnuts is basically the Rotterdam quote, determined by European demand and the U.S. supply of hand picked selected (EPS) groundnuts. The quantity of nuts Zambia could supply would be insignificant relative to the U.S. volume and would not affect the world price. 1.36 Prices in recent years have averaged over $900 per ton (excluding the exceptionally high price of $1,800/ton in 1980/81). Given the level of recent prices, the prevailing farm level of K91.67 per bag is somewhat less than the parity price in the Eastern Province (Annex Table I.6). Confectionery groundnut production is currently limited to the Eastern Province, but there are no technical reasons why groundnuts could not also be produced in the Southern, Central and Lusaka Provinces. Production should not be constrained by administrative fiat. The analysis indicates that higher prices could be paid in these provinces. Maize Pricing 1.37 About 60-652 of maize production is marketed through official marketing institutions, indicating maize is more of a cash crop than a subsistence crop. Production is by both smallholder and cowmercial estate farmers. To induce smallholder production beyond subsistence needs, the return to labor must be similar to the returns from alternative crops (or alternative income sources), assuming maize is agronomically suited to the region. Whether the returns need to be identical, greater or smaller is determined by a series of variable factors (labor utilization within the farming system, ease of production, etc.) and this contributes to the imprecision in projecting supply responses. To identify a maize price which will achieve the objective of self-sufficiency with minimal Government subsidy, labor returns for the production of alternative crops at appropriate parity prices must first be determined. Then a maize price must be selected which would result in a similar labor return, but regionally differentiated consistent with marketing and transport cost differentials. 1.38 The production criterion for commercial farmers is more likely to be returns to capital. Therefore, the maize price would need to be such that the returns to capital under maize production would be similar to returns to capital of alternative crops when priced at appropriate parity - 10 - prices. Smallholders typically use resources more efficiently than commercial farmers, and a price which attracts resources into commercial maize production will often result in relatively higher profits for smallholder producers. 1.39 The primary maize pricing objertive is to achieve self-suffi- cienry. A secondary objective of Government is to minimize consumer costs without incurring Government subsidies. While this is a desirable objective and is conceptually possible, it is operationally impossible. Given the self-sufficiency objective, the secondary objective should be efficient re3o'rce use. 1.40 If there were absolute eontrol of the market, consumer prices could theoretically be minimized. (See Annex I, Appendix I for a theoretical treatment of eonsumer cost minimization). But absolute control is not possible in a practical sense. In practice, the competitive efficiency which comes with multi-channel marketing is likely to be a far more viable means of consumer priee minimization. Regional pricing differentiated by transport/handling costs will not minimize consumer cost but will come closer to optimizing resource use - within the context of self-sufficiency. 1.41 The maize price which results in labor returns similar to other crops provides the incentive to produce a marketed surplus. However, the c-enters of maize consumption are distant from maize produetion areas, implying high transport costs. Given the relatively large quantity of marketed maize required for self-sufficiency and the high transport costs, marketing efficiency may be improved by producing the marketed surpluses nearer the consumption centers. Overall (production and marketing) efficienry can be improved if the increase in the price of maize (near a consumption center) necessary to stimulate additional production is less than the transportation cost differential between other production centers and the consumption center. Thus, an import border price approach should be used to determine regional prices for maize. For example, a matze price of 130/bag may be adequate to provide a return to labor similar to other crops in the Copperbelt. However, the Copperbelt is a deficit area and maize must be imported from surplus areas. If the cost of importing (transporting) maize from other provinces to the Copperbelt distribution point were K15/bag, the price to farmers in the Copperbelt could be increased by K15/bag and resources would be used equaliy efficiently, assuming other intra-provincial marketing costs were similar for the two Provinces. 1.42 Two self-sufficiency price scenarios were developed for maize. The first assumed maize self-sufficiency could be achieved at a nationwide uniform price (at major depots) illustrated at K30.50/bag. The implications for commercial and smallholder farmers are illustrated in Annex Tables I.lla and I.12a. The second scenario also assumed maize self-sufficiency but at priees differentiated by province to reflect inter-provincial transport costs. A marketed surplus elasticity of ONE was used to derive provincial marketed surplus changes from those assumed in the first scenario. Crop budgets for both commercial and smallholder farmers were analyzed (Annex Tables I.llb and I.12b). Assumptions eommon to both scenarios were: (i) Central, Southern, Eastern and Northern - 11 - Provinres are self-sufficient with surpluses available for transfer to deficit provinces; (ii) NAMBOARD is responsible for inter-provincial transfers and their operating rosts; as well, transfer eosts are included in the analyses (if cooperatives in surplus Provinces transferred grain directly to cooperatives in deficit provinces, NAMBOARD's operating costs could be excluded); (iii) the maize procurement and distribution cnsts of PCUs are equal. Intuitively, distribuition rosts should be less than procurement costs in the deficit provinces but the existing financial data are inadequate to identify differences. In both these scenarios, the aggregate consumer cost would be similar for the same consumption level, but aggregate producer receipts would be marginally greater (3Z) with regionally differentiated prices. The full implications of differentiated pricing are discussed in paragraphs 1.55 - 1.58 below. 1.43 The analytical framework is dynamic and the coefficients should be continuously reviewed - PCU costs should be updated upon completion of the cooperative's cost study - to better ensure self-sufficieney with minimum resource use. The transfer matrix in Annex Tables I.lla and I.llb illustrates the assumed transferable quantities, transfer eosts and the recipient province which would result in the lowest transport costs. The indicated minimum price of K30.50 per bag is a demonstration price used in the analysis as a starting point. While realistic, its use in this exercise is not intended to imply that it is the self-sufficiency price. 1.44 The second scenario (Annex Table I.llb and 1.12b) explicitly acknowledges that surplus production in the Eastern and Northern Provinces is distant from the major consumption centers, incurring very high transfer costs. The minimum producer prices reflert this. Given the consumption concentration in Lusaka and Copperbelt Provinces and the relatively high transportation costs, it is desirable to produce marketed maize surpluses near these consumption centers. Provincial self-sufficiency in maize is conceptually attractive but is impractical and inefficient for all provinces. Transport cost differentials alone dictate that, of the surplus producing provinces, Central Province producers should receive the highest price. Producers in the Southern, Eastern and Northern Provinces should receive K38, K107 and K131 per ton less than producers in the Central Province to compensate for the additional transport charge. These differ- entials should be implemented to reduce the marketed surpluses of the Eastern and Northern Provinces. The transfer matrix reflects national self-sufficiency with increased production in the deficit provinces, increased marketed surplus in the Central and Southern Provinces and reductions in the marketed surpluses in the Eastern and Northern Provinces. The lack of good regional crop budgets and supply response funetions introdures a substantial element of uncertainty regarding the impact of regional pricing. Therefore, if regional pricing is to be practiced (i.e., maize prices are not decontrolled), it is imperative that research be undertaken on the economics of maize production by region (agro-climatic zone). 1.45 The deficit producing provinres of Luapula and Northwest are low population areas and the deficit is relatively small with only about 5,000 additional tons of maize being required. The Northwestern Provinee producer price could be as much as K155 per ton more than the Central Provinee price and still reflect efficient resource use. It is quite probable that provincial production would increase to regional - 12 - self-sufficiency levels by inrreasing the prire to about K40.25 per bag. Prices in Luapula Province would be afferted by the prire in Northern Province (the nearest surplus province). Given existing production levels and possible price differentials, Luapula would probably remain a deficit area. 1.46 The Western Province is arid and not well suited to maize production. Efficiency pricing indicates that the Western Province producer price could be as much as K106/ton higher than the Southern Province producer price (the cheapest source) and still use resources efficiently. This differential would probably be necessary as it is improbable that provincial food self-sufficiency is attainable unless drought resistent staples (sorghum and millets) and irrigated rice were to replace much of the maize in the diet. Lusaka and Copperbelt Province prices should be about K15/Ton higher than the Central Province producer price. 1.47 The producer prices indicated show the magnitude of price differentials, given the prevailing transport and handling cost structures. Without more detailed information on supply functions, it is not possible to determine the price levels at which overall maize self-sufficiency would be achieved. (After all, the process is one of trying to determine market behavior..something which only the market itself can do). Although supply elasticities are unknown, a marketed surplus elasticity of ONE is consistent withi recent smallholder response in Malawi. Consumer prices in the deficit provinres could, in the extreme, be as much as 150% of the consumer price in surplus provinces, but would probably be more in the range of 130 to 1352. However, the disparate consumer price for maize is a factor in shifting consumption to other food crops, particularly in the less urbanized provinces, precluding imports except in years of drought or other calamity. The transfer matrix would require re-analysis and redesign annually (until decontrnl were completed) depending upon estimated production and the shortfall in the deficit provinces. Sorghum, Millet and Cassava Pricing 1.48 The methodology is poorly equipped to identify appropriate prices for food staples which are not imported, have no export potential and are of minor importance in the formal trade channels. Under such conditions, there is considerable potential for stimulating production and marketing surplus beyond the demand for the items. 1.49 Analytically, a price can be assigned to the less preferred staples as a proportion of the maize price. However, such a price would be unrelated to supply and demand conditions. With regional differences in both production and consumption patterns, regional surplus could develop but would be uneconomical to transport to other provinces. About one percent of the estimated 100,000 tons of sorghum/millet produced enters the formal marketing channels, indicating that these erops are fundamentally subsistence crops. Their basic supply/demand rharacterisities are unknown. The base price for these commodities would need to reflect these characteristics, and could therefore not be established without further study. The prices in the methodology serve only to demonstrate regional differentials, not price levels. - 13 - 1.50 The methodology illustrates the conceptual derivation of appropriate parity prices and the data in the Annex I Tables are examples reflecting costs and perceptions as they existed in September/October 1984. The coefficients, both cost and quantity, would need to be under constant review and brought up-to-date prior to deriving parity prices. The parity price estimates in these tables illustrate that some of the prevailing farm prices, particularly sunflower seed, are above the appropriate parity price. The impact of regional parity pricing in distant provinces may well result in farm prices lower than those now existing (e.g., maize price in Northern Province). Therefore, Government may wish to moderate price declines by phasing the transition to true border prices over 2-3 seasons. Using a transition period, the appropriate prices should be attainable by holding nominal prices constant (in provinces where it is currently too high) while inflation reduces the real price. The data demonstrate the crucial importance of the exchange rate; further devaluation would be required to make the production of some crops competitive. D. Subsidies 1.51 Given the lengthy lead time required to import maize on concessional terms and the lack of foreign exchange available for commercial procurement, as well as the importance of maize in the diet and the uncertainty of transport between international ports and Zambian consumption centers, food staple (maize) self-sufficiency is an acceptable socio-political objective. Pursuing this objective may involve an economic cost if the self-sufficiency price is greater than the import parity price, but it will definitely have a financial cost to consumers if a cost recovery price is charged; thus a subsidy phase out period may be required. Control of both producer and consumer level maize prices has required continued subsidies to the marketing agencies to cover their marketing costs (resulting in a social opportunity cost higher than the price) and has distorted consumption patterns. The pricing methodology discussed in this report, when fully implemented (non-maize prices efficiency based and maize prices set for self-sufficiency), coupled with decontrolled consumer prices, would have considerable impact upon government, producer, consumer and NAMBOARD budgets. Subsidies would not be required for maize - except for procurement and management of the Strategic Reserve, thereby relieving Government of K 65-70 million expenditures on the maize subsidy (para. 2.70). The maize producers would benefit substantially from self-sufficiency pricing as the incremental price would represent incremental income. Efficiency prices (border prices) for most other crops would also represent increased incomes, except for sunflower which has a border price lower than its existing financial price at the current exchange rate. Consumers would be negatively affected as they would ultimately finance the self-sufficiency objective and would incur the costs previously subsidized (except as those costs might be otherwise offset by improved market efficiency). If NAMBOARD assumed a commercial role with adequate capitalization, its costs would diminish (improved transport and labor efficiency and reduced finance costs) and it would not be required to rely on irregular subsidy payments to meet its operational costs (paras. 1.08 and 2.69). Gradual movement to multiple channel marketing would further reduce the import on consumer prices. - 14 - 1.52 Although subsidies are distorting, the discortion can be reduced if the applicability of the subsidy is minimized. Industrial use of sorghum is hampered, as it is more rostly than maize due to subsidies on the latter. Irjecting the maize subsidy at the miller level would eliminate the subsidy that might otherwise go to industrial users of maize, breweries and stock feed manufacturers, but would be consumer neutral (i.e., high income and low income consumers would benefit equally). It would, however, be biased against consumers who purchase maize grain and mill it themselves. Also, the supply response may mitigate and partly reverse the initial price increase in the defirit areas. The impact of regional pricing on consumers in deficit areas could be moderated by partially and temporarily subsidizing the interprovincial transport cost. Because alternative subsidy options have differing implications for the marketing institutions, marketing organization responsibilities must be determined. Consumer level subsidies would be less costly if they could be specifically targeted to the lowest income groups. An ineome subsidy would be less distorting than a price subsidy, but targeting would be a problem as the identities of the lowest income households are unknown. 1.53 An option for lowering and phasing out of subsidies may be to apply them only to less preferred staples. The production of non-maize staples could be promoted near the major deficit areas. Subsidizing less preferred staples, such as rassava, would benefit the lowest inrome consumers; higher income households would continue to consume the preferred staple, maize, as long as they could purchase it. A variant of the above would be a rross-subsidy between the two maize meals. The price of higher quality 'breakfast meal' could be increased above eost recovery Levels to temporarily subsidize the lower quality 'roller meal' ronsumed by the lower income groups. A crucial question is whether Government has the resources to provide significant consumption assistance and/or whether cheaper energy staples can be substituted for maize products. To minimize the distortions created by subsidies and mitigate the effect of rapid price increases, particularly to the lowest income groups, it is recommended that an interim maize meal subsidy be injected at the consumer level but be phased out over three years. Also, it is recommended that differential subsidies be applied with the gre^ter subsidy applied to the lower quality roller meal. E. Distributional Impacts of Regional and Cost Reeovery Pricing Production Impact 1.54 Approximately 7.87 million bags of maize are required for sale through formal market channels to meet consumption needs. Feedstock and industrial needs would require additional marketings of either maize or sorghum. The price level that would achieve this level of marketed surpluses could possibly be in the range of K30.50/bag, as illustrated in Annex Tables I.lla and I.12a. If the marketed surpluses were transported by the most efficient route between the surplus and deficit provinces and other handling/marketing costs were recovered, the price to millers would average K43.68/bag. If consumers in each province were required to pay cost recovery prices, the prices to millers would range from K34.82/bag to K53.60/bag in Eastern and Western Provinces, respectively. - 15 - 1.55 Provincial prices differentiated by inter-provincial transporta- tion costs would redistribute production but retain national self-suffi- ciency. The impact of shifting from uniform to differentiated maize pricing is summarized in Annex Table 1.16. The overall impacts of differ- ential maize prices are modest increases in total farm revenues and gross margins of K(6 million and K8 million (3% and 8%),respectively, without affecting aggregrate consumer costs. There are,however, disparate distributional impacts as farm revenues, margins, and consumer costs would decline in the Eastern and Northern Provinces and a marginal decline would also occur in Luapula Province. Aggregate farm income (gross margins) from maize would be reduced by 50% and 60% in the Eastern and Northern Provinces respectively (Annex Table I.16), although compensation could be generated by producing other crops (para. 1.58). Increases in revenues and costs would accrue in other provinces with the largest increases occuring in the deficit provinces. The provincial maize crop budget impacts of differen- tial prices are illustrated in Annex Tables I.llb and I.12b. The extremes are the Northern Province where gross margins per hectare of maize would decline more than 50% and the Western Province where they would increase more than 100%. An important element of differentiated maize pricing is that the increase in farm income is taken from foregone tranaportation costs, not from consumers. The relocation of maize productien closer to urban centers would also reduce the distances for fertilizer transport. This would generate additional transport savings of about K300,000. (Aggregate fertilizer use was assumed to be about 50X of the amount recommended in the crop budgets - Annex I Tables). 1.56 An important facet of differentiated maize pricing is the associ- ated foreign exchange savings. Foreign exchange costs represent 75% of transport costs. The reductions which regional price differentiation could induce in transport costs of maize and fertilizer, K6.0 million and KO.3 million, would represent foreign exchange savings of K4.5 million and K225,000 respectively. In the event that the shift in production location might increase the proportion of maize produced by the commercial sub- sector, however, the foreign exchange savings would be less, as commercial farming is more foreign exchange intensive than smallholder production. 1.57 The implementation of regional pricing would need to be phased over a brief period - perhaps three years - to buffer the (implied) reduced producer incomes and the need for shifts in production in the Eastern and Northern Provinces. Thus, the differentiation may achieve only one-third of the transport cost savings in the initial year. Concurrent efforts would be needed to provide incentives and infrastructure to produce/market alternative crops, which would generate or save further foreign exchange. The maize production declines in the Eastern and Northern Provinces indicated in Annex Table I.16, imply that the following land and labor resources would be released from maize production; Eastern Northern Land (ha) 8,875 5,850 Labor (man-days) 783,250 503,100 1.58 Given the prevailing exchange rate and the resulting parity prices, farmers could regain about 50% of their lost revenue by redirecting all of the above resources into the production of other crops agronomically - 16 - suited to these provinces (groundnuts - oilnuts and confectionery nuts, sunflower, cotton, rice and coffee in selected areas of the Northern Province). However, given the high population growth rate and the limited employment opportunities in otner sectors, unutilized labor should be available to supplement the above resources, thereby permitting all the lost revenue to be regained through tobacco production. Further, implied income losses due to reduced maize prices could be fully compensated by concurrent phasing/changes in regional prices, subsidy removal and exchange rate/parity price adjustments. In summary, while panterritorial pricing distorts resource use and prevents full exploitation of comparative advantage, the distortions are modest compared to the distortions created by subsidies. As noted above (para. 1.55), differential maize pricing would Increase aggregate farm revenue about K6.0 million (3%), reallocated from the transport sector - a relatively small distortion compared to the subsidy cost of approximately K150 million (estimated for 1985). Consumption Impact 1.59 The distributional impact of self-sufficiency pricing (consumer level) disproportionately affects the low income households. Thus, in terms of social equity, a temporary subsidy may be justified to moderate welfare reductions to this group. This is conceptually attractive, but targeting the subsidy to limit benefits to the lowest income earners is exceptionally difficult - if not impossible. A more practical targeting may involve subsidizing less preferred staples such as the lower quality 'roller meal', which is consumed in greater quantity by the lower income groups. 1.60 The only information available on household consumption and income is the decade-old data of the Household Budget Survey (BBS) 1974/75 and the data from the Budget Survey of Urban Households, 1981. In order to make estimates of consumption adequacy, the following assumptions were made: (i) average household sizes were 4.5 and 5.5 adult equivalent in 1974/75 and 1981, respectively; and (ii) about 200 kg of maize (or calorie equivalents) are required per adult per annum to meet energy requirements. (This is consistent with aggregate maize consumption in Zambia indicated in Table I.1 - when converted from per capita to adult equivalents.) Table I.1: Annual Consumption of Staple Foods Per Capita (kg) URBAN RURAL Large Urban Wage Subsistence Centres Townships Earners People Staple food 1967 1975 1967 1975 1970 1970 Maize flour 120 97 134 130 131 94 Wheat flour 24 39 17 19 11 3 Sorghum/millet - - - - 11 27 Rice 1.2 1.7 0.5 1.0 1.2 0.7 Total cereals (145) (138) (151) (150) (154) (125) Cassava flour 0.7 0.7 0.7 0.7 6 25 - 17 - 1.61 Rural households were basically self-suffilient, as consumption expenditures were substantially the imputed value of their own produce consumed (HBS-1974/75). About 75% of rural household expenditure W8s for food. The largest food expenditure component was for cereals, followed by potatoes/tubers and fresh vegetables acrounting for 19, 10 and 10 perrent respeetively of all expenditures. Natinnally, maize is the major cereals romponent, although consumption patterns differ substantially by province. Given the prices prevailing at the time of the household budget survey, an adequate amount of maize could have been consumed to meet energy requirements. 1.62 On average, rural househnlds eonsumed sufficient staple foods to meet their caloric requirements. However, the lowest quintile of household income, which had a maximum of K120/annum, would have had insufficient resources to meet caloric requirements from cereals - unless the household was very small. This suggests that as many as 120,000 households may have experienced caloric shortages unless lower cost sources (rassava, sorghum) were utilized. 1.63 Inrome distributions are not substantially different for semi- urban and urban families, except urban inromes are skewed slightly higher (HBS 1974/75). Given the incomes, expenditures and prices prevailing in 1974/75, the average urban family could easily purrhase adequate maize (roller meal) to meet energy requirements. (The early household consump- tion surveys indicated that the staple food in urban areas was overwhelm- ingly maize, followed by wheat - Table I.1.) 1.64 Zambian urban family expenditures are atypical of developing country expenditure patterns, as the largest expenditures were greatest for either fish (low income) or meat (high ineome). The lowest income quartile allocated 18% if their expenditures for fish and 13% for cereals (HBS 1974/75). This level of cereal expenditure for roller meal would have supplied about 85% of the caloric requirement, which would have been sufficient given the calories provided by other foods. But the lowest income derile families would have obtained only 75% of their caloric requirements from cereals, assuming all cereal expenditures were for roller meal. Expenditures on starches, which presumably included potatnes/tubers, were slight and, given the other fnods consumed, a caloric shortage would have resulted. Consequently, lower cost energy such as cassava was probably consumed to meet the energy requirement. 1.65 The 1981 Household Expenditure Survey, applicable only to low income urban households, indicated that the proportion of food expenditures on cereals increased to 24% (16% of total expenditures). However, in 1981 the average household size was 6.7 persons, rompared to 5.8 persons in 1974/75. Assuming this represents 5.5 adult equivalents and that cereal expenditures were on roller meal, more than sufficient calories would have been obtained. This suggests that more expensive grains (breakfast meal, rice, wheat flour) probably were also purchased. The lowest income quintile group could have consumed adequate ealories by spending 22% of their income on cereals (roller meal). Insufficient detail exists to analyze the lowest deeile group but it would have probably relied on lower cost staples. - 18 - 1.66 Determining the consumption impact of regional pricing is particularly difficult as there are insufficient data on income distribu- tions, both nationwide and by province, for substantative analyses. Nevertheless, some estimates were made based upon contemporary statistics and data from the 1974/75 and 1981 household consumption surveys. The following assumptions were made in addition to the assumptions in para. 1.60: (i) the income distribution which existed in 1981 also prevailed in 1985; (ii) the relative expenditure pattern between rural and urban dwellers did not change between 1974/75 and 1985; (iii) nominal private consumption expenditures would grow by 18Z annually betweer 1982 and 1985; (iv) the average income of the lowest quintile would be equ.dl for all provinces (as ineome estimates by province are unavailable); and (v) the estimated provinetal producer prices (Annex Table I.16) would provide overall maize self-sufficiency. 1.67 These assumptions allocate 8.5% of the income to the lowest income quintile, providing an average of K 2,360 per family available for consumption expenditures. As 85 and 90 percent of the population is urban in the Lusaka and Copperbelt Provinces, respectively, as many as 65,000 families (425,000 people) fall within the lowest quintile. A total of about 71,500 tons (800,000 lags) of cereals should be consumed annually by this group (para. 1.66v) or 22 x 50 - kg bags of roller meal per household of 5.5 adult equivalents. Adequate cereal could be obtained at the budgeted prices in the Eastern and Northern Provinces with 202 of their income, but as much as 36Z of incomes would be spent on cereals in the Western Province where the budgeted price is highest (Annex Table I.17). (As maize and rice prices are similar in the Western Province, there would probably be a shift in cereal consumption toward rice.) While this is a significant proportion of income expenditures, it nevertheless compares favorably with food staple expenditures in many other African countries. 1.68 At issue is whether there is some way the Government can adequately cushion the impact of higher prices and appropriately compensate this group of people to maintain welfare levels similar to those in 1981. Tf a maize subsidy could be accurately targeted, it would cost about K17 million to maintain a similar welfare level. We would recommend, as a more practical solution, a cross-subsidy, with higher prices for high quality breakfast meal subsidizing the lower quality roller meal. - 19 - II. NATIONAL AGRICULTURAL MARKETING BOARD A. Introduction Establishment and Development 2.01 The NationaL Agricultural Marketing Board (NAMBOARD) was established by an Art of Parliament in 1969 to c.onsolidate the functions of the Grain Marketing Board and the Agricultural Rural Marketing Board, which were established in 1964. The latter two had similar functions of purchasing grains and distributing agricultural inputs, but operated in different areas. NAMBOARD retained the responsibility of purchasing and distributing controlled and non-controlled farm produets and inputs in the country through an administered price system in which purchase and sale prices of commodities were determined by the Government. 2.02 A dominant feature of Zambia's agricultural policy has been the maintenance of -eheap- food to mining and industrial workers and the provision of a guaranteed market for maize and other major c.rops. This was ac,hieved through the administered price system (para. 2.39) and parastatal marketing agencies such as NAMBOARD (para. 2.48). From its inception, NAMBOARD operated parallel to the existing Provincial Cooperative Unions; however, more than 1,000 NAMBOARD market points were established, depending on a core structure of 52 major depots. The organization was controlled from a head office in Lusaka and operated through nine Provincial and 43 District Managers. 2.03 Sinee its establishment, NAMBOARD has undergone several structural changes, mainly consisting of the transfer of specific commodities or functions to new institutions. In 1978 the promotion, production and marketing of seed cotton and horticultural produce were removed from NAMBOARD's domain and transferred to the newly created Lint Company of Zambia Limlte. LLINTCO) and the Zambia Horticultural Products Board (ZAMHORT), respectively. In 1980, primary marketing and intra-provincial trade of crops and inputs became the responsibilities of the Provincial Cooperative Unions (PCUs), some of which were newly established for this purpose. Selected NAMBOARD fixed assets, principally stores, and field staff were turned over to the PCUs. In 1981 the Government directed NAMBOARD to cease handling the importation and distribution of seeds and pesticides and transferred these functions to the newly established Zambia Seed Company Limited (ZAMSEED - a parastatal with private participation) and the private sector. 2.04 The restructuring of NAMBOARD was not preceded by either analyses of marketing needs or the performance and abilities of the organizations involved, nor was it accompanied by amendment to the National Agrieultural Marketing Board Act. As a result, its precise role remains unelear. NAMBOARD 's activities are now confined to international and inter-provincial trade of maize and fertilizer and the handling of national maize reserve stocks, which are conducted through 13 branches,controlling 28 storage points throughout the country (Annex Table II.1). - 20 - Objectives 2.05 Arcording to the Art establishing NAMBOARD, its functions are: (a) to purchase and sell agricultural products and inputs; (b) to import or export agricultural products and inputs; (e) to provide storage and handling facilities for agricultural products and inputs; and (d) to undertake any other functions necessary for ensuring the orderly marketing of controlled products and the orderly supply and distribution of agricultural inputs. 2.06 In the performance of the above functions, NAMBOARD was to have exclusive handling rights of price controlled produrts and agricultural inputs. Also, NAMBOARD could appoint (with the approval of the Minister responsible for agriculture) persons or institutions as -designated agents to perform the above functions on its behalf; however, it has tended to operate on its own account without the services of agents. The PCUs, which were directed by the Government to handle primary marketing and intra-provincial trade in controlled and non-controlled products and inputs, have derlined to enter into Agency Agreements with NAMBOARD and operate independently. 2.07 It is not clear from the Act whether the Board was expected to operate as a profitable and financially viable entity. Profits are neither directly nor specifically acinowledged in the Act; only cost recovery pricing is provided for, as NAMBOARD was theoretically permitted to adjust the selling price of a controlled product -to take into account any costs and expenses incurred by the Board in connection with such controlled products-. Further, the Act provides for NAMBOARD to have its operating expenses reimbursed by the Government, provided such expenses cannot be covered by the margin between the Board's selling and purchase prices and by the -price equalization funds-. This is the legal basis for the -price differentialV and -handling cost subsidies whic-h are paid annually by the Government. B. Structure and Organization 2.08 NAMBOARD is a statutory body responsible and subject to direction by the Minister of Agriculture and Water Development. The nine members of the Board, including one representative eaceh from the Ministries of Agriculture and Water Development, Conuerce and Industry, and Finanee and other individuals prominent in politics, commerce and/or farming, are appointed by the Minister. Responsibility for day to day business rests with a General Manager who is the Chief Executive of NAMBOARD; the Act makes provision for a Deputy General Manager but the position is currently not filled. 2.09 The Board of Directors provides neither significant input nor direction into general or specific aspects of agricultural policy, nor does it act as a link between Government and management. The functions of - 21 - NAMBOARD are determined by the Art and overall policy is dictated by Government. Many aspects of functional policy, such as commodity priring and operational location, are decided by Government; consequently, the Board does not exert the control over corporate philosophy and strategy expected of the Board of Directors of a commercial company (para. 2.65). The role of the Board members relates almost exelusively to reviewing proposed and executed management activities. 2.10 The organizational structure of NAMBOARD comprises seven headquarters divisions, fourteen branches and a Corporate Planning Department established in early 1984. Divisional and Branch Managers and the corporate planner report dirertly to the General Manager (Annex II, Chart 1). There are two main operating divisions: Grains Marketing; and Fertilizer, Implements, Pesticides and Seeds (FIPS). Supporting divisions comprise Finance, Personnel Development, Freight and Commercial, Internal Audit, and Legal and Secretarial Servirces. A further support operation is Engineering Services which has Branch status and is based in Lusaka. Divisional responsibilities are described in the following section. Department Description 2.11 Grains Marketing Division is responsible for procurement, storage, movement of maize and other controlled crops; initial grading and subsequent quality control; registration of produrers/sellers and commercial users; authorization of payments for purchases; and administering/regulating maize sales to millers and others through weekly allocations determined by Government. Although the marketing season runs from May I to April 30, virtually all of the produce (except wheat) typically has been procured before the end of the dry season (early November). The largest rommodity volume handled is maize; purchases and sales for 1979-83 are shown in Annex Table II.2. During the past two years sales have exreeded domestic procurement by about 332, the sales balance consisting of imports. Storage and movement planning is based on production estimates from the Crop Forecasting Committee, which also estimates grain bag distribution requirements. 2.12 Virtually all grains are purchased at NAMBOARD Branches from the Cooperative Unions. NAMBOARD has 111,000 tons of silo storage capacity; available shed storage totals some 290,000 tons with a further 75,000 tons of covered storage under construction; an additional 360,000 tons can be stored on hardstandings (Annex Table II.1 and Chart 2). The silo storage capacity is located primarily in major consumption centers. 2.13 Grain is bought on a weight and merchantable quality basis. Quality standards are defined by statutory instrument under the National Agricultural Marketing Art and quality of individual deliveries is determined through ten percent sampling. Maize and sunflower seed are subject to stringent assessment, having three and two grades respectively. Weighing facilities are limited, and only seven storage points have weighbridges; elsewhere deliveries are tallied and subject to a ten percent check weigh. It is, therefore, impossible to establish the precise quantities purchased, to keep accurate stock control and to determine losses (para. 2.86). Stock records are maintained on a standard - 22 - bag basis (90kg) by the Division's Stock Control Department. The records are computerized and updated weekly from primary documents hand carried from Branches to Head Office. 2.14 Fertilzer, Implements, Pesticides and Seeds Division (FIPS) is responsible for the purchase and storage of major seasonal agricultural inputs, and their distribution and sale at provincial level. NAMBOARD has a legal monopoly for the procurement of domestic and imported fertilizer; however, PCUs are now involved in intra-provincial trading. Seed sales are confined to those varieties not available through ZAMSEED and stocks of implements are not being replenished; the National Import and Export Company (NIEC) was assigned responsibility for supply and distribution of implements in 1981. Responsibility for pesticides was transferred to the private sector in 1980, together with stocks, which were handed over free of charge; however, in August 1984 NAMBOARD was instructed by Government to reenter the market to help prevent cases in which private companies were exploitative and farmers' needs were not met. 2.15 Fertilizer requirements are estimated annually by the Fertlizer Committee. Initial distribution to provincial storage is in accordance with Fertilizer Committee demand estimates and subsequent movement reflects actual consumption patterns. Fertilizer sales averaged about 197,000 tons annually during 1981-1983. The Division has a total of about 160,000 tons of specialized storage at 20 locations (Annex Table II.1 and Chart 3). NAMBOARD is required to purchase the production of the Nitrogen Chemicals of Zambia Ltd. (NCZ) at prices determined by Government. In June, NAMBOARD tenders for any quantities needed to supplement local production and stocks. Foreign exchange availability is not assured, and timely supply of imported fertilizers becomes a matter of chanee rather than planning (para. 2.34). 2.16 Finance Division is responsible for development of accounting policies, preparation and coordination of budgets, preparation of financial and management accounts and information systems, financial controls and systems, acquisition of finance, credit control and international transactions. The Division is headed by the Financial Controller and comprises three departments: Finanee, Planning and Management (each under a Chief Arcountant) and Data Processing. The system is centralized and partially computerized, although all primary documentation, most of which originates at the Branches, is manual. Budgetting is carried out on an annual basis and management accounts are prepared quarterly. Aggregate aceounts are prepared on a produrt specifir basis only and locational costs are not analysed, although the system would permit branch analyses (para. 2.27). 2.17 NAMBOARD has generated no investment funding of its own; it is entirely dependent on Government and aid donor funds for capital investments (para 2.47). It is equally dependent on Government subsidies and guarantees for working capital (para. 2.44). During 1981-83, the Board received an average of K66 million per annum subsidies from the Treasury. The Treasury also guaranteed up to K60 million overdraft facilities per annum (K54 million in 1984) from Commercial Banks to meet the working capital requirements during the same period. - 23 - 2.18 Personnel Development Division is responsible for recruitment, staff development, training, industrial relations and welfare. A very high proportion of NAMBOARD's total work force is permanent and rerruitment of additional seasonal or casual labor requires the authority of the Personnel Division. Staff development and training is based on a policy document and a rolling five year training program first approved in 1978. Trade unions within NAMBOARD assist in identifying training needs and selecting personnel for training. Salaries and conditions of service are the same as foi those directly employed by government and wages for unionized employees are determined by collective agreements of one or two years' duration (paras. 2.40-1). 2.19 Freight and Commercial Division is responsible for meeting the transport requirements of the operating divisions in the movement of internationally and domestically procured produce and inputs. The division works dirertly with the railways, truckers, freight forwarders and clearing agents. Virtually all movement is along line-of-rail and major trunk routes, using hired transport at rates theoretically set by government; in practice, road transport rates along the line-of-rail are often negotiated at lower levels. 2.20 Inadequate wagon availability and lengthy transit times result in a significant proportion of internal distribution being carried by truck; this orcurs in spite of the lower ton/kilometer cost of rail (about KO.09 per ton/km compared with KO.12 for the same routing by road) (para. 2.37). Restrictions on wagon utilization, combined with siding and shunting problems (due to inadequate locomotives), delay the handling and distribution of imports from Dar-es-Salaam. Movement by road is arranged with the 121 trucking companies registered with NAMBOARD, the majority of which is privately owned. The capacity of the truck fleet outside the major nationalized companies is nominally adequate, but low serviceability makes vehicle supply a continuing problem. 2.21 Internal Audit Division is responsible for internal audit of all accounting aspects of NAMBOARD's operations, on both a random and regular basis. There are two main teams which focus their activities on the Branches. Particular attention is paid to the training aspect of internal audit work. 2.22 Legal and Secretarial Services Division includes the Board Secretariat, which is responsible for all legal matters concerning NAMBOARD, including advice on litigation and documentation and recording of Board Meetings. This Divisinn is also responsible for administration, public relations and security and, through its Estate Department, the administration of owned and rented real estate. Additionally, the Division administers local tenders from announcement to final award and liaises with the Central Tender Board over international tenders such as those for fertilizer. 2.23 Corporate Planning is a new Division which has not yet achieved a measurable impact and has few resources, apart from the Corporate Planner himself (paras. 2.66-7). Internally, activities are directed at improving awareness of the planning function and achieving greater positive - 24 - contributions. Externally the focus is on improving communications with MAWD, especially the Planning Division, to facilitate articulation of sub-sectoral policy and enable NAMBOARD to fully develop a corporate plan. Branches 2.24 There are fourteen Branches; the Engineering Branch provides support services while the remainder carry out the physical activities in purchasing and selling grains and inputs. 2.25 Engineering Branch is responsible for upkeep and maintenance of all property and buildings; design and execution of minor building works; supervision of consultants and contractors; provision of engineering services on a consultanry basis to other government organizations; and management, maintenanee and repair of NAMBOARD transport. The Branch's resourres are c.oncentrated in Lusaka where the engineering and motor vehicle workshops and builders' yard are located. New construction, building repair and maintenance is carried out by teams from Lusaka and by local contractors, depending on the nature and location of the work to be done. There is no planned maintenance schedule and work is carried out on a 'when possible' basis against requisitions. 2.26 The transport fleet totals 95 vehicles, is 6 years old on average and provides a low level of service. The bulk consists of saloon cars and pick-ups. Vehicles are allocated on a permanent basis to Divisions and Branches while a multi-purpose pool is operated at Lusaka. Minor maintenance and servicing is performed at Branches, while major work or repair is done atLusaka or occasionally under contract to workshops elsewhere, notably in the Copperbelt. Odometers in most vehicles are broken and annual utilization and distances travelled are unknown. During 1983, maintenance costs and running expenses totalled K450,308 and K301,440, respectively, an average of K4,266 and K3,173 per vehicle. 2.27 Provincial Branch locations and the storage available are shown in Annex Table II.1. Each is headed by a Manager who reports to the General Manager and includes staff members from Finance, Grains Marketing, Personnel and Engineering who receive technical supervision from their respective Divisional or Departmental heads but remain responsible to the Branch Manager for their performance and conduct. Each Branch is treated as a cost renter and has its own (headquarters determined) budget, but separate branch cost analyses are not conducted (para. 2.16). 2.28 In surplus or major maize producing areas (Central, Eastern, Southern and Northern Provinces) the emphasis is on purchasing, storing and dispatching grains to deficit areas where the emphasis is on rereiving these transfers and selling to Cooperatives and millers, in accordanre with the national allocations. However, the Lusaka Branch performs a major inter-seasonal storage function as well. Fertilizer stores concentrate on receiving and selling. Sales are made on the basis of cash, bankers draft (not cheque) or, for major customers, short term credit. Purchase payments are made by cheque from Head Office, or, frequently in the case of PCUs, by credit and grain bags. Payments are frequently delayed due to a comb±nation of rumbersome procedures and shortages of funds. Although transactions are conducted by weight, depot records are maintained on a standard bag basis. - 25 - 2.29 Sinre intra-provincial grain marketing authority is now vested in the PCU, NAMBOARD is effectively a residual buyer and/or seller. An inadequate flow of market information has made it difficult to estimate intake and movement requirements, and has increased the difficulties of transport and cash flow planning. Estimating marketing from surplus areas is difficult, especially in years of abnormally low production when PCUs hold larger than normal stocks. In deficit areas, the problem is less severe, as consumption requirements can be more readily forecast. 2.30 The 1980 restructuring provided one important benefit to NAMBOARD, namely more evenly distributed purchases over the year (Annex Table II.3). Prior to 1982, the maize rrop was purchased during the period June through November, at least 75% of it being handled from July to September; since 1982, the purchase pattern has altered considerably and in 1983 it extended over the full twelve months, the highest proportion being 14.5% in August and the lowest 4.0% in February. This trend, if maintained, will bring significant funding and cash flow benefits and substantially reduce the volume of permanent storage required by NAMBOARD. A detailed breakdown of cooperative purchases is unavailable and the extent to which the procurement change results from conscious appraisal of intra-provincial demands, external factors such as inadequate transport, or management inefficiency is difficult to determine. Regardless of the cause, the combined cash requirements for maize marketing will probably not change much sinee, in the absence of any farm storage program and/or associated seasonal price differentiation, the crop must still be purchased from farmers during the dry season. There are, however, important implications for the lonation and capacity of District and Provincial level stores and for transport. 2.31 Previously, fertilizer was distributed by NAMBOARD to all rural stores during the dry season. NAMBOARD receives fertilizer on a constant flow basis from NCZ but, under the uniform price system, there is no incentive for PCUs to take early delivery. Congestion at main storage points results in ineffective stock control and a major distribution problem during the latter part of the dry season and the early part of the rainy season. As a consequence fertilizer sales and crop production have declined and stock losses have increased. 2.32 NAMBOARD is operating in a very fluid situation as the effects and implications of restructuring the transfer of provincial marketing responsibilities from NAMBOARD to Cooperatives still have to be fully assessed and interpreted. The uncertainty stems partially from problems of communication, and partially from the reduction in NAMBOARD's role in product purchasing, storage and movement. The result has been increased operational difficulties in grain purchasing and fertilizer marketing. C. Policy and Institutional Environment 2.33 The policy and institutional factors which affect the performance of NAMBOARD fall into two main categories: firstly, those of external origin and outside management's control and, secondly, those which are or should be within the control of management. These rombine to create the difficult environment in which NAMBOARD operates. - 26 - Exaternal Factors Principally, the external factors are Government's economic and sectoral policies, laws and regulations, and the institutional arrangements under which NAMBOARD operates and interacts with other Government agencies, PCU's and donor agencies (para. 2.42). Foreign Exchange Issues 2.34 Inadequate foreign exchange availability has required NAMBOARD to queue for foreign exchange to import maize, fertilizer and agricultural chemicals (para. 2.15). The uncertainty of foreign exehange availability has been compounded by NAMBOARD's lack of planning with regard to its medium-term foreign exchange requirements (para. 3.35). The foreign exchange requirements for fertilizer and maize are determined only after respective committees have assessed requirements and the Central Supply Tender Board has evaluated tenders. Due to the lengthy time requirements and the scarcity of foreign exchange, it has become difficult for the Bank of Zambia to assign priority to NAMBOARD's need. These factors, coupled with transport difficulties, have forced NAMBOARD to import and maintain fertilizer stocks in amounts larger than natinnal demand justifies, tying up searn.e capital and requiring unnecessarily large storage facilities Cpara. 2.90). 2.35 The secondary effects of inadequace foreign exchange have impaired the effectiveness of the transport sector through shortages of tires, tubes, spare parts, diesel, etc. NAMBOARD's ability to move maize and distribute agricultural inputs has diminished; delays in maize movements from surplus to deficit areas have become more frequent, requiring crisis management by NAMBOARD and Government. NAMBOARD requires a strong foreign exchange planning capacity for internal use and as a basis for improved coordination with the Bank of Zambia. Transport Issues 2.36 Two transport issues are critical to the performance of NAMBOARD: (i) availability of transport facilities, and (ii) transport tariffs. NAMBOARD is the largest single user of internal transport in the country, with over 750,000 tons of various commodities being hauled annually. Delayed fertilizer procurement accentuates the difficulty in coordinating the transport of fertilizer into and maize out of rural areas. Substantially reduced transport costs would accrue with greater attention to two-way load planning in transport, including better roordinated transport for fertilizer and maize. Such coordination is hampered by the existing institutional arrangements and often weak commercial orientation of, and sometime ambiguous relationship between NAMBOARD and PCUs (para. 2.46). 2.37 Since 1AMBOARD is largely dependent on the trucking sector for most of its transport requirements, the tariff rates have an important bearing on transport costs. Prior to the 1982/83 marketing season, the major trueking firms independently negotiated contracts on a consignment specific basis. However, in 1983 the Government introduced a system of fixed transport rates. Only along the line-of-rail has NAMBOARD been able to negotiate lower rates and this was only possible after threatening to rely on railway transport exclusively. In practiee, rail transport is used only minimally as a shortage of wagons and lengthy delivery periods reduce its use despite its lower cost (para. 2.20). Transportation costs - 27 - constitute over 50 percent of total operating costs; however, even with predetermined transport rates, NAMBOARD could redure its transport costs through improved transport planning and scheduling. Maize and fertilizer shipments, re8hipments, transfers and transport routes and modes have been well studied and analyzed. But actual movement planning, scheduling and implementing of an improved system are still anticipated. Agricultural Marketing and Policy Environment 2.38 The predetermined prices for key products and services prerlude NAMBOARD from having a pricing policy (para. 2.07). This has been a major constraint on NAMBOARD's performance sinre inception. The pricing system has created substantial operating losses and required corresponding operating subsidies by Government. Sales prices typically have been set at levals inadequate to cover the purchase and operating costs of NAMBOARD, and occasionally have been below procurement prices. NAMBOARD's operating losses and, hence, subsidies have occasionally exceeded the value of sales for maize and inputs (Annex Table II.5). The administered price system has severely retarded the development of viable marketing institutions and has made NAMBOARD so highly dependent on government subsidies and loan guarantees that it.would be unable to exist without them. The Provincial Cooperative Unions are equally dependent on government subsidies (para. 2.75). 2.39 Uniform pricing for maize and fertilizer, an important aspect of the administered price system, has had broad consequences, including: (a) the prohibition, in effect, of private sector participation in maize and fertilizer trading since trading margins are inadequate to cover the high transport and handling costs to remote areas. Government subsidies to eompensate for operating losses due to inadequate margins are applicable only to NAMBOARD and the PCUs; (b) the encouragement of maize production and fertilizer use in remote areas, requiring still more resources to transport small quantities of fertilizer and maize into/out of these areas (Annex Table II.4); (c) the concentration of the "storage function' with NAMBOARD and other official marketing agencies as there are no incentives for farmers to store maize or fertilizer on the farm. This has required more public resources for storage farilities than would be necessary under policies encouraging active private seetor (and farmer) participation. Wages and Salaries 2.40 Salaries, wages and benefits are governed by: (i) regulations stipulated under the Employment Act and the Industrial Relations Act, (ii) negotiated agreements with trade unions, and (iii) individual contracts - 28 - (para. 2.18). Provision of "adequate' housing, medical services and other fringe benefits by the employer to the employees is stipulated in the Employment Act in general terms. As a result, NAMBOARD provides staff housing, loans/advances and meals in its seven canteens at subsidized rates. 2.41 NAMBOARD has a salary se-ale system (with 35 grades) for all categories of staff. Within each salary scale, scope exists for annual discretionary salary increases. However, since 1983, negotiated salary increases have been limited by a 10 percent wage ceiling imposed by the Government. Collective agreements with the trade unions must be approved by the Ministry of Labor and ratified by the Prices and Incomes Commission. NAMBOARD's capacity to implement a salary and wage policy is not only constrained by its financial capaoity but, equally importantly, by Government regulations and directives. Institutional Fartors 2.42 As noted above, NAMBOARD's performance has been influenced by the institutional structure under which the board has to operate (para 2.33). These include its functional relationship with government ministries, commercial banks, clients (maize millers and PCU's), and donor agencies. 2.43 Governmental Relationships. NAMBOARD is the principal institution implementing Government's policy of administered prices (paras. 2.38-2.39). NAMBOARD is dependent on the Ministry of Finanoe for its operating subsidies, loan guarantees and for fixed capital investments (paras. 2.69-71). The annual budgets approved by the board of directors must be ratified by both the Ministries of Agriculture and Finance because of the implications for the Government budget. The Government intervenes in NAMBOARD's decision-making process in relation to resource use (key staff, finance, etc.), operating policies (investment, product-mix) and credit policy. Also, NAMBOARD is obliged to purchase all fertilizers prnduced by Nitrogen Chemicals of Zambia (paras. 2.15 and 2.63). 2.44 Commercial Banks. A commercial bank consortium (mainly Standard Bank, Barclays Bank and Zambian National Commercial Bank) is the second important source of NAMBOARD's operating funds. Operating subsides from the Treasury have been irregular and inadequate; thus, NAMBOARD's overdraft facilities with the commercial banks have assumed an important role in providing operating capital (para. 2.75). The bank consortium decreased NAMBOARD's authorized and Government guaranteed overdraft from K59.5 million in 1983 to K54 million in 1984 (para. 2.17). The government guarantee of NAMBOARD's overdraft permits it to enjoy "best customer" interest rates of 13% - 14% against a maximum allowable rate of 15X per annum. 2.45 NAMBOARD'S Clients. The major clients of NAMBOARD are the maize millers and the PCUs. Millers located in maize deficit provinces obtain their maize requirements directly from NAMBOARD depots. The Maize Allocation System allocates to ea.-h miller a weekly qunta which can be procured/milled. This allocation systea, like the uniform pricing policy, places the burden of holding stocks on NAMBOARD and the PCUs. An - 29 - alternative policy that permitted seasonal pricing and direct miller purchase without a quota system would force millers to hold their own stocks or compensate NAMBOARD for holding stocks. 2.46 The Provincial Cooperative Unions generally buy fertilizer from and sell maize to NAMBOARD and buy domestic and imported maize from NAMBOARD. The relationship between NAMBOARD and the PCUs poses a number of legal and eronomic problems. Cooperatives are outside the Ministry of Agriculture's purview and, therefore, not subject to Ministerial (MAWD) directives. As a result, in 1984, the Minister of Agriculture directed NAMBOARD to purchase and evacuate maize from villages and to sell and deliver fertilizer in remote areas where the PCUs had failed to do so. NAMBOARD undertakes primary marketing and input distribution on credit but the financial and operational weakness of some of the PCUs has resulted in mounting debts which in mid-August 1984 comprised 77 percent of the outstanding money due NAMBOARD. Operational problems between NAMBOARD and the PCUs are exemplified by not being able to capture the potential material benefits of better planning and coordinating the rontracting of transportation for maize and fertilizer (para. 2.36). 2.47 External aid plays a relatively important role in NAMBOARD's operations. It is an important source of capital investments, fertilizer and maize. NAMBOARD has virtually no capital or operating funds of its own, and aid flows have supplemented government funds (para. 2.17). In the past three years, almost one-third of the total maize imports and about one-half of the fertilizer imports have been contributed by various aid schemes. Virtually all existing NAMBOARD storage was financed through external aid (Annex II, Charts 2 and 3). All external aid to NAMBOARD is channelled through the Ministries of Finance and Agriculture and the National Commission for Development Planning (NCDP), and is often negotiated without NAMBOARD being consulted (para. 2.102f). For example, the Ministry of Agriculture has in the past negotiated and agreed on aid fertilizer programs without consulting NAMBOARD on the type, amount or delivery time, and has oreasionally accepted unsuitable fertilizers. 2.48 Government perception of NAMBOARD has been that NAMBOARD is a political instrument designed to achieve political objectives, fundamentally as the vehicle for implementing a low cost food (maize) policy. As such, Government had a legitimate right to intervene in NAMBOARD's nperations even if to do so impinged on the efficient operations of the Board. This view was reinforced by Government's commitment to subsidization of NAMBOARD's operating losses. With surh a commitment, operational efficiency was clearly not the most important performance criterion. The Government has, however, come increasingly to realize the importance of NAMROARD operating efficiently as an "economic entity" rather than as a "political instrument", hence NAMBOARD's reorganization in 1980. However, as of early 1985, Government began putting NAMBOARD back into intra-provincial marketing operations again, to offset apparent weaknesses of some cooperative unions operating alone. 2.49 NAMBOARD's existing strurtural fi-amework - its conflicting objectives, its organization and management, its financial structure and operating procedures - is still largely a by-product of Government's earlier view that NAMBOARD was a priori a political instrument. Despite recent initiatives to streamline NAMBOARD's activities to perform a mo,-e economic role, very little has been done to restructure the institutional framework to reflect Government's new thinking. - 30 - Internal Factors 2.50 Internal policy and performan,e! are highly interrelated and will be discussed in parallel. NAMBOARD's objectives should have beaen much more clearly redefined by Government at reorganization. As this was not done, management should have set its own objectives for Government clarification and approval. Although NAMBOARD is now expected to perform more efficiently, it has no stated commerrial nojectives and its role remains unclear (paras. 2.04 and 2.53). The two implied objertives of maintaining both incentive prices and low consumer prices are contradictory. 2.51 The rost of pursuing these objectives is reflected iin the subsidies paid by the Government (Annex Table II.5) and by the c.jportunlty cost.s resulting from measures associated with such policy objectiveb. There are inadequate incentives or pressures for NAMBOARD to minimize its operating costs since these are fully restituted by Government subsidies (para. 2.07). Pursuing a cheap food policy through subsidies, rather than through investments to improve agricultural productivity and marketing efficiency, has been inefficient. From a macro perspective it is equally doubtful whether the substantial indirect resourre transfer from the national treasury through NAMBOARD to consumers has assisted the Zambian economy or enhanced its prosp.:cts for growth. Government capital investments (storage) largely paid for by donor funds and operating subsidy allocations to NAMBOARD have left fewer financial resources for productive priorities including investments in agricultural research and extension (para. 2.39). Thus,caperating subsidies to NAMBOARD have precluded long-term investments for improving agricultural productivity and subsequent cheap food to consumers. D. Performance and Performance Indicators 2.52 When examining the overall performance of NAMBOARD, it is neressary to cnnsider factors which are exogenous to Policy. These include Zambia's geographical location and the effect of climatic conditions on intra and inter-seasonal distribution of production. Until 1978 Zambia was a net exporter of maize with virtually all the surpluses being sold to Zaire and moved by rail. The effect of drought in southern areas of the country and the increased maize production elsewhere, especially in Eastern and Northern provinces, have resulted in a marked change in the proportional rontribution of the provinces to total marketed production (Annex Table II.4). Through most of the 1970's the Southern Province aeeounted for an increasing share of marketed surpiuses, reanhing 45% in 1978 compared with 11.8% for the Eastern Province. The roles have subsequently reversed and in 1983 the Southern Province contributed only 16.6% compared with 27.2% from the Eastern Province; during the same period, the share of the Northern Province grew from 2.8% to 10.7% while the Central Province marketings remained between 38% and 41% of the total. The effect of this is twofold: firstly, it alters the actual and planned balance between production and storage, a situation made worse by the fact that a storage construction program now being completed was initiated when Southern Province production was increasing. Regardless of the production shifts, storage capacity is grossly underutilized in all areas of the country but, given the recent produrtion shifts, utilization rates will decline in the Southern areas (para. 2.83). Seeondly, the new surpluses are produced in areas more remote from the centers of consumption. The - 31 - distance to Lusaka from Petauke, the nearest Eastern Province depot, is 409 km compared with 85 kmfrom Monze, the main storage point in Southern Region, while Kasama in the Northern Province is 800 km from Kitwe (and 852 km from Lusaka). Cost-Turnover Ratios 2.53 NAMBOARD operates within a number of Government-imposed constraints which impact severely on NAMBOARD performance (para. 2.63) and its objectives are too contradictory to develop criteria for performance evaluation (pars 2.50). Further, the accounting system is inadequate to generate management information (pars. 2.65) and the accounting data maintained do not permit micro analyses (para. 2.16). Given the unique position of NAMBOARD, the Implied objectives and the lack of detailed accounting information, it is difficult to evaluate performance using commercial criteria or by comparison with other marketing organizations. In a static environment, comparisons of efficiency over time would provide good indicators of progress but in this case their usefulness is limited by the progressive change in NAMBOARD's functions; nevertheless, the process does provide some guide as to overall performance as well as a broad setting for more detailed examination of activities from a divisional or commodity standpoint. A standard measure of performance normally appropriate is the cost-turnover ratio (turnover in terms of sales value). A low cost-turnover ratio would indicate a more efficient trading operation than a high cost-turnover ratio, and it follows that a declining trend in the ratio indicates improving efficiency. NAMBOARD's overall trading costs and those of the two principal items handled, maize and fertilizer, were used to measure its performance. 2.54 Since 1978, turnover has increased much more rapidly than operating costs, the cost-turnover ratio having declined from .48 in 1976 to .22 in 1983 after increasing to .58 in 1978 (Table II_)). As expected, the sharpest decline has occurred since 1980, coinciding with the withdrawal from rural marketing. The xaethod of apportioning costs, other than transport and other readily identifiable minor costs on a turnover basis restricts the usefulness of inter-divisional comparisons but does show that maize marketing efficiency has improved to a gi-ater extent and more consistently than that of fertilizer marketing, the ratios declining from .98 to .22 and .54 to .22 for maize and fertilizer, ,sspectively, between 1978 and 1983. Normalized Cost-Turnover Ratios 2.55 The cost-turnover ratios could be misleading given that sales prices are fixed by Government (and prior to 1981 were below purchase prices). Therefore, a "normalized" trading ratio was generated by relating the various trading costs to a -base' sales value, a value that would enable NAMBOARD to recover its costs of purchasing a commodity before handling, transportation, etc. This is the sale price that would eliminate the need for a price differential subsidy. The interpretation of this ratio is similar to the cost-turnover ratio; the lower the normalized trading ratio, the greater the efficiency. The normalized" trading ratios in Tables II.2 and II.3 indicate the relationship between the purchase values (rather than the sales values) of maize and inputs and the trading costs. -32- Table II.1 And1ulm1 Pdrgc and BPr ~ -fir Sbdy NRWGAN) - Acbu1 =d Rdetive ?bmuwr I Qperatdw CostG (1975-138) CD 1975- 100, Ao.L hAto In VOOD) A5 1975 1976 17 198 !79 18D L 192 1963 Ml ktzml Immuer 25901 3D136 31105 35t06 57737 72465 9135 90581 109619 ki~ 2buiouer IOD 116 132 135 223 280 353 35D 423 A x_ 13487 16942 23365 3446" 29735 36964 30239 27611 23935 T _ meues 100 126 173 255 220 259 2!4 205 177 Qat/flanut .52 .56 .68 .98 .48 .33 .42 .22 FxM t, SE, etc. A1 Thmmer 14i 4 22 2853 2902T 38159 44485 59931 69267 75124 -. so aDover 100 153 195 191 261 3D4 409 473 513 A IE 6341 8777 12950 15670 16162 15193 17456 21118 16417 00 MO 138 2D4 247 255 2(0 276 333 259 Cost/Dl=ysr .43 .39 .45 .54 .42 .31 .29 ,D . Ael 7hzwver 2614 3156 413 4510 m3 507 6471 [544 13262 Taex1 ger 10O 122 1 173 70 191 248 591 3)7 Emipmes 968 1158 2214 1935 7714 11 1693 4705 2851 ]hTex F~ipss 10 123 229 MD0 S 166 175 486 295 CSt/DlmxVer .37 .37 .54 .43 .42 .32 .26 3 .21 _m1 Izamuer 44216 5807 729 92753 97729 L2Z8 1577 1752 19605 Th&Me lhNr 100 131 164 210 221 276 357 396 448 Atmal hpq mms ;21079 27700 4092 53537 46691 51761 49418 53461 43?3 adexm EZ % s I00 13 192 252 219 243 232 251 233 Osrtfzowmvr .48 .48 .5 .58 .48 .42 .31 .31 .22 UY E1IuUX cot (1975-1978) Noumi,er 10, 1986 2.56 The normalized trading ratios demonstrate efficiency improvements similar to those indicated by the cost-turnover ratios, but suggest the improvement to be somewhat smaller. These data also clearly indicate that the improvement in maize trading efficiency paralleled a decline in the size of NAMBOARDI's maize operations. However, improvements in trading efficiency occurred in all cost categories, particularl7 for finance and administration charges. Transport and salaries/wages have remained - 33 - significant cost items in the maize trading operations. Jointly, they absorbed about 38Z and 20Z of the normalized maize revenues in 1977 and 1983 respectively or 50% and 20% of the actual maize revenues in the same years. Their dominance in NANBOARD's maIze cost structure implies that future efficiency efforts will have to be focussed on these cost items. Despite reductions in staff associated with the transfer of rural marketing to cooperatives, salary/wage costs comprise a large portion of costs, thus demanding an analysis of employment/staffing requirements and productivity (para. 2.94). The gradual (still incomplete) shift to a more rational pricing policy, commencing in 1981, is demonstrated in the purchase to sales price ratio in Table 11.2 and is confirmed by the decline in the subsidy to sales revenue ratio (Annex Table 11.5). 2.57 Fertilizer trading efficiency in terms of normalized trading ratios reveals trends similar to those of maize (Table I1.3). However, improvements in fertilizer handling efficiency have been less than in the case of maize, as was demonstrated by the cost-turnover ratios. The 1980 reorganization of NAMBOARD led to significant improvements in the various trading ratios but, unlike maize, the moderate improvements in agricultural inputs operations were associated with a relatively constant scale of operations. Again, transport and salaries/wages absorbed relatively high proportions of normalized sales revenues. 2.58 The above analysis of NAMBOARD's trading efficiency does not indicate whether the efficiency levels reached are reasonable and adequate. Such a normative judgement can only be made after comparison with trading ratios of similar institutions operating under similar conditions; this kind of information is lacking. Further, interpretation of the coefficients is difficult because although major efficiency improvements appear to have been associated with the 1980 reorganization, it is unclear whether other improvements were internally or externally induced. Unit Costs 2.59 Given the manner of price setting and the static nature of production and sales, a time series comparison of costs on a tonnage basis provides a more useful measurement and management tool. Defining turnover as the sum of purchases and sales, thereby representing the volume actually handled by the organization, Table II.4 shows the development of marketing costs in constant 1976 kwacha (GDP deflator). The overall result is distorted as a consequence of large provisions made in the 1982 accounts against doubtful debts, many of which were settled in 1983. This produced anomalies in the administration and finance charges during these years. Therefore, for comparative purposes, the relevant 1982 and 1983 cost figures were averaged to make them consistent with those of preceding years and preliminary figures for the first half of 1984. 2.60 The overall volume handled since 1976 has declined slightly but a sharp and steady decline (from 1,716,000 tons to 1,276,000 tons) occurred daring the period 1980-83, partially reflecting the intra-provincial trading role of PCUs (Annex Table II.7). Unit costs, expressed in constant terms, peaked in 1978, then declined through 1981 when they steadied; in -34- Table 11.2 NAHBOA2RD NORMALIZED TRADING RATIOS FOR MAIZE (Percent) Purchase Price Year as Z of Sales Price TransgP Wages Admin. Finance Total 1975 127.8 16.7 14.9 5.2 3.2 39.6 1976 134.2 20.2 11.9 4.9 3.2 40.6 1977 130.8 24.9 13.3 8.6 3.4 50.2 1978 106.61 27.9 12.1 15.6 1.8 57.4 1979 106.72 23.7 12.0 9.9 1.6 47.2 1980 147.9 18.4 7.7 4.8 0.9 31.8 1981 86.1 20.3 9.8 6.2 1.3 37.6 1982 99.8 12.6 5.4 9.7 2.2 29.9 1983 98.1 15.0 5.1 0.8 0.6 21.5 Source: Derived from NAMBOARD's Audited Annual Reports. Table I1.3 NAMBOARD NORMALIZED TRADING RATIOS FOR INPUTS (Percent) Purchase Price Year as Z of Sales Price Transp. 'Wams Admin. Finance Total 1975 41.1 13.7 16.4 6.8 4.1 41.1 1976 83.3 5.4 5.4 2.6 1.6 15.0 1977 140.3 6.8 12.5 8.0 3.3 30.6 1978 209.6 10.2 6.2 3.0 1.0 20.4 1979 92.7 17.5 13.8 11.3 1.8 44.4 1980 155.1 8.5 7.4 4.6 0.8 21.3 1981 139.9 9.7 6.0 3.8 0.7 20.2 1982 156.7 8.0 3.4 6.2 1.4 19.0 1983 93.5 15.8 5.2 0.8 0.6 22.4 Source: Derived from NAMNOARD's Audited Annual Reports. ZAIIIIA Agricultural Pricinl arid Paramiacal Perfurnu. Study HAIWOA - Operias n SUt par Ton iol Pruduct Handled ludalt 1916 1917 1918 1979 3910 1'9J 1982 1983 1976-83 AV. Lcsts 1984 1985 Tonncae (I000) 1,581 1,7U4 1,b17 1,334 1,716 1,603 1,448 1,276 - z - 1,728 2 1,439 2 1|"1Z1 1IO 108 102 84 109 101 92 81 109 91 2/ (a trn aaport-Tzua3 10,758 14,593 23,310 21,114 26,172 24,750 21,979 29,214 47.4 35,966 58.,9 40,799 62.3 Fer Tun 6.80 1.19 11.91 20.21 6.92 8,19 7.71 I0.OU 7,57 9.39 Indx 100 116 175 150 11 120 113 149 III 138 (b) Salarive-Walges-Total 8,610 11,63S 11,918 12,557 13,98 13,245 9,426 9,859 2S.1 7,859 12.9 5,311 12.7 Fre Ton 5.45 6.21 6.09 6.01 4.77 4.38 3.30 3.37 1.65 1.65 1.91 v Index 100 114 112 111 86 so 61 62 10 50 35 (c) fAnance-TotWl 2,281 3,008 1,824 1,60 1 696 1,727 3,796 1,190 4.7 6,500 10.6 6,200 9.5 per Ton 1.44 1.60 0.93 0.79 4A5s 0.57 9.33(0(74) 0,41(0,74) 3' 137 1.43 Index 10 111 65 S5 40 40 92(51) 21(51) 95 99 (d)AJInlsr;atlan-Togal 3,513 7,545 1I,551 Jo,j40 a, 04 8,493 11,038 1,660 3/ 20.1 8,735 14.3 9,026 13.7 htr Ton 2.23 4.U3 7.85 5.00 3.00 2,81 5.91(3.21) 0.5d3,27) '084 2,08 Index IOG 182 354 225 135 127 26,9 (141) 24(147) *3 94 (I) Dupreclatlcn-ToUtl 1,109 1,148 1,134 1,050 1,30U 1,203 1,225 1.260 2.7 2,040 3.3 1,l66 1.6 Per Ton 0,10 0.93 0,58 0.5 0.38 0,40 0.43 0.43 0.27 Indvi 100 all 63 73 54 57 61 61 39 p Total Maxpene.e 26,271 38,529 S3,S37 46,491 51,761 49,416 53,464 43,203 100.0 61,100 65,502 PFr Ton 16.62 20.56 21.36 22.58 17.64 16.35 18314S.45)14.76(1.I1)_/ 12,86 I5.08 a4 index 100 124 165 136 10* 98 113 (93) p9 (10') 77 93 fol_da 1/ Sun of purclucec Including importl aind males Including aNpocts. i/ Total upFenaec rfe *houe actually Incurred (1916-81) or budgeted (1984-.5), eNp.ncIe per too are uxprexaed In 1976 kwachi by applying GOP deflator (projected for 1984-85) 3/ Figures in brackits eto everagem of reapevtive 1982 and 1983 costs to reduce d4aetorllng eff4.t caused by over provieione In 982 accuunts, - 36 - a 30% increase in transport expenditures which increased from 41.9% of total costs for the period 1976-1979 to 52.4% for 1980-1983. The absolute and relative share of salary/wage costs although remaining high (para. 2.56), has declined, as would be expected with its reduced role. 2.61 In contrast to the simple financial indicators, these data do not reveal any significant improvement in technical performance; total costs since 1981 have remained steady although their composition has varied considerably. Using 1980 (the last year of the 'nld' NAMBOARD) as a base, only the salaries and wages component shows a significant downward trend. This clearly results from the transfer of rural marketing to cooperatives, with the consequent reduction in staff and payroll. Administrative and finance costs both show a disappointing upward trend. 2.62 Comparison of individual commodities is hampered by the method of allocating overheads (para. 2.54). However, consistent with other indicators, maize marketing has been better controlled than that of fertilizer, although costs for the latter may have been affected by an uneven flow of imports (Annex Tables II.6a & 6b). On a per ton basis, the operating costs for fertilizer have consistently been abouit twice that of maize. The proportional composition of costs is similar for the two commodities with maize transport and labor costs, respectively, being slightly higher and slightly lower than for fertilizer. Budgeted operating costs for 1985 are K25 and K43 for maize and fertilizer respectively. Transport costs will vary, depending upon origin and destination, but must be added to the above margins if operating subsidies are to be eliminated. Organization, Management and Planning 2.63 The NAMBOARD Art provides for a Board of Directors consisting of a maximum of nine members and defines a quorum as five members, but in rerent years the Board has consisted of only five non ex-offic-io members and three ex-officto members. The membership has been well-balanced, with the majority of non ex-officio members coming from the farming community. Nevertheless, the NAMBOARD Art vests substantial power in the Minister responsible for Agriculture. The Minister has full powers over NAMBOARD's policies and strategic decisions and has the power to appoint and/or dismiss all members of the board of directors. The Act empowers the board of directors to appoint the General Manager, after approval by the Minister. However, this has become a Presidential appointment at the Minister's recommendation, rendering the Board ineffective vis-a-vis the General Manager whom it neither appoints, controls nor dismisses. The weak accountability of the chief executive to the Board has been exacerbated by the absence of criteria to judge management's performance. In practice, the Minister has often directed NAMBOARD's operational performance and determined NAMBOARD's policy with regard to: (1) purrhase and sales pricing; (ii) financing through annual operating subsidies and by issuing Government loan guarantees; (iii) major investment derisions; and (iv) product-mix to be handled. Ministerial control of NAMBOARD has reduced overall performance and prevented the establishment of management accountability. 2.64 NAMBOARD activities are very much reactions to or results of external faetors. As a receiver of directives, albeit with major executive functions, NAMBOARD has not yet developed the corporate planning capacity - 37 - that would be expected in a commercial company. It has acted more as an extension of government, using many governmental standards and procedures, few of which are appropriate to a marketing organization with an annual turnover approaching K200 million. 2.65 During the 1970s, NAMBOARD operations expanded beyond its management ability and beyond the capacity of the physical infrastructure to sustain it, and NAMBOARD was subject to much criticism and an official enquiry. One consequence was the adoption of an increasingly bureaucratic attitude towards doruments, which are perceived as ends in themselves (i.e., a form of protection for action or inaction), rather than as management and operational tools. Unwieldy and cumbersome procedures have developed and the complicated administrative accountancy process fails to provide essential information to management. This situation creates unnecessary operational complications as well: for example, the sales recording process at stores differs by both commodity and purpose (stock control and accountancy requirements are different) although the basic information needs are the same in all cases (para. 2.79). NAMBOARD must develop a standardized accounting system which would generate essential management information. If NAMBOARD's auditors are unable to develop and assist in implementing such a system, NAMBOARD should solicit proposals for assistance from other accounting firms resident in Zambia (para. 2.95). 2.66 Government determination of all prirnipal policy matters has prec.luded NAMBOARD from making long-term operational and financial plans; similarly, the preparation of short-term budgets reflects handed down price and quantity assumptions and historical costs. The consequent budget document thus has limited value, is not subject to updating and should not be construed as a NAMBOARD plan; nevertheless, it provides the basis for Government's financing of NAMBOARD and for subsequent judgement of its performance. The problem has been compounded internally by the very limited participation in budget preparation that is expected from the operating divisions, creating a major impediment to ac.countability and management development. 2.67 These circumstances, which are not peculiar to NAMBOARD, have contributed to NAMBOARD's failure to develop a significant planning capability. Inadequate planning is applicable to most areas, but the lack of transport planning is probably the most glaring. Other areas include fertilizer procurement, maize imports, capacity utilization of storage and foreign exchange requirements/flows. The lack of planning capacity has produc.ed an unquestioning aeceptance of Government directives. The phrase, wit is policy" - particularly when documented - remains a justification for many of the organization's activities and the manner in which they have been undertaken. However, the authority of management is inadequate relative to responsibilities; an example is the responsibility for security and movement nf grain and fertilizer stocks with the ability neither to coordinate supplies from various sources nor to negotiate transport rates (para. 2.37). 2.68 The financial, professional and information resources available to management have been too limited to exercise positive management. Management remuneration is insufficient to attract superior management talent and some members of the management team have adopted a survival - 38 - approach resulting in low operating performance (para. 2.94). The responsibility for this must be shared by both the Board and management but, given the conditions created by the difficult policy environment, it is surprising that NAMBOARD has been able to reach the performance levels that have been achieved. Finance and Accounting 2.69 NAMBOARD is almost entirely financed by borrowings. This could encourage NAIBOARD to use capital efficiently if it were required to pay interest costs from an operating surplus rather than from Government operating subsidies. The necessity for operating subsidies stems directly from Government's dictated pricing policy which has not provided for margins sufficient to cover costs (paras. 1.08 and 2.39a) although the monopoly structure is itself not conducive to efficiency. The financial dependence is further demonstrated by Government guarantees for bank overdrafts, long-term loans and total lack of self-financing. These are, in turn, reflected in weak and unsatisfactory operating and liquidity ratios. 2.70 NAMBOARD's seasonal overdrafts are on preferred commercial interest rates, their maturities not exceeding twelve months. PMaximum seasonal overdraft LLnits are agreed upon with Government but actual overdraft levels often exceed the Government guaranteed lintit. As sales proceeds, because of prevailing pricing policy, are insufficient to cover overdraft repayments, they are partially financed through government allocations (operating subsidies). NAM)sOARD's operating deficit has ranged from K33 million ir 1983 to KILO muittIon in 1980 (Table I1.5). These deficits are theoretically covered by Govecmment subsidies, but delayed payment of the subsidies has exacerbated the financial problems. Although inter-year fluctuations have been considerable over the past several years, maize and fertilizer have contributed equally to the operating deficit. Table II.5 NAMBOARD Year End Overdrafts and Operating Deficit before Subsidies Trading Accounts Year Overdraft Maize Fertilizer (Inputs) Total (Million Kvacha) 1975 25.0 20.7 37.4 59.1 1976 14.4 27.2 25.1 53.2 1977 11.4 33.9 24.5 62.1 1978 8.0 38.0 37.4 80.1 1979 22.0 33.6 13.4 49.9 1980 4.0 69.7 39.8 109.6 1981 59.9 17.5 41.4 69.3 1982 27.7 27.5 60.5 90.1 1983 38.8 21.9 11.4 33.0 - 39 - 2.71 NANBOARD's long-term investments in fixed assets are financed through budgetary allocations converted into long-term loans. In 1983, Government long-term loans to NAMBOARD amounted to over K29 million, of which Kl1.0 million were interest free, irredeemable loans; K9.3 million were interest free with no fixed repayment dates, and K8.7 million were set at 6-7% interest per annum with no fixed repayment dates. The most striking feature of NAMBOARD's long-term financing is the absence of repayment obligations. This makes long-term borrowing cheap and convenient for NAMBOARD but places a heavy fiscal burden on Government. 2.72 There is neither pressure nor accountability for NAMBOARD to minimize financial costs. The reimbursement of operating costs on a cost plus' basis to cover overdrafts and the interest free long-term loans are disincentives for financial discipline and promote inefficiency. The distorted capital structure and the controlled operational environment limit the applicability of standard financial ratios and their interpretation requires extreme caution. Balance sheet and key financial information for 1976 through 1983 follow. 1976 1980 1981 1982 1983 K'000,000 Fixed Assets 1/ 22.8 15.5 42.9 42.6 42.9 Net Current Aisets 48.8 18.2 8.6 10.7 13.5 71.6 33.7 51.5 53.3 56.4 Financed by: Irredeemable loans 10.7 9.1 9.1 10.0 11.1 Undated loans 41.4 16.6 15.0 15.9 17.9 Other Gov't funds 2/ 19.5 8.0 0.1 0.1 0.1 Capital Reserve - - 27.3 27.3 27.3 71.6 33.7 51.5 53.3 56.4 Turnover 58.0 122.0 157.8 175.3 198.0 Current Ratio 2.57 1.18 1.06 1.09 1.08 Quick Ratio 0.79 0.45 0.44 0.42 0.39 Notes: 1/ Including Depreciation Subsidy. 2, Including Building Society Mortgages. The Capital Reserve arose from a revaluation of fixed assets. 2.73 Both the -current ratio" and "quick ratio" are guides to an institution's ability to meet its short term liabilities and therefore indicators as to the adequacy of working capital. The quick ratio is similar to the current ratio (current assets to current liabilities) except that stocks are excluded from the numerator. Usually acceptable ratios lie in the ranges of 1.6 to 2.0 and 0.8 to 1.2 for current and quick ratios, respectively, although trading companies can work effectively with lower ratios provided: (i) the level of receivables is low; (ii) stocks are well controlled and turnover is rapid; and (iii) prices cover short term financing costs. Unfortunately, these conditions are not applicable to NAMBOARD as stock control is poor, turnover is annual and price margins are inadequate to cover costs. - 40 - 2.74 Discontinuanre of Government-determined eonsumer prices would remove the distortions, but the distortions could be partially offset by the timely payment of subsidies (to minimize short term borrowings for stock financing); nonetheless, the very low respective ratios of 1.08 and 0.39 clearly indicate insufficient working capital. The extent of this is shown in the following table which summarizes the manner and extent of stock f lancing by NAMBOARD's trading partners - the government, rooperatives and commercial banks. 1976 1980 1981 1982 1983 (million kwacha) Overdraft 14.5 4.0 59.9 27.7 38.8 Subsidies prepaid (receivable) (7.9) 29.4 39.2 32.8 37.9 Sub-total 6.6 33.4 99.1 60.5 76.7 Trade debtors 1/ 13.7 24.4 47.2 38.2 36.9 Trade creditors 1/ 7.0 60.0 27.5 51.6 80.5 Net financing by 'Trade' (6.7) 35.6 (19.7) 13.4 43.6 Total short term financing (0.1) 69.0 79.4 73.9 120.3 Value of stocks 53.3 72.8 83.6 76.8 111.5 NIote: 1/ In this context 'trade' represents those who buy or sell produre and fertilizer, principally the PCUs, millers and NCZ. 2.75 Despite partial prepayment of subsidies, NAMBOARD obtains substantial funding through bank overdraft facilities (para. 2.44) and by delaying payments to its suppliers. NAMBOARD's major trading partners (the rooperatives) are parastatals governed by similar cash flow problems and their viability also depends on government subsidies (para. 2.38). Thus, actions to overcome the lack of capital cause a chain reaction and liquidity problems are ubiquitous throughout the sector. The position would be eased slightly if milling industry purchases were made for cash but NAMBOARD has been unsuccesful in obtaining cash payments. 2.76 Short-term financing costs currently constitute about 8% of marketing expenses and are budgetted to rise to over 12% in 1985. Regardless of NAMBOARD's future role, a major financial restructuring to ensure that long term finance is more closely related to actual needs will be necessary to improve its financial performance. However, the position could be eased if Government increased its debt capital or equity aceompanied by prompt and regular funding of price and handling deficits. This proviso would not be necessary if pricing policy permitted normal cost recovery (paras. 2.39, 2.43, 2.51 and 2.102c). 2.77 Divisional Performance. An accounting system should provide management with internally generated information necessary for the efficient conduct of the business and should facilitate achieving a predetermined level of security and control. It must also provide the owners, dirertors and management with regular performance measurements or the means to make such measurements. In most marketing organizations, a - 41 - combination of a management information system and management accounts meets these requirements. These are derived from the same basic data and should fulfill any additional legal accounting requirements. NAMBOARD's marketing operations depend on the efficient control and management of stocks (description, location, quantity and value) and subsequently debtors. This ii"ormation is needed to organize and manage the transport, staff, buildings, etc., and to assist in interpreting externally generated supply and demand information. 2.78 The NAMBOARD accounting system does not provide this or other usable management and control assisting information (para. 2.79). There is no management information system per se and only the stock control department of the Grains Marketing Division provides a regular (weekly) record of grain stock changes and movements. Similar information is not routinely available on fertilizers, and statistics produc.ed by both the Grains Marketing Division and the FIPS Division are rarely confirmed or confirmable by the accounts division despite a rommon source document. Inadequate recording of year-end stocks caused the auditors to qualify the accounts for 1980 through 1983. Although procedures have sinee improved, it remains impossible to establish stock gains/losses and thereby determine the efficiency of the stock control system and the marketing/handling procedures. The auditors must assist NAMBOARD in developing and implementing a stork control system. In the first instanee, the quantity and conditions of stocks actually existing must be determined. Secondly, the system must be capable of identifying where and how stock losses occur. 2.79 The acc.ounting system is unneeessarily cumbersome and internally inconsistent; there is not a uniform approach in the application of basic recording systems; and procedures vary both between .ommodities and branches. This is the result of the factors affecting the evolution of the system, some inadequaey on the part of the accountancy staff at all levels and the legacy of past allegations which have led to an unwieldy combination of documentary checks and balances which may well be self- defeating (para. 2.65). 2.80 The transfer of rural marketing to the PCUs and conc.entration of activities at provincial depots provides the opportunity to reappraise requirements and design a simple appropriate system. For this to succeed, however, there must be an attitudinal shift whereby accounting is perceived not as an end in itself but as a means to record and convey information (para. 2.65). The treatment of stock losses is unrealistic as each year they are estimated to equal 3% of grains purchased, 2% of new bags purchased and 2.25% of fertilizer stocks. Despite the fact that these losses are inconsistent with losses sustained by similar organizations elsewhere, the assumptions are not verified, nor is any attempt made to ascertain the cause of any losses (para. 2.87). 2.81 Operations. Responsibility for operations is spread over three head office divisions: FIPS, Grains Marketing, and Freight and Commercial, while the actual conduct of operations rests with the Branch managers who report to the General Manager. Customer contact at the branches and depots ronsists of the provincial cooperatives, millers, and oilseed and other procesors. 2.82 Branch managers maintain particularly close liaison with the enoperatives and keep the head office informed on provincial supply and - 42 - demand patterns. But with fixed commodity prices and maize males to millers being made by alloe.ation, the required skllls are primarily those of storekeeping rather than marketing. Stoek and movement planning Is carried out at the head office, as Is most of the actual engagement of transporters, facilitated by NAMBOARD's monopoly in fertilizer supply and interprovincial monopoly in maize trade and assisted by the increasingly accurate crop forerast information. The division of operational responsibilities in the head office is not supported by detailed crop or location specifi accounting (para. 2.27). Nevertheless, some conclusions ean be reached on general efficiency and areas identified where action needs to be taken to improve it. 2.83 The ehanging pattern of maize purehases was mentioned above (para. 2.33) and is substantiated by the denline In monthly average stock levels from 31.9% of available storage eapacit- in 1982 to 26.8% in 1983 and 20.1% up tn August 1984. Annual stock turnover averages 125Z and ranges from 40.6% in Livingstone to 216% in Lusaka silo (Annex Table II.8). A feature nf these figures is the relatively low utillzation of bulk silo storage which depends on high turnover to be economically efficient; overall bulk silo utilization was 130% in 1984. 2.84 Sales:Cost ratios (Table II.6) can provide a guide to comparative efficiency and the data for surplus areas show the performance of Chisamba and Kabwe (Natuseko) to be markedly inferior to those for Monze. The critical importance of labor costs is clearly demonstrated In the low throughput branches such as Solvezi and Mnngu, and labor generally forms an unacceptably high proportion of total costs. Only in Chipata and Iitwe/Chambeshi are labor costs significantly below the average. This occurs in Chipata despite operations being labor intensive beeause of the lack of bulk facilities. 2.85 Day-to-day store operations are well earried out within the limits imposed by rirecumstances. Standards of store and staeck hygiene are reasonable although the cycle and frequency of prophylactic treatment should be increased. Most storage points suffer from Inadequate or unserviceable mechanical aids. Simple aids surh as roller conveyors, if used, would speed handling and reduce labor costs. Greater attention needs to be paid to the detail of store design and layout to improve efficienecy and minimize potential eauses of damage nr loss. 2.86 The greatest single problem is caused by inadequate weighing facilities affecting nearly every aspert of NAMBOARD's operations (para. 2.13). Ie fact that this is a long-standing problem calls into question the manner in which priorities have been set. There are weighbridges at only seven stnrage points and none in the Eastern Province or Kitwe-Chambeshi (where the silo and hardstanding are 18 km apart). This gives rise to friction and dispute on sales, purchases and internal transfers, prohibits accurate recording, and creates an ambivalent attitude to losses - which cannot be measured. Fertilizer stocks are counted in bags and recorded in tons on the presumption that each bag contains 50 kg. 2.87 This situation and especially the tacit aceeptance thrnugh budgetting of losses due to unspecified causes, impairs management accountability, engenders a 'stock losses are inevitable' attitude, and leads to unsubstantiated statements as to their magnitude. a n ad n b a wm ap t4e Ct K'D I/ 745.4 363.6 69fi8 4.2 790.2 7M.6 47.6 7533 39.7 S.!f 238 731.6 et dlar l 2 515.1 42.6 456.6 N.2 556. 476. 234. l 1L4 W7.4 4 .4 211.2 417.0 vAhe of M1" 3Y7.5 106.2 7W.0 S.7 12W.I7 2F7.3 749L4 3511.6 47.5 33741O 314.1 374.7 sea: out A.99 1860 10.21 31.77 15.64 3L5 17.2 3.45 13.16 5.75 I.S5 51.18 Wm: SilAryh lo 64.1 24.8 15.2 5L3 2.9 D3.8 25.5 433 187 71.6 15.7 I9.I W -z a Am Ihfict "lpo sgmok saylu "a1 Khftd Otdk hiIdt Hfdt Iarpim IhfId iSplu Tip d Stw No/cW St1n/ewm StID Sa/m 01a E1m UJa/dsl/opini Ow .h/dmU U.do mm lf/ b.hIt Tsti "t 8, PA Offf1t *Ni 2/ Si in kftdt kw. Adh In 8uiu Amu lb t 29, 1964 '-4 0% - 44 - While it is possible that losses may reach the alleged 5-10% level, they should be correctable. In Zimbabwe, where all purchases are weighed and grain is purchased ,o the same standards as in Zambia and stored in a similar climate and manner (about 65% in the open), total losses over a three year period reached only 0.61%. Transit and other losses do occur as a result of theft, poor handling techniques and inadequate management; thus, it is essential that shortages are properly documented and investigated to ensure that the cause of losses is accurately identified and necessary remedial action taken. 2.88 Operational management. Over the past four years total operating costs have averaged about K49.5 million with transport accounting for approximately one-half of the total (Table II.4). Sixty-five percent of the balance is directly attributable to field operations, branch and depot expenses, salaries, crop finance, insurance, fumigation, etc. The remaining 35% is head office management, technical support and administrative overheads. This reflects the need for management and administrative restructuring consistent with the reduced scope of work now being performed. The separation of input and output marketing has caused these activities to become unnecessarily compartmentalized and led to the development of a double bureaucracy to undertake complementary functions. 2.89 Operational management is affected by two major external factors, transi.,rt and foreign exchange. The geographic structure of the market dictates long distance movement of inputs and outputs, and high transport costs. These circumstances demand efficient transport planning if costs are to be minimized but, as previously indicated, NAMBOARD's options are limited in this field. The unreliability of Zambia Railways, the fixed rate structure for road transport, combined with a shortage of serviceable capacity, makes efficient transport planning difficult. There is a need for greater discipline on the part of both the transporters and NAMBOARD to reduce delays and losses due to theft, inadequate tarpaulins, etc. At present the performance of truckers can be readily monitored and payments adjusted to reflect any shortages. There is no control mechanism over the railways, however; rates are not linked to timeliness and shortage claims are only entertained if an entire wagon is lost. The required improvement can be obtained through a more competitive market -where rates reflect actual costs plus a reasonable profit and are linked to performance schedules. This could perhaps be effected through tendering for transport of stated quantities between defined points. This would require NAMBOARD to systematically plan their transport requirements. Most of the required information on demand requirements are available and with the improving quality of production information, it should be possible to achieve useful savings in transport utilization and costs. In the case of inputs it is also necessary to resolve the conflicting cost-minimizing objectives of NAMBOARD and PCUs. Thin need not depend on government intervention, although a less rigid pricing policy would help, and a considerable saving could be achieved through better utilization of storage facilities. 2.90 Foreign exchange and procurement procedures impose a further constraint on transport planning, especially for the supply and distribution of fertilizers and grain bags. For example, foreign exchange for a fertilizer tender awarded in August 1983 was only released in - 45 - September 1984, resulting in shipment being delayed by fourteen months. The erratic pattern of supply results in unduly high stocks being carried at considerable rost both financially and in terms of stock balanre (Annex table II.8). Available storage, although sufficient relative to annual sales, is not adequate or suitably designed for surh large stork holding, resulting frequently in a "last in first out" inventory policy. Now that the capability of the various supply routes has berome more predictable, it would be advantageous, and rertainly easier to manage, if supplies were bought on a pipeline basis. This would facilitate planning and use foreign exchange more efficiently (para. 2.34). E. Recommendations Means to Imerove Management 2.91 Several specific recommendations were made in the discussion of performance and a few general recommendations follow. NAMBOARD's performanee has been adversely affeeted by the lack of incentives for improved performance as well as the lack of management autonomy and hence areountability; a major cause has been the lack of a clear mandate. Whatever the role assigned to NAMBOARD, improved performance must start from a clearly stated purpose capable of being developed into a series of quantifiable objertives through a corporate plan. This would require government to articulate subsectoral policy and the statement should include: (a) a comprehensive analysis of the policy and institutional environment, including identification of development constraints; (b) specification of the action to be taken by Government to remove or ease the constraints, and an associated timetable; (e) specification of the roles and obligations of Government and NAMBOARD; and (d) analysis of the consequences of any Government failure to discharge its obligations under (c) above, including the effect this would have on the ability of NAMBOARD to meet its own obligations. 2.92 The statement would provide the setting for NAMBOARD's corporate plan which would define: (a) macro policies for the fulfillment of the role and obligations as set out in the sectoral policy statement; and (b) a corporate philosophy for the translation of these policies through macro and functional strategies into quantified functional objectives. The corporate plan would be the basis for management's acrountability to the Directors and in turn the basis for their accountability to Government for the overall performanre of NAMBOARD. :4~ ~ ~ ~ ~ ~ ~~~~~~4 -;-~~~~~~~~~~~ 46 2.93 Detailed objectives would depend on NAMBOARD's eventual role but zertain management policies are applicable whatever the final decision, including, for example, 'developing a planning capacity and system to speed decision making' and 'reducing costs consistent with sustained good performance'. 2.94 A parallel condition for improving performance is an incentive structure which would reward good performance and demand managerial accountability (para. 2.68). Managerial salaries in NAMBOARD are comparable to Civil Service salaries and considerably below positions having comparable responsibility in the ZIMCO groap of companies and in the private sector. Managerial salary scales and perquisites require restructuring to attract and retain talented managerial staff and provision needs to be made for a performance related bonus system. There are no productivity incentives in NAMBOARD for skilled or unskilled labor as wages are not linked to output. A study on employment and productivity is a priority need to form a basis for rationalizing the staffing levels. Piece-work rates for unskilled jobs should be implemented where possible. If NAMBOARD becomes a fully commercial entity, benefits could only be provided when profits are realized. 2.95 Also, regardless of NAMBOARD's future role, a standardized accounting system must be adopted and universally applied to the accounts from which management control data and information would be derived (para. 2.65). Consistent cost and operational comparators must be available by location and commodity to highlight issues of management concern and assist in identifying cost irregularities. 2.96 The possible future roles for NAMBOARD are innumerable and range from performing no function (i.e., dissolution) to permeating the market at all levels as the legal monopsony/monopoly buyer/seller. However, in a practical sense there appear to be two roles it could play: either as a residual seller/buyer with responsibility for holding strategic grain stocks or as a restructured commercial marketing firm. Under both of these options, a minimum producer price would be applicable but the implementation mechanism would vary. Even with cost recovery pricing permitted, setting minimum producer prices will require Government expenditures when surpluses are produced. The self-sufficiency objective implies long-run supply-demand equilibrium, whereby a "normal- year's production would meet the consumption requirement. In any given year, production may be above or below requirements dependent upon climate, pests, etc. If structural surpluses develop, the floor price will need to be adjusted, relative to other crops, to lower production to demand requirements (consistent with desired reserve stocks). 2.97 There are several variants of the strictly residual buyer/seller option. Under this alternative, NAMBOARD should not handle inter-provincially traded maize nor be involved in fertilizer trading. These could be done by the PCUs and private traders in a competitive situation. NAMBOARD would be solely an arm of Government to purchase maize at the floor price when surplus production lowers the commercial price below the floor price, to ensure availability of adequate maize supplies and to handle imported and/or exported maize; alternatively, this latter - 47 - function could be transferred to NIEC. It would not be necessary for NAMBOARD to maintain the existing level of physical assets; irleed it would not be essential to maintain any physical assets. Assets not needed for reserve stock holding eould be sold to cooperatives or nther interested buyers and even reserve stock storage rould be tendered and/or contracted. As an arm of Government, NAMBOARDts financing would be provided through a budget item, the magnitude depending upon the level of surplus production achieved. However, the financing or subsidy requirement would be independent of whether this or the commercial option were pursued. NAMBOARD would be represented on the Crop Early Warning Committee and would maintain a sufficiently close liaison to enable the timely ordering of imports. 2.98 The other option would require the restructuring of NAMBOARD into a commereial firm to operate on commercial principles under a competitive market situation. NAMBOARD would be totally commercial and management would have full authority and autonomy in making operational deeisions and policies relating to product mix, pricing, marketing, manpower, investments and finances (para. 2.63). This would require restructuring NAMBOARD's existing capital base, redefining its objectives and reconstituting its management. To make NAMBOARD financially viable as a commercial entity, approximately K30 million of existing debt capital would have to be converted into equity rapital. The conversion of K30 million of debt capital into share capital would provide a legal solution to a fait accompli situation since most of the existing debt capital is either in the form of unon-redeemable debt- or 'non-repayable and interest free debt". The amount of new capital required would largely depend on the volume of business NAMBOARD expected to handle after the marketing system became more competitive but, at a minimum, K30 million would probably be required. Given (i) the relatively weak position of the PCUs and (ii) the time required for effective private sector participation to develop, the commercial role option is recommended. For this option to be successfully implemented, a set of policy issues would have to be addressed and resolved concurrently (see para. 2.102). A reorganized and independent Board of Directors would be a necessary component of this option to eliminate the conflict of interest between the development assistance role of the MAWD and the commercial role of NAMBOARD. 2.99 The commercial option would entail NAMBOARD handling intra and inter-provincial trade of both agricultural produce and inputs in competition with PCU's, private traders and processors (mainly grain millers). The location monopoly, currently enjoyed by PCUs, would dissappear along with the maize allocation system. The Government would, however, retain its power to fi floor prices for agricultural produce on the basis of the proposed methodology which permits spatial and temporal variations (Chapter I). 2.100 All maize buyers, including NAMBOARD, would be required to offer the minimum price applicable to the Region. The price would be on a delivered depot basis, thereby permitting traders to offer lower prices in the hinterland to offset transport costs. The transport costs would be kept in rh.ck by competition. As long as there were an overall production deficit, prices might well be above the minimum price but would not decline below it. However, when national produrtion became surplus to national requirements, market forces would tend to depress prices below the floor - 48 - price. It would then be necessary for Government to enter the market and siphon off the surplus- for strategic reserves. Market intervention could be with NAMBOARD, the PCUs or other traders. Government would need to have funds budgeted for strategic reserves, perhaps counterpart funds from current roncessional grains impor-s. The magnitude of funds necessary for this activity would be identical to the funds neressary to operate NAMBOARD solely as a residual buyer. Government must also act as a supplier of last resort, insuxring that minimum maize requ'rements are met. Until a strategic reserve were developed, these supplies could be (hopefully) obtained through concessional imports and injected into the market through NAMBOARD, the PCUs or other traders. It would be necessary to devise a trigger mechanism to export maize when strategic reserves reached a specified level. 2.101 As a commerrial enterprise, the new NAMBOARD would undertake a number of internal measures aimed at becoming more effective and efficient. These would include, inter alia: corporate planning (para. 2.66-7); management information (paras. 2.77-8); standardized accounting (paras. 2.65 and 2.79); and weight rather than volume purchases/sales (para. 2.86). Changes in Policy Environment 2.102 A number of changes in the policy environment are necessary to improve NAMBOARD's performance. The fully administered price system is a fundamental cause of NAMBOARD's unsatisfartory performance. NAMBOARD must be permitted to respond to changes in government policies relating to exchange rates, transport tariffs, taxes, trade, etc., and to changes in world markets. The following government policies, inter alia, need to be addressed to assist NAMBOARD if it is to function as a commercial entity: (a) Market Structure. Multi-channel marketing must be sought to improve marketing efficieney. NAMBOARD and/or its agents would compete with cooperatives and other traders on a countrywide basis. (b) Producer prices. The government would retain its prerogative of fixing minimum producer prices, but prices should be allowed to vary spatially and temporally to reflect reasonable costs of transportation, handling and storage by the more efficient buyers or sellers in the domestic market. (c) Consumer prices. The Government should decontrol the consumer prices of agricultural products so that these are market determined by NAMBOARD and its competitors to reflect geographical and seasonal market ronditions. (d) Maize allocations. The Government should abolish the maize allocation system to permit millers and NAMBOARD flexibility in their procurement and sales policies. - 49 - (e) Financ-ing. The Government should cease providing loan and overdraft guarantees to NAMBOARD after restructuring its capital base and decontrolling product and input prices. (f) Aid. The Government and aid donors should assist NAMBOARD through the preparation, appraisal, negotiation and implementation of aid sehemes involving grains (if NAMBOARD is expected to handle concessional graias on behalf of Government - para. 2.47). (g) Transport. Transport tariff rates should be decontrolled to enable NAMBOARD to negotiate market rates with TAZA and other transporters. - 50 - III. THE LINT COMPANY OF ZAMBIA LIMITED (LINTCO) A. Introduction Establishment and Development 3.01 The Lint Company of Zambia Limited (LINTCO) was incorporated under the Companies Art in Marech 1978 to encourage cotton cultivation, reduce imports of lint and earn foreign exchange. For this purpose it was given responsibility for extension, supply of inputs, marketing and processing. MAWD extension staff were seconded to the company and other responsibilities, as well as many of the staff, were transferred from NAMBOARD's Cotton Division. Originally, mueh of LINTCO's operations was centered in the traditional cotton areas in Southern, Eastern and Central Provinces; subsequently, the aetivities have been extended throughout the country. The company enjoys monopoly status and serves farmers of all sizes. The promotion of smallholder soyabean and roffee production and proc.urement have recently been added to its responsibilities; other marketing/processing functions have been vested elsewhere. 3.02 The company does not fully operate as a commercial entity as it performs a development role for Government. This is manifested in two principal ways. Firstly, producer priees are set by Government and, secondly, operations are influenced at least as much by social and broad developmental considerations as by financial and agricultural factors. This results in production encouragement and the provision of high cost ex.tension and support services in areas where there is little prospec.t of sufficient cotton production to support a ginnery. (The total cost of delivering Northern Provinee seed cotton to the ginnery in 1983/84 was thirteen times the price paid to producers.) LINTCO selling priees are calculated on a -cost plus" basis with Government providing a price differential subsidy for quantities sold on the international market. Financial viability through the trading account is therefore reasonably assured, but this is not acrompanied by external monitoring and cost comparisons. 3.03 Cotton operations are conducted under the Cotton Act (Cap 340), which governs growing areas, disease and pest control measures, and National Agricultural Marketing (Acceptance Standards) Regulations, 1975, which govern quality and grading standards. The company has been successful in promoting the production of medium staple cotton, which since 1978 has risen from 8,064 tons seed cotton grown by 19,783 farmers to an estimated 44,000 tons grown by 38,424 farmers in 1984 (Annex Table II1.1). 3.04 In 1975 the (then) Ministry of Rural Development (rurrently the Ministry of Agriculture and Water Development) identified cotton as an import-substitution crop for meeting the nation's increasing demand for fabrics/textiles. To encourage smallholder cotton cultivation, the Ministry formulated a "Cotton Project" to be implemented by NAMBOARD under which farmers were identified and provided with inputs on credit and extension services. The farmers' response to NAMBOARD's effort was eneouraging and the Government established LINTCu as a separate and specialized company, to accelerate the production of cotton in the country. - 51 - Objectives 3.05 Specifically, LINTCO was established to assume NAMBOARD's activities relating to the promotion of cotton production in the country, ginning and sales of lint. In its 1978/79 Annual Report, LINTCO specified its objectives as being: (a) to improve and expand the production of cotton by providing input requirements and teehnical/extension services to all farmers; (b) to achieve national self-sufficiency in cotton and eliminate lint and rotton cloth imports; (c) to process all domestically produced cotton; and (d) to achieve exportable surpluses to earn foreign exrhange. B. Structure and Organization 3.06 The company was incorporated with an authorized capital of K 3.7 million of which K 1,492,227 is paid up. Apart from the General Manager, who has one share, the Government, through the Ministry of Finance, is the only shareholder; MAWD is the responsible Ministry. The Board of Directors is comprised of the Permanent Secretary, MAWD as chairman and seven other directors including the Permanent Secretaries of Finance, and Commerce and Industry, the Deputy Managing Director of INDECO, members of Parliament and prominent farmers. The Minister of MAWD appoints the Board members and the Head of State appoints the General Manager to whom the Board delegates responsibility for the routine conduct of the business. 3.07 Organization and Management. LINTCO is organized on a functional basis into a total of eleven divisions, all of whose managers report directly to the General Manager. The headquarters divisions - Administration, Finance, Commercial, Cotton Development (which is also responsible for soyabeans) - provide the supporting structure for the remaining divisions, two of which, Transport and Inputs, provide their services to the other operating divisions on a cost-plus basis. Field operations are conducted through three semi-autonomous offices, located in the major producing areas in the Southern, Central and Eastern Provinces. Proc.essing of seed cotton, including the preparation of planting seed, is carried out by the Ginneries Division. The recently formed Coffee Division is also semi-autonomous and is represented both at headquarters and in the field. 3.08 The General Manager is responsible to the Directors for day-to-day management which is conducted on a consensus basis with headquarters managers and, where appropriate, those from other divisions who are involved through an informal management committee. Managers of the Central, Eastern and Southern field divisions are guided by the decisions of Divisional Sxecutive Committees which meet regularly under the chairmanship of the General Manager. - 52 - 3.09 This cross delegation of responsibility results in few management derisions being taken in isolation and facilitates information flows. The system has worked well and provides emergent managers with the reassurance of a large degree of collertive responsibility while allowing the General Manager, if he wishes, co influence substantially what might be considered routine divisional management decisions. At the same time, the General Manager maintains a very close liaison with the chairman of the board, who influences and occasionally undertakes a combined board and management decision. Free communication is desirable and benefieial; however, the chairman is a Government representative and such close liaison diminishes the role and responsibilities of the Board of Directors, although not their legal responsibilities, and inevitably impairs the accountability of management. This is a very real hazard, especially given the company's rapid growth and the absence of any medium and long-term sectoral or corporate plan. 3.10 Planning. Long-term production targets have been set and approved by the Board and are shown below. These have been developed independent of costings and external to a supporting corporate plan, as this type of forward planning does not exist. LINTCO - Seed Cotton Production Targets Year Area Production (Ha) (Tons) 1982/83 34,237 32,085 (Actual) 1983/84 55,884 43,494 (Artual to 9/30) 1983/84 54,397 44,894 (Target) 1984/85 67,060 59,434 1985/86 74,880 78,273 1986/87 83,460 100,880 1987/88 90,240 121,383 1988189 98,330 145,630 3.11 Processing proposals provide for increasing capacity to 100,000 tons seed cotton over a normal season with ginneries to be built at Gwembe, NegaNega, Mumbwa and Kabwe in addition to Lusaka 'B', now under construction. The currently inadequate ginning capacity relative to production (para. 3.28) demonstrates the short-term consequences of both inadequate planning by Government and interference in LINTCO's planning efforts (para. 3.30). 3.12 Annual planning consists of financial budgets generated from the production, subdivided on a Provincial and District basis. The budget is prepared and consolidated by the Arcounts Division from individual Divisional submissions in accordance with management guidelines. Following review and any subsequent amendment, the budget is submitted to the Board for formal approval. Responsibility for budget performance rests at the Divisional level and is facilitated by the decentralized accounting structure. However, performance monitoring is inadequate and, since 1981/82, aggregate operational and administrative expenditures have - 53 - exc.eeded the budget. In 1981/82, an above-budget crop was partially responsible but, subsequently, purchases have been below target. Accountability in these instances is difficult to enforce and largely national since performance is impaired by limitat4ons in the information and control systems. LINTCO planning is limited to physical produrtion targets and financial budgets without ronsideration of the ancillary requirements of the marketing system. 3.13 Personnel and Administration. The Personnel Manager is also Sec.retary to the Board and is responsible for recruitment, training, industrial relations, housing and welfare in addition to administration. Job descriptions have been developed for most positions and some job evaluation is carried out, mainly by management. Conditions of service, salaries and benefits are consistent with those for Government employees despite the different nature of the work to be done and responsibilities involved. Itere are no productivity incentives. 3.14 In-house training capacity is limited and confined to seasonal training for field staff and on the job training in the Ginneries Division. No survey of formal training needs has been conducted but the company sponsors staff for professional and technical training overseas to supplement that being funded by aid agencies. 3.15 The Cotton Development Division is responsible for the overall achievement of grower and production targets, coordination of extension activity, supervision of seed production and cotton classification. The Division has similar production responsibilities for soyabeans. Actual extension is carried out by MAWD staff on secondment to LINTCO, which pays subsistence, travel and other allowances; salaries and pension contributions continue to be paid by Government. During 1984, 233 extension officers worked with LINTCO under this arrangement. These staff provide the main farmer contact and their activities include identifieation of input requirements, initiation and subsequent field administration of loan applications and assistance with marketing, in addition to normal seasonal extension work. 3.16 The Inputs Division is responsible for the purchase and supply of recommended seed and inputs which are distributed to Divisional and Provine!ial offices in "Lima- (1/4 ha) packages. These are then made available to smallholder farmers on a credit basis against a loan application endorsed by an Extension Officer and a stop order payable against the crop. Cash sales may be made at the same price as a credit sale but are discouraged for security and accounting reasons. Farmers growing 10 ha or more are regarded as 'commercial' and are required to make their own arrangements for chemirals, but seed must be obtained from LINTCO. The Division is self-accounting and has independent overdraft facilities so transactions with the field offices involve monetary transfers within the company, the credit risk being assumed by the buying Division. 3.17 The composition of the input package, which excludes fertilizers, depends on research recommendations and availability of chemicals. Procurement decisions are made by the management committee on the advice of the Inputs Manager. In order to avoid protracted Central Tender Board - 54 - procedures, most purchases are now made from local companies who deliver made-up packages to LINTCO. Irrespective of the chemical sourre, foreign exchange nonstraints are a continual problem and disrupt supplies. Reeent efforts to alleviate this situation inelude selling cotton lint to successful tenderers to enable them to generate their own foreign exchange (para. 3.20). Provision of inputs on rredit was made possible through the establishment of a donor-financed revolving fund. The application of a flat price incorporating an interest element, albeit at below commercial rates, makes the system easily understood and simple to administer. Credit recovery has been poor; as of March 31, 1984, outstandings for the 1979-83 seasons totalled K 3.37 million plus an additional K 4.01 million advanced for the 1983/84 crop. The position has since improved and by September 30 a further K 2.97 million had been recovered to raise the overall repayment rate from 31.8% to 50.7Z (Annex Table I11.2 and para. 2.23). 3.18 The Coffee Division was recently created in response to a Presidential Directive in December 1983 which made LINTCO r,sponsible for promoting smallholder coffee production and marketing.. The division ronsists of two sections. One is the production section, which is responsible for providing extension information on coffee to smallholders in the high rainfall provinces. Effort will be concentrated in Districts which have been selected on the basis of soil classification as follows: Province No. of Districts Northern 7 Luapula 3 Northwestern 3 Copperbelt 1 Central 2 It is probable that coffee produeed in the Central, Northern and Copperbelt Provinces will require supplementary irrigation. The section is also responsible for promoting cotton and soyabeans in Districts where it operates. The inputs and marketing section is responsible for distributing inputs independently of LINTCO's Inputs Division. The coffee inputs presently consist of 'packages", sufficient for 100 trees, obtained from chemical suppliers for universal application. The packages are provided to growers on credit, repayable after the trees commence bearing. Initial processing will be by hand-operated pulpers, but village washing stations will be developed as the quantity and concentration of production permits. The output marketing role is limited to primary purchasing of parchment and its subsequent disposal to the Zambia Coffee Company Ltd. (ZCCL) for hulling and grading. Grade and price structures have not yet been determined. 3.19 The Transport Division is responsible for the supply and coordination of crop movement and input distribution. The Division operates 13 seven-ton trucks acquired under the EEC-financed cotton development project and hires other transport as necessary. It is regarded as self-financing and achieves this by selling its services at a priee sufficient to cover its costs and make a 'profit'. Transport rates for seed cotton are calculated on the basis of a haulage factor one-third that of maize, but payments are made on the basis of actual weight carried - 55 - regardless of theoretieal capacity. The general shortage of transport and the additional time and care needed to load seed cotton are refleeted in these rates; the low packing density also contributes to the rates which are very high by international standards. During periods when the trucks are underutilized, the Division hires them out at market rates. 3.20 The Commercial Division is responsible for the domestic and international sale of products. Sales to local processors and consumers are at prices fixed annually by LINTCO and calculated to reflert anticipated costs plus a small margin of profit. Prior to 1984, irregular export sales of lint were made and the difference between export and domestic priees was reimbursed by Government. Recently, exportable surpluses have been sold to local companies at the domestic price, allowing them to retain at least 50X of the subsequent foreign exchange earnings (para. 3.32). There is currently little need for additional marketing expertise, but if production continues to increase and quality fails to improve, new marketing expertise will be needed, as the export market for low quality lint is quite limited. Local spinners are expected to consume about 5,500 tons lint in 1984. At current ginning percentages, this will absorb about 14,500 tons of seed cotton, leaving a balance of some 11,500 tons of lint available for export. 3.21 Cottonseed other than planting seed is available for oil extraction and limited direct feeding to cattle. But delays in commissioning the oil extraction plant have reduced processor offtake (4,650 tons taken during the 15 months to September 30, 1984 compared with 18,000 tons ordered). Consequently, LINTCO is faced with rapidly increasing and deteriorating stocks mainly stored in the open under tarpaulins. Present stocks, including seed content of the crop still to be ginned, exe.eed 28,000 tons - more than double the estimated annual throughput based on the highest daily rates achieved so far. A major share of these stocks will spoil unless effective action is rapidly undertaken (para. 3.35). 3.22 The Accounts Division is responsible for developing accounting polieies, preparation of budgets and accounts, finaneial systems and controls and financial acquisition. The division is headed by the financial controller and accounting functions are decentralized. Manual accounting systems are used (although Southern Division inputs/eredit accounting is computerized) but eodings are inadequate to permit detailed locational costings. Movements and stocks between depots and ginneries are recoonciled seasonally but will be increased to conform with the weekly purchase and movement returns submitted by divisions. Overall the systems have functioned properly and annual accounts are produced promptly. However, they do not routinely generate the detailed cost information management needs for detailed planning and control of a rapidly expanding organization. Current information is inadequate to measure either the cost effectiveness of extension work or tn analyze primary marketing costs, both of which must be done if plans for expansion are to be properly developed and costed. 3.23 Credit control has been inadequate as is demonstrated by the poor credit recovery (para. 3.18). The Inputs Division sells its debts, recording a profit but actual profit depends on the operating divisions recovering outstanding loans. At the request of the auditors, a 5% bad - 56 - debt provision is made for credit issued during the year even though at fiseal year end (31 March) the crop has not been harvested; a further provision for 50Z of unrecovered balanees is made at the end of the following year. 3.24 Operations. Operational management is decentralized through three Divisional and four Provincial offices. Divisional organization replicates that of the Head Office, each unit being to a large extent self-accounting and semi-autonomous. Staff responsibility is on a Division (or Provincial) basis with headquarters managers providing technieal and professional supervision only. Divisional Managers report directly to the General Manager. 3.25 Most field staff are MAWD extension workers (para. 3.14), but marketing operations from point of purehase (or sale) onwards are managed and eonducted by LINTCO permanent staff assisted if neeessary by seasonal workers. Inputs are distributed from area offices and permanent depots from which crop purchasing is subsequently organized, using a network of buying points (depots) either staffed continuously throughout the season or servieed by mobile buying teams. In 1984, there were 100 permanent seasonal and 150 mobile seasonal depots. The distributioa and throughput of buying points varies considerably; Southern Divisior. purchases in 1983/84 were recorded at 94 sites and ranged from 3 to 1,188 tons for the six-month buying season. Generally a buyin- point is continuously staffed only if purchases are expected to exceed 50 tons. Markets open in May but 75% of the crop is bought in roughly equal monthly proportions during July-September. This protracted buying season and rather late presentation of the crop adds to the marketing costs and reduces the effective ginning season (para. 3.28). 3.26 The farmers' seed cotton is weighed and purchased (reeeipt issued) ungraded, although regulations provide for grading. Both jute and polypropylene packings are employed; use of the latter causes difficulties both at the ginnery and for the spinner (because of fibre contamination in the lint). Except in remote areas, payment is by check from Divisional offices, where stop order deductions are made. Checks are usually received in 21 days, although converting these into cash may require additional time due to the very limited rural banking services. 3.27 Processing. The Ginneries Manager is responsible for all seed eotton and seed processing, including preparation of planting seed, and the security and control of seed cotton, lint and seed stocks at the gin dumps or stores. Ginneries are located at Chipata and Lusaka, where another plant is under construction (Lusaka 'B') and will be in service for the 1984/85 crop. Approximate capacities during a 26-week (6 day x 20 hrs) ginning season are as follows: Location Capacity (kg seed cotton) Chipata 6,000,000 Lusaka 'A' 15,000,000 Lusaka 'B' 16,000,000 - 57 - All the plants have Lummus equipment, presently consisting of 2 x 88 saw gins at Chipata and I x 88, 1 x 128 and I x 158 saw gins at Lusaka. Lusaka 'B' is to be equipped with 3 x 108 saw gins, comprising two new stands and the 1 x 88 from Lusaka A, modified to take 108 saws. The remaining 128 in Lusaka A will be modified to take 158 saws whieh is expected to offset the loss in eapacity that will result from the transfer of the 88 to the new ginnery. 3.28 The optimal ginning season may be reduced by as much as five weeks due to delays in starting the marketing season, and capacity utilization may be further impaired by movement delays. In 1984, only III tons of seed cotton, less than 0.25Z of the expected crop, was received during May, rompared with 1,500 tons during the same period in 1983. This is not a serious problem in Chipata where ginning capacity exreeds production, but it has exacerbated the problems of inadequate capacity at the Lusaka ginnery. Ginning the 1983 crop rontinued through the wet season until the end of February and the much larger 1984 production is likely to require an additional six weeks despite the 20% greater throughput that had been achieved by the end of September. Very high ginning rates have been obtained, but this may have been at the expense of quality (Annex Table 1II.3). (Increasing peripheral saw speeds results in damaged lint or poor lint removal.) Ginning problems will increase through the wet season and will be compounded by the deteriorating quality of poorly protected seed cotton. 3.29 The crash program to erect Lusaka 'B' will. improve the balance between production and processing capacity in the short-term but at considerable cost. Location was determined by the availability of power and water, which dictated using a site separated from the existing ginnery by a road. The site has two permanent stores which are too small to acrommodate significant seed cotton stocks, a major shortcoming of the Lusaka 'A' site, and one that will become more severe as improved quality considerations require segregation in the gin dump. Seed cotton will necessarily be stored at another LINTCO site, located about 1,000 meters away, involving double handling, movement and security costs. 3.30 The capacity constraint is due largely to circumstances outs' le the control of LINTCO, which has had gin machinery in storage since 1981. A political decision was taken that the new ginnery should be erected in Gwembe instead nf Monze, the location preferred by LINTCO. Neither power nor water is yet available at Gwembe and, in view of the desperate situation,the machinery is now being installed in Lusaka. New machinery has been ordered for Qwembe where construction is expected to start in 1985. C. Policy and Institutional Environment 3.31 To place LINTCO's performance in proper perspective and to make practical suggestions to improve its performance, the policy environment in which the company operates must be considered. LINTCO's performance is affected by Government's macro economic policy as well as corporate or management policy and the institutional structure within which it oper-ates. LINTCO has no control over Government economic policies, and - 58 - must basically take them as given and art accordingly. The major macro-economic factors affecting LINTCO's performance relate to foreign exechange, transport, industrial and trade polices. Agrieultural sector policy issues relevant to LINTCO's performantce are marketing and prieing policies. Macro-Economir Environment 3.32 The shortage of foreign exehange in the country has affected LINTCO's performance in a variety of ways. First, the general unavailability of spare parts for motor vehic.les, and of tubes and tires for bicycles (para. 2.35), has made it very difficult for LINTCO to maintain its operations and effective extension services to cotton growers. Seeond, LINTCO has experienced prnblems in obtaining foreign exchange to import essential materials, e.g., ginnery spares and packing materials for seed cotton. This has led to delayed collection and delivery of seed cotton to ginneries and to delayed ginning, affecting the company's cash flows and leading to high overdraft costs. However, the shortage of supplies and spare parts is being addressed through a foreign exchange retention scheme. The relative overvaluation of the Kwacha has contributed to the export losses ineurred by LINTCO, requiring government subsidies. The foreign exchange retention scheme permits exporters to retain a minimum of 50X of the export earnings for procuring needed imperts. However, the foreign exchange retained must be utilized within 90 days, at which time any funds remaining revert to the Bank of Zambia. This scheme permits a producer of export commodities, such as LINTCO, to sell the commndities to a third party for subsequent export. The same retention benefits are then applicable to the third party. 3.33 The transport issues facing LINTCO are similar to those affeeting NAMBOARD (paras. 2.36-7). However, LINTCO's own large trausport fleet almost eliminates dependence on hired transport. LINTCO has consistently operated its own transportation division profitably by supplementing its internal operations with external operations during slack periods. The profits and returns on transport service sales are very modest (about 2 percent), and LINTCO should not expand its transport operations beyond present levels. 3.34 Industrial and Trade Policy Issues. Poor public planning and, until recently, a rigid industrial licensing policy have impeded downstream investments in the textile and vegetable oil processing industries by both the public and private sectors. The public sector has been heavily involved in both textiles [Kafue Textiles of Zambia and Mulungushi Textiles (Zambia)] and oil mills (Refined Oil Products); Government policy has protected these industries by retarding entry of the private sector through a complex industrial licensing system. Until recently, additional investments in both industries have been in the form of plant expansion, and constrained by limited public funds. Recent liberalization of the industrial licensing policy has led to private investments in both the textile industry (e.g., Swarp Spinning Mills and Unity Garments) and the oil milling industry (BBR Industries, AVOIL, and SUNOIL). 3.35 Government external trade policies and proeedures have also created operational problems for LINTCO. Barter trade arrangements involving the export of lint have been made without consulting LINTCO. The - 59 - Zambia-Rumania Barter Trade Agreement In 1981 committed LINTCO to export 1,000 tons of rotton lint for the following two years at price equivalents whlch were only 68% and 35% of the world market prices and dnmestic prires, respectively. ROP made a barter arrangement with a Zimbabwean firm in 1982 to crush the seed, retain the cottonseed rake as payment and return the crude vegetable oil to ROP (para. 4.51). Given ROP's inability to rrush the cottonseed, the arrangement was advantageous, but was disrontinued in 1983 by Government directive. As a result, by March 1983, LINTCO had more than 50% carryover cotton seed stork just prior to the start of the new ginning season. Since the oil quality of stored seed deteriorates rapidly, LINTCO sold the remaining seed to eattle ranchers. Although Government must retain the right to intervene in barter trade arrangements, it should be fully info-med of the advantages/disadvantages of such arrangements. In this instance, the barter arrangement appeared to have been advantageous for all parties. Agricultural Policy Environment 3.36 LINTCO, like other agricultural marketing agencies, faces the difficulties inherent in the administered price system. Both seed cotton and input prices are annually fixed by Government. The administered price system affects LINTCO and NAMBOARD similarly (paras. 2.07 and 2.38-9). However, LINTCO's sale prices are fixed on a 'eost-plus" basis permitting profit margins, making LINTCO less dependent than NAMBOARD on subsidies (Annex Table III.4). The cost-plus sales price protects LINTCO's financial integrity (whereas maize prieing protects the users and consumers in the case of NAMBOARD). There is neither subsector planning nor the allied policy framework for achieving subsector objectives. The proposed (or desired) structure and location of the industry, extent of vertical integration including downstream and by-product processing and degree of private sector participation have not been adequately thought through or articulated. Institutional Factors 3.37 The set of government laws and regulations that impact dirertly on LINTCO includes the Tax Act, Cotton Act, Labor Act and Industrial Relations Art. (The provisions of the last two laws affect LINTCO in the same manner and extent as NAMBOARD and other commercial institutions.) The Tax Art subjects LINTCO's profits to a 46% income tax, affecting the level of funds available for distribution or use, including investment, but the effects are neutral vis-a-vis other commercial firms. Provisions of the Cotton Act relate to disease control and production zoning, which assist LINTCO's effort to improve the cotton industry. 3.38 As the parent Ministry for LINTCO, MAWD determines the overall cotton policy and plays an important role in the day-to-day management of the Company. The chairman of the Board of Director is the Permanent Secretary for Agriculture, resulting in the Ministry playing a more significant role than the Board of Directors, as in the case of NAMBOARD (para. 2.43 and 2.63). LINTCO management tends to consult and seek approval from MAWD on matters which would appropriately be resolved with the Board of Directors. Such matters range from routine management decisions (such as the purchase a micro-romputer or export of surplus cotton lint and cotton seeds) to policy matters (such as the possibility of private partiripation in the processing of seed cotton). - 60 - 3.39 LINTCO is entirely dependent on MAWD to provide field staff, which at present number 233, to solicit farmer interest in cotton production, to provide technical advice, and to perform marketing and credit functions. The field staff has been motivated by incentives such as field allowances, and the provision of motoreycles and bicycles on a loan basis. These incentives, plus elose supervision, have contributed significantly to the rapid growth of the cotton industry and LINTCO. However, the field staff has focused more on soliciting farmer participation than on productivity and improved quality. 3.40 Other Government institutions also intervene in LINTCO's operations. In 1983, the President directed LINTCO to promote smallholder production of coffee and soyabeans. This has strained LINTCO's management and resources. The disadvantages of government interventions on parastatal operations like LINTCO were discussed in paragraphs 2.48 and 2.63. These interventions tend to weaken both management authority and accountability, leading to relatively weaker institutional performance. 3.41 LINTCO has received considerable financial and technical support from aid donors, who have provided investments in ginneries, storage and transport as well as technical staff. The World Bank has assisted indirectly through its support for projects in the Eastern (cofinanced by IFAD) and Southern Provinces, in which LINTCO is specified as the implementing agency for cotton related components (i.e., storage, inputs, and rredit) with the exception of eotton research. D. Performance and Performance Indicators 3.42 LINTCO has two sets of aetivities; one is developmental and the other is commercial. As it is charged with the responsibility of promoting cotton production and developing the industry, it functions more as an arm of Government; :n 4ts other role as a commercial enterprise, it is more concerned with profits and efficieney. Performance evaluation must focus separately on these two roles and each role requires its own set of analytical tools. The two roles are not necessarily inconsistent but focus on different time horizons. The development function is directed toward the accelerated evolution of the industry whereas the commercial activities are undertaken for their profit-making potential. The two functions should theoretically converge in the long run as the industry develops and production and marketing become more effirient and profitable. LINTCO's commercial objectives can be evaluated by conventional tools of finaneial analysis (consisting of traditional financial indicators), but analysis of the developmental impact is more complicated and less precise. The tools used to analyze this impact are trend indicators of: (i) production and yields; (ii) production costs; and (iii) fiscal contribution. Development Impact 3.43 Cotton production data (Annex Table III.1) indicate LINTCO's perfornmn-ce in an historical perspective. Cotton production increased from 8,000 tons in 1977/78 to nearly 45,000 tons in 1983/84, representing a growth rate of about 33Z per annum. During the past six seasons, national - 61 - yields have varied between a high of 937 Kg/ha realized in 1982/83 and a low of 441 Kg/ha recorded for 1980/81, with no discernable trend. In recent years the average yield in Lusaka Province has been twice the national average yield (Annex Table III.lb). This indicates the production objective has been reached more through organizational than technical achievement. The benefits have derived from a mobile and motivated extension staff, readily available inputs and better payment procedures than those applicable to other crops. The number of cotton growers increased from about 19,800 in 1978/79 (LINTCO's first year of operation) to over 38,400 in 1983/84. Growers are predominately smallholders; only 150 are categorized as commercial growers. The average planted areas per grower declined from 1.8 ha to 1.45 ha, betwe-.n 1980/81 and 1983/84, perhaps reflecting the entry of more new smallholders in new production areas. Price does not seem to have been a major factor sinre at current yields cotton margins are little LAfferent from those for maize; this may contribute to the limited proportion of cultivated area that individuals have been prepared to devote to the crop. At the same time, the greater drought resistance of cotton has eneouraged more farmers to adopt the crop. LINTCO has therefore been operating in a reasonably neutral environment without being able to influence significantly unit prices or, through improved yields, gross margins. 3.44 LINTCO's success in increasing cotton production is commendable as it has been constrained by a number of factors including producer pricing policy and seed selection. Producer prices are currently near the appropriate border price, but have been inadequately differentiated to provide sufficient incentives to promote either the production of improved quality or the adoption of better husbandry practices. Seed quality has deteriorated since the discontinuation of the breeding and seed bulking system in 1975 and the genetic yield potential has suffered. The lack of regular and rigorous selection and controlled bulking has resulted in varietal mixtures with inconsistent staple lengths, irregular seed size, weakened fiber strength and coarser fibers. 3.45 The current production of both lint and cotton seed is small relative to the size of the domestic market for cotton fabrics and vegetable oils and oilseed cakes. But due to limited processing caparities and poor planning in these industries, LINTCO has exported both lint and cotton seed at a substantial opportunity cost to the economy; in 1983 lint exports totalled 925 tons. The present spinning capacity in the country is about 8,000 tons per annum and lint production is projected to be about 16,500 tons in 1984. However, the potential annual demand for fabrics is estimated at about 60 million meters, representing 12,000 tons of lint (36,000 tons of seed cotton); actual consumption and effective demand is substantially less. Total imports of yarns and fabrics amount to about K40 million of which about 202 are pure cotton yarns and fabrics. Also, LINTCO has been unable to obtain an appropriate return for cottonseed, as there was no cottonseed oil processing capacity prior to 1984 and the capacity still remains below the supply of cottonseed available. 3.46 Import substitution, a stated objective of LINTCO, is economically efficient only if LINTCO can produce its lint and cotton seed at appropriate parity prices. Although LINTCO's costs of handling, transporting and processing cotton (exclusive of depreciation) are high, its domestic sales are both profitable and below import parity (Annex Table II1.6). However, the domestic sales price is above the export parity price and lint exports, if undertaken by LINTCO, receive Government subsidies. - 62 - 3.47 As responsibility for promoting smallholder coffee production was assumed only recently, there has been inadequate time to assess LINTCO's performance. Coffee and cotton have similar characteristics as both require careful grading and processing to realize the full value and significant benefits can be realized from vertical integration. However, integrating the promotion of these two commodities under LINTCO auspices may prove counterproductive as their agro-environmental requirements are quite disparate and, accordingly, the crops are grown in different sections of the country. Thus, the promotion of coffee production is a supplementary activity to LINTCO's main function of promoting cotton production, and could well create financial and economic difficulties as well as dilute the effeetiveness of the cotton promotion effort. 3.48 LINTCO's performanre as a development institution can also be measured bv its capacity to generate a taxable or investable surplus. LINTCO has consistently rereived 'export subsidies' on its cotton export account, representing the difference between the domestic price and relatively lower export price for lint. The transfers (Government subsidies) have generally exceeded before-tax profits, creating a negative fiscal impact, except in 1978/79 and 1983/84 (Annex Table III.4). The salaries of 233 extension staff are paid from MAWD's budget and could be considered an additional subsidy to LINTCO. The financial viability of LINTCO is fragile and would not be sustainable without Government assistance. Overall, LINTCO's developmental performance has been mixed. Production has expanded but yields have not noticeably increased and lint quality is below international standard. Financial Structure and Performanee 3.49 Capital available to LINTCO totals K 13,775 thousand, comprised as follows: K'000 Share capital 1,492 Reserves 3,242 Shareholders funds 4,734 Irredeemable loan 100 Long-term loans 8,941 13,775 Government holds all the equity and provides all the loan capital; the reserves represent accumulated trading profits. The company has returned after-tax profits every year (Annex Table III.7), except for 1982/83 when a small loss was made due to a reduced crop, but profitability is virtually assured through Government-subsidized exports and domestic sales prices fixed on a cost-plus basis (para. 3.36). The ratio column in Table III.1 indicates the cost-price effectiveness of LINTCO's operations. Corporate income taxes represent an ongoing business expense and the after tax ratios indicate that LINTCO's return on sales would have been satisfactory if all sales had been domestic. - 63 - Table III.1 LINTCO FINANCIAL PERFORMANCE Year Turnover Profit Before Tax Profit After Tax Return on Turnover Kwacha'000 -- (pereent) 1978/79 4,417.0 377.7 167.7 8.6 3.8 1979/80 8,295.1 1,172.4 547.9 14.1 6.6 1980/81 19,156.8 1,168.3 419.3 6.1 2.2 1981/82 21,171.8 1,230.5 535.5 5.8 2.5 1982/83 13,545.6 27.1 (32.3) 0.2 (0.2) 1983/84 31,328 2,546 5.1 8.1 5.1 Source: Linteo Annual Reports 3.50 The cost analysis in Table III.2 relating various cost components to net sales, indicates a rising or increasingly unfavorable trend. The cost of produce was subtracted from the operating costs to remove the distortions introduced by Government-determined producer prices. The resulting operating cost ratios reflect LINTCO's operating efficiency. The cost components of transport and storage, wages and salaries, operational expenses, financial c.harges and administration costs all demonstrate a worsening trend. Increases in the transport and storage ratio reflec.t the high c.ost of encouraging cotton prnduction in remote rural areas. The inc.reasing financial charges ratio reflects the inc.reased relianee on overdraft facilities to financ.e operations. The recent expansion in staff, and the associated salaries and fringe benefits, have contributed to inereases in the operational expenses and administration expenses ratios. LINTCO FINANCIAL PERFORMANCE: EFVICtENCY OPERATING RATIONS (AS PERCENT OF SALES TURNOVER) Year 1978/79 1979/80 1980/81 1981/82 1982/83 Cost of Sales 96.8 83.9 75.8 59.2 67.5 Transport and Storage 5.1 5.0 5.2 7.0 8.4 Direct Wages and Salaries 5.0 4.9 6.7 8.0 7.0 Repairs to Plant and Machinery - 0.8 0.8 0.6 0.6 Packing Materials and Chemicals 7,2 1.8 7,5 3.3 (1.1) Operational Expenses 6.6 11,6 8.3 12.3 17.0 Financial Charges 1.3 12.7 8.1 7.7 10.6 Administration Costs 2.9 3.1 2.3 5.8 4.6 Total Costs 125.1 123,81 113.7 103.9 114.6 Total Costs Net of Cost of Sales 28.3 39,9 37.9 44.7 47.1 Source: Derived from data in Lintco's published Annual Reports ' Ia - 65 - 3.51 The effeetiveness of net assets use is analyzed by relating profits before taxes to the commitment of assets used to generate them. The ratio of "return on assets' in Table III.3 indicates that management effectiveness in employing the eompany's assets has been moderate and varied. Again, the development activities and the variations in the company's capital strurture (proportion of debt and equity) e.ould have been responsible for the variations in return on assets. Table III.3 LINTCO FINANCIAL PERFORMANCE: OPERATING RATIO Year Net Assets Profit Before Return on Taxation Assets - K'000 - 1978/79 2,477.2 377.7 15.2 1979/80 2,911.9 1,172.4 40.3 1980/81 4,740.9 1,168.3 24.6 1981/82 10,141.7 1,230.5 12.1 1982/83 11,989.1 27.1 0.2 1983/84 13,775 2,546 18.5 Source: Lintco Annual Reports 3.52 Sharply increased profits in 1983/84 increased the reserves and improved the debt-equity ratio, which had risen to 283% at end-March 1983. This is high and may remain so if future expansion can be financed out of earnings and reserves. The absence of a formal corporate plan and acrompanying financial statements does not permit LINTCO to analyze capital requirements and, perhaps more seriously, to provide its shareholders (Government) with advance notice of probable needs. Some capital restrueturing is desirable as the existing loan capital structure is unsatisfactory, with over 80% threoretically subject to recall at short notice as it has no fixed repayment date. All share capital should be issued by exchanging K2.208 million in undated loans for equity, and converting the balance of the undated loans into long-term dated interest bearing unserured debentures. This arrangement would better equip the company to obtain commercial capital if required, improve the debt-equity ratio and provide a firm basis for financial planning. 3.53 Seasonal and stock financing is provided by a rommercial bank (Barolay's) and secured by Government guarantee and a charge over assets. The domestic demand for lint produces a reasonably steady inrome and the - 66 - extended buying season prevents unduly high outflow peaks; the eashflow usually becomes positive in October. The financial ratios shown in Annex Table III.7 confirm reasonably good liquidity, but should be interpreted with caution as they are year-end figures when stocks are near their lowest point and buying ae.tivities are not yet underway. 3.54 As a whole, LINTCO's operational performance and capital deployment have been moderately good but fluctuating. This partly reflects the constraints imposed by LINTCO's role as a development institution and management's inability to sustain good performance in the face of changes in weather conditions and prevailing investment policy. Company and Management Performance 3.55 Performanee measurement, by standard financial formulae such as return on capital and turnover, is covered elsewhere but, because of the pricing arrangements, they do not provide an entirely satisfactory guide. In the following paragraphs recent performance trends are examined, major eost elements identified and performanre compared with that of organizations in neighboring countries working with cotton and under similar conditions. 3.56 LINTCO fixed and variable costs over the period 1981/82 - 1983/84 and budget c.osts for 1984/85 (Annex Table III.8) are summarized below: Budget 1981182 1982/83 1983/84 1984/85 --K'noo00 - (1) Sales inel. subsidies 19,157 13,545 31,328 52,680 (2) S. cotton purchased (tons) 17,170 12,788 32,085 45,745 (3) (Value) 9,639 6,868 16,973 26,772 (4) Variable expenses 3,726 3,200 6,""J 12,345 (5) Fixed expenses 3,414 4,228 4, 7 7,024 (6) Total 7,140 7,428 10,877 19,369 (7) (5) as Z of (6) 47.8 56.9 44.4 36.2 (8) (6) as Z of [(1)-(3)] 75.0 89.9 75.8 74.8 3.57 The 1982/83 data indicate the importance of the fixed cost tomponent which contributes to a high break-even point. The most important statistics are the total expenses shown as a percentage of the gross margin (line 8 above). Apart from the 1982/83 figure, this is remarkably steady despite the very large increases in both tonnage and margin, confirming that scale economies have not been realized, the reduction of fixed eosts being offset by an inerease in unit variable cost. This is partly due to disproportionate increases in transport and packing material costs, but the trend will likely continue, given the production approach of expanding the cotton areas rzther than concentrating areas and increasing yields. Transport costs would decrease with the establishment of ginneries nearer to major production areas, but overall savings will be slight unless the problems of overstaffing (revealed by disproportionately high average salary costs) and low productivity are resolved. The costs shown do not include salaries of HAWD extension staff working for the company. - 67 - 3.58 Regional costs, net of transport, show wide variations and also illustrate the high cost of overstaffing (Annex Table III.9). Relevant data for 1983/84 are shown below: LINTCO: 1983/84 Divisional Marketing Costs (K/ton) Central Southern Eastern Variable (exeluding transport) 35.37 23.25 76.28 Fixed 32.94 59.06 169.05 Total (excluding transport) 68.31 82.31 245.33 of which wages/salaries 19.71 35.41 100.93 3.59 International cost comparisons are complicated by differences in accounting procedures and exrhange rate distortions. The costs of cotton marketing in Zambia, Malawi and Zimbabwe for the 1983/84 marketing season are set out in Annex Table III.10. Circumstances differ in each country, the major features being shown below: Zimbabwe Malawi Zambia Produrtion ('000) tons) 168.5 13.4 31.2 No. of farmers, of which: 47,568 n.a. 38,424 Large commercial % 5.9 0.1 0.4 Smallholders X 94.1 100.0 99.6 Proportion of crop delivered by: Large commercial % 65.5 2.5 (est.) 8.1 Smallholders % 34.5 97.5 91.9 Malawi and Zambia operate similar systems with market facilities on average within 5-10 kms of growers. In Zimbabwe, purchasing is at ginnery centers and transit depots sited within about 60 kms of growers. Rural road conditions in Zimbabwe are similar to those in Zambia. In Malawi, distances are much smaller and market accessibility is better. 3.60 Costs in Annex Table III.10 are shown in local currency and US dollars using February 1984 exchange rates. The comparison rlearly demonstrates the very high cost of primary marketing in Malawi and Zambia, where it accounts for 33% of total costs. Proressing costs are lowest in Zambia, confirming the lack of srale economies in this subsector, while Malawi costs are high due to the very small crop and low caparity utilization. Administative costs in Zambia are 45% above those in Malawi and Zimbabwe (where finance costs are very high), confirming the excessive burden of existing administrative arrangements. Producer price comparisons are instructive as the Zimbabwe price is close to export parity (the Cotton Marketing Board returned a small profit over the year) yet is 67% higher than that paid in Malawi and 442 higher than the price in Zambia, and Zambian exports required a subsidy. Additional transport costs contribute part of the difference but mnst is due to lower quality, unduly high internal c.osts and possibly inadequate knowledge of the export market. - 68 - 3.61 Until domestic spinning capacity increases, all production increases will be exported. At the present exchange rate and level of performance, Zambia will not be fully competitive and will be unable to sustain sufficiently high producer pric.es to further stimulate production. If the industry is to become financially viable, efficieney and lint quality must be improved. 3.62 The above does not detract from the success of management in stimulating farmers and attaining production targets in achieving their development objertives. Individual roles and short-term goals have been clearly defined, organizational coherence is high and the staff exeeptionally well motivated. These are very positive achievements that need to be further exploited. Management has had to reconrile its perceived developmental and social obligations with sound business prartice, as represented by cost efficiency, and the latter has probably suffered. This is due in some extent to the tcost plus' approach to financial viability resulting from a predetermined producer price. This may be acceptable on intra-company transactions (although it is desirable to show that the cost is competitive with that for a similar service from other sources), but for a national company it can lead to complacency and reluctance to analyze and consider alternatives as a means to minimizing total costs and improving efficiency. In LINTCO, such action is made harder by the lack of subsector and corporate planning eapacity. E. Recommendations Means to Improve Management 3.63 Attention to date has focused more on the de-velopment objective of widely promoting cotton and on achieving production targets in a non-ceompetitive environment. The continued growth of production will expose Zambia to increasing international competition from countries with lower marketing costs, requiring greater attention to the commercial objective. LINTCO has competent management and to facilitate improved performance a number of actions are needed, by both Government and the company; these relate primarily to sectoral and corporate planning, quality considerations and operational procedures. 3.64 Sectoral Planning must identify production targets and a related priring policy, as well as the role of actual or potential participants, including LINTCO, the processing companies (both oilseed crushing and textile), other public and private sector companies and the farmers. The basic role of LINTCO requires redefinition, in part due to the inclusion of coffee and soyabeans among its responsibilities. Activities in these crops do not provide the cost recovery element inherent in cotton and rontain the company's role to extension work only. Present company policy is to merge the costs of soyabean activities with those for cotton and maintain coffee separately under Government funding. If soyabean and coffee activities are retained, it will be at the expense of cotton as the latter will undoubtedly subsidize the other commodities. Redefinition of LINTCO's role must consider the structure of the cotton industry and the developmental activities still required of LINTCO. Possible commercial options would include: - 69 - (a) maintaining/expanding the LINTCO monopoly; (b) encouraging private participation in ginning; and (e) encouraging competitive area-based ginning and marketing with private company participation and a floor pricing system. Greater private sector participation is needed to reduce Government's capital funding burden and to encourage improved efficiency and cost reduction. LINTCO could become more of a holding company and be structurally better suited to pursue its developmental objectives. 3.65 Sectoral work should address marketing issues and their interaction with both industrial and raw material quality factors. LINTCO's domestic market for lint is constrained by lack of processing capacity, while grey cloth is still imported. The export market is constrained by lint and fabric quality, while northern industrial countries, especially in the EEC, are providing more favorable treatment of imported semi-finished goods like cloth. 3.66 A full corporate plan should be derived from the definition of purpose, environmental analysis and macro policy analysis. A corporate plan cannot substitute for sector planning but should be a product of the seetoral plan to which LINTCO would be a major contributor. Pending availability of this plan, LINTCO management should concentrate on developing short-term planning capacity and analyzing operational alternatives, but these activities require more detailed financial information than is now available. The practice of setting annual performance targets for various operations has been a successful management tool. This should be continued and further improved by linking the divisional objectives and targets together in an operationally coherent and finaneially consistent manner. Corporate planning would involve the following action: (a) setting quantifiable objeetives and targets and detailing the strategies to achieve the objectives with defined aecountability; (b) reviewing the aeccounting system and introducing a more comprehensive financial analysis of operations to produce routine cost information; activities to be covered on a locational and fuActional basis would include marketing, processing, personnel and transport; (e) analyzing production potential and directing promotional activities to those areas which can be most effectively servieed from existing resources to create a sound basis for further expansion; and (d) developing with Government a meehanism to overcome the foreign exchange constraints with regard to imported materials and equipment and establishing inventory control and procurement systems to use this faeility efficiently. - 70 - Operational Procedures 3.67 Cottnn production and marketing is a highly disciplined process ideally suited to the integrated approach adopted by LINTCO. Intensive initial promotion of production was with the intention of improving quality once the produetion base was established. This is no longer appropriate and aetion is needed to enforce quality production, marketing and proeessing discipline, and to increase the resources being devoted to rlassification. This will require implementing existing procedures which are not properly enforced. Regardless of other policy or management actions taken, the following matters require immediate attention: (a) Seed. Cotton fiber has deteriorated vsith the discontinuance of rigorous seed selection and controlled bulking (para. 3.44). Zambian cotton is now a staple shorter than the minimum required for shirting, rlosing off a major sector of the domestic and export markets. This severely reduces the value of Zambian cotton relative to the nominally similar types grown in Malawi and Zimbabwe. Breeding and selection is the responsibility of the Commodity Research Team while LINTCO is responsible for seed production. Suitable grades need to be established and rigorous grading instituted together with appropriate ginnery procedures. The present seed production should be replaced with a modal bulking system to improve the overall quality of planting seed. (b) Pest and Disease Control. The present 'cotton package' system and blanket spray regimes have proved effective but in certain cases chemical degradation has occurred during overlong storage, resulting from too high inventory levels. On other occasions, late availability of products has also jeopardized pes. ^ontrol. Both considerations require addressing internally in LINTCO and with the chemical suppliers. Extension objectives should include early picking and marketing to reduce the risks of quality degradation from late pest attacks; this would also extend the ginning period during the dry season, resulting in further quality improvement and potential cost savings. An informed cautious approaeh will be needed, however, in order to avoid increasing the proportion of immature cotton marketed. (e) Grading and Classification. The system presently provides for two seed cotton grades but in practice all seed cotton is bought as grade A. Market identities should be preserved through to the gin dump as lint characteristics are subject to regional variations, but in practice there is no segregation. The consequent random mixing in the suction room makes consistent lint classing nearly impossible, which further redures the realizable value of the crop. Steps to be taken include: (i) establishment of clearly identifiable grades for seed cotton together with sufficient priee differentials to provide grading incentives to growers; - 71 - (ii) physical identification of production areas, perhaps by tags stitched into cotton packs or bags; (iii) reorganization and striet control of gin dumps to ensure segregation of seed cotton by production/market area; (iv) regular classification of inroming cotton to ensure that the mix taken into the gin suction chamber will facilitate uniformity within a class and regularity throughout a bale; and (v) installation of classifieation farilities at all ginneries and an increase in the eomplement of qualified classifiers. (d) Ginnery Operations. The division needs to be reorganized by appointing an engineer/manager (plus supporting technical staff) to each ginnery, thereby allowing the manager to plan and manage overall divisional activities and to assist in the corporate plan development. Ginnery operations will be assisted by a more positive marketing policy to reduce stoe.kholdings of finished products, particularly seed, and by careful planning of ginning areas including associated produce flows and site layouts. te) Marketing. Execution of any marketing plan has been inhibited by two main factors; (i) Government policy, mainly in respect to seed, and (ii) lack of staff and expertise in the Commercial Division. The lack of marketing staff has resulted in a lint sales policy aimed at tranferring title as soon as possible, i.e., from ex-ginnery onwards. The small size and variable quality of surpluses has stimulated little interest in overseas spinners and only one merehant company has acquired sufficlent knowledge of export markets to be able to offer acceptable prices at export tenders. The situation at present is distorted by Government policy on foreign exc.hange retention from export earnings and inappropriate international procurement procedures which make it more attractive for LINTCO to minimize its risks by obtaining all imported inputs locally, which denies it the opportunity to acquire market knowledge. The corporate planning proress must incorporate a marketing policy and strategy. Policy alternatives include, for example: (i) continuation of the present system; (ii) development of the capacity to condurt all marketing in-house; and Ciii) employment of a technical agent or broker on a fee basis. Measures to Improve Policy Environment 3.68 Cotton provides potential for both import substitution and export promotion. In addition to the strategic sectoral planning mentioned above, a series of policy issues needs to be addressed for the industry to realize its potential contribution to the economy. These issues include, inter alia: - 72 - (a) the adoption of an exchange rate policy which will in real terms permit lint exports to be financially profitable to LINTCO and economically profitable to the country, coupled with mee.hanisms allowing access to adequate foreign exchange for import of spare parts, etc.; (b) the making of considerable investments In research (breeding and seed selection) and bulking of seed production to improve both yields and quality; (e) the encouraging of the establishment of downstream processing industries for cotton derived products (textiles and oil milling); this will require formulating an investment program and environment (including investment incentives for the private sector) for these industries to match the medium and long-term cotton development program of LINTCO; (d) the pursuing of an active export promotion policy including the possibility of producing grey cloth for export to the EEC under Lone III and to neighboring rountries as an adjunct to LINTCO's current practice of exporting surplus c.otton lint; and (e) the restoration of autonomy and authority of LINTCO's Board of Directors by minimizing Government interventions, by directing such intervention through the Board and by requiring LINTCO's management to be acecountable to the government only through its Board of Directors. 3.69 The foreign exc.hange rate and its availability are maero variables outside the influence of the sector. However, these factors affect the sector and LINTCO severely in two different forms. The availability of foreign exc.hange affects the timeliness of input availability. If foreign exehange were available in a timely fashion, it would permit LINTCO to carry smaller stocks. The foreign exehange rate obviously affects the cost of production but more importantly determines whether seed cotton can be enonomically produeed (by relating export/import parity priees to lint and oil). This clearly points out that Government and LINTCO should include foreign exchange planning as part of their annual budget exercise. 3.70 LINTCO has recently used third parties for some of the export of lint surplus. Under the foreign exchange retention scheme, this permits the third parties to retain 50% (minimally) for import procurement (para. 3.32). This procedure has been and is being used to procure imported chemicals and to acquire new ginnery equipment. This proredure is also used to avoid the difficulties of export marketing. The third party sales are made at domestic prices which precludes the neeessity of a government subsidy payment. The fact that third parties are prepared to ineur a financial loss on the transartion, at official exchange rates, indicates that the shadow exchange rate in local currency terms is higher than the official rate. It should be noted that the use of third party intermediaries in the allocation of foreign exchange in this manner is totally divorced from any priority alloc.ation system of Government and can, in some cases, lead to scarce foreign exrhange being used for purposes of - 73 - low priority to Government. The most practical method of avoiding possible undesirable (to Government) effeets of this practire is to devalue the currency. This would make exporting more attractive to LINTCO, obviating the need for Government expnrt subsidies, and would prire foreign exchange appropriately to third parties. It is crucial that the foreign exchange rate be at a level which permits cotton produrtion to be financially and economically viable. 3.71 A fundamental issue facing the cotton sub-sector is planning. A series of planning initiatives is required at the National and MAWD level and in LINTCO. It is crurial that the proposed structure of the industry be more clearly thought through and a policy framework generated that would lead to achieving the desired structure. Currently, planning is limited to production targets. Government should be fully aware of the costs (including foreign exchange costs) and benefits involved in achieving those production targets; production location; processing facility requirements; location of ginneries within production areas; the desired extent of, and needed environment and incentives for private sector participation in ginning; the extent of rompetitive ginning and the required extension/credit role of the public and private sector; the form of exports - lint, yarn, grey cloth (to take advantage of export possibilities under Lome III) or manufactured garments; other downstream investments; investments in by-product processing and the rnle of LINTCO within the sector (para. 3.36). 3.72 The outrome of the above will determine the next level of planning and restructuring. MAWD and LINTCO should be considering the divestiture of some LINTCO functions, particularly the transfer of the extension function and the provision of inputs. The extension activities appear to be adequately organized and they could eventually revert to MAWD. Similarly, other suppliers - private sector and Cooperatives - should be encouraged to handle -cotton packages". Insecticide should probably be provided only in standard package form in order to better guide use. 3.73 LINTCO requires financial restructuring consistent with the role it is expected to perform. LINTCO objectives need to be clearly specified and management held accountable for its performance. Government's role should be one of setting the policy framework for operations and evaluating subsequent performanre, but should not intervene in operations. The Board of Directors should resume the role of providing policy guidance to the General Manager to re-establish proper channels of cormmunication. 3.74 Incernal corporate planning must be initiaEed and gn beyond the setting of physical produrtion targets. Consistent with the target setting exercise, the strategy for achieving the targets should be specified. The planning department must liaise with MAWD to identify priority development areas and assist management with implementation and variance information. Expansion, ginnery siting and allied industry siting (oil extraction mills) would alsn be a major focus of the planning department. Operational planning ran be improved with a reorganized accounting system which will generate management accounts, but the capacity must also be develnped to analyze the accounting information and to interpret variances. 3.75 The cotton quality problem must be addressed in several ways. Long-term improvement must be initiated through agricultural research focussed on varietal improvement. Consistent characteristics on staple - 74 - length, strength, fineness, seed size, etc., are required to improve cotton quality; after appropriate varieties have been developed, LINTCO would be responsible for multiplying and distributing the seed through a modal bulking system. Near-term quality improvement should be addressed through the grading and classification system. Cotton is now purchased ungraded ard is randomly ginned without regard to origin and quality, resulting in c.-ton bales of mixed staple lengths, qualities, etc. Purchases should be a a grade basis and grades and qualities of seed cotton must be segregated and ginned separately to retain control of lint quality. 3.76 LINTCO must develop its own marketing capacity. This is particularly important if plans call for the continued exportation of lint. LINTCO should either develop its own export market contacts or utilize the services of a commodity broker who is knowledgeable concerning the international market and acquainted with various spinners' requirements. This issue is highly interrelated with the cotton quality issue, as the sales options will increase if quali=y is improved sufficiently for the cotton to be used for shirting. 3.77 Cotton production and marketing is a highly disciplined process ideally suited to the integrated approach adopted by LINT5O. However, LINTCO is not well structured to perform the functions requested by Government for soyabeans and coffee. As the soyabean function is essentially one of extension, it would be more appropriately conducted by MAWD. The MAWD extension role would be revived and promoted with the improved management and more adequate incentives envisaged under the proposed MAXD Research and Extension Project. The extension function could be better performed undar MAWD auspices as support services are located there. Coffee and cotton are produced in different agro-climatic zones which are geographically separated. Cotton and coffee have similar requirements in terms of grading and processing and significant benefits can be realized from vertical integration. But the functions required for the two commodities are supplementary not complementary to LINTCO's existing activities and servicing both commodities could very well prove to be detrimental in financial and economic terms. Industry coordination is desirable but the structure should be re-examined and perhaps integrated through other existing institutions (e.g., ZCCL). If necessary, a smallholder coffee authority could be established under MAWD auspices. The appropriateness and efficiency of LINTCO assuming responsibility for coffee promotion is highly doubtful. - 75 - IV. ROP (1975) Limited A. Introduction Establishment and Development 4.01 ROP (1975) Limited is a wholly owned manufacturing subsidiary of INDECO Limited and was formed following INDECO's acquisition in 1974 of the remaining 49% share rapital of two subsidiary companies, Refined Oil Products Limited and Lever Brothers Limited, in which it had been a 51Z equity holder since the late 1960's. The company's main products are edible vegetable oils, fats and associated by-products, soaps, detergents, oilseed cake (a by-product) and sundry minor products. The company has its head office in Ndola and factories in Lusaka and Ndola. Until recently, ROP was the sole domestic producer of vegetable oils, but other crushing factories are now coming on stream, although none have refineries. The lack of suitable raw materials keeps capacity utilization to between 35% and 50% and makes ROP nearly 70% import dependent. Whereas sunflower and soyabean crushing capaeity is underutilized, cottonseed crushing capacity is inadequate. 4.02 Ownership is ultimately with the Government, as INDECO is wholly owned by ZIKCO whose shares are held by the Ministry of Finance. Authorized capital is K 16.625 million (K 13.81 million paid up) and turnover for the 12 months to March 31, 1984, was K 73.27 million, having inereased by more than 100% during the last three years. ROP is faced with conflicting requirements of operating commercially (containing costs and maximizing profits), while acting as a parastatal. The effect of this is important in the priring of finished products and in the procurement of many local raw materials. Prices are determined more by political/ statutory considerations than by market values. Employment levels are excessive, as they are based upon 100% capacity utilization rather than the staffing needed to operate at actual throughput rates. Investment policy has been directed towards increasing capacity rather than improving the use of existing capacity (para. 4.22). Objec.tives 4.03 As a commercial enterprise, ROP is expected to maximize profits from its operations. However, since ROP produces searce commodities which are considered "essential, Government retains a substantial interest in the pricing decisions and ROP cannot independently set the most profitable prices for its products. As a publir institution, ROP has a responsibility to make available to the Zambian public quality consumer products at economic prices; this constrains profit maximization objectives. Consequently, ROP has set a profit objective as 10% of cost on short supply items, which include edible oils. Since ROP is basically an import-substitution enterprise and was established for that purpose, minimizing its foreign exchange expenditures is also a central objective, which may also conflict with the profit objective. - 76 - B. Structure and Organization 4.04 The deputy managing director of INDECO is chairman of the Board of Directors which meets quarterly. Nevertheless, many Board decisions, particularly in regard to pricing and policy, are subjeet to one or two further leveis of ratification and/or approval before they can be implemented; it is also INDECO's prerogative to revise company policy whenever deemed necessary (para. 4.23). These processes reflect the relative political importance of the decisions, but their time-consuming nature impairs the credibility and authority of the direetors in matters vitally important to the rompany's health and reduces the accountability of management. As an INDECO company, a set of Conmmon Procedures and Conditions apply to ROP, but are in many cases unsuited to its needs. Conditions of Service in particular should reflect the specific nature and function of the company. Use of Common Services in diverse sectors may deny the company arcess to those best suited to handle particular needs. The guaranteed throughput for the INDECO department concerned will also obscure their competitive and professional efficiency. INDECO procurement procedures are, nonetheless, well suited to meeting urgent requirements and the short validity (usually 90 days) of foreign exchange allocations. Corporate Structure 4.05 ROP has its headquarters in Ndola and two factories at Ndola and Lusaka. Total staff is approximately 1,500, with 675 in each factory and the remainder in the Head Office. Under the General Manager, the Head Office structure comprises Accounts, Marketing and Sales, Personnel and Purchasing. A Technical Manager and a Corporate Planning Manager have recently been appointed to the team. A Works Manager is responsible for the operation of each factory and is part of the top management team, participating in regular management meetings. Factory staff are responsible to the Works Manager on day-to-day matters and to headquarters management on a functional (technical) basis. 4.06 Works Management. Works Managers are responsible for the profitable operation of their plants, effective use of resources and achievement of corporate objectives. Functional organization at the factories, which are self accounting, replicates that at the Bead Offire. Autonomy levels are determined by the corporate plan but all purchases involving foreign exchange are routed through the Head Office. Seed crushing and related capacities are detailed in Annex Tables IV.1 and IV.2. Both plants suffer from shortages of engineering and technical staff at most levels (para 4.12). 4.07 Accounts. Departmental responsibility is decentralized to the factory level, with t:.e overall and management accounting responsibilities remaining in the Head Office. These include: (i) development of accounting policies; (ii) preparation and coordination of budgets; (iii) financial controls and systems; (iv) preparation of management and financial controls and reports; (v) foreign exchange reports; and (vi) finance procurement. 4.08 Financial reports are in general prepared on a monthly and quarterly basis in accordance with the INDECO policy manual (para. 4.39). There is a degree o' ambiguity in the role of the Ndola factory - 77 - accountants, some nf whom perform specific functions for their own plant and also group financial functions. A Management Accountant has recently been recruited to fill a long vacant post, and is responsible for pricing, costing and management acrounts, insuranee claims and foreign exchange reports. The scope and standard of management accounting has improved ronsiderably and with it the quality and availability of information including variance analyses (para. 4.35). There is still room for improvement, however, and this is fully recognized by the inrumbent. 4.09 Marketing and Sales. The department is responsible for: development and implementation of sales policy; distribution of products; and market research/development. The responsibility for distribution to retail was transferred to the Zambian National Wholesale Company (ZNWC) in June 1983. Distribution Managers' responsibilities are now confined to ensuring adequate product flows to the ZNWC depots in Kabwe, Lusaka and Ndola, for which ROP uses its own transport and contract hauliers. By-products such as oileakes and linters are still sold directly to consumers. 4.10 The Manager, who is assisted by a Distribution Manager and a Sales Promotion Manager, prepares an annual sales plan and budget based on production targets and monthly reports on sale product development and promotion. Short supplies and limited competition in the major products (cooking oil, soap powders, soaps and detergents) result in ROP not requiring special market development efforts for those products. However, strong competition in sundry products (notably toothpaste) dictates more aggressive marketing. Market research, market development and sales promotion have received little emphasis, as essential products account for some 90% of ROP turnover. This has been partly due to short supplies and the effect of lack of control over pricing decisions. 4.11 Personnel. This department is led by the Chief Personnel Manager, assisted by a Manpower Development Training Officer; there is a Personnel Manager at each factory. Responsibilities of Personnel Managers include: (i) maintaining personnel records and statistics; (ii) providing and monitoring training; (iii) maintaining sound industrial relations; (iv) recruiting permanent and casual staff; and (v) arranging housing for workers. An INDECO handbook on personnel policy and procedures maintains a uniform approach among group companies. Annual performance appraisals are conducted but their usefulness is limited by the lack of job analysis and descriptions (which are currently being prepared). 4.12 Staffing levels are related to the rated capacity of the plants instead of actual throughput; eonsequently, employment is excessive. However, professional/technieal positions at most levels are under- staffed. INDECO must approve any changes in employment levels, and unionized staff employed under collective agreement are subject to negotiation. 4.13 Purchasing. The department is responsible for all aspects of procurement, and comes under the Purchasing Manager, who is assisted by Area Purchasing Managers in Ndola and Lusaka. All major purchases and all imports are made from the Read Office while other local requirements are bought at factory level as are oilseed purchases after clearance from the - 78 - Head Office. The Purchasing Manager is responsible for stork control. Reorder levels are based on ronsumption and delivery lead times. Inventory control is complicated by the inappropriate and cumbersome procurement procedures required by INDECO and the erractic and somewhat transitory nature of foreign exchange allocations (para. 4.36). This has created artificial shortages where in one instance the lack of retail containers prevented the packing and distribution of rooking oil. 4.14 Procurement authorization and procedures are determined by INDECO as follows: Value Means Below K10,000 Competitive Quotation K10,001-K50,000 ROP Tender Above K50,000 INDECO Tender Tender procedures involve a delay of several days from closing date to award since bid evaluations must be submitted to the INDECO Board not less than 5 days before a Board meeting. This is unsuitable for buying price sensitive commodities. Tendered prices are invariably inflated to cover the market risks of such processes. Purchases also must be linked to import licenses and foreign exchange allocations. 4.15 ROP has bulk storage at Dar es Salaam for 3,300 tons of vegetable oil and 1,000 tons of tallow. It also owns or leases 55 rail tankers to facilitate movement from the ports. These facilities are occasionally insufficient due to lengthy transit times and poor phasing of procurements. Donor supplied vegetable oils are sometimes consigned via Durban to expedite onward transshipment, but this is more costly to ROP and involves transport payments in foreign exchange. 4.16 Corporate Planning. In the past, ROP has suffered severely from poor planning and is still suffering from the effect of earlier investment decisions, many of which were imposed on the company (para. 4.42). A recently appointed Corporate Planning Manager has the responsibility for coordinating the annual planning exereise within the parameters set by the 1982/83 - 1986/87 corporate plan (which is being revised and extended through 1989/90). 4.17 The Annual Plan is submitted to INDECO for approval during November or December; both INDECO and ZIMCO can require alterations although ZIMCO's interventions are usually confined to the capital budget (para. 4.23). Following approval, the plan is submitted to the Board of Directors for ratification and, subsequently, for inclusion in the National Budget. Final approval (with or without alterations) is normally received during March. The planning process is weakest in detailing how policies and objectives are to be achieved, although the assumptions are stated. There are no sensitivity analyses to show the consequencies of unachieved targets (para. 4.44). Such analyses are essential tools in plan monitoring and provide both background and explanation to the detailed variance analyses now routinely performed. (para.4.39). - 79 - C. Policy and Institutional Environment Foreign Exchange 4.18 Both the availability of foreign exchange and the foreign exchange rate have important implications on the operations of ROP as an import substitution enterprise. ROP depends on foreign exchange for the acquisition of spare parts, chemirals, etc., and for crude vegetable oil. The foreign exchange requirements and actual allocations for the period 1981/82 - 1983/84 are presented in Annex Table IV.7. Only in 1983/84 did allocations approach the requirements. The major source of foreign exc.hange is the Bank of Zambia (BOZ), although some foreign exchange is available via eonressionary imports provided by aid agencies. 4.19 Under the prevailing exchange rate, the Kwacha is relatively over-valued which makes imports of crude oil cheaper than the oil processed from some local oilseeds. This provides an incentive for ROP to substitute imported crude oils for domestic production. An exchange rate that more closely reflects the real value of the currency would make imports of crude oil more expensive and remove the domestic anti-crushing bias. Pricing Policy 4.20 Until June 1983, the prices of products categorized as "essential commodities- (vegetable oils, soaps, detergents and fats) were controlled by the Price Control Department of the Ministry of Commerce and Industry. Government no longer controls prices but all ROP product price proposals are routed through INDECO and ZIMCO (para. 4.23). The ultimate pricing decision depends on the product: those for toiletries and margarines are determined by INDECO; prices for soaps and detergents must be approved by ZIMCO management and subsequently ratified by the ZIMCO Board; and the ZIMCO Board authorizes cooking oil price changes. This approval is granted cautiously as the company is charged with a -moral obligation- to assist Government in maintaining low prices. Therefore, prices of 'essential" goods do not necessarily cover production costs; altering prices requires protracted discussions. The lack of autonomy to determine product prices hinders ROP's pursuit of the profit maximization objective, although it may be consistent with the secondary objeetive of maintaining prices (para. 3.04). Competition in the edible oils market has just begun to emerge and does not seriously threaten ROP's market share or price leadership; the competitors do not have oil refinery facilities and market only crude vegetable oils. However, refined oils imported by NIEC compete with ROP's edible oils. 4.21 Autonomy to practice active pricing policy should be given to ROP after the market structure for the essential commodities has become more competitive. In the interim, Government should facilitate entry into the vegetable oil industry. The process of adjusting prices to cover increased costs must also be accelerated to redure the lag time. Investment Policy 4.22 ROP's investment policy is determined by its Board of Directors through the annual budgets and the Corporate plan, both of which are ratified by INDECO and ZIMCO. In recent years, ROP's investment strategy - 80 - has been .entered on expansion of existing proressing facilities and has not fo.russed on the economics of the investment artivity. The result has been low rates of return and poor institutional performance. ROP's rorporate plan should define investment priorities based on the realities of the market, its financial situation and the country's foreign exchange situation. Priority should be plared on utilization of existing capacities (para. 4.41) to satisfy the existing demand and to minimize further demand on the country's scarce foreign exchange resourres. Institutional Environment 4.23 The most important institutional factors influencing performance relate to ROP's relationship with INDECO and ZIMCO. This relationship is characterized by the fact that decisions by ROP's Board of Directors must be ratified by the Boards of both these institutions on key policy matters such as investment and pricing (paras. 4.17 and 4.20). INDECO retains the prerogative to revise ROP's price policy when deemed necessary. Similarly, the appointment of key staff, including the General Manager, is the prerogative of INDECO. ROP prepares its corporate plan in accordance with INDECO's guidelines and financial reports are prepared in accordance with the INDECO timetable and policy manual. ROP is obliged to follow INDECO's rather cumbersome tendering procedures which sometimes make it difficult to optimize raw material purchases. INDECO provides guarantees for ROP's loans and overdrafts, thereby determining the borrowing ceiling for operations and investments. Thus, ROP has limited authority in key decision-making. In the case of NAMBOARD and LINTCO, this authority rests with Government Ministries, but in the case of ROP it rests with INDECO/ZIMCO. Market Environment 4.24 ROP has seven major product lines, which will be Increased to eight following completion of the Glycerine Project. There is one main by-product, oilseed cake, which in terms of tonnage almost equals major product output. Product line sales and estimated demand for the past three years are detailed in Annex Table !V'3; 1983/54 data were as follows: Estimated Market Demand Sales Market Share Tons Tons z Oils 33960 19504 57 Fats 14250 1103 8 NSDs 25000 6607 26 Snaps 17500 3349 19 Other Detergents 3460 749 22 Toothpaste 530 22 4 Shampoos 86 10 12 - 81 - 4.25 Sales of major products are constrained primarily by lack of production. For cooking oils, the supply side of the market is constrained by insufficient local oilseed production, eompounded by lack of suitable maehinery for processing the available supplies of cottonseed (paras. 4.41-2). ROP imports trude and refined oils, some purehased commercially but the bulk from donor sourees on coneessional terms which substantially determines the rrude:refined mix. ROP production is supplemented with finished produrt imports by NIEC and limited crude oil production from small factories situated in the main oilseed producing areas. Small factory production is expected to increase, bringing with it greater rompetition for loeal seed supplies. National edible oil production capacity is rated at about 46,000 tons annually; ROP produces between 55 and 70%, depending on the oilseed mix. For 1984/85, ROP estimates that, operating at 50X capacity, cooking oil produced from locally grown oilseeds will equal production from imported crude oil (Annex Table IV.4). D. Performance and Performance Indicators 4.26 Given ROP's objectives and ronstraints (para 4.03), profits (but not profit maximization) are an appropriate criterion to measure performance. The profit reference point would be the internally determined objective of a 10% margin. Also, given that ROP is an import substitution industry, another appropriate indieator would be the minimization of foreign exchange expenditures for rommodities provided. Performance evaluation is ronfined to examining the procurement and processing of vegetable oils and oilseeds. Company and Management Performance 4.27 With a profit objective of 10%, management effort must focus on cost minimization rather than profit maximization. The difficulty of minimizing costs is increased by variable external factors over which management has no control, notably foreign exchange, which affects the achievement of annual targets and prevents greater capacity utilization and lower unit costs (para. 4.18). Relevant sales and cost data for the five years to March 31, 1984, are contained in Annex Table IV. 12 and summarized in Table IV.1. Table IV.1 ROP (1975) Ltd: Sales, Costs and Margins 1980-84 1980 1981 1982 1983 1984 K'000,000 Sales 30.43 34.35 40.02 55.68 73.27 Raw Material Costs 21.04 22.58 26.73 39.16 49.03 Gross Margin 9.39 11.77 13.29 16.52 24.24 Other Cnsts 11.26 11.01 12.67 15.42 17.88 Costs as % of Margin 119.9 93.6 95.4 93.4 73.7 - 82 - 4.28 The poor performance of 1980 was foilowed by three years of cost containment, but insufficiently to enable the 10% profit target to be met. The big improvement in 1984 reflects the benefits of full foreign exchange funding and, perhaps more significantly, the sharply increasing profitability of the company once the breakeven point is passed. 4.29 The composition of costs (Annex Table IV.12) has changed very little over the period. Finance charges have fallen as a result of increased capitalization, and real salaries are almost back to the 1980 levels after peaking in 1982. The composition of functional costs has changed as a result of the new selling policies adopted in 1983 and the improved financial position; the proportional contributions from sales and finance costs have fallen from over 14% to 10.82 and 10.3%, respectively. Administrative costs are on an upward trend and although the increase has eased since 1982, still require careful monitoring. Production costs show the largest proportional increase but, in absolute terms, the growth rate is below that of administration. Overall sales have increased faster than costs (equivalent annual rates are 19% and 9%, respectively). 4.30 Over this period and particularly during 1984, there has been a marked improvement in the planning and procedural functions essential to improve company direction and management control. Management should consolidate and build on this progress. Despite the difficulties, there is an air of purpose and confidence displayed by management, which is beginning to be reflected throughout the company. Given the right dirertion and support, ROP should make substantially increased contributions to the eonnomy of the country. Financial Performance 4.31 Capital Structure: The balance sheets and key financial ratios for the last five years through March 31, 1984, are summarized below: Table IV.2 ROP (1975) Ltd; Financial Indicators 1980 1981 1982 1983 1984 - K'OWOV00 - - Assets: Fixed Assets 12.6 14.3 18.5 20.8 21.4 Net Current Assets 5.1 5.2 2.6 0.1 4.4 17.7 19.5 21.1 20.9 25.8 Represented by: Paid up Capital 4.0 4.0 13.8 13.8 13.8 Reserves 1.6 1.4 1.8 3.0 8.3 Total Shareholders funds 5.6 5.4 15.6 16.8 22.1 Long term Loans 12.1 14.1 1/ 5.5 4.1 3.7 17.7 19.5 21.1 20.9 25.8 Debt/Equity 442% 161% 153% 151% 187% Current Ratio 1.24 1.31 1.10 1.00 1.20 Quick Ratio .10 .16 .17 0.15 0.21 Note: 1/ Includes capital grants nf K8.1 million. - 83 - The sharp change in the Debt/Equity ratio between 1980 and 1981 was due to the provision of rapital grants required by accumulated losses and capital expenditures. In 1982, shares were issued at par against these grants and a further K1.7 million cash injection was made. The debt/equity ratio has deteriorated slightly since then but this is offset by increased reserves and the ratio of total shareholders funds to debt has improved. The substantial increases in capital commitments are likely soon to cause the debt/equity to deteriorate further and additional share capital will be required. 4.32 The rurrent and quick ratios which measure the rompany's ability to pay off short-term and immediate debts are very low, but the possible impact of insufficient formal working capital (which is met by short-term borrowings) is offset in some degree by the methods used for- stock finanring and the historically low level of receivables. Stork financing is normally by term loans of a duration similar to the produrtion cycle. Receivable levels are usually low because most sales are for rash; in 1964, however, rereivables increased by more than 300%, all of it due from ZIMCO rompanies which had previously been net creditors. Over the last five years, short-term indebtedness has been as follows: Table IV.3 Short Term Debt Sourees 1980 1981 1982 1983 1984 K'000,000 Maturing Long-Term Lnans 5.6 3.7 14.0 5.3 7.3 Bank Overdraft 6.8 5.7 1.0 6.3 4.3 Total 12.4 9.4 15.0 11.6 11.6 4.33 Short-term indebtedness could be improved by a reduction in stocks on hand and in transit which together account for over 80% of current assets and provide about 9 months cover. Such an improvement would come from better stock controls but will be hard to obtain under the present system of procurement and foreign exchange allocation. Overall, the eapital funding of ROP is reasonably satisfactory and a substantial improvement over earlier years. However, the present share rapitalization is insufficient to arcommodate further capital investments. Also, any expansion of seasonal aetivities, for instance in crop purchasing, will require additional long term loan capital to be provided. 4.34 Returns on Trading. ROP prices are calculated to provide a 10% margin over costs, but cannot be adjusted automatically to reflect changes in cost. Also, there is a long lag between application and approval, particularly in the rase of economically sensitive products (such as cooking oil) which account for more than half of turnover. The usefulness of profit and loss figures in performance evaluation is redLAced by the fact that results are inherently erratic when a onmpany is ol[iged to continue producing, even at a loss. - 84 - Tabl.e IV.4 Turnover and Profits 1980 1981 1982 1983 1984 K'000,000 Turnover 30.4 34.3 40.0 55.7 73.3 Pre-Tax Profit (2.90) (0.17) 0.76 1.34 5.92 Profit/Turnover Z (9.5) (0.5) 2.0 2.4 8.1 The sharp increase in 1984 profits above the improving trend was due to a number of exceptional factors, including an unbudgetted increase in selling prices, an increase in cooking oil production and a reduction in raw materials cost through PL480 purehases of crude oil. Most important was an overall foreign exc.hange allocation slightly above the budget figure, designed to give 40Z plant utilization on oils and 30% on other products. (Annex tables IV.8 and IV.10). 4.35 The Accounting System allows costs to be identified on a locational and commodity-specific basis and permits ready extraction of financial information, although individual product trading accounts are not produeed. Overhead cost allocations which are made on a tonnage basis should be revised, as this practice is inappropriate for enmponents such as financing eharges. 4.36 Foreign Exchange affeets financial performance both directly in the form of interest and exchange costs and indirectly through its effect on budgetary controls, stoek levels and ordering decisions. At current production levels, ROP requires approximately K1.5 million in foreign exc.hange each month (Annex Table IV.10). A regular flow of funds is very important, a requisite doubly important given that allocations must be used within 90 days and payment made against a valid import permit (para. 4.43). Aid shipments involve ROP in funding foreign exehange to meet freight charges, etc., although payment for the commodity is made in Krtacha. 4.37 BOZ is the preferred and cheapest source of foreign exchange and ROP has speeial overdraft facilities to enable maximum advantage tn be taken of these allocations. In the event that an allocation does not match actual requirement, ROP is liable for any interest and the exchange risk until a supplemental allocation is received to cover the outstandings. The same applies when a commercial bank advances foreign exechange to ROP and eannot get immediate reimbursement from BOZ. With suppliers credit, ROP is at risk throughout. Commercial bank advances and supplie.rs credits are mainly used to overcome irregularities in BOZ allocations. The erratic allocation of foreign exehange is exhibited by the fact that ROP received no foreign exchange in July, August or September 1984, but received K5.0 million equivalent in October. The 90 day utilization rule prevents phased purchases while the need for import permits may result in purchase decisions being related more to permit availability than to stock or commercial priorities. - 85 - 4.38 ROP pioduces a detailed forecast of required foreign exchange flows and, if these were more closely met, it would result in cost reductions, better budgetary rontrol and improved operational efficiency (paras. 4.36 and 4.52). Even if they cannot be met, a foreign exchange program should be agreed with BOZ. This would give ROP the option of using confirming house services at realistic rates, to program imports sequentially and fix raw material prices in advance, thereby reducing the cost and interest charge overruns now being incurred. 4.39 Financial Information. A lot of detailed information is produred on a monthly basis for management (and INDECO) and quarterly for the Board. Board information is too detailed for ready assimilation; appropriate key indicators should be determined and presented. Variance analysis includes components such as prices, inputs and yields but insufficient attention is devoted to the consequences of variations from plan (para. 4.17). Such analysis must be done to ensure that management and the Board are properly aware of probable future consequences of present actions. A start should be made with foreign exchange and capital investments. Notwithstanding the foregoing, the information now produced is useful and usable. The accounts division is both aware and responsive to the information needs of management and, through identifying and applying the accounting disciplines required by the business, it makes a significant and positive contribution'to the company's success. Production Performance 4.40 Oilseeds Crushing. ROP can crush cottonseed and soyabeans at Ndo'a and sunflower seed and soyabeans at Lusaka. Lusaka also has facilities for solvent extraction of oil from soybeans and oilseed cake. Much of the pressing machinery is old and worn out with spares difficult to obtain or simply unavailable, making operational eapacity considerably less than rated capacity (Annex Table IV.1). 4.41 Lusaka. The main sunflower/soyabean presses installed in 1980-81 were supplied with two years' spares. Caparity is 300 tons/day or 84,000 tons/year of sunflower seed or 200 tons/day or 56,000 tons/year of soyabean (or groundnuts). (The capacity differenre is caused by the higher weight of husk in sunflower, which is decorticated before pressing.) The original plant, which was designed to crush cottonseed and subsequently converted to handle sunflower, is not required but has a notional capacity of 120 tons/day when serviceable. Age and lack of spare parts result in this being increasingly infrequent. There is no eapacity to handle or crush cottonseed. The solvent extraction capacity slightly exceeds cake output on a continuous basis, while the capacity of the continuous process refinery matches the maximum output of crude oil from the expellers/presses but is about 30% below the potential combined output of presses and extraCtion plant. With capacity utilization below 35%, rapacity is unlikely to be an immediate production constraint (paras. 4.22, 4.46 and 4.51). Other equipment under installation includes a seed cleaner and a pelletizer for sunflower husks which are then to be used for boiler fuel in both factories. Equipping the Lusaka factory has ocrurred through a series of expansion programs unaceompanied by technical feasibility studies or financial appraisal. The relatively good "fit" that now exists was only - 86 - achieved by belated recognition of the nriginal plan deficiencies, but the lack of cottonseed rrushing caparity is a severe constraint (para 4.48). 4.42 Ndola. The original plant consists of a Hercules expeller installed in 1964 and 4 Maxoils moved from Lusaka and installed in 1978. The latter were used equipment when received in 1964 and were in uncovered storage for four years prior to installation in Ndola. The combined rated caparity of the machines is 48 tons/day, but maximum throughput is 12 tons/day as they are beyond their useful life. New non-interchangeable machines have been rerently installed to press cottonseed and soyabeans with daily rated capacities of 50 tons and 16 tons, respertively. The plant was purchased at Government request, to utilize a K1.0 million equivalent loan facility from India, without adequate time to conduct a technical appraisal. But an ex-post feasibility study made by Government justified the investment on a cost/benefit basis. The plant suffers frnm a number of defects in design, layout, installatior. and location, mainly due to the use of an existing but unsuitable building to save costs. Design faults on the cottonseed plant include the absence of automatic feed control to the delinters and decorticator, which results in frequent blnckages and machinery stoppage. Commissioning by suppliers' engineers has been difficult and protracted with the highest daily throughtput being less than 70% of rated capacity. Processing difficulties have been exacerbated by excessively fuzzy seed. The engineers have not succeeded in commissioning the soyabean plant and have now left the country. There is a 12 tan batch refinery (daily caparity 48 tons) which is more suitable for cottonseed oil than continuous refining and is more than sufficient for existing crushing capacity. The expellers leave about 5% oil in soyabean cake and 6.5% in cottonseed cake, but there is no solvent extraction plant to remove the residual oil. 4.43 Production performanre is affected by other constraints in addition to those caused by plant deficiencies. These include seed quality, the availability of foreign exchange and raw materia.. prices. Deliveries of sunflower seed contain undue amounts of non-vegetable matter, which is generally highly abrasive and causes excessive wear in the expellers; this problem should be alleviated when the seed cleaner is rommissioned. Problems with cottonseed result from poorly ginned, over-fuzzy seed and, with some deliveries, low recovery rates and high free fatty acids. Poor ginning results frnm the inadequate facilities available to LINTCO (para 3.28) and the difficulties of oil recovery and quality resulting from unduly long storage periods for seed (para. 3.21). The latter difficulties are partly due to late plant commissioning but are also due to communication failures between ROP, Lintco and Government. This has prevented the design and implementation of a proper cottonseed stock control and disposal program. Foreign exchange shortages cause prnduction stoppages through lack of spare parts, processing chemicals (such as hexane for solvent extraction), parking materials and crude oil for refining (para. 4.36). 4.44 These exngenous factors make production and marketing planning exceptionally difficult (para. 4.45). In 1983/84, total production was 106% of budget, but variations between products ranged from -91.3% (margarines) to +30% (cooking oils). Overall plant utilization reached 35% and ranged from 7% for margarines to 52% for vegetable oi:. (Annex Table IV.8). - 87 - 4.45 In terms nf weight, oilseed cakes and meal are nearly as important as oil and in volume terms more so. These by-products have bece in high demand. Consequently, little attention has been directed to their marketing but, with increased cottonseed cruslhing, the domestir market is soon likely to be saturated (paras. 4.44 and 4.53). As production increases, realizable prices will more closely reflect supply and demand conditions; a demand analysis would assist in market planning. Practical considerations should include meal pelletizing, to make the product more attractive to farmers wishing to mix their own feeds, and an evaluscion of possible factory storage requirements. 4.46 Irrespective of the foregoing, the feasibility/profitability of moving cottonseed cake from Ndnla to Lusaka and recovering an additional 5% of oil by solvent extraction should be investigated (para. 4.41). This would eonsider the relative demands for cake and meal, given present fixed prices for cake and probable price movements resulting from the different feeding values of cake and meal. Relative price sensitivity analyses would be an essential romponent of this study. 4.47 Raw Material Purchasing and Supply. Sunflower seed is the most important source of edible oils and, during 1984, is expected to account for 63% of all nilseed purchases with cottonseed (25%) and soyabeans (12.1%) comprising the balance. In terms of oil output, the proportions will be about 74% attributable to sunflower, with soyabean and cottonseed making up the balance in approximately equal proportions (Annex Table IV.4). At present prires, soyabean and sunflower seed oil are the most expensive to produce and cottonseed very murh the cheapest. Disregarding overheads, which are all.cated nn a tonnage basis, costs per ton of crude oil into the refinery are: Sunflower K 1,975 Soyabean K 2,181 Cotton K 480 On the same basis, the weighted average rost of rrude oil imported during 1984 was K 1,848, without having incurred any processing costs. 4.48 ROP consumes a very high proportion of total marketed sunflower seed production, but consumes only about 30% of present cottonseed supplies as capacity is severely constrained. The composition of national oilseed supplies is likely to change substantially over the next few years. The rate of change will be influenced by moves towards border pricing and the cottonseed component will become more important. Total oil produrtion from locally produced seeds should increase (assuming cottonseed crushing capacity expands) even if sunflower production declines (sunflower seed has a 2.5:1 oil recovery advantage over cottonseed but application of the solvent extraction process to cottonseed cake would redure this to 1.5:1) since cotton production is estimated to increase rapidly over the next five years (para. 3.10). Some increase in soyabean production is also expected, mainly from the large estate developments such as Mpongwe, but this has not been quantified. - 88 - 4.49 With its present plant facilities, ROP is unable to take advantage of increased cottonseed supplies, although there is substantial spare caparity for soyabeans, e-ther in addition to or in replacement of sunflower. The potential effects of capacity alteration need to be analysed and reflerted in corporate investment and operational programs, both in respect to processing and seed purchasing and storage, if market share is not to be lost. 4.50 Government sets minimum producer prices for sunflower and soybean, which are not controlled crops. Purchases are made directly from NAMBOARD, Coops and large farmers; negotiations for supplies from Cooperatives are being increasingly coordinated by ZCF. All purchases are made on a delivered basis but there is no effective pre-acceptance sampling or quality control system. There is a weighbridge at Lusaka but not Ndola, where a 10% checkweigh is carried out on deliveries other than those from NAMBOARD, whose weight notes are accepted as final. Cottonseed is bought ex-ginnery at the official price and railed to Ndola. ROP could assume a more active buying role, arcepting nilseeds whenever offered, and hold larger stocks. However, this will require far greater financial resources than are presently available and would effectively transfer to ROP the intermediary's role of the Cooperatives and NAMBOARD. Competition will require ROP to adopt an increasingly aggressive market posture. This will be beneficial to producers in the longer term. E. Recommendations Means to Improve Management 4.51 ROP has been operating near the breakever. point for several years; 1984 results indicate the sharply increasing profitability once this point is passed (para. 4.28). Attention should be focussed on achieving and sustaining very much higher levels of capacity utilization, particularly in the vegetable oil lines (paras. 4.41 and 4.56) to allow reduced selling prices and increase the proportion of market demand that can be met. An increase in domestit- Ot] seed produ-tion is exce-ted and, to minimize foreigr. exchange costs, the available oilseeds must be used more efficiently. This applies especially to cottonseed. A detailed and realistic appraisal should be made of supply and existing rrushing capacity and a third party appointed to crush the balance of seed stocks and return the crude oil to ROP for refining and domestic sale. Crushing would have to be done outside the country as it was in 1982, but the cost of crushing nould be met in the form of cottonseed cake or meal and the transaction need not involve any outflow of 'oreign exchange (para. 3.35). Cnttonseed is not suited to prolonged storage (para. 3.21) and failure to use it quickly will waste a national asset and incur unnecessary foreign exchange expenditures. 4.52 To assist improved performance and increase management accountability, a 12 month rolling foreign exchange budget should be agreed and maintained between ROP and BOZ to minimize costs, improve stock controls and facilitate performance monitoring (para. 4.38). 6.53 To improve the flow of edible oils onto the market and reduce the costs of imported packagings, RO?'s marketing policy should be reviewed and a proportion of production allocated for wholesale deliveries both in bulk - 89 - and large containers (paras. 4.43 and 4.45). Retail packaging adds substantially to costs and frequent non-availability of suitable containers creates artificial shortages. 4.54 Action to be taken by ROP includes: (a) appraisal of future oilseed availabilities and the consequent implications for investment and necessary adjustments to crushing eapability to improve capacity utilization; in partirular, the need to increase cottonseed crushing should be addressed (para. 4.41); (b) examination of oilseeds procurement in a perhaps increasingly competitive market and consideration of alternative supplies/suppliers, including contract growing; (e) strengthening of market researeh and development and product promotion to maintain and improve market share; and *d) analysis of the financial implications of the foregoing, ineluding additional share capital and working capital requirements, and ensuring that these are secured prior to embarking on any development prngram (para. 4.33). 4.55 Action to be taken in onnperation with INDECO and ZIMCO includes: (a) giving ROP more authority and autonomy than at present to enable its Board of Directors to make final decisions on policy matters relating to procurement, investment, product-mix, product prices for non-oils and fats (paras. 4.17, 4.20 and 4.21). The INDECO/ZIMCO role in these areas should be limited to ratifying ROP's corporate plan and mo.:itoring its performance. The corporate plan should be a basis for a performance contract between ROP and INDECO and the latter would monitor its implementation through appropriate reporting procedures, periodic (i.e., annual) reviews and its representation on ROP's Board; (b) INDECO initiating changes in purchasing procedures so that ROP's Board of Directors could make final and binding decisions (paras. 4.14 and 4.23). INDECO's role in procurement matters should be limited to ex post evaluation and assisting ROP in projert and hid evaluations whenever requested; (c) developing ronditions of service more appropriate to the nature and importance of the business. In particular, ROP should have full authority over employment levels. Change in Policy Environment 4.56 One major macro-economic constraint must be addressed, that of foreign exchange alloration (paras. 4.36 and 4.43). If the public is to be supplied with edible oils, it is much more foreign exchange efficient to - 90 - produce as much oil as possible from domestic oilseeds. However, domestic oilseed erushing/oil extraction requires imported chemicals and spare parts. Therefore, it is crurial that sufficient foreign exchange be allocated on a regular basis to enable ROP to crush domestic oilseeds. Further, given the existing scale economies, considerable efficiency van be gained by operating at higher capacity utilization (para. 4.51). Government must create the appropriate environment (prices, exchange rate, etc.) to ensure adequate oilseed prnduction and marketings, thereby permitting higher capacity operations. -91 - ANNEX I Table FERTILIZER F.X. rate $1.00 K 2.40 via Wia CA mfgr Numboard costs/ton import parity I*iM3 DAR RSA AA dages 20.39 ex Europe 11 * 161.00 161.00 134. 00 salaries) adna. 3.88 insuranc & froight 30.00 30.00 finance 11.09 part harges 15.00 10.60 deprc. 2.08 Rail to Lusaka S 76.55 54.73 otuw 5.56 Sub-total 5 206.00 278.15 189.73 Tot. lmboard cost 43.00 RAlage costs: to Kapiri iposhi 2K 118.22 21 Oistrib. loss (OS) 0.00 Kap 4p. to Lusaka K 15.30 Sub-total ZK 627.92 667.56 452.95 Cost ex Namboard 43.00 excldzg tranport insurance 11 6.2 6.68 4.53 transit losses 311S 18-B4 6.60 4.53 Paritg price Lusaka 653.04 680.91 462.01 Central Copperblt Eastern Luapla Lusaka Northern N.UMstern So,-th'n &hste Transp. cost via Lo Provincial GA -10.26 -10.26 90.60 25.44 0.00 -25.56 32.34 38.46 91.50 capital RSA 10.25 25.55 90.60 61.66 0.00 68.89 68.15 -38.46 79.65 COOP costs No. of bags Ithou.l o00.00 75.00 700.00 72.00 150.00 475.00 4.00 800.00 40.00 Fixed Cast (tnau.3 776.GG J4.00 694.00 209.00 459.00 1033.00 184.00 950.00 175.00 Fixed costibag l.c9 4.56 0.99 2.90 3.06 2.17 3.88 1.19 4.38 uariabie cosrl.ag trading cost 1.42 2.73 3.02 3.73 2.72 2.18 1.94 1.75 3.32 (transport) 0.85 1.64 1.81 2.24 1.63 1.31 1.16 1.05 1.99 oumer) 0.57 1.09 1.21 1.49 1.09 0.97 0.78 0.70 1.33 intereSt cast 0.91 0 37 0.49 0.11 1.13 1.45 2.44 0.80 1.62 depot cost 0G52 0.19 0.88 0.21 0.32 0.13 0.29 0.24 0.51 -ub-total 2.85 3.29 4.39 4.05 4.17 3.76 4.67 2.79 5.4S lossesishrinkages 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total variable cost 2.85 3.29 4.39 4.05 4.17 3.76 4.67 2.79 5.45 Total cast 4.14 7.85 5.38 6.95 7.23 5.33 8.50 3.98 9.83 margin 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 ClOP cost ; margn 4.64 8.35 5.88 7.45 7.73 6.43 9.30 4.48 10.33 via Proull parity dAR 778.64 852.78 904.27 80.' 53 950.64 799.17 908.44 824.05 994.04 price RSA 827.Oi 916.46 932.14 934.63 878.51 921.50 972.13 775.00 Ol10.06 Priceikg via OAR 0.78 0.95 0.90 0.87 0.85 0.90 0.91 0.92 0.99 11 Derived from IBRD urea price projections, assuming NH4NG3 would be 151 aurc expensive oniE basLs. 21 Tariff effective Febr,arg 1, 1995. crap cotton 1984195 production and direct cash costs cOr nset leel. leproved sall *calo Itn seed cotton equivalsell Pricelkg. 0.47 ,ield. Igfha p000.00 F.M. WKlO International Price rveseha. 670 0o 2 00 cult cots per direct parc nl a re lint It 1 1500 0 unitaiha unit hactare cash coat I.r.a cost IZKI ____________ __ _ _ less. sea freight o 120.00 part chirpes 0 517 0 Capital used, inland transport I 100.00 buildings I eqvip 100 360.00 360.00 0.00 F.X. rate 01.00 e 2 .N eltal replaccet cost 360.00 360 00 0 00 Border price, Lusaka S 100.00 ,"rae capl lonvestet Igo 00 130.00 0 00 21 Zl 3600.00 rate of return on capol la 150 le 10 0.00 Central Southrn Eastern Vastorm Lasaka Mrtherm . * ' . . . * * * *T. * * * * * * * * * * *- * * * * oil 31 0 700,00 varialeo cats 9 00 aeed Ike$ 20.00 0 40 800 8 00 0 40 3 20 rdd1 sea freight 9 58.00 sood cotton transport 53.21 73.10 S1.05 104.35 71.00 465.00 fertllttir lgI opart chargs0 5100 handlingi I arketln 68.49 W.1St1 l34. 3144. 147.64 3M.39 elal 200 00 0.54 100 00 108.00 0 o0 9 40 inland transport 9 45 00 lTlal arleling cast 3 111.70 115.41 394.S0 1449.38 2.2 4 e41.3 fAsonius nitrate 0.00 0.51 0.00 0 0o 0.90 0.00 lime 0.00 0 01 0 00 0 00 0 slO 000 Sub-total, Lusaka 955100 Provincial pricelten K 121S.41 113.9 144o.9 -107.91 1117.73 -5111.16 cheacail 111 IK 3018.00 pric 1W9 ^ I e 119 1.4 o.11 1.1e -5.u petliele icolson pacil 5 00 30 00 1I000 co 1 00 0 80 120 00 10 due3 ZK 205. 2 land preparation Ihr.I 0.00 0.00 0 00 0 00 la) plowing 4 00 21.10 Be 40 04 40 0.15 63 30 Border price, Lusaka ZK 2257120 rolurnslta K 1219.67 1110U.94 304.4 -107.91 1117.73 7 5116 .9 lb) harow, disc 2 00 21.30 4 20 18 n0 0 1I 31 45 sprayer eos; I 00 15.00 15.00 31 00 0.90 le 00 C S. cats em Lusaa IK 140 00 cash castl ecilulve of Lbor l leandaul 100 00 2 N0 240 00 0 30 o 24 00 41 fertiliter pre-devalue K .713 M 5,71 1,.13 W .71 crop I feri.translbalsti 0 00 0 00 0 50 000 border price iel " poert-duval. 1 p4.10 394.10 194.10 394. 10 pkiog sattl, lubagl 19.00 0.25 4 50 4 50 040 2.10 See cotton Zl 47.52 1frti Ir uste Ika9 l a 30.00 109.00 M00 e300.001 for tiliner prices 0.79 0.31 O. 0.10067 Sub-total 61810 432310 343 25 oil entrat casti fertiltier cost K 356.e0 1,0 0 t o0o00 174.40 smsonl inerest Itri 0 75 13 30 36.63 39 63 ton seed cotton ZX 65.12 total cah cost K1 5S00 158,10l 574.10 541.1 Total Variable casts 69 71 40 73 M343 5 ginning caisf Fined casts f11a ton sned cotton 2 100.34 Grosstt Marg I K 69.S1 6SlU 6 470.99 549U6 saawag nt allowrace 0.10 40.73 45.07 0 00 0 00 0.00 risk lull lnsurel 0.05 450.13 22.54 0 00 value of linters 2 4U44 Cress earglnllae, dAg K 6.70 6.219 4.71 .50 reepairs to blds, etc 1.00 0.00 0 00 0 00 0 00 0 00 siher everhud 1.00 0.00 0 00 0 00 0 00 0 00 Lznteo overheads 106.06 I Lirpolrce 0djstd 2 = e 21 Given Wh unceiaast I of sAcaftr lint is pepmneqd to be ail export or -m Yetal fined cosats 4 A1 0 00 lint tranap, a Marketing 9.00 I port substituilte, the border price is derlue assuiine n, R.50 eSpart% TOTAL CSIl 718 34 450 73 0.4 343 325 eed trrvp I earke* in 9 25 31 aemert weigpritigr sebu el 41 Local price. ub totat t134137 return on awe. invest. 22.50 tetal cost of Product n 760 94 Margin alter cash cost 219 27 II N crop cotten 19114165 preetuc%tn and diret% cesh conic wI,wI aet I ml seproetd naill *ccle Is. nuld Ceetto qulvaleail IJricuJlg I 0J LI gieldit/ha IeOgO." F X lnteti niel Price revenueha 1070.0 2Wt coti cat er df Iitcct perceot lurtl untl 11 * 150040 t VAnitihW M nit h'otr. comb oali fre coat Ilk) port clharps 6 51 0 F.X. rate $1.00 * 2.40 Catpita) ud. inlud tIi LlasporI * 10.60 Cuildings I equip I 00 360.00 360.00 0 00 total replate cost 360.00 360 00 0 00 Border price, Lusaka * 1222.20 £01140 p i c anvenno' to 1800 to0 00 0 go 39 LK 293.29 Cota S"ottra (states UeWr Lasala NtMUmr ratet retuin en cap'11 le N le N o0 0 00 a S S S a.4 * Is a . *9-- -*.--a - .-*-- -- o0131 * 10e00 variable costs 0 00 lSa l1kw 2000 0 40 9e 00 a oe 0 40 3 20 add eA freight 56 00 seed cotton transpor 13.21 7n.10 11 05 OO 4.35 36."9 461." ferlliner IDlI port chirps 9 52 o hWniling I weletln is 40 4.3 M4. l l .93 141.64 M A. hlana 200 00 0 54 10900 109.00 0 90 B6 40 inland tranparL B 45 UC0 total arteltig Loot 121.10 155.41 29.3N 14" 28 044 64 113 Amonine nitrate 0.Go 0o.x 00o 0.00 0.80 0.00 Ila* 0 0 0 05 0o00 0.00 o0.o o 00 Stb-tonal, Lenaba , 05.-00 Provaocial pricelmn k 979 45 94.94 914.97 -347.93 7n.71 -331.91 chttticall III L1 20Y.00 pricefll I 0.9 0o.n 0.06 4.35 1.11 4.36 lpticide Icfetrwn pacil 50 0 30 00 150.00 150 00 0.00 120 0o lel dull ZX 205.20 lud preparation WAr.I 0.00 0.00 0.0N 000 tap plcuint 4 00 21 0 94 40 94 40 0 15 03 30 Brrer price, Luiaba ZIN 7.20 retursafha I 979. a 9.04 *4.97 -34.n 677.70 -It . Ih lh.mw, disc 2.0 21 10 42 20 48 20 0 15 3at5 straw cost I 00 IS DIO 15 00 15 0 0 90 12.00 C.s cake et Lucala Zl 340 00 cash cost enitc1elve cf Laor tunra;tn ItO 00 2 40 240.00 0 0o 0 10 24 W 41 fwrttllaer pre-dalue K 3.73 1 7.13 34.73 36. tO crop I ferlIramn lbagsl u 00 0 00 0 50 0 00 border price of ptet-devalue K 394.20 394.16 194.10 294.0I pac'ia ut')L Iba9p' 19I00 0 25 4 50 4 50 0 O0 2.10 need cotton Zi 1401.50 forterus twe Ilg#tl * M00.0" 20.A 180.00 M."9 I I*rlil,ar price 0.78 0.11 6." O. a Sob-total U2 20 412 l0 343.25 oil entract colti f.r%llIaer cost I I1U e I4.0 1 in.60 17 ,e0 manL Al iterent llrl 0.1 I2 s5 30 33 M AS ton wed cotton ZR 05 12 total coos cCCI K1 150165 5l16 514.15 144.16 1Tsu Variable Conio 190.13 450.73 343 25 ginning coain Flied costs liahl toee Sed cotton Z 100 14 Crls0 MPrio 1 49.55 W.EM. M3.97 313.U1 ""gee allounne 0.10 0 13 45.61 0.00 0.00 0 00 risk elul lsoirel 0 05 450 73 22 54 0 00 value of lIners IO 4.44 Corss arginllabe diU 11 4.30 3.N 2.31 3.14 r irs to bl*is, etc O1.00 0.0 0 cO 0 O 0 00 00 c hr trhdIn. ' . ee 0 0 0o e 000 o 0 0 00 Ulntce hheds 180.80 It L rwpl price bjucli fw Zubu W ill. Total filed cents 11.11 0 00 lint traep. I I hruketig 9 0 31 Aet=eri rc fo gabea oil. 41 Lwcal pric TOIML COSIS 159 34 450.13 0.45 34J.25 nee trusep. I earketang 9.25 slb-total 1101 30 retl oIl en . Invest. 22 50 tala coat of Products 100.94 rln Al er canit cenl 219.17 Nr M crop :gnut. uilulu red 1984/95 production and direct cash costs GC.OU egat level improved, aen hire Prictlbag 10 I bagl 5.0 00 jIreTdbagoha. 1F QFX[ ZZ Internionl Prtce riveonumlha 1040.00 .200 cost per dir e per ent fares vegItable oil I/ 700.00 euitlha unit hectare cash cost fIrue cost lK*) __________ si~~~~~~~~~~~~ad: se freight I 59.00 part chargps 49.00 Capital und: inland transpors 1 45.00 buildings I euip. 1.00 000 0.00 0.00 total replaet cost 0.00 00 0 0.0 Sub-total Lucaha I 952.0 average capl IilMt4S0 0.0 0.00 0.00 Ux 2044. 0 rate of return an cap l 12.50 12.30 0.00 IOS dell Ic.i.f.I ZK 204.43 a" ... a- aa0 - n0x aaoa aaa2 ............. -s n a --a s-a variuele csts 0.00 border price Lusaka ZX 2249.S2 seed 1191 S0.00 3.00 270.00 270.00 0.40 106.00 fertilizer 11k, value of ellsld O" eisturi 100 00 0 54 54.00 54.00 0.60 43.20 cale et LuleS. ZlK 44.00 Asemniue nitrate 0.00 0.52 0.00 0.00 0.60 0.00 line 0.00 0.05 0.0 0.00 0.90 0.00 ell etrac cost per chlcals I11 ton eilsd 21 112.00 teflan 0.00 0.00 0.00 0.00 0.90 0.0N Labor leundasl 14.00 2.40 3Sd.40 0.00 0.10 39.64 border price pwr equipment costs: ton of ulseed ZK 1054.95 F. X. rate 11.00 K K 2.40 ieRn hire 1.00 96.75 96.75 96.75 0.30 19 03 crop transpert Ibagel 16.00 0.52 U .2 9.32 0 75 6.24 peclin uSa'l Ibagil 16.00 0.05 0.80 0.90 0.60 0.43 Sub-total 99.27 429 97 220.55 Central Cspperblt Eastern Luapula Lusaka lhrthwe N.hMotern South'r seaonl interest lri 0.75 12.30 40.30 40.90 Inter-Provincial Total Yariable cests 695 470.17 0 e5 2t0.55 transport costlton 10.61 43.15 0 .60 77.0s 0.00 73.45 87.30 40.51 Fied costs lihal anage.nt sllzncee 0.10 470 17 47.02 0 00 0.00 0.00 __ rMt sielf insureD 0.05 470.17 23.51 0.00 0.00 0.00 ooeerativos cost repaire to bldgu, ete. 1.00 0.00 0.00 0.00 0 00 0.00 other vearhad 1.00 0.00 0.00 0.00 0.00 0.00 Variable cosetbeg trading cost 1.14 2.49 1.52 3. e0 2.61 1.6 5.92 2.55 Totl fied costs 70.53 0.00 Ntranport 0.4° 1.49 0.91 2. a 1.57 2.17 3.49 1.51 lotherl 0.46 1.00 0.60 1.58 1.64 1.45 2.33 1.01 TOTLNW CSI 939.10 470.17 0M 0.55 interes tcost 0.95 0.36 0.41 0.11 .3 1.19 1.4S2 0.7 depot cost 0.se 0.29 0.77 0.21 0.49 0.3 0.30 0.40 Sub-total 2.61 2.94 2.69 4 .1 4 .2 4.9 7.74 1.61 return on ave. invs. 0 00 lhseshrintkeg 4 12 4.1 4.22 4.1 4.3 4.2 4.1 4 2 total cost of Producnn 939 10 Total variable cost 6.* 7.16 6.91 6.34 8.35 9.21 11.96 7.90 Margin after cash cost 569 93 heroin _ after cash__ast59eaa __rgin 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 Prouedr Price Ubia 7s.9n 72.63 69.49 69.66 75.30 69.59 64.70 72 .0 Produe pWit] price if oll proesed a ceitund Iin Province - RXIba9 71.17 78.07 79.71 77.64 75n. 76.07 74. 77.06 Asturnilha K 1213521 1162.21 1221.92 1105.26 2104.75 1097.49 10.34 I160.04 Matures if eonsueed within Province K IM1.74 1249.05 2275.3 1345.76 I224.75 .00 1192Ks IM.83 cach cost sexclusive of fertilizer pre-devalw K 414.17 416.11 416.17 414.17 456.17 416.17 416.17 416.17 i pet-devalue 451.64 451.64 451.64 451.64 451.64 451.64 451.64 451.64 fertilizer pricelhg I 0.73 0.65 0.90 O. 0.07 .0 6.66 0.91 0.9a fertililer cost K M4.M1 3.4 17 4 36.67 108.74 32.94 NO .11 141.36 Total cash cost K 776.25 a". e 96.19 011.71 96.31 764.56 e3e.s 7G2.90 W H Gross Marti K 4ON 306.T7) 15.4d 291.53 399.36 31.91 20 e4.9 367.14 If csrnuad Wlin Prey. 4506.49 445.67 .49.14 40.05 199.16 445.4 342.45 440.33 Ilsbor dal K 2.16 2.47 v.71 2.60 2.41 2.4 2.19 2.65 1/ Rtell d prie MT all, erop *susllo*re 19114105 pradialits sad direct nth tusts 5WUI. qes levl iproved Genn hire Uficelbag 150 If ball * £7. 6 ii~~~'-'- --- - --- F -_.__ UFMAlOI ee MV4,11" 337.60 2.00 Vegeteble il 11 0 700.00 Iale wuolil Cnter tee cset aost per lIme p rcent lre. lel uastuiha "ait hectar cah cost fares cost 1711 &dd: Us freighl * 50 e. pert daps 0 49.00 Salaries I wair 7.11 -~ InlaW d tranetort 0 45.00 flue 1e 1N Cepilel use. adaisietrati0e 1.30 bultilditl I tuip 100 0 N 0 00 hb-t Luisaka I 0 of deprclaslee 0D." total raplamt cost 0.00 0 00 0.00 1K 2144.00 "veragee cap l eve tm 000 0.00 0 00 101 vili 1c.i.# I ZX M04. 41 rate ol return on cap' 11 12 50 12.50 0 0o Total 11.92 . mm* - . . . * . . * uu . * . * . * u. *s* * - . * * * * * * * * * * * * *s bsotr price Lusaka 1 2249.2 vul ele comic 0 00 Ind lgil 7.00 1 90 13.30 13.30 0 40 5 32 value I oilseed f*rtiliter kg) calk en Letals H 027.00 Il kotterim price for seraemu all. "C" sicture eo£ 00 0 54 I0600 10e 00 0 .6o 0 64 Ameanive itrate 000 00 0 eo 104 00 104 @0 06 o 03.o border erice per lise 000 0.05 00I 0 0N 0.50 0.00 lon of i etoed ZH m.2r chemicals III tell" 0o.0o 00 o 00o 00 0.90 0 eo oil eftracct per Leber munAdgl 74 00 a 40 177.60 0.o0 0.10 176 tano iled OK 14.0 equipent costs. meon hire I 00 76 45 76.45 76 45 0.30 U.94 LISMA PRlIE 6e.26 F.X. raiel.00 a K 1.40 crep transport ibagsi 200 e 0 fl 14 60 14.60 0.15 10.95 cilhg sell Iballg 20 00 0 05 1 00 1.00 0.60 0.60V Prawac Central Cweperblt Elsenz Lala Lesala Harshe mNleuin SlenIr Sub-total 494 95 317.35 216.0 seasonal intew,t Igrl 0 75 12.50 29.T5 29.15 'rmnart coat to Total Variable icoss 114 70 34 10 0.41 216 22da iper test 10.01 4.15 90.6 77.65 6.00 73.46 a7.30 1.55 Fised costs lihal l5wffentIve Ceo manareemt ellusace 0 10 347 10 34 71 0.00 0 00 0 00 No . of bhaS umo I 250tl10 eso..0 M0." 2.10 30.00 3.50 4.00 130.0 rims ealf insrel 0.05 347.10 17 36 0.00 000 0.00 rgairs bld, etc I 00 0.00 000 0 00 0 00 0 00 Fised cestl bs 4.13 9.69 0.13 2.59 3.09 1.74 3.10 0.79 1 naer ewrheed 100 0 00 000 0.00 0 00 0.e Variable ctillo lteRtlie*d cos.t 52.07 0.00 tradin c"t 1.14 2.49 1.11 3.00 1.61 3.12 . .e 2.3 IA Itnauepmrtt 0.66 1.4 0.91 l.a8 1.57 l. 17 3.49 1.53 TOTAL C5TS 176 77 547.10 0o . 216.00 etherI 0.46 1.tVe 0.60 1.12 1.64 1.45 211 1 0211 isret cost 0.95 0.26 0.41 0.11 1.03 5.19 l.U4 0.73 dpt *eGt 0,S2 0.19 0.77 0.21 0.0 0.15 0.30 0.40 return on ave. imIet 000 Ntell 2.61 2.94 t.69 4.12 4.13 4.96 7.74 3.U6 total cut ii Pnidctn ~ 1,~ Iaasehihrilnba.e 1.50 1.56 1.16 1.16 1.16 .16 1.16 1.16 etotl coot of PrewtIn 574 n7 brgim afer cash c % cc10 50 Total vuiable cast 4.19 4.52 4.27 5.70 5.71 6.54 9 # 5.23 Tatal cst 5.0e 6.21 5.50 6.29 *.72 I a l2.90 6.0 urgti 0.95 o.5 G." 0.9 0." 0.n1 0." o." Prei1cer Price ZIlbs 24.51 19.45 20.44 17.69 21 .3 1U.12 12.60 n.n "If rf lessi in Provine ZlWba 2.00 UIS 26.3 fl3.0 1.94 08.45 19.01 15.3 hternalhs K 490.17 3119.1 41111171 157.73 616.96 M216 656.66 4N.02 it cemmd wile Or"a Pe. K 51603 4M04 51757 470.0 45," 466. 31001 54.6a cash cut encuelve of fenitilln pr*1dvalve K 115.50 115.1 . 13 .9z In. to 115.10 115.10 13.16 115.10 "; peet-desslue K 14.4. 144.41 144.4 144.4 144.4 144.4 144.46 144.4 lensIi ter eoi IgIIha) 400.00 400.00 400.60 4000 400.66 400.A 460.00 400.60P.I lentilli EwricatV K 3120 34.00 O6.00 34.00 36.00 0.6 4.0 611, 66 ferliliear pcest K i? 0.7e 0.U 0.90 04.07 0.1A 0.06 0.91 M 0. Totl canh ent K 46 4 44.4 104.4 412.4 404.4 464.4 506.4 472.46 (D Cms Hargs K 133 74 -9544 4 n. 63 -114.71 47.4 -102.01 -31.fl -3.6 It eofsgded ails Prsv. K 59. 61 -2.16 23.15 2.2s -4.51 4.57 -Ir.n 11.1 Cross arglallabr deg K 0.61 -0.29 0.45 -0.1 0.61 *.6 -1.71 e. 4 crop saoa-irrig. 1i384IO5 production and direct cash costs SOYVAEPNS igut level: top coaral Pricelbag 60 90 International Price ieild; 90 bagslha. 24.00 F.X ZKIS revenue/la. 1461.60 Y.00 cost cot pea Fe irec't pFrcent fTaretI vetable il 11 700.00 unitsiha unit hectare cash cost forei cost IZK) add: sea freight S 58.00 _________ ______-___-_____________________ part eharges S 4Y.00 inland transport S 45.00 Cap l replace cast: lal wehicles I equip 1.00 1341.00 1341.00 0.80 1072.80 Sub-total, Lusaka O.52 00 Ibi irrigation wor&s 1.00 2177.00 2177.00 ZK 2044.W0 Icl fixed improvements I 00 582.00 582.00 0.33 192.06 101 duty Ic.i.f.I ZK 204.49 total value of capital 4100.00 4100.00 0.00 rate of return on cap 11 IP 50 12.50 0.00 border price Lusaka ZK 2249.1 0 a " * e - a s n a * a a a a a a a a a a a a a a a a a variable costs 0 00 walue of oilseed seed (kg) 100.00 1.33 133.00 l33.00 0.40 53.20 cake ex Lusaka ZK 49S.00 seed innoculant 1.00 2.30 2.30 2.30 0.80 1.84 fertilizer (kgl oil extract cost per "D" sixture 300.00 0.54 162.00 162.00 0.80 129.60 ton oilseed ZK 134.00 li'. 0.00 0.05 0.00 0.00 0.80 0.00 transport in 18.00 0 25 4.50 4- 80 0.75 3.39 border price per chemicals 0.50 79 45 0.80 ton of oilseed ZK 617.15 F. X. rate S 1.00 = K 2.40 dual (Itl 2.50 34.90 81.25 87.25 0.80 69.00 aiodrin (itt 1.00 22.20 22.20 22.0 0.80 17.76 1 labor (sandals) 20.00 2.75 55.00 b5.00 0.10 5.50 Central Southern Copperblt Eastern Lusaka equipment casts; I/hal Inter-Provincial 0 veh./tract. fuel I oil 60.00 1.19 71.40 71.40 0.75 53.55 transport 20.70 40.S5 67.32 90.60 0.00 vgh./tract. Rep. 1 Maint 1.00 1.25 1.25 1.25 0.75 0.94 combine 1.00 150.00 150.00 150.00 0.75 112.50 insurance 1461.60 0.06 90.62 90.62 0.15 19.59 Provinical price/ton 596.45 576.60 549.83 526.55 A17.15 crap transport lbags) 72.00 0.25 18 00 19.00 0.75 19.50 pricelbag 53.73 51.95 49.53 47.44 55.60 packing oatl. Ibags) 24.00 0.20 4.80 4.90 0.60 2.88 irrigation 1.00 6.51 6.51 6.51 0.40 2.60 labor 6.00 2.75 16.50 16.50 0.10 1.65 Returns/ha K 1289.63 1U46.71 11889.3 1139.49 134.38 repairs I saint. 3.00 15.00 45.00 44.00 0.75 33.75 electricitg, etc. 3.00 12.00 36.00 36.00 0.40 14.40 cash cost exclusive of fertilizer pro-devalue K 922. 18 22.19 922.18 82 18 922 .18 Sub-total a999 2 999. 2 527.847.4 post-devalue K 94127 941.27 941.27 941.27 941.U7 seasonal interest Igrl 0.75 12.50 84.36 84.36 0.64 fertilizer use lkg/hal 300.11O 300.00 300.00 300.00 300.00 .anage nt allowance 1.00 59.23 0.20 fertilizer price/kg K 0.78 0.92 0.85 0.90 0.97 Total Variable costs I 00 37.89 984.19 984.18 0.75 527.84 Fertilizer cost K W4.00 246.00 255.00 270.00 261.00 Capital Recoverl Total cash cost K 1175.21 1191.27 1196.27 1211.27 1202.27 plant & equipment 60.00 2.25 135.00 0./5 101.25 irrigation 0.30 400.00 120.00 120.00 0.90 96.00 Gross argin K 114.35 59.43 -7.45 -72. M 132.11 Total 255.00 197.25 TOTAL COSTS 1239.18 984.1t 0.59 725.09 11 Retterdam price for solabe oil. r return on ave. invest. 256.25 total cost of Product'n 1495.43 Margin after cash cost 477.42 U1 H .:I up .halimbi.in I9H1G1J pruductaun and d.iect Lash cosiD C1^LIIBAt CAOUN0MJ1S siet level. ispruved, uxen hiie Pricelibdu 180 kg id9l 11.61 71F-o buiqbl. 10 00 r x LKJS International Ili-ce rdvmnurlh;i 916.70 2.00 COlt cost per direc; percent forax HSS groundnut 11 9 980.00 unitsiha unit hectare cash cost forex cost ILKI Ic if. European Portsl less. sea reiglht I 20 co Capital used. por. charges * 75.00 buildings I equip 1.00 0 00 0 00 0 00 inland tiarisport 1 66.00 totdl replacest cost 0.00 0 00 0 gO F.X. rate average cap'l inuestle't 0 00 0.00 0.00 border price Lusala S 75' 00 11OCC = K rate of return on cap II 12.50 12.50 0.00 ZK 1921 60 a a:: c S::: * : *: S:::: = l:: a . ' 5: : .- . _ garaable costs 0.00 svwd 11g9 90.00 3.00 270.00 i270.00 0 40 100 ou Central Eastern Soutt,&rn fertiliaer ihgl Iuiter-Provincial "Lt" sixture 150. 00 0 54 01 00 01 00 0 90 4 10 iranisport co lttoall 10.51 90.60 4U5t Asmgnius nitrate 0.00 u 5l 0 00 0.00 0 a0 0 o _go live 0 00 0 05 0 00 0.00 080 0ao oouperMtn¶Jeb coil chemicals I1 tflldu. 0 00 0 00 0 00 0 00 0 C'J U 00 lFied cost 4.51 4.51 4.51 LUbor leanidapi 13Y 00 2.40 333 60 0.00 O.AU 33.36 Yaritble Lottbag equipselit costs kiradng cost 6.95 6.95 6.95 uzen hire i 0 Yb6,15 96.15 96.75 b 30 '. OJ t:ndludes transport ciup %raisport Ibagsl 10 tO 0 6b 6 UO 6.80 0 ;5 5 10 nd gradingi pahilng eatl. Ibaghl C1000 0 05 0.50 0 SO 0.60 0.30 iterest cost 1.86 1.96 1.36 deput cost 3 54 3.64 3.54 Yub-tutal 188.65 455.05 4!35.49 Sub-total 12 35 12.J5 12.35 seaio'.ll Inteesr Igri 0 15 12.50 42. b 42 66 losseslshrinlaqg. 1.46 1.46 1.46 lotal Variable ca%s 831.31 497 rI 0 26 2353 49 Total val lable cost 13.01 13.91 13.91 F lbed custs 1 /11.^ anaig.ment allutance 0.10 491 12 49.11 0 00 Ou a 00 Oai-an 1.00 1.10 i.00 risk lself insure) 0.05 491.71 24.01 0.00 0 00 u.00 repAirs to bldgis etc 1.00 0 00 0 00 0 00 0 0; 0 J4 foatl Loa.t 19.3L2 1.32 19.32 oIlier overhead 1 0 0.100 0 00 Q 00 O.OU 0.00 lusal faed costs 14 66 0.00 _r_duc _______L _____i ___I__________I __._16 __2 ___ 101AL CUSIS 905.91 491.71 0 26 235.49 4eturnbilia k 1255.46 1191.63 1231.1 cash cust exclusive of return on dve. inuest. 0 00 ferwwarer pre-deualue K 416.1 4b.;1 41o.11 posk dluwvAut K *(6U.U5 40.16 4.I.U festilaliel u-vsuIylig,ha :ku uO 150.00 15v tv total cust of Product'n 90S iti 1. tluidl pLhjlIAg. U 0 i50.aio ru J. Margin aieir cash cost 418 cu lubinaer u ^ .i..UU U6.uQ i ;us. 6gxig Lush 1. .6a.U 6d:.8 51Ct 3 (IS c Id 11 01o0ls maryin I bui.bl 605.71 6U7.8 @ Ul 'ut.I S dl ohI.ibLr ddaj K 4.,1 4.,6 4.tJ .1 iot..wrume prLte of U.S Hand Picked S.lected. Q% 1-4 ANNEX I - 98 - Table 7 wa: _ae- Is 1_21 Pm 1 usdiesan si E Nt leve: ' m1 - Inset * U.S 1nea: OgRe 0.3 F.X. Sol tus.flmewu 4111 I U.N 1wrstluu pri cut aet per Was prau fum mituRmt wait aroe cash emt par ant 4ZXI ________________________________ c uasnW u * mo.u l1s_S 1.0 1M.M 19. 44 1W.44 O.K1 13.53 as: _fawiW I 15*.91 Labw ISge) Wsa Surp I 175.3 alfeurtulua 94.00 2.73 WEf. 47.5 6.10 24.75 i*lm vmpi I 124.1 sp 1S1utt 1 0.1 2.73 V. e0 27.34 0.U0 2.75 harest 57.009 2.7n 15.73 1.75 0.16 15.40 hsr prim Lrss_ I 1901.11 F.X. rate cor I Ira 12.4.11 u.n 4.m zu.1 o.1e 34.10 Z. 4a.Ae St.. a - Fertilizer lkgl 35. 13 M.t *.1 M.0 2.40 Cicals uIs.sr kv.1 374.11 376.41 0.u 300.E1 lss: la leris Z 1.98 Plant a aiwr (eeftle prumhs ewprZe 3X PA.N fa"s a 11(113 s O,l 175.0. 1.19 2M.u u.a o.n 1A.1 ropsr I sagas. 175.11 1." 1.5 30.30 0.75 217.11 hiUsmiM pric, Lmaks 4147.40 bra. rspelr I mist. L.1 300.11 211.110 11.11 0.75 SS v 111195in - hmai 1.00 111." 1In.11 100.00 0.15 15.00 tastrs lSsasra -ftld-ts-flur I.011 51.19 51.19 51.19 0.25 7.40 iaer-propirAald F ,reSd traauerpsr m ".o 70.3 cmsf A curdiS 4.00 3.54 157.50 157.51 0.20 3.50 trasepars Ult) 15.00 0.25 3.75 3.75 0.73 2.01 Pvk. & raspers-Isl Prsuina prim lut 1 46.0 4074.4 a:uts asaral 21.3 2.36 72.24 12.24 0.60 4.34 vesper 21.50 2.50 53.75 53.15 0.75 4.31 prim lit £ 4.06 4.1 r926isuis Wio 475.0o 0.03 146.3 146.5 0.73 109.69 bhUling 50ble 21.50 0 50 10.73 10.75 0.75 .AO ttsrai 1 6115.20 6114.04 rohumillq 4101I 10.75 0.10 1.1 1.011 0.75 0.31 Crv's Ian 00U.00 0.01 11.35 1.25 0.75 0.44 cm cees selmlve sf futrttlst pre-sleL * 3107. 0 107.10 Sub-Tous 3112.04 31152. 1490.44 '" e t-3K 507-U 3si7 semsoul intwrs 0.75 0.15 350.19 330.11 fwtsllser mm tWhga "1o.00 61.11 fersilizr priaeklt £ 0.9 I.E Total JirunbieCt 3463 04 3463.04 0.4J 190.44 Furtilwter st R 34.90 5411 e1 spsal _teaa r dua cash ct% K 4102.0 490.U Plat a *EIpms 17W.00 2.23 391 .7 0.75 29 31 knm/bldgs 1.00 400.04 400. 00 0.75 300.00 Grrm I"pa 193.00 2104.3 Taul Captal Cat M.3 73 0 00 0.75 5931 TOTS. CSS 43 79 343.04 0.14 z2e.76 ra5aafl an insvuesi rlas Catn of Prudtcon 44 n79 argin aftr cah cast 1411.9 tSEEDIECST -90 q.*. I Seed Ignal 0.00 2.50 20 U 20o.0 0.6 0.06 Fertilizw lIhl -r_Id t00M 0.54 540 5.40 OW. 4.32 astrate of sod 1o00 0.54 0.34 0.54 0.11 0.C Chemicals 11t. ar kgi 0.00 0 00 mthgl busi 7.30 4.20 41.50 46.50 0.20 37.20 copperaoqclarde 090 4-50 405 4.05 0.0 3 24 sa*isam 0 3a 34.03 12.24 12.26 0.1 9 01 da_sallate 0.34 11.00 3.74 3.74 0.11 2." cuphata 0.1is 55 00 9s0 9.90 0.0 7 92 lar 26 00 27 3 710 n150 00Lo 7 1 SsbstUl 173.99 173 es 0 47 9l 10 lapass csts 1 00 25.53 25 5 255 rOTAL I944 1u .44 FEITILIER 1N CoM.L CWSTS POR 'raE cospund IC 600.00 0.54 324 00 324.00 0.80 259.20 waa1uuaatr ate 50 0 52 26 00 2&. 0.00 20.00 iromara in aigea 3250 0 2o a L3 a 13 0 75 6.09 sun-Tatl 31 1 3MO.13 0.1 206.9 EDB feto 43.e0 30 G S. 00 13 00 0.00 100.00 rfuUs llpecOrd 0 20 144.00 M.o 20.002. 0.a0 23.04 rousiuI Iuanaui 1 50 340 511031 00 0.e0 40.04 _ad cnurul Ohal io 34.90 52.35 32.35 0.11 41.1 suciudan " ,ata' 1000 7 53 73.30 13.50 0.11 60.40 ugacad dlsUete 3.00 11.10 33.30 33 30 0so 26.64 Sub-Tow 374.03 371.03 0 so 300.02 ass ala) D%tasans; GC_ral u 50 Is aba trsnrt " 253Ilat tries - -100ot at) lunr 2.75hl _99 ANNEX I Table 8 sip fl4urlog ~199413 Prfdctimm fl dlM TiC em emits omU ipttai: U'mil -l_ hiel: lt -1m. F.. Z1it fmauibcsue 7U .8L at. IuwntImml prim cgtu cmt gir dirict parmi fin. fltmisa mMIi bicim ci s cii Oirm comi (2 3 hirlog ta 1 cem II 8 1O7 %1*OE Magi iam: gm fr*ign 6 136.06 IsiS 16 19.44 199.44 1".44 0.66 13.35 wit Sirgs S 47.6 Labsr Sgml misS irmpitI 134.60 plnwth i/dlUlstA 90.O 2.73 10.3 247.50 0.16 32.73 APa mamr 10.06 2.73 27.3 2754 0 .1 2.7n kitEr pnaLsiak 6 13.11.6 F.X. rUm a"_s t.00 2,n 236.s3 216.s4 0 16 1. D aK SINAI m. *- cune Wgrl 92.00 2.73 M1." 83.6110 i.i 8.1 2.41. Firtillnr llf 325.61 525.1 0.a 4W! 7i72 I snam TR 69.6 ommikel. Ils. kgJ. 371.03 27.03 i.E 36.6a prmemmamge-ar S 3.60 Plant A nloItio" 4cmdal fuel, oulUl as fallU 13.06 1.,9 191%.3 19. 6.73 147 2P Delivered pric. LucaN 274.40 r r I maim. 143.60 1.6 273." 2. 0.73 2MA.D hrm. rinr A * it. 1.06 326.00 320.3 360.60 6.73 2.6 MaaUiM sImir Immramm - tail 1.04 106.00 16o.6 166.00 3..13 15.0 -#1.14-tm-flair 1.06 39.50 29.3 39.50 5.1 s 3.92 lstw-rmvlmc Pcik. £ tanprt-bali traaapm emt 9.46 70.43 packing arUin 25.73 3.31 04.52 06.32 3.40 31 9 waimprs 25.73 2.30 44.3644.36 0.5 6 4.23 Proincial primhtmm i 3U .36 24e 3.45 bnlissl mmm cmii (2 3727.06 u.S 112.6 112SE 6.75 64.43 prIm/kg 1 2.13 2.67 hladIng 3w/al 25.7T c0.5 12.3 1a.3 0.T5 9.4_ rmummlisq 1161 12.1O16 0.10 1.29 1.29 6.73 6.97 Smt lag 11906.3 0.01 13.30 13.50 0.73 16.13 b 1tmmta a 47.64 4.10.41 Si-Total 3164.76 364.71 1710.74 a. emnt acialu of msmal inurnt 0.73 6.15 34.61 345.01 fitUliz proitmwm!m I am.-1 f3.U - - patl-Sw"am. £1 SIXA .11t Tmwd Variafm Cmt 3411 77 3411.77 0 2 1716.74 f.rtiltgr am lhg/tel U1.66 91.60 f.rtilizer prci/k 1 6."I O.e emiLli hRKVVW Fertilizer cosI K 044 31.67 Plans Solupamo 148.60 2.25 271.25 0.75 23.44 b.m/bIdgs 1.60 0.06 0.66 0.75 6.00 rita! Camt cIt £ 46.61 437.3 Total Capital Cas 371 25 0 00 0.73 270.46 Cm rarig 1 73.3 TOTL COSTS 3783.02 3411.77 0n5e4 Z9.1 aurn an lnvts nt yaw,l Cos of Prictmm 322.R2 agla. cala c cst 3i.23 iSEED WDTS - 90 mq.m.l Sad (gin) 0.60 2.50 23.60 20.00 0.6 8." Fertilizer I ill r pad 10.00 0.54 5.40 3.40 6.60 4.32 strata if modo 1.00 0 54 0.54 0.54 0.30 0.40 Comacal.s It%, mr kgl 3.0e 0.00 mnthli Sildm 7.50 6.21 4130 41.50 0.90 3720 coppmr uzgcflrnde 0.90 4.50 4.05 4.63 0.s0 3.24 anlazn 0.31 34 0 12.26 12.24 0.0 9 Bi d.ie_taam 0 34 11.00 3.74 3.74 0 so 2 9W mgbhte 010 55 00 990 990 s .00 792 labr 2 00 2.73 n150 7130 3o10 713 sabml 173.99 173.99 0.47 81.04 napatma cuts 1.60 25.55 25.55 25 35 TOTAL 199.44 199.44 FENTILIZEA 0 CMEAL MSTS PER HC=/ Fictilinrm cmnd "C' 600.60 0.M. .00 4e2.00 0.90 34.60 maami elmtrae 150.00 0 52 78.00 78.00 0.0 62.40 Lam 360608 0.05 0.C 15.00 0.90 12.00 rwmmrt in l.i/.l 42.30 0.25 15.42 15.43 0.75 11.72 Sib-TisU 55.13 525 62 0.3 419.72 Owmicals EN fmagnt 4 00 3.00 13 00 1.00 0.66 li.60 rumtia RipearI 0.26 144.00 23.9 2s.3 0.0 23.64 regatta 1 Ansan,. 1.50 340 O 51a 31.011 0.60 40 woid u.nsl ON" 1.36 34.90 52.33 32.3 0.66 dl.1 iswctirci '"antt 10 06 7 55 T5.30 73.50 0 so 4.42 aptacidm dnt/i 3.00 11.10 33.23 33.30 0o0 264 Sub-Total 37 03 376.03 0.66 360.0 e: la) Distanu; omical- 53 km (43 tLranqirt - .23m/km tibet - 160 km (ci lair - 2.73/a Edl Eml ma 115 lIt/kb crop whuut-irrig. 1984185 production and direct cash costs HAl msmt leve:1 top coanl Price/bag * 45.20 International Price gtelo -90 bajgsifii 540 KZi i nentoa rc revenue/ha. 2440.90 2.00 wheat 11 $ 170.00 cost cost per direct percent forex unitsiha unit hectare cash cost fores cast IZKI add: sea freight 6 58.00 _ _ _ _ _ _ _ _ _ ____________________________ port charges 1 15.00 Cap'l replace cost; Sub-total 6 243.00 la) vehicles I equip 1.00 1340.99 1340.99 0.80 1072.79 ii 583.20 (bi irrigation warts 1.00 2117.49 2177.49 0.80 1741.99 Ic) fixed improvement 1.00 511.01 581.01 0.33 191.13 inland transport ZK 86.67 F.X. rate total value of capital 4099.49 4099.49 0.00 11.00 = K rate of return on cap'lI 12,50 12.50 0.00 border price Lusaka ZK "9.97 2.40 variable casts 0.00 seed (kgI 120.00 1.00 120.00 120.00 0.40 48.00 Central Southern Lusaka fertili2er (khg Inter-Provincial 'go's mixture 500.00 0.54 270.00 270.00 0.80 216.00 Transport ZK 20.70 40.55 0.00 urea 200.00 0.54 108.00 108.00 0.0e 86.40 lime 300.00 0.05 15.00 15.00 O.e0 12.00 Provinical price/ton 649.17 629.32 669.37 chemicals (Itt price/bag 56.48 56.70 60.35 HCPA 4.00 7.50 30.00 30.00 0.80 24.00 azadrin 1.00 23,20 23 20 23.20 0.90 19.56 labor (mandagsl 5.00 2.75 13.75 13.75 0.10 13.2 Returns/ha K 3158.18 9061.86 3258.83 equipment cost%s Iiha) veh./tract. fuel & oil 60.00 1.19 71.40 71.40 0.75 53.55 cash cost exclusive of veh./tract. Rep. 1 Maint 60.00 1.25 75.00 15.00 0.15 56.e6 fertilizer pre-devalue K 1351.35 1357.35 1357.35 combine 1.00 150.00 150.00 150.00 0.75 112.50 "" post-devalue K 1353.11 1555.11 insurance 2440.90 0.06 1ltj.3 151.33 0.15 22.10 fertilizer use 1kg/hal 100.00 100.00 700.00 crop transport Ibags) 162.00 0.2b 40.50 40 50 0.70 30.38 fertilizer pricelkg K O.rd 0.71 0.80 o packing matl. (bagsl 54.00 1.50 81.00 81.00 0.60 49.60 Fertilizer cost X 511.00 539.00 560.00 0 irrigation 1.00 100 40 109.40 108l40 0 40 4. 36 labor 2U.00 d 75 65.00 5S.00 u 10 5 5U lotal cash cost K 2066.11 2094.11 111.35 electricity, etc. 1.o 12.00 84.00 84.00 u.40 9.60 repair I saint. 1.00 15 00 105.0U 105.00 0.15 18.75 Cross Irgin K 1092.02 967.4f 1341.47 Sub-total 1501.58 1501.58 891.52 seasonal interest Iyr) U./5 12i.o 140 77 140.11 management allowance 1.00 132.00 0.20 Total Variable costs 1.00 72.95 164. 35 164. 35 0.54 891.52 Capital Recovery plant £ equipment 60.00 2.25 195.00 0.75 101.25 irrigation 0.70 400.00 280.00 290.00 0.80 224.00 Total fixed costs 415.00 325.25 TOTAL COsrs 2037.35 1642.33 0.39 1216.77 return on awe. invest. 256.22 total cost of Product'n 2313.57 - P Margin after cash cost 799245 'o H lljei lWov&toe Isuluw Ipaddg equivalerml lelvU dUJ ib.&%ld JO 00 F Ml zx njrnatAinal price * A45 00 rrlwInue/h^. 1200.00 a Co ________________ _ _ ___ ii~~~~~~~~~~~~~~~~~~~~~~dd sea IrelyehL I * 152 00 colt cost petr direct prerent lorei part chatrgeb I unitolhi unal hec%are cash cust Iqrei co% tZtIinlaniud transpark i § 00 Bartrd irice Lusmail I A. latg * ;00 - 2. Z40 (a)l vehicles S equip 1.00 250 00 250.0 De0 00 LK Ituu by "Ib flsed improvesenms I 00 115.00 115.00 0. A 37.95 ImUl replietz coJst 36t.00 365 go 0.tlO Iddly CXtuldilant auero2e eitp1 linutste t 365 00 365 00 0 00 Imilitily itte 6r1% 871 54 lathe ul return On L p'lt 12 50 12 50 (I au .. . -. . _ Z .. .- . . . . . .... . ...* milling . us W triaile Lusb% m:-d lkgtl 60 00 O 44 Z2 40 Z'b 4U 0.40 IU *b sZd drOtbS. ILApstaft-tl1 u li 20.L4 2 53 2.53 0 Y0 ela Inter Pi uvincil 61'al,pol Los Cd,.6 rLcdf SqdIVAIGIUM. fIrtIla&ml Iktli GD *ilaul-e 3dO dO O 54 162 00 162 00 0 00 12Y 60 uuneLlisierj. Luapula lort*rrt 11 lles.ete Uivert aaUt"ll&g 11tI e 100 tlO G 52 5; OU 52.U0 O.E0 41 60 Ilste O UO O.(l: a OD O 'uO O0 u U Ot, 60 /tl 0 ,1 t 4.lJ Li. 4 613.3 chosialsI durstbun lltgl 0 E0 .^6 10 el 5e tl1 :=' u0 tt i ied dieldrin -S dl .I llugl I! 00 k1 A 41 00 4/ Uo 0 00 3/ 60 Luuwreeinr Lusts labor ladiuidlsl / D Ub . 4e Ieu Doe u 00 0 IV lu UJ w"Ipftnt VusLI mu of bdgs M8O 00 73C,00 W4100e.0o LoOOe e IAefoO meahlw, 2lsi thrslJ 13 00 el 10 ar4.Ju 0'4 do @ ou 19e ut crop L lelu krnsl Matti JO0 Uu C 2 15 11 1;.60 0 /5 11 10 pi oducer prim? 40.00 40 00 4O.OU 40.00 40 e0 packingJ as'l lbagii u ub 0o.0; I bu I !10 0 6U 0 90 S11111-Mal M2.05 602 65 461.46 fixe~~~had cosilb.9 1.tl 5 1sS 3 31 6.9 YI 1E l2 ssedinal interelst IVrl 0.1 7 ! U 50 A.52 56 e2 Yariable cesl/^q lotal Variable costs B39.37 659 37 O.!b 461 .1 ltranspurt) 2 032 Je2e 42 E3 3E419 49141 1LSf CuUl st lthal lulherl 1 34 1 01 I EE 2.32 2.7 _ em at alloinee 0 10 659.37 Wi 94 o co oo ooo 0 0nterest cost 0.19 0 20 1.55 a3.U 2.09 ° risk IseII iisurel 0 U5 Wp31 32M9 0 00 depot cost 1.eo 0 21 0 20 e .ae e .se de.erec. bidl I equip I 00 30.00 30 OO 0 /S 22.tO Sub got4i 5 23 4 11 6.46 9.23 IO.". other overhtdd I 00 II 2if 11' I/ 4;5 0.35 a 04 losses/shbi#agllre 2.26 2 21 2.32 2.46 2 50 Total filed calls 14 16 11*':5 FatlI vUriaole cost 1.49 6.32 2.7d 11.6° M2Y1 lOlAL CO515 935. ,2 616 o2 0 41 461 46 lots) EmW 9 10 11.46 1j,15 18. " 19.U1 return on ave. invest 45 63 total Los% of Product'n 1031 15 ~~~~~~~Provnncidl pruze 41.51 42 12 45.16 40,.4 31.2a hLrgin after ca%h cost 523.38 Pai ^ll price if censu ed in Pruvince 51.2B Sl.Y3 52.99 C5. 20 4i Gl kturns/ho 11 L42.96 1443.53 la72.115 1219.14 1116.12 bturus if censustd wzithi province L; 1110.33 ISS 31 157.35 IM6. 14 1410.;A cash cost *riclusive of forlisBer pre-OevZlve 11 4621 62 46L 62 4de.6a 46L.62 46U.62 " 1 posts Aivalue 11 Se0.67 WLO.& V o.a hH2.61 WO.& fertiliter use 119/hal 400.00 p* Wu 4 eo 400.00 4M00.O2 III Liliier cost k| A " ai2 s1 3041.0 9P.v( 316.00D lukal call LS as MO 61 " g.61 Wb4.61 W*4.67 W6.61 Coluss rii-v11 K .d 56".iU 3 b 541 6 la J4.41 2194. go if alsg1low mi/n O 2lUW14ivw K aw.ii 1bb 64 164.6b 41.41 51U.11 e1Sbj ilegin,l^Dbil dV 11 1.Do 1.Y 1.31 4.7n 2.93 '; " call. W, Iel II U II.HW VAL lo.kf 6.SS BS crop :alSe 191805 prdiclion and direct cash costs Hallc prICIn uqit 1owS: ic gumSl Ptl"/We~~~~~~~~~~~~~~~~~r P- 2@. Prlcelbag * N N ~~~~~~~~~Prvncel Ceniral C.prbit lasiorn Luasl5 Lnlal Ibathgn lI.W,siun Sauth's Iteinr jrruvei.ha 5165.911 _0.00 ,wislih mailt hulta, cash call kres clot IaIi Producer Prlculbag 30.50 30.50 30.50 30.50 M0.10 St.50 36.50 30.10 30.10 Thued Clct Iilw.)IM5499 .00 1.0 441.00 3S.00 U6.00 7.00 7.00 1319.00 37.0 f C' l rilic M ritw cuiil 0.47 0.19 07.3 1.54 0.41 1.64 5.32 O.0 5.59 IS wAiles. I qIpt 5.00 in9.5213 M.13 52.80 53402 Ih1 flu ed lpreee.I .0 e11.56 727.1s 0 33 140.06 Variable cistbag to4tl riplacuet i i cost 143 53 10.43 e0.00 trading cilt 2.0e I5 lM 9.74 e.72 4.47 .59 2.It 5.56 nwurag capl iwcstet 123.31 13.231 0.00 Itrumir4lt 1.34 1.95 1,14 3.14 1.4 10 1e 55 1.ee 3.3 r ot of retu en cap'll 51.50 115.4 0 00 ltherl 0.80 1.20 0.76 5.50 1.9 1.79 1504 1.4 1.2 , a a a a M a . . . . . a s u a . . a a . . . a M . O a a u . I a a I * a laIki rt cost 0.6 0.14 0.43 0.l0 1.05 I 3.19 0.75 1.64 wuiar Ie coll 0 00 peI cost 0.94 0.27 0.60 0.21 0.33 8.23 0.n2 0.47 0.51 .0 111 n.00 1.71 40 15 4015 040 1110 SblutAl 3.04 3. B. 4.05 4.50 6.03 5.17 4.6 7.l ww**i... lill laristrArl"aps 1.72 1.72 1.17 1.13 1.73 1.a3 1 79 I n 1.n1 "4" sileuro 35.00 0.54 10190 1e9.e0 0.e0 u.7.2 . 1: 30000 0.54 562-00 542.0 0.90 129.60 Total varablet colt 5.56 5.54 4.t0 5.10 5.03 7.66 I." 4.69 9. 4 ite 30.00 0.05 55.00 51.06 0.90 5t.06 crelcalg 111 Vesa) Coll 34.75 34.27 35.94 37.01 54.74 40.00 3a,7n 36.09 41.32 Ulai.iy5 4 00 56.05 72.20 712.20 0.80 57.76 fileal=s 1 200 9.65 59.7 59.70 0.e0 15.76 oarlin l.00 1.00 1.00 5.00 5.00 5.00 5.00 5.00 5.00 la"?r Itdla l 41.06 2. 1s 51 In3. 75 0.10 52.33 oulpei costs: lIb ISellIng Price 37 75 37.27 34.14 31.15 31.74 41.00 39.77 9.0 40 33 u0 Iracl. fuel I ol55 50 IA2 113.26 153.6 0.71 54 ,.._..75 wh llr act. ku, I Sltan I 00 156.4 1156.45 111.45 0.75 08.64 uqu l Pp. I NAinl. 1.00 645.11 64.55 64.51 0.71 403. Provincial smile iraniler uStriw ihollaul hapl Irir'ace 5.0 91 30 91.20 91.30 0.55 13.70 cre Iranipmrt Ihagil 56.00 0 Y 29 12 V9. 15 0.75 21.84 to I lIfe Coniral uilhorm Eastern Hortihwap Ipeort Luala l%out c uS'S u lhl i 54.00 0.65 B." e.a0 0.40 1.41 Lsa 40.00 0.00 eluclr elel, let. 5 00 2,75 .75 3. 71 0.40 5.50 NOrtwbui 40.00 40.06 Veitin 255.00 1550 lub-lulal 5066.59 10@.9 M.5 96 Lvuuaa 351.06 5031,00 5290.00 wasmnel Ininrasi lyrI 0.15 53.50 501.03 101.03 0.64 Copprbult 511105.04 90.o0 s 00 3s55.e0 lotal VAIlrable cut 1118.01 4o5¶ Touta 195.06 70.00 5035.00 gO.0O 440.0 Fliedtests l/hl P0 Iranushlpped sglft allmaowa 1.00 66.00 44.44 0.20 53.2 __ ___ _ _ repairs to Ibdp, et. 1.00 35.94 35194 35.94 0.75 04.94 0 iiSoa d peOralweI depr cIation Wabeoard inlm -pr.vlnlcal Irantpt tasltefl c pets pr ion Sal VOhCee I equIp. I 00 204 50 M04.5 0.0 1631.0 b1 6l5gs, rnads, itc. 5.0 18.00 1 6.00 0.75 53.50 to I freo Contral Southern Eastern Nortwhern leUpr Luata salarSnlwar 11 n other uwrhwd I.04 1110 552 11.20 0.35 3.9 taLI ,.. IrlX on 1.13 liar= a% 56.00 finane A.50o Total f ied costs 335.44 47.14 U22 to Wlten r"9.3 eor clatil 15 .1 Lutnaa 5.40 10.5 4the 4.1 Iotr. COSTS 5123.U4 IM.54 0.4 907.55 C 1 10 .7 153.70 total 14.1 ceult1lo 11.U return in aVe. inves. 91.6 Accrued costs it maims Impend late deficit pruvimse 1per ball P.,rlei .40 ioial cost of Pruduct'n U54.32 Luapla Nihneern Ibuian Lusala Copporblol Hngs.e afte cash ciii 50. 76 _________ 46,71 46.31 40,77 47.16 44.19 relue exlot L H1 Leies rlrRhern ul110ieern hunh'l Neto nn rusworniha N I. 1706.06 578 .00 1700 706.00 11"." 5700.00 1780.00 17006.0 1706.00 cash c"i ii elmelve - of fow. prrdevulve 004.16 54.14 54.1 54.14 804 4.14 4 64.14 004,14 54.14 u_ _ _ 1009__ M. 500.4 5 . 09. 1 0_ 09 4 1009. 5009. tIls lot I a 40.00 48.00 850.06 0.00 46.00I in6. 0 600.04 M 40 00 60.00 fffueitih. Pelee 0.73 0.65 0." 0. 0.00 0.80 0.95 0.8 0.99M I Rwtilitsi Coo 11 07.0 541. 5 165.0 5150 S1511.1 510.00 591,10 5. 0, 41.50 bua cash c-eln X 1515.4 15161.915594.40 1574.9 116 M 129.43 1040. 11.43 1852.91 Ctfti WI bill K 191.57 146 .1 153.17 53U01 146 01 113 17 156.07 14.51 5.0 1 " " -i^lu 11 oe.4 1§" 3 1 43 - e I#". 1ee .e I§ "74s7e"; cre" mlt 1964111 production and direc catsh coms ialle pricti Ie level: toe ceoeil Prt;l culbajg7mi 5 n - - - - F ] - R 7 i--Cn Pil Contr astwro Lvagla Lvgate NwXort NIhotarN Smith. Vetwr revenuelha 316.98 3.00 ____ _____ _._.__,._. .__ __...o_ .o Ne e s lt . I 96.e S00 I.oo t4o." 3 . 7.04 11 5.00 13.e 1517.00 0.oe coIl cost per *ITFCt p ercnt foe: snmlsha unit h tar. cash cost fores cost tIZl Producwr Pricilbag ao.a0o 37.15 1.16 29.60 36.50 33.50 401!5 ".0 41.4 Fi ed Cot I tho.l 6I9.06 54.0 1441.00 315.00 46.0 1673.0 117.0 1319.00 397.00 Capl replae cost: fled costflb 0.16 0.19 0.37 1.54 0.41 E. 13 1.3e 0.16 U9 la) vehicls a equip 100 729. 79.33 0.30 593.10 1b1 HlIa lprevotse 1.00 I37.10 723 o0 0.33 2400 Variable cesltg total roplacme cost 1456.63 U436.63 0.00 trdfog m a.iS . 225 I.90 3.74 3.13 4.47 3.59 3.70 5.5r avera" capi lInvetet 733. 31 1731 o.00 Itrtaa.orti 1.34 1.9 1.14 3.94 t.64 9.661 1.11 3.22 9.1 rate of return on caplil 33.50 32.50 0.00 tether rl0. 1.30 0.76 3. 50 I.09 .79 1.04 1.40 3.n a a a a a a - 0 *a * a u a. a a a a E E*" ...aumm m..m.mma..a.....a . Iatar eetcl 0s M 0.14 0.43 0.10 1.01 1.33 1.89 0.75 1.64 variable costs 0.00 depo coot 0.94 0 17 0.0. 0.21 .ae 3.e3 2 0,n9 0,47 0.51 I.d ltil 25.00 1.71 43.71 4.75 0.40 17.10 S-taotal 91.3 3.36 B."5 4.05 4.10 6.03 1.17 4.92 7.13 fer"itlero 04 llol l eseeihrilapes 1.96 2.05 1.43 1.60 8.03 1.40 2.27 1.84 t.46 e" elture asooo 0.5 1 W 00 109.e o.ee 151.20 Irm 300.00 0.54 162.00 162.00 0.90 129.60 Total Vrlale colt 5.02 5.91 4.36 5.73 6.13 7.51 7.44 6.6 1.19 the 300.00 0.05 11.00 1 o.0 o.eo 0 1.00 chemical (III Total cost 41.70 43.25 30.99 36.97 4.04 72.13 9.01 39.51 52.a3 prlmurin 4.00 16.05 71.20 72.30 0 30 57.76 thtedan e 00 9 31 19.70 19.70 0.00 13576 tarolt l.00 I.49 1.00 1.00 1.00 1.00 1.00 1.03 1.00 lampr ltendaelI 45.00 32.7 133.71 32n.7 0.10 13.39 uit"ot cots: lihal Selling Price 43.70 44.31 93.0 37.07 44.04 54.13 54.01 4.51 53.3 h.treact. fuel s oil l eo 353.36 153.36 153.36 0,n7 114.5 __ _ __ _ vwb .Iract. Rep. I MInt 1.00 136.4S 1103.4 118.45 0.75 9.4 equlpent p. I iant. 1.00 64.11 44.11 64.11 0.753 43.0 provincial malis trAfile mau .e l Ithoulua bapl fisurante 3.00 91.30 91.30 91.3a 0.15 13.70 cro transport lbagl 56.00 0.52 29.12 29.12 0.75 21.64 to I Irm Central Sothwrn Eastern Northere lesprt Lteloa toul F4L I sl 1bagefl 54.00 0.05 3.0 oleo 0.60 1.48 La"leae 43.00 43.0 elecicity, ec. 3.00 2.75 2.7 2.75 0.40 1.10 NOrIIwOt 0A 0.N0 Sub-lot 106.19 1066.19 15.9 La4a 561.f. 4d0o.00 0.0o 1341.00 ieeal o"intet r lrt 0.75 12.54 101e.3 151.3 0.44 Coeewbel 3231.04 6a.e0 3.o0 0.00 3739.00 Total Variable sots 1105 119.01 M." Total 3.00 M7Y." 40.00 s36.00 0.00 0.30 4316.0 Fied cols lhl * * trMnelpd eana at ellranco 1.00 66.00 41 4.00 0.te20 11.30 _ _--________________ repirI bldgo " Ic. 3.00 95.94 15.94 35.94 0.75 E6. 96 IkoOgar operating ,detp,iale I IHboard inter-Provinical traansfr cote limwrt ct * 304.00 per teal coiser ton Il whicles A equIp. 3.00 204.50 304.50 0 .0 636.60 O Ildg%, roads, etc. 1.00 6 l. 00 1O 0.75 11.10 to I ro Cenral Suthern Ester Northern iport Lusala e2alablulsn 11.21 hr everad I 00 11.30 1120 13.0 0.1s a 9n Luul 6.32e adeInitralion 2.3S V*ert'met 3.00 fince 6.10 Total flied costs 9as.u 47.14 Mi.it IhIerm 9rr5 dihereciatlol 1. 1 Lutika 1.0 10.1 other 4 1t TOTAL CSTS 151.6 11235.36 o." 9107.13 C erbl. I.E 10.71 33.70 Tetal 34.75 riturn in rw. Invst. 91.66 ccrued odest ef uilu ip,red lots dell praviml r Wbl .re 2310 2.0 Intel cost ef ProdurAn 615..3 Lauwla IlHunter. iltern Luula CepprhItF Margin after cash ceit 300.76 ~~~~~~_ _ _____ ____.__ 41. 43e.00 51.10 4,.se 46,3 Cm-tSat NeWerblt Easterr Lula Luulsaka mete 11 nterm Sotha r nt re Rletnlht 1 K 1976.1 M060.40 1436.40 U7.00 3044. 1316.00 t 4.t0 1786.40 2321.30 calh ch eMtlcluiive 1 I fert. pro-deval. 64.16 154.16 1614 914016 04.16 904.16 904,16 3416 90416 M 4 poet-dealue 10419.43 1009.43 309.4 10091 1009 41 100 4 3094.0 1009.4 1*9.4 fMrlil:r nse ilha .60W00 650.0O 650. e0 65. 00 e1e 00 654.00 65." 650.0 4.00 f etilluer price 0.73 0.11 0.9 0.37 e e. 0890 0.91 e.1 0." - fertillstr cot I 507.00 51e50 11.00 16.50 15.14 WA0 191.50 ." 40.1o0 Total cubs cost I 1516.43 1561.93 1594.43 1114. 1511.95 159.43 It00.9n 1 .43 161.93 Gress Martin K 440.37 513.47 -150.03 le. 67 40107 -213.43 W. 07 243.17 4 827 crop : ealls 1914115 production and direct cash cost Ail:. pPlijig p'a level: lull seale imprawed, on-hire Pricolbeg a MU-3 Provice Cimiral Cepperblt Eatelrr Lupula Lvsals Nutrhera lI towr hSth's Usit'r rovmsuel;h l 1340 4 - 2.0m0- ve_h_ -00 Me.32lbag, ethoul 20.00 l675,00 1135.00 10.0e 1540.04 1020.00 1u.04 14e.00 254.04 cost cult pei IF-rect percosi for:,r siltslha unit helao cash cost f erc cost In) Producer Pricolhg 30.50 30.54 30,54 30.54 30.50 20.50 V A 32.50 3a.5 Fi-ed Coot lth4ou 1It900 52.0 1641.00 215.UI 61e.00 161721.00 217.04 119.0 O H7.0M CapI replace cues: Fied ciesibq 0. 67 0.19 0.7 .54 0.41 1.64 I.E 0.0 1.19 hl vehicles I eqip I 04 0.00 0.0 0.00 1St fixed Iepreeeis 1.00 300.0 50. 0 0.33 ".9 00 Variable cestlb tol trlacel cost 300.0 304.00 0.00 tradInl cost 2.04 3.3Z 1.90 3.74 1.11 4.47 1.59 1.79 s5.s average cp1 lowaezaSt 300.e0 300.04 0.0 iltrall orsl 1.14 I." 1.14 3.24 1.44 2.46 1.55 2.22 3.3 rate oi return er cap't 13.54 13.54 0.00 lshsI 0.0 1 30 0.70 1.54 1.09 1.79 1.04 1.45 e.nl a. ... . a 0 a a a a a a a a a a a a 8 a a * a 0 6 a n a a a a a a a a a a s.r* cost 0 9 0.34 0.43 0.10 1.05 1.33 2.9 075 1.64 vs;iable colss 0 00 dopt cost 0.94 0.c7 0.0 0.31 0.32 0.13 e.0 .41 0.51 load kilg 15.00 1.71 42.75 45.75 0.40 17.10 Soil-t.al 3. M. 2.92 4.05 4.10 6.03 5 17 491 7.11 f rtiliser 1|1 eslhr"e 1.71 1.7n 1.6 1.73 1.13 1.83 1.16 1.7 1.91 'dW mlture 30o 00 0.54 106.04 106.04 0.o0 U.40 urF 300.00 0.54 10.0 106.00 0.90 Hu.40 letal vriable cost 5.56 5.54 4.60 5.73 5.63 7.6 6.95 .0 0 9.64 11w 0.0e 0o5 0.00 0.oe 060 O.04 dheelcels IlI Ttal cost 36.57 36.27 35.94 V7.91 32.7 4O.00 3.77 3.09 41.33 prlsagln 4.04 19.7M 79.LI 79.11 0,.0 61.32 thodaal 3.00 5.10 1. tO 10 n0 0,80 1t.96 oargli 1.10 I.09 1.06 1.13 1,10 1.20 1.16 1.14 1.34 liker Ifeudal$ 96.0 1.40 306.40 0.00 0.10 30.64 oXeI'lr: Plough 15.00 17 t 24.5 36.95 0.10 3 5.27 Illei Price 27.95 37.33 36.91 33. 9 37.64 41.20 29.93 39.24 45.57 hrro 7.04 3.53 17.S 17.95 0.e0 3.57 ________________ ___ _ _- IShrul ridgp 10.00 3.0 2 0.30 20.20 0.30 4.06 cltIvate 1.04 . 1t 0.10 30.11 0G." .0 Proleqill itseIetr anfer "Itris thusand bales plant 10.04 1.43 34.3 34.30 0.0 4.96 rl I erlftranf.bal 43.00 090 114.* 34.4 0 5 1 57 2e it I fre Central Souwrn Eastern Northern ipor LEsata tot pc log sat'l. ibagsl 46.00 0.0 3.0e 3.00 O.6 I. Lusla 40.00 40.00 ot*attm% 45A0 40.04 SWb-ttal 715637 549.07 31.M lest, r1 5s."0 355.04 msaonal Iter"et un 0.75 13.50 47.15 6715 lesaba 9551" e1, 1390." Cepwebet 5990.00 R9". 0 560.00 1711.00 Total lIar le coats 79.4 5n7.01 R 9.01 es FTlud ctell el Total 193.04 7. 04 2035.04 6.00 040. 0 eaMge t alm 0. tO 571.02 57.70 0.00 0.00 0.00 0 * transshIped Filt s .lf ins tv O.". 3. a Li.u as *.oo00 roplrs te bldg, e. 1.04 0.04 0.e0 O ." 0.e0 0.0- o wat eshor everead I 00 0.00 0.04 00 0.00 0.00 eu.bwd oooor-Provelucal tuse f or s. Ilepors cos 29 34 29O4.0 4pro coils pmsw a Toutl lived coits 66.55 0.00 to I free Central Southern Eastern Northern IWrt Losata rluieleo 312t Lula 6 12 afIoIllf=tsm 1.l3 TOTL COSTS 969.97 577.02 0.36 e29.08 IRthnt 9.00 flne 6.10 Vtater 9.25 deprelatl 1.11 Lusata s 60 10. 3 165.00 other 4.16 resve so ave. * wvt. 27.10 Cspperel 1.05 10.75 12.70 35.l1 total cot if Producl' 907. 4 IWer b l 1.22 Hrlgi afwl cash ct . i7 kecrvod coqts of 1ine Imported tilt deficit provines iper ball F.X rote 111 .4* Ls4mla lI.11wert Maters Lusats CoppeIt 44.71 46.31 45.n7 416 44 i.1 Central C % Eastern LuWula Lustaa NlIrtier a NUVetrn SWetls's Waster hturoolhal 1u20.ee 111.004 IM30.0 10 .0o 1I10.N u3e.e 01Me." IM-.04 I33.04 cub cost eteluslue *e len. pro-devalu 261.01 361.0 U 261. U 61.031 261.0U 261.01 2S1.0 21 31.0 21.g0 11Upeot-dsalso M."2 291.3 29.3 31.39 21911.1 33.1 39.A 391.3 291.39 fWIallier I klIM 4000 40.0U 404.00 4e0.0 404.00 410.04 46.04 46.O0 410.04 fertliler Tr e1 0.1 0.35 0.90 0.07 0.5 0.0e 0.91 0.2 09." feriillaor coo ee. 540.l 16-.00 5o-.f woe a2e.0e 4.04 =.O$ 3M.00 7Tebl cash rcil R 704.3 71.39 752. 21 740.1 73 MA 712.a9 7u.31 720M.1 799. Cross "ign X 515.73 41.72 467.73 479.72 4. 771 507.73 41. 72 499.71 41. 71 Creiss g.dgK 60 .7 54 .6 5 .0 52 5.01 1.03 crop :ailt 1904165 prroduction amd direct cash costs mails pricing apt level: s"ll scale ilproved, ov hare PriJeeJbae * 29.32 Provivel Centrol Ceoerbit CUter. Lospula Lusa NHerthern N.sUenor Seuth'. Hire gT.WWWEI*0FW7T!17F~ 4.o X _ _____ of. efl ag Ithoul 33.00 315.00 1114.00 14.00 154.00 711.00 145.00 157.0 3se.ee et us ^ r-O -e elti e pfrt OMA Valtila unit heltare cash cost fares cosl IlKI Prrdcer Prteslbal 36.30 31.15 25.65 39.60 6.50 e2.50 40.35 31." 4.4 filed Cost Ithar. I69.00 54.00 1441.00 115.00 626.00 1673.0W 17.1 1819.0 3Y7.0 Cap, l replce cet: Filed costxla 0.58 0.19 0.97 1.S4 0.41 .153 1.3S 0.36 1.19 laD vhicies A eqip 1.00 0.00 0 0o 0.0 ltD fied Itp t 1.0 300.00 300 00 0.33 W.oO varIable cstlbae total r 9lt coat 300.00 300.00 0.00 tradi4 cost 2.0 3.25 I.90 3.74 2.73 4.47 3.59 3.70 5.56 average calt in"vstet 300.00 SO3." 004.00 0.00 1ir ortl 8.34 I." 1.14 3.24 8.64 1.68 1.55 3.e2 3.31 rt of rotsr. an capI 12.50 81.50 0.00 lather 0.12 1.30 0.76 1.S0 1.09 1.79 1.04 1.40 3.23 a a 0 a 0 a a x % M 8 a t a 4 8 a 0 a a a 4 i-terutc cal 0.96. 0.34 0.43 0.10 1.05 1.33 3.39 0.15 1.44 vaiabltelc sts 0.00 depot ctll 0.94 0.27 0.if 0.e1 6.32 0.12 o.39 0.41 0.51 sed IW 35.0e 1.71 43.5 4n2.71 0.40 17.10 Sub-ttl 3.96 a.66 2.9n 4.05 4.10 A.03 5.17 4.92 7.73 fertililer lho leseelshrinlages 1,96 1.01 1.43 1.66 1.03 1.4 3.317 1.64 3.46 I'd" lsturs n00.00 0.54 106.00O 101.00 0.60 66.40 u rea 20.00 0 54 109.00 8061.00 0 890 9. 40 Totl1 variable eat 5.3 5.91 4.36 5.13 6.13 7.51 7.44 6.71 10.19 lNo 0.00 0.05 0.0o 000 06o 0 0.o0 ceulcals III Ttaal cest 41.70 43.25 30.M 36.87 43.04 33.19 49.01 391. 53.63 prisairn 4.00 19.76 19.13 19.12 0.90 61.20 thledan 3.00 9.10 I6 30 16.30 0.0 o 1.96 marlin 1.25 1.30 0.sa 1.1 1.39 o.9 1s 41 1.19 1.5 laor IsadgiD 86.00 3.40 306.40 0.00 0.16 30.64 even-lire: Ploegh 15.00 8.79 E690 16.60 0.1o 5.37 Soilnlg Price 43.95 44 55 91.91 37.97 44.33 34.83 50.40 40.71 U.41 harrow 7.00 1.5 117.65 17.5 o.o 3.51 ____ (braD ridg 80.00 2.03 20.30 20.30 0.20 4.0O cultivate 14.00 2 1 30.10 30.10 0.20 4.02 Proeinclsl miue transfet utris Ithusma bapt plant 10.00 3.43 34.30 e4. 30 0 3 4.96 crai I fert.trA ns.lbagol 43.00 0.30 34.40 34.40 0.50 17.20 to I frNo Central Stern Etstern Northern Import liaua total a aat I. balef 40.00 0.65 I."0 3.00 0.60 1.3 L lapula 43.00 43.00 Hortlmiso 0.00 0.00 Sub-tetal 716.37 509.97 a9.06 Inkte 1." M0."0o suoul interest fleD 0.o. 13.-5 67.15 61.15 tota 0.00 541.00 460.00 0.e0 141.60 Crhblt S 93. N a."o a343.0 oe0o OM2w. Total Variable casts M73.42 577.02 339.0 flied chts 11h4l Total 149.00 1117.00 6.00 366.0 0.00 6.00 4016. °f anaet aIllganc 0.16 517.02 57.70 0.00 0.00 0.00 * transshipp risk eel# Insurel 0.05 577.0- 6.65 0.0oe rpIrstos bide, ae. 1.00 0o0 o0.o 0.e0 o0o. 0.00 ood -peratia ther ovewhd 1.00 0.00 0.OO 0.00 0.00 0.00 Nuboard Inter-Provlnical transfer coals lhlaort cast * 354.0 pw tonD coist pr te .Total fieod casts 06.55 0.00 to I free Cestrat Suthern asten Northern lert LuAtla salarfutlwsea 11.21 Liarla l6.8 aderIIltratlan 3.13 TOINL COSTS 649.97 57.0e 0.311 39.06 wort% bmt 6."0 01 6.l Wustern 9.36 deprecistisa 8.85 Lusaa 5. 0 10.05 0.00 atherliatIs. 4.16 rhturn an ave. inve. 97.50 Coerbel .6Is 1O.75 13.70 83.5T total coit f Proruc. 907.47 -ItlP 34 .123 aroia after cash cost 555.71 Aerued casts ef ulie impored into deficit provins r IW FbX. at me1 3.4 Lusula lI.llnurn Hester. LesatF Craperblt 41.4 0.60 51.10 41.50 44.0 Central Copporbit Eatern Lala Luuals rUterw 1.Wtern esthi t' Ieurs hturalha K1 413.00 146.00 1136.4 1104.O 1460.00 946 1610.46 1316.06 1616.00 cash cos ecolllseiw if fars. pevaluw 368.0 3.03 46.0 34161.03 46.01 368.00 361.0 46.00 368.0 ff " pet-dvs 369.33 39.31 36.33 36.3 3591 .23 36.3 6.3 39.3 39.33 ferilitar use #b1I 40.00o 400.00 400.00 40.00 40.e 406.60 40.06 41.00 60.00 fertiliter pr ce 0.71 0.65 O."0 0.67 0.5 0.60 0.91 0.o6 O." fertillter cost II 381.0 340.0 360.00 3.00 5.00 .00 364.60 111.06 S3.O0 Totl cash cast 708.23 m.2a 7.23 m7.1 73.s 769.13 753.33 717. 735. is grass arli 3 I 716.1T 756.7 16 n. 446.77 130.n1 M." 95.n .n M." 1r Gress wgliulida U 6.:4 6.e6 3:.3 1.r0 *.10 3. 9.960 6.10 10.11 crqe eorghum 194/103 production and direct cash casts crop :argr e I96I/65 preductia aid direct cash Mets qet lovol: top ccc'l *Pt level: m aielo, wi/ Pricel/g * 4."0 Price/beo * a 490 imli: 90 bagha. 52. 0 qIeld: 99 hip/hA, 90.N reveave/ha. 1396.00 revesue/he9 607.00 cost cull per direct " "ore- cost cost per direct p es, fece uuttslha unit haclare cals fericost cm 1 unitslha unit haetan Cash coot fuaw cMt EZN Cap'l r Iam cost: fal v hilel equip 1.00 1067.00 1407.00 0.s0 69.40 (bi fixed isprsemmnts 1.00 161.00 361.00 0.83 119.13 total replaces cMt 1446.00 1448.00 0.00 rate of return en c'll t 1.50 12.5 0.o0 varable costs 0.00 wiable coats sed (Iog 10.00 0.94 9.*0 9.0 0.40 3.76 seed lgo 10.00 0.94 9.40 9.40 0.40 3.76 fMrtilisu tre fertililer Il0 fe'd"miet zeo.oo 0.54 106.00 106.00 0.60 BO Id mixture M.e 0.54 1oa.0 la.0 o. e c.40 umoniu nitrate 200.00 0. B 104.0 104,00 0.0e 83.20 mamniwe nItrate 200.00 0.52 104.00 104.00 0.60 93.60 limt 300.00 0.10 30.00 30.00 0.60 14.00 lime 3100,00 0.10 0.00 30.50 0.60 14.04 chemicals III chemicals IlI primagra III 2.50 32.50 81.25 81.25 0.90 ra I a, 5e se a .2 we oo U.O adrien - 40% MP lIgI 3.50 19.75 46.13 4.19 0.60 adrin - 4UP I fk S.50 1.50 45 .153 4.13 0.t0 9.90 lalthiue III 1.00 5.60 5.60 5.60 0.80 4.64 mlathiem III 1.00 5.60 5.60 5.oo 0.e0 4.4; lhabr (uadalsl 41.00 2.40 *6.0 106.00 0,10 10.60 labor lmeads. 6.0 2.40 1 46.4eM0 0.10 20.64 equiiptet costs; lhr/al mime uts wUh.tract. fuel a oil 1.00 200.00 1eo000o M0.0 0.7S 150.00 p labh Ihtll 15.00 .2 UB.4 83.40 0.75 25.10 Vwh.Itract. Pop. & Maint 1.00 60.13 60.13 00.13 0.75 0.10 harrw ihesl 7.00 1.19 12.15 192.1 0.75 16.75 Insuruce 1.00 114.00 114.00 114.00 0. 15 17.10 celtivate irsl 14.00 2.69 37." 7.4 .15 5.45 Crap tansport Iagel 5 .00 0.51 2. 04 27.04 0.75 70.26 crop traswert (begel S0.00 0.O 13.44 5." 0.75 £170 Wacting mll. bags) 58.00 0.0 2.0 3." 0.0 1.56 p=aing mtl. baps 30.00 0.05 1.50 1.50 0.40 o.0 electrlcli, etC. 1. 00 . iS E 70 2.73 0.40 1.10 hue le t 1.4 L00 5.15 5.25 5.25 0.40 3.10 Sub-total 7911r2 791.12 42.94 Wbtolt 579.54 57954 . eaessal itesa t for) 0.75 12.50 74.60 74.22 0.64 ems. intees frl 0.75 12.50 54.8 54.33 0.64 Total Varlble cots 665.941 865.94 4W2.94 Total Variable costs 013.7 48.17 au.M Filed mte iIbel fixed eosts ibel esgem t sllWnM 1.0 79.17 79.17 0.20 1.53 s I ellsennc e 1 00 57.95 57,95 0.10 11.59 repairs to bldg, etc. 1.00 40.00 40 00 40.00 0.75 33.75 brrs t , etc. 1.00 0 .00 0.00 0.00 0.75 0.00 depreciative d mreiatsl lot vehilel s I Oqip. 1.00 173.00 173.0 0.80 146.40 l wehles a IuiP. 1.00 0.00 0.00 0.60 0.00 lel Ildis, rods, te. 1.00 11.4 11.45 0.75 0.579 lb lIdg, red, etc. 1.0 0.0 0.00 0.75 0.0 ether ve iheu 1.00 15 1O 15.10 15.16 0.a5 5.3 ether tmasthad 1.00 O .00 0.00 0.00 0.5 0.00 Total fixed costs 30.6 60.1 245.01 Total flied costs 57." 0.60 11.39 TOUTL coTs 1194.75 916.1I 0.54 .646.2 T01M N STS H15 4 V.5 0.43 296.53 ret"rn ave invest. 151.00 return on ave. inest. 0.0 teotal cost of Predvct'n 111.3 total cut of Prdedctn H9.43 rg1m after cuh cost 472.6 Nkii after cash calo 173.11 W IH -107 - ANE I Table 14 crop cassava 19W/95 production and direct cash costs mgmt level: improved Pricelkg. 0.30 gield: kgl/ha. 4000.00 revenuelha. 1200.00 cost cost per direct percent forex units/ha unit hetae cash cost fores cost IZD) Cap' l replace cost: (a) vehicles C equip 1.00 0.00 0.00 0.01 (b) fixed improvements 1.00 0.00 0.00 0.33 0.00 total replaceet cost 0.00 0.00 0.00 rate of return on cap'1l 12.50 12.50 0.00 a= = = ==- = = = r = = ==r=c=s *= = 2= s =s * * * Camc= re r *- a variable costs cuttings 333 00 0.04 13.32 13.32 0.40 5.33 fertilizer Ikgl "0" mixture 0.00 0.54 0.00 0.00 0.80 0.00 amaonium nitrate 100.00 0.52 52.00 52.00 0.80 41.60 line 0.00 0.05 0.00 0.00 0.80 0.00 chemicals dieldrin - 25 IVP Akg) 0.00 23.50 0.00 0.00 0.80 0.00 -Lbor (mandags) 100.00 2.40 240.00 0.00 0.10 24.00 equipment costs: crop transport Itons) 4.00 2.70 10.80 10.80 0.75 8.10 packing at'l. per ton 4.00 1.00 4.00 4.00 0.60 2.40 Sub-total 320.12 80.12 0.25 81.43 seasona interest Igri 0.75 12.50 7.51 7.51 Totl ariable costs 327.63 87.63 0.25 81.43 Fixed costs I/hal mangement allowance 0.10 97.63 8.76 0.00 0.00 0.00 risk (self insureI 0.05 97.63 4.38 0.00 deprec: bldg & equip 1.00 30.00 30.00 0.75 22.50 other overhead 1.00 0.00 0.00 0.00 0.35 0.00 Total fixed costs 43.14 0.00 TMTAL COSTS 370.78 97.63 0.22 81.43 return on ave. invest. 0.00 total cost of Product'n 370.78 Margin after eash cost 1112.37 ANNEX I - 108 - Table 1S crop millet 1994/85 production aud direct cash costs ugut level: improved Priceibag = 38.10 gield: 90 bagsiha. 14.00 renule/ha. 533.40 cost cost per direct percent forex unitstha unit hcta re cash cost forex cost (ZK) Cap'l replace cost: (a) vehicles & equip 1.00 0.00 0.00 0.00 Ibi fixed improvuents 1.00 0.00 0.00 0.33 0.00 total replacest cost 0.00 0.00 0.00 rate of return on cap LS 12.50 12.50 0.00 = = = = = = = = s = s= = = = = = = r s = = = = U s = U = U U = ==s = _ = = variable costs seed (kg) 20.00 0.39 7.80 7.80 0.40 3.12 iertilizer (kg) "X" mixture 100.00 0.54 54.00 54.00 0.80 43.20 anmonium nitrate 100.00 0.52 52.00 52.00 0.80 41.60 lie 0.00 0.05 0.00 0.00 0.80 0.00 chemicals dieldrin - 25S W.P.(lgl 0.00 23.50 0.00 0.00 0.80 0.00 labor I(andals) 20.00 2.40 48.00 0.00 0.10 4.80 equipment costs tract.hire: plowing(hr) 4.00 21.10 84.40 84.40 0.75 63.30 tract.hire: harrow (hri 2.00 21.10 42.20 42.20 0.75 31.65 tract.hire: plant (hrl 2.00 21.10 4.20 42.20 0.75 31.65 crop transport (bags' 14.00 0.S2 7.29 7.29 0.75 5.46 packirq mat'l. [bags) 14.00 0.05 0.70 0.70 0.60 0.42 Sub-total 338.58 290.58 225.20 seasonal interest Igri 0.75 12.50 27.24 27.24 Toutl Variable costs 365.82 317.82 0.62 225.20 Fixed costs IUha) management allowance 0.10 317.82 31.78 0.00 0.00 0.00 risk (self insure) 0.05 317.82 15.89 0.00 deprec: bldg I equip 1.00 30.00 30.00 0.75 22.50 other overhead 1.00 17.25 17.25 17.25 0.35 6.04 Total fixed costs 94.92 17.25 TOTAL COSTS 460.75 335.07 0.49 225.20 return on ave. invest. 0.00 toul cost of Product'n 460.75 rbrgin after cash cost 198.33 ANNEX I - 109- Table 16 Ihize pric optios Irktaud treted Hwketed Gss atauru Provies Comumption Surplus ut Srplu ml K30.SO0bag Dif.PPric Requirmeatts IQ.SOIbq 01iferentiua Di#. Prim (1000 bags) (1000 bsp) Pries (1000 baps 11K.000) central 600.00 2530.00 35.30 29.16 77165.00 103364.19 dCprbelt 2m5.00 123.00 37.15 146.16 360.00 54.99 Eatern 1200.00 2=.06 25.65 1W8.60 69167.50 411.70 inaela 140.00 100.00 29.66 97.05 300.00. 2372.6 Luka 1540.00 250.00 36.50 299.1 7625.00 10920.m Nbrthwn 400.00 10ZI.00 295.0 795.90 31110.00 194.69 I.tisters 165.00 125.00 40.25 1.96 312.50 6689.40 Southern 700.00 1460.00 31.90 1517.02 44580.00 711.82 Muate 250.00 35.00 41.45 4.57 1067.50 1971.59 Total ju0.0.0 77500M 3- 1. N 7.60 NWB.30 MOM.3 Gros Yargins Miller costs - total Miller voetlia 130.SO bag Dif.Prim K30.S01ba2 Dif.Price X30.SObeg DIf. priew (K 000) enitral 3263T.00 5125.00 21372.00 24W.00 35.62 40.42 Coppelt 1461.00 272.00 13551.5 1412. 47.50 49.2! Este 2633.00 137.00 41734.00 396.00 34.92 29.97 Lopapla 1200.00 1174.00 569.60 35.U 40.71 3B.17 Laaka 304.00 5442.00 77964.85 73577.34 50.63- 49.06 No. rtrn 11722.00 4490.00 1410.00 12040.00 7.10 30.10 N.esteur 1449.00 3440.00 6-0.70 775.45 41.70 47.73 Sasthemr 18240.00 21025.00 255.00 26..00 36.05 37.4 m't3 42.00 1102.00 13400.45 14415.31 S8.60 57. 6 ToUtl(K'M0 0 Y00024.00 10.00 3619M . 17 43.68 40.61 Fertilizer Fertilier Transport Tr,mprt Costs fre Saisp osaka AustpO_tior Central 13.65 3HOVA4 11 Suppl,: rkeked surplus elasticitg Copperbelt 33.98 5334.30 aue to be 1.0 except for Vaster. Easter 120.50 -256955.39 Provimc mdsre 0.5 aa assumd. Limu 103.54 -133.17 2! Provincial coopatilve hamniag cost, Lusaka 0.00 0.00 Ntl0D intw-Pravincial cost and Northern 97.65 -13715.23 transrt cots frm Table lb and N.Masta 116.11 2W.il5 b ew updLted and usd in the Satlhern 51.15 2057.33 abo. Mtrn 121.70 9175.33 TOa a30l4 - . -110 - ANNEX I Table 17 Consumption Total pop.ithouI/1 I rural I urbn H.H. size 6616 0.535 0.465 6.7 Private final urban urban loest lowet consumption PFCE/2 law 201 201 expenditures (oil K) incoa. PFCE plr/ao IPFCE) ail. PFCEI3 (ail KI PFCEI4 fmil KI kiadha 3677 2657.73 2293.66 194.96 2358.85 No. of No.of low No. in Price of cost/bag 1 income urban incom loast maize/ rollur nood for Province fmilis falilies quintile bag/S *en1l6 reqI mst (thou) Ithou) (thou! K/90Y0 It/Oig Central 35.10 31.S9 6.3Z 40.e 27.92 0.a6 Copparbelt 204I.00 189.60 36.72 49.22 33.17 0.31 Eastrn 12.50 11.25 2.25 29.97 21.69 0.20 Luapula 14.00 12.60 2.52 39.27 26.64 0.25 Lusak 113.10 101.79 20.36 49.08 33.09 0.31 Morthorn 24.00 21.60 4.32 30.10 21.76 0.20 Northwestern 7.50 6.73 1.35 47.73 32.29 0.30 Suthern 37.30 33. 57 6.71 37.45 26.15 0.24 *etern 11.30 10.17 2.03 57. 6 39.21 0.36 1/ Population estimates and growth rates uken from MM., Feod Strategy Rport. 21 Urban household expenditures ar assumed to be 3001 of rural household expenditures (1974175 Household Consumption Survey) 31 Assums 101 of urban familis are high incom and consume (spend) 403 mre than low income families. (1974175 Household consumption Surveg) 4 Lowest quinLile spends 9.51 of private final consumption expenditure. (1991 Household Consumption Survey) 5/ Derived from maize pricing model (90 kg bagl. 6/ Assume a recovery rate of 931 and a milling cost of f76/ton. Cost is per 50 kg bag. - liJl - ANNEX I appendix I Theoretical basis of Consumer Cost Minimization 1.40 Theoretically, to minimize consumer costs the price to producers in the deficit Provinces should be lower than producer prices in the surplus Provinces, if the sole objective is to minimize consumer cost and the elasticity of marketed surplus is relatively elastic. This is analyzed below. Q* = quantity requirements in deficit province (assume perfectly inelastic demand over probable price range) Q, = quantity produced in deficit province Qz = quantity imported surplus province PI = producer price plus handling cost in deficit region P2 = producer price plus handling costs for imported commodity If all of the commodity was procured and distributed by a parastatal marketing agency under a no-subsidy, no-profit objective, the selling price would be Pc, where total operating costs Pc = Q?* or Pc = PI x Ql + P2 X Q2 Q* Total consumer costs would be Pc x Q*, which could be minimized by differentiating the total cost function, equating it to zero and solving for P1. Rearranging the total cost function (2) TC = (P1 x Ql) + P2 (Q* - Q1) and Ql = f(Pl) of (say) Q1 = a P then: (3) TC = (PI) (a P3 ) + (P2) (Q* - o PI ) (4) dTC = (1 i C ) a Pl - E P2 a Pi dP ANNEX I - 112 - Appendix 2 set to zero (5) 0 - (1 C) ( P2P1 solve for P1 (6) P I 1 1 1.41 Therefore, to meet a minimum consumer cost objective, the producer prices in deficit provinces should be less than producer prices in surplus provinces if marketed supply elasticities are of -normal' magnitude (i.e. less than ONE) and the cost of transporting/handling maize from the surplus to deficit province is less than the producer price in the surplus province. 1.42 Pricing in this fashion is designed to extract the producer surplus from two differentiated supply regions for the benefit of consumers in the deficit region. Conceptually, it is similar to extracting the consumers surplus by charging different prices in two differentiated markets. However, in practice differentiated producer prices are enforceable only if alternative markets are unavailable. In the Zambian context, alternative market channels do exist for farmers in deficit provinces and substantial financial incentives would exist to use the alternative channels. If a trader or miller was required to pay more for maize from another province, it would be in their interest to pay marginally less to obtain maize from within the province. Market forces would tend to make marginal and average prices congruent - which is a definition of efficiency pricing. -113 - AlUNEX II Table zTA AtcLdnlDnin Mdzin w Fad mmtaL Smt. Sad Lccagms ad cmmti of SCONE 7aciLc (low) t1~. adtmob ckuvich -otfce S 22,500 43,00 6,000 KOM./rIWAGI (BCMMC S 22,500 77,500 10,750 ~~aId~~~~ ~ ~ ,020OO 1,50D Mklobu ~~~~10,00W Chullss 5,0W Odw~A (B ' dFf) 10,000 10,000 7,000 3,500 VAton 5,0W 7,000 hwvg~t 5.000 5,000 3.500 1~~~faka ~~~~5,000 35 AM, 5,00W P~~~~~eX' c, II y m X Jsa~ 5.0W0 1wmms %Emauh office) 10,0W0 3,500 ?6-1. ~~~~~5,0W0 3,500 Hpika 20,OW 3,50D 9 F- chd 40,000 7.500 Kmlq 30,a .000 Q 5,~~~~~~~~DODC1 LLviztcm (Bmdi oficm)S 56,000 1,500 7j.000 Iav4ma Office Si 50.000 145 32,500 24,000 Via. Mranc -FfIc S 14.500 Omb- ) - - S .000 WoILa (bum4ift"M) Si 22,500 50,400 20,5W 5,0WO raum, 5,iOFD ua_ (Nint office) 5.OOD 5,300 6.603 5.0W 3.500 LuAM --*A (2 Ii df±ci) SR 500OO 14,50 56,50 27,000 SDo1id(I a affice) 2,430 5,000 3.150 3,875 Ymh1O. 5;.50 Now (Ninh office) 1S.OD 1125D0 2.500 750 l-4 .-0 - - - -s0 - I/ Sdwhlmlff fcc amqleImci 1985-d6 !_o- 5.1 3.500 V 1L1 SRn d O k1ls6ldwX t.N 1.9 .C 5 IL Z24D I.O 11W 328 49S5 10 5 ::IA 7JZUA: iWauiojltal Pricldr 8d F edtatal 1ffomca Bn* _WOO Local Rdimid Salem of H1ze, by Pnovirc 1979-1963 ('OW3 90 Tk. hup) 1979 Net 198D Net 1981 Nat 19R2 Not 1983 rAt Pryewe 1wcte Sae IMint ftrte Sele dwe Ht IR -e Sale ?m,int I_wd Sale ik _adm Se Cetral 1239 851 ON8 1524 817 + 707 291 731 +1860 832 449 + 33 1456 19 +1439 Sithern 1531 755 +776 1534 885 + 649 1748 6A5 +1IM Im 44 + ao am 497 + 30 Emtern 515 120 +395 739 190 + 549 766 103 + 63 870 - + .8 G16 - + 8K Nortlz 113 94 + 19 IIB 119 - 1 86 Sl + 35 40 - + 406 442 - + 442 1"MAS 184 1753 -159 197 1462 -1265 322 148 -1086 218 1342 -11 69 1331 -124_ CaeTbelt 42 2755 -273 35 2483 -2448 - 2706 -2706 1 2975 -2974 - 23 -ZiG laiqual 18 285 -267 18 271 - 253 - 231 - Dl - 142 - 42 - 119 - 119 N. etem 31 144 -113 16 12 -1(8 - 146 -14, 1 105 -10 - 83 - 3 Umtern 34 165 -131 14 20 - 195 - 237 -237 - 23 -236 - 2_ - 254 Toal 370 622- -3215 11W 650 -236S 51t3 6W -715 3528E 5 -Zhi W 7 5123 -IS37 lqorts 700 3MO 1040 760 1400 Total Pdina 4407 7395 6553 43S8 49A6 Net lbwe.ot -2525 4635 +325 -13D1 - 17 NWAvber 15, 1985 V z 0M - 115 - ANNEX II - ~~~~~~~~Table -3 ZAST hUiwItiral Ft1dj- iM Pwasatmcl P4rfmIce St1L* NMMM - FAnWy S1 aud ui ld of at m z 1983 - (90 kg. bin) Isatve KMothly Mb1th O/Stodk Sul C/Stork I L/R5weh. 2/ l (1) (2) (3) (4) (5) 2 1 1638971 458618 1542147 133926 225968 6.2 2 1540247 497303 1321175 133564 144687 4.0 3 1321175 S81830 1084335 112424 232566 6.4 4 1084335 464944 952002 105350 227261 6.3 5 952m2 413824 90584 177161 190545 5.2 6 90584 333752 973080 110006 208942 8.0 7 973080 326224 1150086 167418 3356812 9.2 8 110086 392621 1446433 160713 528255 14.5 9 1446433 327910 1682959 1478X3 416583 11.5 10 1682959 307172 1780W9 39564 365138 10.1 11 1780489 543278 1713111 37590 438310 12.1 12 1713111 477321 154687 74425 237472 6.5 Total 5123730 -i3^ 363 W F_IFm derived frm clms 1-4 reltant total Is 47762 bmP (1.3Z) hl*r total zuOr bd NAI3CM BD f Z"AI aJultural Dtlclm ud hmtatal Ierfonm 9 Soc of Huket.i MinIe ftdka ai - 3 yr ((XD tons) 1973-75 1977-79 190 1981-3 1983 TOM TOM T or X TOM X TOM X Caog,l 2vtnoe1( 274,2 53.2 213.3 9.6 153.9 40.3 220X7 38.2 221.9 41.0 Southem 164.3 31.9 2X6.3 42.1 139.9 36.6 169.5 29.3 90.0 L6.6 Kitem 56.S 11.0 66.9 12.4 66.6 17.4 121.7 21.1 144.0 26,7 Northern 7,2 1.4 16,. 3.0 14.3 3.7 48.6 8.4 63.0 11.6 oUw 13.3 2.5 15.4 2.9 7.S 2.0 17.6 3.0 22.0 4.1 Total 515.5 100.0  10.0 3.2 10.0 3 10 i 300.0 i19 3be6S 7, lsa4 FRg -117 - ANNEX II Table 5 Table 1.3 NAMBOARD OPERATING SUBSIDIES AS PERCENT OF SALES VALUE Year Maize Subsidies Inputs Subsidies 1975 99.4 85.9 1976 69.1 129.0 1979 58.2 35.1 1980 134.1 112.4 1981 43.6 63.3 1982 35.6 72.6 1983 15.6 26.5 a- Oprating Coats Per Ton of Fertilizers and reed llandled 1976-83 1976 1977 1978 1979 1980 1981 1982 1983 Av. Coup. 1/ ci~~~~~~~~~~~~~~~~~~~~~~~~o Coat. 1984 Budget 1985 Tonnage ('000) 328 358 357 277 407 412 482 324 - 512 x 305 2 Index ion 109 109 84 124 126 147 99 2/ EX p en U I a (a) Tranaport-Total 2,176 2,720 6,157 6,194 5,866 85114 8,682 11,101 41.4 18,012 57.9 9,477 48,9 Per Ton 7.24 6.91 14.25 14.43 8.43 10.63 9.14 14.96 12.79 10,28 Index 100 95 197 199 116 147 126 207 177 142 (h) Salaries, Wages-Total 3,553 4,973 3,751 4,903 5,099 5,032 3,723 3,747 28.1 3,858 13.9 3,626 187 Per Ton 10.83 12.63 8.68 11.42 7.33 6.57 3.92 5.05 2.74 3,94 Index 100 117 80 105 68 61 36 47 25 36 (c) Finance-Total 940 1,285 574 637 618 656 1,499 452 5.4 2,942 10.7 2,555 13.2 Per Ton 2.87 3.26 1.33 1.48 0.89 0.86 1,58(1,10) 0,61(1.09)!/ 2.09 2.77 Index 100 114 46 52 31 30 55 (38) 21(38) 73 97 (d) Adminlstratlon-Total 1,b.50 3,225 4,831 4,038 3,029 3,227 6,730 638 3/ 22.1 3,931 14.2 3,249 16.7 _ Per Ton 4.42 8.19 11.18 9.40 4.61 4.21 7.09(3.98) 0.86(3.97) 2.79 3.53 Index 100 185 253 213 104 95 160 (90) 19 (90) 63 80 f (e) Depreciation-Total 458 747 357 410 401 457 484 479 3.0 924 3.3 480 2.5 Per Ton 1.40 1.90 0.83 0.95 0.55 0.60 0.51 0.65 0.66 0.52 Index 100 136 59 68 41 43 36 46 47 37 Total Expenaes 8,777 12,950 15,670 16,182 15,193 17,486 21,118 16,417 100.0 29,667 19,387 Per Ton 26.76 32.89 36.28 37.67 21.83 22.62 22,24(18,65)22.13(25.72) 3/ 21.07 21.04 Index 100 123 136 141 82 85 83 (70) 53 (96) 79 79 Notedt 1/ Sum of purcliases Including limports and sales including exports. 2/ Total expenses are those actually Incurred (1976-83) or budgeted (1984-85). Expenaea per ton are expreased in 1976 kwacha by applying CDI' deflator (projected for 1984-85) 3/ Figures In brackets are averages of respective 1952 and 1983 coats to reduce distorting effect cauced by over provisions In 1982 accounts. cr _________ Namboard-GOpratn ma°L Per Ton of pa.jjL nAleln_ 1976-83 1976 1977 1978 1979 1980 1981 1982 1983 Av. Coop. - of Costs 1984 1985 lonnage ('000) 1,215 13105 1,232 1,020 1,256 1,149 907 910 -z- 1,152 -.. 1,079 -2- Index 100 107 101 84 103 95 75 75 2/ I.xpenses Transport-Total 8,150 11,136 16,379 14,624 19,764 15,954 11,363 11,185 3S.3 17,724 60.0 28,161 66.6 Per Ton 6.71 7.76 10.99 9.25 9.20 7.47 6.36 7.77 5.59 8.64 Index 100 116 164 138 137 I1I 95 116 83 129 Salaries, Wages-Total 4,879 5,944 7,107 7,419 8,309 7,670 4,873 5,462 23.4 3,754 12.7 4,452 10.5 Per Ton 4.02 4.14 4.77 4.69 3.87 3.59 2.73 2.62 1.19 1.37 Index 100 103 119 117 96 89 68 65 30 34 Flnance-Total 1,294 1,537 1,089 963 3,007 1,000 1,963 659 3/ 4.3 3,105 10.5 3,321 7.8 Per Ton 1.07 1.07 0.73 0.61 0.47 0.47 1,10(o,71)0.32(0.71) 0.98 1.02 Index 100 100 68 S7 44 44 103(66) V0(66) 92 95 Adminlstratlon-Total 1,855 1,991 9,155 6,109 5,230 4,918 8,809 931 31 18.5 3,978 13.5 5,732 13.6 1 Per Ton 3.17 1.39 6.14 3.86 2.44 2.30 4,93(2,69) 0,45(2.69) 1.26 1.76 Index 100 44 194 122 77 73 liepreciation-Total 628 893 676 620 654 697 613 698 2.5 974 3.3 625 1.5 Per Ton 0.52 0.62 0.45 0.39 0.30 0.33 0.35 0.33 0.313 0.19 Index 300 119 87 75 58 63 67 63 60 37 Total Expenaes 16,942 23,1hS 34,406 29,735 14,964 30.239 27,641 23,935 3/100.0 29,535 42,291 Per Ton 13.94 16.28 23.08 18.81 16.28 14.15 15.47(17.84) 11.49(14.12) 9.3 12.98 3/ Index 100 117 166 135 117 102 11L (92) 82 (101) 67 93 Notes: 1/ Sum of purchasea Including lmport. and aalea Including exports 2/ Total expenses are those actuially incurred (1976-83) or budgeted (1984-85). E.xpenses per ton are expreeaed In 1976 kwachia by applying GDP deflator (projected for 1984-85). 3/ Figures In bracket. are averages of respective 1982 and 1983 colts ta reduce dltorting affect caused by over provlulons In 1982 accounte. I. NAIROA0 - Operating Costs Per Ton of Other Cropa 1976-83 Av. Coopd.e 1976 1977 1978 1979 1980 1981 1982 1983 of Costs 1984 S 1985 S Tonnage ('000) l8 41 28 37 53 42 59 42 64 55 index 100 to8 74 97 139 III 155 III 2/ Expenses Transport-Totnl 232 737 774 296 542 682 1,934 1,928 39.9 2,230 57.2 2,493 64.9 Per Ton 6.10 16,34 22.85 5.16 6.02 16.24 32.78 20.05 32.67 14.95 Index IOU 268 375 85 99 266 537 329 201 265 Salaries, Wages-Total 17R 718 1,060 235 580 543 830 650 26.8 215 5.5 233 6.1 Pec Ton 4.68 15.92 33.29 4.10 6.44 12.93 14.07 6.76 1.22 1.40 index 100 340 h69 88 138 276 301 144 26 30 Finance-Total 47 186 161 30 71 71 334 79 3/ 5.5 4'3 11.6 324 8.5 Per Ton 1.24 4.12 4.75 0.52 0.79 1.69 5.66(.346) 0.82 (3.24) 2.57 1.95 Index 100 332 383 4Z 64 136 456 (261) 66 )261) 207 157 Adminlatration-Total 72 465 1.365 193 J65 348 1,499 111 3/ 24.8 858 22.1 723 18.9 Per Ton 1.89 10.31 40.29 3.37 4.05 8.29 25.41 (13.28) 1.15 (13.28) 4.11 4.35 Index 100 545 2,131 178 214 439 1,144 (703) 61 (703) 258 230 Depreciation-Total 23 108 101 20 46 49 108 83 3.0 142 3.6 61 1.6 Per Ton 0.61 2.39 2.98 0.35 0.51 1.17 1.83 0.86 0.81 0.37 Index 100 392 489 57 84 192 300 141 113 61 Total Expensen 552 2,214 3,461 774 1,604 1,693 4,705 2,851 3/ 100.0 3,898 3,824 Pet Ton 14.53 49.09 102.15 11.50 17.80 40.32 79.75(65.2) 29.64 (44.19) 22.15 23.02 Index 100 338 703 93 123 277 S49(449) 204 (104) 152 158 Notes: I/ Sum of purchases Including Loporta and sales Including exports. 2/ Total expenses are thoso actually Incurred (1976-83) or budgeted (1984-85). Expenses per ton are expressed In 1976 kwacha by applying U21P deflator (proJected for 1984-85). 31 Figures in brackets are averages of respective 1982 and 1983 costs to reduce distorting effect caused by over provisions in 1982 accounto, fR 10 o m ZANDIA:1 Agricultural Pricing and Parastatal Perforsanco Study Cooperative's Market Share in Major Purchases and Sales - 1980-1983 ('000 tons) PURCHASES 1/ Coop Sales as 2 of NAhH Coops NAHA NAMA Total Pyrchaaeq Coop rrom SALES Local Total Direct fr___ i Sgopa Total Local Inic. Import NHAD Retentlions TOTAL Purchases Sales 1979 I58 176 176 334 334 39? 623 - 623 - - 1980 173 204 204 377 377 675 590 - 590 - - 1981 270 415 226 496 685 779 561 189 750 28 25 1982 16 495 311 327 511 579 312' 184 696 36 26 1983 1 532 322 323 533 659 461 210 671 39 31 1/ Excluding IlportF. %IH ZAMBIA Ariaibxa ftlclzu ad brdtatal hufInme 6td NUD4 - UtilIatiun of ld.e . I=-" g4td Amw! Cep cty ITwr -1 1i95 1982 Hmtily 1983 ?tthly C*ity (Wm*V.) Iblty Cqid ty W1 Lwa A"ee H4l, to Aemp nhgmwr Ito LOe Size ('OD bu) kw I I 2 I I I I 2 I Odgib, Hi trthtaMirA 500 &arpli 28.8 - 9.8 0.7 - - - 0.1 - - KOolmi Nu*tuuitv 430 Sitplufltauit 48.6 0.4 22.1 12,5 - 1.7 185.1 0.6 - 0.2 lmemko 34udtmVilI 85 ?arpllu 156.4 4.7 71.0 35.2 0.1 8.8 118.9 0.4 - - chiasm Sllo 25W SJIrpII 30.8 4,1 23.1 84.6 10.8 39.8 46.2 79.1 L9 33.5 Ihtiouko Silo 25t) %plus U9.8 0.1 26.7 82.3 2.6 41.6 86.4 82.0 0.1 3. Itbe 3bn1sntdtri 31 1982 Hoe SWd 23D Turpli 38.9 19.6 29.4 25.2 6.1 45.5 2.1 - 0.6 1bm* Silo 1t0 198}114 Uvtfrtau Hutad.irg 6Z0 bftelt 22.4 1.8 10.8 20.2 7.8 14.0 40.6 11.1 I.5 5.9 raw I4dItadUrn 125 bfidt t0.I 19.6 3.1 83.4 8.8 43.7 119.4 47.5 6.7 21.9 Snlvl Hanktaidin* n5 btidtI Solws S9d' 27 Oeidt 46.2 7.3 22.7 82.8 14,1 45.6 118.2 3.5 9.9 38.4 ChoQ d Ih uWtauirg 6C0 Dthicit 37.8 8.9 23.1 3.6 7.7 19.7 192.4 27.4 3.0 12.5 N Irtwe Silo 160 tildt 45.1 - 23.8 86.8 - 3.98 132,2 39.0 I8.6 .,0 8A1m mdistamirg SMO Deicit 67.3 11.0 35.0 63.8 5.7 30,4 188.1 t0.6 0.3 19.2 8/Galsa Silo 250 bflet 66.2 0.4 32.1 78.2 3D.0 55.9 D2.7 21.6 - &8 lAlu3HardtaMirg 1W Dficit 86.4 52.6 71.3 62.8 10.9 29.3 75.5 31.9 13.1 19.9. luA IWe*tadmLt 650 Wcidt lAM Sha 30D ad 47.5 4.1 27.1 37.8 13.7 27.3 213.3 14.8 8.4 10.9 LAmdu Silo 160 Tluit 55.8 10.7 23.3 96,n 145 44.2 216,5 5.s 4.6 69.3 Iudta Cm SMu 550 Truwit - - - - - - 40.0 - 13.5 Avuwf. utiltaticn of Availahle Cqeity 60.2 9.1 31.9 53.7 7,5 26.8 a1 37.9 6.6 3D.I WHIM fld,m. lnilzflrW 1rts 41 4986 293 M1 O, ad lw o thk b1f of mth ed stods tbar 28. 1914 CO -I - 123 - ANNEX -II Chart la ZAHBIA AGRICULTURAL PRICING AND PARASTATAL PERFORMANCE STUDY NAMBOARD: Organization Chart BOARD OF DIRECTORS GENERAL MANAGER 1. I CORPORATE PLANNING DIVISION FINANCE ENGINEERING DIVISION l BRANCH PERSONNEL DEVELOPMENT PROVINCIAL l DIVISION | | BRANCHES 13 GRAINS MARKETING Branches at: DIVISION Livingstone Monze Lusaka-Grains FERTILIZERS, INSECTICIDES Lusaka-Fertilizer PESTICIDE, SEEDS DIVISION Chisamba Kabwe/Natuseko Bwana Mkubwa FREIGHT AND COMMERCIAL Kitwe/Chambishi DIVISION Solvezi Mansa Chipata INTERNAL AUDIT Mongo DIVISION Kasama BOARD SECRETARY ZANSIA ACRICULTURAL PRTUrWAxD PARASTATAL PgRFOiMANCI STUDY NANBOARD: Dhivstonal OrganzaLion |GENRRIAL KANAGER | CORPORATE PLANNING KANACIR A . Sr.. I IGHT AND GRAINS MARKETING FINANCE SEcURTMESOYL Y ITCAL KANAGeR C0HENECIAL MANAORR NANACER FINANCIAL CON7ROLI.RR BOR0DSEpTR DMVL0tKMUCTANAGEC AUDIT CNI U STOCKS TRANSPORT l ULT O"tL |5 SST as ANALYSIS | I Mq ADNNISRATION ; U7IL LST 5 AGIt 0N0H lY IM PORTS STOC CXS l l s eb q9 C RI i H 4 UC RU IrT NZT CUSTOMS CLICAURlN l PLANNING PLANNING E IRSTATES |-4 TRAINING EW~~~ ~~~~~ AND HANAGENCNT LIZ~~~~ PSLIICA70NZ VNASTCA ~ ~ ~ ES0R I PAYRLL INSUSANCE rtH P-6 -4 ZAMBIA Nomboard Storage Facilltes br Maize and O herGrahs in MeMto Tons Includin CIDA/Nambocrd Sheds Phase 19,11 and III ifA ~ ~ 4i VMAW ~ I WESTERN S.-- < 112!~ ~~ ~1O IOOCO43-~0 I 0 Quo~ um s _-J i r 2m am F---- xN .N* ! _ 4e , ys'b Coi*ajS 16. N LV_.- KAAOMONGU K -----------, ii.250 Txo wEA FIwv*Ig C|p C.ld Wad AJQUU 1 _t, WOry d Coolh, FO :1 G 1d0U zed bw 5tcot Cmhol ond fbrnhg cnt rt W 11--20CDA9She02=ll 1Wt~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~LrT b mo ". ZAMBIA/ Namboard Storage Facilities for Fertilizer In Tons including CIDA/Namboord Sheds Phase 1,11 and III 3 5W 3.5 \ 3.9 163,fX o ~~~~360)0 f - \ i EASTERN Y 0 l B ~~~~~~~~ ~~~~NORTHERN 3J75 ISaw 0UN' 0 NORTWESERN S CR ND T CENTRAL C Po U Sou'ce- NoUowld std KARtIPSI 2anSo itorog. reureet \tltio II~r a WES1ERN N _ ttmw S s 6.wo MONGU - 2)w iQ \ I ~~~~~~~~S04JtlERN 7,OM( Hatto \ | ~~~~~~~~~~CHOMK <> 24 CIDAShed Phase 1 Souce; Nlolr 3sudd2 amnb'as stooe tqulsmofnE,Minkltbs drcufeand WoIe Dfepnwt. Mhishy dCooporal veFAO px4CIGCFM 101O6.w Pun by: Slock Ccntrd ond PlorwVng Dcpatfrent. Nomubwd and FAO trlc GCFtZA 1016 W_1O*260 equs WM8 - 127 - AV m Table la ZMM AGRICLLTURAL PRICING AND PARASEACTL FERUM E SITDY WlflXN: Seed Cottcn R=rcbases by Province. Lint and Seed Production 1978/79-1984/85 trw Mazlcetirg Year 1978/79 1979/8D 1980/81 1981/82 1982/83 1983/84 1984/85 1/ Province Ceitr81 2,358 7,595 10,383 6,066 3,971 18,118 21,802 SM,dzthe 2,243 3,285 7,096 7,623 5,773 8,658 14,944 Eastern 2,838 3,432 3,750 1,855 1,485 2,659 4,684 lusaka 935 505 1,514 1,067 1,458 1,63D 1,828 Nortbemn 4 9 27 30 10 7 13 Cqkexzbelt 49 74 123 61 27 122 94 Lusaula - - - 5 3 5 Westemn 2 16 33 52 36 35 118 North 1bstemr - - - - - - 6 1TUOAL 8,430 14,916 22,926 16,752 12,786 31,232 43,494 Prokaction of nint 3,057 5,427 8,221 6,254 4,865 11,821 7,773 F/Seed 5,315 9,377 14,157 10,296 7,797 18,977 11,717 1/ To September 30, ANNEX III Table lb Average Cotton Yields by Province 1978/79 19W79/8 1980/81 1981/82 1982/83 1983/84 (KWha) Provimce Central 718 686 38D 478 1,062 930 Southern - - 536 903 699 756 Easterm 569 551 389 469 677 523 Westerm 558 819 470 488 568 548 Lusaka 654 581 1,453 2,345 2,504 N/A Northem - - - 214 128 138 Zamb,ia 689 623 441 523 937 786 S9IRCE: LDNDD, Marrh 1984 1 . .~~~~~~~~~~~~~AI ZMTA AnICJUUM REIC AlD PARASEATAL sWIR nm111) LT ;: Value of Iqt aalned i Oud1t ail P c ord (K't000) ivtaicon/Provi.. Cantrml Eatem tudaa Southern Watern Coffee UTal 1. 0itstandirg Inane 1979/82 830.8 520.1 - 521.6 - - 1,872.5 2. OitatandLng Ltsea 1082/83 1,219.4 436.3 - 1,414.7 - - 3,070.3 3. Sub-total 2,050.2 956.4 - 1,936.3 - - 4,942.8 4. %epyumnts to March 31, 1984 952.6 133.9 - 484.9 - - 1,571.4 5. APParent Recowery - Z 53.5 14.0 - 25.0 - - 31.8 6. Loasm for 1983/84 Season 1,919.3 597.5 207.3 1,174.8 43.1 70.3 4,012.3 7. aepaymnts April 1 - Sept. 30 1,477.3 407.7 159.1 904.2 19.4 - 2,967.7 B. Apparent Rowiery - 2 77.0 68.2 76.7 77.0 45.0 0.0 74.0 9. btal oitstsndlng 1,539.6 1,012.3 48.2 1,722.0 23.7 70.3 4,416.1 10. Oherdli Peayery - X 61.2 34.8 76.7 44.6 45.0 0.0 50.7 N01!: Figurn In Unes 7 aid 8 are beseI om the aauupticon dit al rpsymt a llwed sInme Aprl 1 an In respeat of the 1983/84 Suam (1984 hvestad aid arketed rp). m 4 b 4 [boe,*mr 4, 19B4 - 129 - ANNEX III Table 3 ZAMBIA AGRICULTURAL PRICING AND PARASTATAL PERFPOR CE STUDY Seed Cotton Supply and Ginnin Performance to October 5, 1984 LUSAKA CRIPATA - -Tons Deliveries to Ginnery 27,852 3,748 Quantity Ginned 16,528 3,696 Deliveries to Transit Store 6,265 - Purchases to Date 38,810 4,683 Remaining at Depots 4,693 935 Remaining to be Ginned 22,282 987 Ginning Start June June Average Weekly Production 1984 918 205 Earliest Completion Date MNrch 22, 1985 November 9, 1984 Apparent Ginning Outturn 40% 38% 1/ Assumed to be the sum of lint and seed production. December 6, 1984 - 130 - ANNEX III Table 4 LINTCO Development Performance: Comparison Between Profits and Subsidies Received (K'000) Year Profit Before Tax Subsidies tIet Fiscal Received 1/ Contribution 1978/79 377.7 - 377.7 1979/80 1,72.4 3,900.0 (2727.6) 1980/81 1,168.3 4,650.0 (3481.7) 1981/82 1,230.5 2,979.2 (1748.7) 1982/83 27.1 731.4 (704.3) 1983/84 2,546 1,726 830 1, This is mainly an export subsidy paid to Lintco, by the Covernment to c-over the difference between export price and local price for lint. - 131 - -ANEX III Table 5 LINTCO COMPARATIVE RETURNS TO MANDAY OF VARIOUS CROPS IN 1983 (KlManday)- Suallholder Emergent Cotton 1.39 0.28 Maize 2.51 6.82 Sunflower 4.42 2.35 Groundnuts 2.48 2.71 Virginia tobacco - 2.09 Barley tobacco - 2.77 Sorghum 1.73 Millet 2.32 Source: Zambia Policy Options and Strategies for Agricultural Growth (Supplementary Volume), June 11,1984. - 132 - ANNEX III Table 6 LINTC0 Comparison between Average Lintco Cost of Production and Average Border Prices for Cotton Lint (K/ton) Year Lintco Costs Border Parity Price Douestic Lintco Costs as Percent of Import Export Price Import Price Export Price 1979 700 1290 840 1950 54 83 1980 590 1350 890 2000 44 66 1981 450 1620 1030 2270 28 44 1982 750 1650 1170 2320 45 64 1983 710 1550 1460 2500 46 50 Source: Calculated from data contained in Lintco's Annual Reports AmlTauL L 1CfV AND PARASrATAL PFc4AM SmW LmvOD: &tumrised Finnlal 1eau1ta and Indicators Year EncUnR Mardh 31 1979 1980 1981 1982 1983 1984 Turnover K'00 4,417 8,295 19,157 2l,17i2 13 4 31 3 Fixd Assets K'O0O 629 616 1,706 5,166 4,860 5,274 Net Ojrrent AsEete K'OOO 1,R48 2,296 3,035 4,975 7,129 8,501 Represented by: Shareholders FRu-d KIOOO 1,360 1,ogo 2,327 2,862 3,130 4,734 Long-1arm Lotsa K'OOO 1,117 1,C04 2,414 7,279 8,859 9,041 2,477 2,912 4,741 10,141 11,989 13,775 w Dabt/PFqty 822 53 104X 2542 2 191% Current Ratio 1.49 1.24 t.24 1.45 1.88 1.69 (Iaidc Ratto 0.70 0.50 0.54 0.76 0.96 0.88 Pmfrit before Tix K'OOO 377.7 1,172.4 1,168.3 1,230.5 27.1 2,546.0 Tax K'0O0 624.5 749.0 695.0 59.3 943.0 Profit after Tkx K'000 377.7 547.9 419.3 535.5 (?2.2) 1,603.0 0'W Subeidies Rewived 1,6R2.6 4,250.9 3,86h.1 531.4 142.0 DJ H Ind¢9mbr 6, 194B - 134 - ANNEX III Table 8 ~au1~xa1 Mdzw McKis ta 1 6zfW LXnD F1, d V ab1awom-s - lbem a md - 1SS8V82 - 198S4 l9SU8 2 1983 2 1963A 2 19W85 2 Salm bumcircim subd1a. 19, 15.OD 13,545.00 31,3M.00 52,6IL00 R8zo: VoLt 9,639m s.6s8.0o 16,973.0 26.772.m (V'OW) 17.0M 12.73.O 32.055.00 45,745.OO UPO 1.M3. 3.3 L.O.0 33.8 2.4.0 40.0 4.33.00 32 sa2adm. _I I.L0S0 29.7 92a.mD 3.0 I18.4 19.6 1,465.0 U.9 Pddo 1at s 735.M 19.7 4s8.O 14.0 .LO00 1.7 3.247.0 26.3 FIn 1 Ibdjiin lfr [IO 2.9 84.00 2.6 207.00 3.4 503. 4.1 cop sCmE 49.0 13.4 563. 17U.6 996.0 16.5 1,153.0 9.3 Pdza1g md StAomy 1, 75.00 2.0 96.0o 3.0 M2.O 2.0 152. L.2 (dur 2/ - - - _ - 101o3. 16.8 L12O .4 sA~ 3.726.00 Mo- 3,200 lOLO 6.500 m i sIA. _fIm 1,013.00 3L4 1.265.a 29.9 1.735.0 35.9 2,.34M. 33.4 Saff knum 306=. 9.0 355.00 8.4 48.o0 10.0 82.0 11.8 TawtI ad 9 254.00 7.4 331.0 7.9 4*.00 9.5 8OD 12.5 t sd eMt 176. 5.2 143.00 3.4 32O1 6.7 1.0 2. FIm 80.00 23.6 80%.OD 19.0 565.00 11 5.00 7.1 Odat1o 178.00 5.2 5MO. 12.4 479.00 9.9 1,003.0 142 Prt1zs 75.O0 2.2 97.0D 2.3 121.00 2.5 153 2.2 aem 518.0D 16.0 708LD 16.7 665.00 13.8 1 139.0 16.2 SAPt 3.E1 T.a ifu.o *,2L1 10.0 Yw 27.uw 7 IIMOO -mk Total Eq.um 7,140.0D 7.42L.D 1.877.0D 19.3694a FI,in m=:o as2 of totl exmt 47.8 56.9 uA.4 36.2 Ibtt c9em tas of tt., ]am e, um 75.0 89.9 75.8 74.8 ?Magerlamc ulo 2.68 L82 2.3 2.36 .rable ema p c 3/ 217(217) 25236) 186151) 20tXH 1-6 e - t cr 199(199) 331(285) 5l1(1) 151(101) 1/ Aumd to k = of wea ue t ir dds h1l 3/ Flamm In Ldm a1jomd b G datoc rb1.r: 6, 16 cw 012mo 6. 1984 ADrtaciattmnI Pricirng anM ttam Rerfosmme Safly WfltU: Divi ul liomi ? t I (bta - 191Z/R3 - 184/85 (K'0f) DMvilion/PFvinoe (ntrl oudum ENtem hIFKt &Algst lu 1982/83 1983/84 1984/85 1962/83 1983/64 1964/85 L982/83 1963/84 I964/ Fhwdhases - Tbo 4,619,6 18,240.0 213,0. 5,R870 8,658.2 14,000.0 1,482.6 2,658.4 6,063.0 VIit 2,351n.0 9,716.8 13,514.0 3,783.7 3,844.7 8,132.0 739.6 1,476.6 3,75.2 Tramport-S.otton 157.1 994.2 1,670.3 341.8 507.9 1,925.0 46.6 135.7 370.7 Other 0.1 92.7 - R3,4 121.0 - 29.2 83,5 - Padkiw bterrals1/ 161.7 33R8A 86S,3 9t\.7 76.5 561.0 67.6 31,0 160.0 ks6e 129.6 190.2 24.2 127.6 128.8 121.8 84.3 88.7 95.0 Storap - - - - - 5.0 1.3 0.6 - bir*atl 448,S 1,615.7 2,784.8 64, RA,f 2,631.6 21).2 338.5 62S.7 Cst per tUn (k) 97.09 AR.SR 119.52 109.31 96.35 186.56 155.27 127.33 103.20 StaIftfh%ints 155.7 169.4 2M5.4 157.4 177,8 283,1 188.0 179,6 222.2 Ih1rm l9.l 45.0 9.3 41.9 6R.7 109.5 38.5 52.9 70.1 Travel 9&uIstAnce 59.R 1069 170.8 69.R 108.5 207.7 57.4 81.8 130.4 3W wiilrE 22.7 32.5 39.3 31.5 28.2 36.5 46.9 38.9 17.5 HW Repelrs 9.9 44.5 40.3 25.0 27.1 16.0 21.2 L9.O 12. Ptmnc - 76.4 102.5 0.7 31.0 - 9.3 11.4 28.n Rents and Itiltt1es 14.5 IR.9 23.2 10.2 6.1 9.5 7.2 9,5 2R.7 (unimtvAtion 4.8 IR.0 16.4 8.4 I6.6 12.0 5.6 13.8 18.0 Printtg tatlounery 11.1 63.6 55.0 2a.s 34,6 S3.4 16.3 11.2 49.7 rlini(r 0.1 5.0 9.7 - 2.6 R.4 2.7 2.7 3.8 Rewrity - 4.5 72.0 - - 43.2. - 0.7 24.0 Repars P41ntemnue 7.6 14.7 19.3 6.1 6.1 20.3 2.6 3.5 5.9 Other Expaiew 11.6 1.4 44.0 21.3 1.9 4.7 0.7 3.4 3.2 &iblotal 157,1 . 8 977.2 401.6 511.4 R24,3 398.4 -r9, 613.7 Total 805.6 2,216.5 3,762.n 1,045.1 1,345.6 3,436.1 628.6 787.9 1,239.4 (bet per ton (K) 174,39 121,52 16146 177.53 155.41 245.44 4213 296.3R 204.42 Read Cotton tmrrport (K/ton) 34.03 53.21 71.69 58.(6 73.10 137.5 31.43 51.05 61.14 / ltwte ts an uxp4inud dtffeuu, of K4,000 bmtin the divilouil aMn toUdte acomm for 1983184 S9Ns.: LIN1 bh4pts - knAou*x H PIH 7JBTA Agraiihral ftidc1r md rurwtatal Petfom Studb LINIW - Mvlsloml utetiUw Onto - 193 -19P4/85 (K'O0) X#DU m us"A NOW t4W UMllA C/i BI*pt &K*t lot &hAt hWt ht 1983/84 1964/85 1983/84 1984/8l 1983/84 1964/85 1984/85 194/85 194/llS FUR5M - TOM 34.5 12D.OD 1630.2 1900.0 7.1 40.0 10.0 10.0 300.0 - 'aue 18.3 69.6 914.8 1102.0 13.7 23,2 5.8 5.7 174.0 Tmzuport S. (bttcn 3.6 48.0 124.0 150.0 3.3 30.0 3.8 5.1 90.0 - (XOhr 6.9 2.0 lNddtIg 'terial - 4.8 34.2 76.0 - 1.8 0.5 0.5 12.5 IWa 3.4 10.6 49.4 64.5 - 2,0 0.5 0.5 .38.2 Stora - - - - - - - - - U)total 7.0 CUT 214*5 292.5 3i.3 33.8 4.8 -6T 74 Coat per ton (k) 2D2.9 528.33 131.56 153.95 464.79 845.0 480.0 610.0 469.0 Staffmhnt 23.7 353.9 .F 81.5 13.5 41.3 1. IT.6 19.2 1 -1Han1r 5.8 12.6 28.3 28.8 6.7 21.0 3.6 3.6 - Ihwel, %NiBtU4Mr 3.6 17.5 29.6 36.5 2.8 17.0 16.0 12.9 7.4 W RnitUrg 5.3 12.0 5.7 6.2 2.4 6.0 3.0 3.0 6.0 IU/ Peirs 1.2 9.6 7.8 6.4 11.7 6.0 3.0 3.0 6.0 Flmnc - - - - - - - - - at Iid tkiUttau 0.5 1.2 5.5 11.2 5.3 4.8 - 2.4 7.6 maettiom 0.2 2.6 1.2 2.4 0.7 2.4 0.2 0.6 0.6 Printirt Statio.ury 2.6 6.0 5.6 8.7 0.1 1.5 1.5 1.5 3.0 TIainfr - 2.0 - - - 8.4 4.2 2.8 3.4 Soawity - 9.6 0.4 5.4 - - - - - Peplr. l1nt. - 0.3 2.0 3.5 - 20 - - 2.0 Oder 8xports 0.1 1.3 1.9 3.6 - - - - Sub-Total 43.0 1l1.6 15t 0I *194.2 -3.2 110.4 1Z.0 4. ST To1a 50.0 174.0 364.6 486.7 46.5 144.2 50.8 50.5 195.9 Cost per per ton 1449.28 1450.0 223.65 256.16 6549.3 3605.0 5O.0 5050.0 653.0 i-a eM S. Cotton Tlzport (k/tcm) 104.35 400.0 76.6 78.95 464.79 750.0 380.0 510.0 300.0 0H 1 137 - ~~~~~~ANNEX III - 137 - Table 9c zmI AgrInduml frfdtw &M P_mam1 Ps n Siidl LU= - 6mwcz d Ptoaamz eiM 199V83 isa [9934 198/85 1983 4 19 SS/85 Pt _ T S. Q o 12,787.9 3z2,0.0 ,5.0 45,745.0 X000,0 32,01.0 45,745.0 Wm 6,8.6 L7,160.0 16,93.0 26,772.0 wpt-6 d Cotti - 350.0 7133 802 -d 10.7 - 2A Rdn. 1F _w M.6 2D.0 2aJ I 503.1 PaEdr Pbt _a1 85.1 80.0 60.4 1.569.8 Seo 33.1 10.0 74.2 786.0 Th_gums 14.2 50.0 321.0 533. _arm i __ 279.7 330.0 6327 5 8522 1 s (I~) 5Y943.1 90.0 *im. 3.o 0oat mr ti (1) Wu 31S6 60.6 --MW 100.0 Staff _ Z 75 3W0 - 7a - 66.7 -mrg, W1fu 63.6 8z.0 11l0.5 162.9 407.0 1mL, sa1m_am 10.1 30.0 2VA8 39.3 221.3 .. -. ; .... . 11.8 2.0 2D.7 - S23 43.1 M IPAl 12.6 3D.0 41.8 68.5 49.5 Fim= 0.4 - 1.1 2.0 1.S50. Flat 93 12.0 23.1 35.0 74J UdlUt2m 22.4 45.0 86.1 61.2 15.1 *amxdalt3 4.4 6.0 13.1 11.2 S2.7 pd*w. suc1in 11.6 15.0 25.5 25.0 99.6 Tn1qA 0.2 1.0 2.9 2.0 3L6 SOMLIZY 7.1 21.0 19.2 76.8 S.4 RIm1s, DW. 22.2 25.0 100.0 242.0 11.1 =mmm~ - - - - .50.0 Ot0m 6.2 6.0 6.0 15.5 60.0 467.4 595.0 891.7 1,213.1 9.9 TOWal T.6g5.0 3, 1 . 5 coutr mm S. Fctm 86.79 52.97 1O0.72 129.81 72.77 1520 8322 - 13. 1986 ?WAL MWaLUIL :WICDU M1 P6liTA mor nE !~qrutl' Outtl, ftAaU!g Onto 1983/84 - ?A, Zidthe .d old I of Ui 2 OfB0 S of US Zc PAde lOulimet It. Awd 5iilht mud. Ilw d ulet by w r Pric ($W51.04) b or k Pi ($4U.33) ?-uu b him (0.51.64) Sad Co Purdiue 166,425 13,169 32,085 kAnp Prlca - Fsnie 50.14 46.n 36.72 27.61 52.90 32.2S ftchim A ftorm I.2R 2.55 1.17 8.22 22.3 6.18 .IIJR 21.51 6.94 of %leh: 7T,upgmt 1.22 1.76 7.ff wd4wm - - 0.14 - Salrute. a bs - 2.94 j/ 0.15 -Oder 0.0i 1.52 qmlrg - frocUrg 8.40 16.7S 7.71 S,ON 24.07 6.65 9.28 17.54 5.66 of WAldh: - Plait Op ntz¶r 2/ 1.72 3/ 3.1801 1.72 -Tulhpost 0.01 - 2.22 - aideairw1.57 ,5,1 0.19 -rlt 6Ibn 3,0 3.N9 3.23 - Ft a 0.62 - - IXiur 1.19 1.31 1.92 &n1atrmttan 6.47 12.90 5.94 7.62 2D.74 5,73 13.60 25.71 8.29 - luartes, etc. 0.3D 1.47 1.9f - Pf nu= 5.12 0.44 3.96 - ouwu .Us 0.34 0D3 - IVO Uuh*s 0.84 5.37 5.83 - Otr 0.13 - 1.56 Total 16,15 32.12 14I2 24.66 67.21 IR.5I 34.26 64.76 20.19 I/ hmos alarten & wgs aommt for 5Y of mzketirg ari stt o cts, w3 !/ 1i 1tai - nm.aw imiuim Nw pocesimd. TmxW a trwta eA ginning JZ As_m_e sblalsm wp wat for w of prohhl cets S5ws.: Ahmln &cissite aid mta. H O r 6, 1964 - 139 - ANNEX III wable--= ZAMBIA AGRICULTURAL PRICING AND PARASTATAL PERFORMANCE STUDY Cotton Ginning Outturns ZAMBIA ZIMBABWE Lint G.Seed Loss Lint G.Seed Loss 1978 36.09 63.73 0.18 35.04 63.24 1.72 1979 36.79 62.89 0.72 34.84 63.67 1.49 1980 35.60 61.20 3.20 34.92 63.80 1.28 1981 37.33 61.46 1.21 35.47 63.63 0.90 1982 38.04 60.98 0.98 36.18 62.61 1.21 1983 37.85 60.76 1.39 35.60 62.85 1.55 Source: LINTCO and CNB reports. December 5, 1984 ANNEX III -140 - Table 12 ZAMBI AGRICULTURAL PRICING AND PARASTATAL PERFORMANCE STUDY LINTCO: Production of Vat Acid Delinted Planting Seed 1984 (to September 30) INPUT 0 U T P U T Variety F/Se-da P/Seeds Floaters P/Seeds Floaters !oss (Kg). (a). (K). x z x Certified Chureza 861,750 622,780 144,250 72.26 16.73 11.01 Basic Chureza 78,800 56,320 14,950 71.47 18.97 9.56 Certified Chilala 301,150 182,120 72,600 57.66 22.98 19.36 Basic Chilala 44,450 26,740 8,550 60.15 19.23 20.62 TOTAL 1,286,150 887,960 240,350 68.26 18.47 13.27 SOURCE: LINTCO Ginneries Division ZAMBIA AGRICULTURAL PRICINC AND PARASTATAL PEFRORMANCE STUDY LINTO: Organization Chart BOARD OF DIRECTORS GENERAL MANZCER PERSONNEL ACCt)UNTS COMHERICAL COTTON DEVBLOPEHNT DIVISION DIVISION DIVISION DIVISION SOUTHERN I CINNERIES DIVISION l DIVISION CENTRAL l | INPUTS 5 DIVIS ION J |DIVISION EASTERN TRANSPORT DIVISION l DIVISION COFFEE D____________________________N __ Mt ANNEX IV 142- Table i ZAMETA Agricultural PricliX and ftrastatel Performance Study aOP (1975) LTD - Oilseed Processing Capacity Rated Working LUSAKA Capacity Capacity i eld Rrnrks Seed Crushing 300 tpd 300 tons 75 tons Pro-pressing 25Z (sunflower) oil Yield mx. or 200 tpd 200 tons 200 tons 280 K 24 hr. year. (Soya G'Nut) Soya Conditioning and flaking only. Seed Crushing 120 tpd Very old plant not in (sunflower) ervice. Solvent Extraction 200 tpd 200 tone 38 tons Approz. 19Z yield from (Cake or Soya) oil Soya. Oil Refinery - continuous 100 tpd 100 tons 97 tons Approx. 3S refining loss. - batch 20 tpd 20 tons 20 tons Not In Service. Seed Cleaner 60 tpd BUing Installed (1200 tpd) November 1984. Bulk Seed Storage 7800 tons 7800 tons 7800 tons Bulk Oil Storage 2000 tons 2000 tons NDOLA Seed Crushing 80 tpd 20 tons 3 tons Very old plant. (Soya) Seed Crushing 30 tpd Not yet commissioned. (Soya) See text. Seed Crushing 50 tpd 35 tone 6 tons NoY plant. See text. (Cottonseed) oil Oil Refinery 48 tpd 48 tons 46 tons 12 ton batch process. Approx 4; lose on cottonseed oil. -143 - ANNEX IV Table 2 ZMA ~J.h1bfgPrlzgad Fhzutatal Imfou.nam Pb*d RQ (1975) tidtgd - Othr kOWMl CapUCity P4tad W%ddm yie3 Peddg (011) - lotl, 20 tpd 20tod 20 to - cm 30 tpd 30 td 30tow - F1zdahL 48 tpx 48 tpd 48tow - m - 24dg tpd 24 tpd 24 m RdkzW (011) 75 tpd 70 tpd 70 tow 2 litw c (20 atd k1 60ml bDttla bwcm of NubmI UbeinUIz L-Ack of anl) ?hz;iz. 24 tpd 16 tpd 16 tms 2 sitfts - a1Ddig 120 ctp 1s epI L S toiw limted bp fiishizg - Flrdsh1rg 24 tpd 15 tpd 15 tow old plant etricts prm co ner 13, 198 -144- ANE IV Table 3 ar 1973) I: Peu*i Jmd ? t SM_ 198182-M MU Mn_al 139/90 131/8 191/8 Plina Jll 1 Pi L1W10t TmK/ Tgm am AtmL vdmm IgD *ss t,70297W 3Z.40 33.960 33,960 35.400 S.90 SLIM 1.88 16.653 Ol"0 195.W 3D U.7[ D 8,.7o is ,sham -:Zw 41 52 46 5 52 so .-2 o_ 12,73D 13,510 I4,2 14,=0 16.603 19.100 sim 1,017 Z.llO 4,610 1,23 -73 5.145 1510 Nzxtnt -Z a 15 31 8 35 s0 AnstD- a . 1 ,5 23MD 25.=0 5.900 36.0 SI 5.u2 4,2G5 6.IO 6,6M .0 7,00D 3D.40 ste -: z5 is 2 26 235 16.000 16.10 17,50 17.5m 18.40 23.400 SIMus 2.89 3.551 4.00 3.392 -16 4.73D Ik8720 )himcmS -S S3 21 23 19 as so 11 3,110 3.79D 3.460 3.460 4.8 3,12D SKIM S2 750 730 7 875 2.66 S' P X 17 2D 22 22 18 55 cutt mo 450 W 5m S30 5m 624 62 71 90 2Z -76 15 363 kt9Sh - z 14 14 17 4 19 55 1bcI t P2 8 S 86 as a 10 I1 7 18 10 -45 21 57 c Sh - z 12 8 21 12 21 55 on. -E am Sos NJ. NA. L5.15 13.030 -14 A. 85,670 tr 12,56 ANX: IV - 145 - Table 4 USI AcdoLlrwal Ftdrzw ad Pmu1- bdaoxm Stud* D CM975) IsEt 1. Ohint of B Ibfzlas far ( mb 1e M. W at 3X1 ft 1 FL 4DA IL 40) ?M Cbmu: F/C FitC K F/C MM) US. MM) K .0o. 644.4 1,403.09 641.97 1,397.71 750.3D 1,634.01 Frnat to rw SD.00 126.28 75.00 163.29 72.S 157.85 C & F lr. 70244 1,529.37 716.97 1,561.00 823.00 l,791.6 T-A Be - S an R 70.15 69.W 81.70 TUUZmM 13.16 13.16 20.00 pzr & dinm 4.18 4.1R 6.28 Tmmot by PEld 90.1L 90.11 90.11 1,706.97 1.738.34 1,969.95 dt Los Is_ 1/ x EEfotiew CAt perm X Tk 1,759.62 1.792.10 2,051.48 1 m e by trmw 4ith 3e 13, 1984 ANNME IV - 146 - Table 5 2. W=L Ri UITAS suiI!mr SDaj'uhtm _____ bflKmd bp&Ugd mI1T -m Ram Fr T 6W 722.22 722.22 240 P -- - 25 68D 72L22 265 P IM f T1 t Las ' 2Z ' 2 Efscav CCam per Tom 693.6D 736.66 736.66 270.30 Y . -0on - s a.ao 19.35 i3.00 12.56 - CaIft4m. - 1 36.93 72.W 78.50 59.2D -Cin1o uxt L Stu Xt- - - - 0.33 - C =Lma dt- -- - 52. - Faunl aid ras - 2 3 865 850 23.64 WI31w Pedm - cd. per Tm C.D 095.0D M95.0 R 30.00 t UT Ist Cut pr T - - 5.00 Cottm, UTA 2 0b pr Mm - - - R 2C.00 Effective Quztt of Snu cqpdzed to prodme O Em T f 01-1 - 3.468 5.168 7.692 7.962 Ost of Sih topz 2 a OTonOf ani 2,391.53 3,807.06 5,666.39 2,152.3 TM&: FA.wO f=m Cd. 416.38 1,841.8 2,988.92 1,575.52 Rv fr t Tnr: Istt - - - 13.14 20d oi - - 83.92 Net Cot Of Sd 1,975.15 1,95.19 2,677.47 479.55 Est dmted 0wxind per td sed C nwhhW 141.00 131.00 120.0O 133.00 1tfrd.z 103.O0 69.00 66.00 45.00 Dwember 13, 1986 a~~~~~~' "UE "UN ill # II W | H^XS * R R S 9 e §Is K -I~~~~~~ a w~~~~~a- W | NI - .1 g * soW W W *"q sN. I *sC- .-tI 1g t1^ C1gi§g | I| ; ; |i8 ANNEX IV - 148 - Table 7 Odkirg MI Pacwr lmmlyoft rdM CAt 600 xs - Bott3inKa Fach 0.38 24 1 9.2112 -lTames 1.X00 11.52 21 0.282D -C(C 54 FAch 2.96 1 0.% 2.9748 TUO cei PER Ch2' 12.4680 750 MIS - 1 /ottl/Cas 1,000 496.0 12 1J 6.0212 - Tabel 1,000 8.00 12 0.0979 - CXC 41/P EAich 2.036 1 0.5!- 2.1378 TUA aYr PR CM 8.2569 2.5 Ttr.- JarsCms Fai 1.17 7 U% 8.2719 - Lbae 1,000 12.48 7 Z 0.0891 - C/C F-& 1j5 1 0.5! 1.8593 TOML PM c 10C 5.0 kr.- .ks/Ka !arh 1.67 4 1% 6.7468 - Tabels 1,000 16.68 4 0.061 - C/C Ead, 2.63 1 0.5< 2.6432 TIaL O PR CAE: 9.4581 20zr. - Tlm Fadh 4.53 1 1L 4.5753 - Labels 1,000 2D.75 1 20 .0M MMEAL COST Pu5 Tm/CA 4.5965 200 Isr.- Dr Fach 1500 1 - 15.00 TOM Om E D> 15.00 _Kinr 13, 1964 ANNEX IV - 149 - Table 8 ZUI AXtiO21ad 1 Pddastl Rfo! stt* R'1 (1975) Ui.md - Fla= ULllam 1981/82 - 1984/85 1981/& 1982/83 1983/8X 19W85 z = = --f z eo Qau 32 40 44 60 52 40 50 7 30 15 50 7 30 35 Saw 22 36 26 50 2 30 35 N S Do 28 45 21 50 33 30 35 ft1rbw m!pflo 23 18 28 50 29 30. 35 T _arl_s 18 a 19 50 9 30 35 M: MP (1975) Ltu*td 1wobw 12, 1984 ANNEX IV Table 9 -150- ZAMBIA Agricultural Pricing and Policy Study ROP (1975) Limited: Comparison of Plan and Actual lPerfotmnce 1983-84 Plan Actual Variance Amount Amount K'000 K'OOO Sales 68,775 73,270 + 6.5 Cost of Sales Rav Materials 49,048 49,025 - Production Expenses 9,546 9,190 -3.7 Aduin. Expenses 4,692 4,919 +4.8 Sales Expenses 1,596 1,934 +21.2 Finance Expenses 1,890 1,837 -2.8 Total 66,772 66,905 +0.2 Net Profit 2,003 6,305 +217.8 Exceptional item - 444 - Taxation/Equity Levy 207 207 Profit After Tax 1796 5.7t14 +218.2 Shareholders fands 17,724 22,515 +27.0 % Return 10.13 25.38 +150.5 Proposed Dividend - 414 Retained Profit 1,796 5,300 Source: ROP (1975) Limited Budget and Accounts i~~~~~~~~~~~~~~~~~~ : PIPIPI 1 511 Jw _ !!!~~~~1 o5' Mriaalbwal hdm* an Ptautstma Ndzfmm La& ElP (1975) Uaitad - usmc d Vom1Wi b.w Ing tirmt at Ilffm.et lava" of Caudty Mik11udm~ WBLr l 252 30_ 35X 40% 451 5( 601 701 75X 8( 85! *9( 10(1 IW 0Jx1Z on1 12 1756 3842 5929 8D15 10101 14.275 18448 20534 22621 24707 26794 30967 10101 32188 NW§hS.u 4049 4858 5668 6476 7287 8097 9716 11336 12146 1295 13765 14575 16194 566 G647 ad= vwt 934 1121 130 1493 1682 186g 2242 2616 2803 299O 3176 3363 3737 130 149 3gtb unpu 2401 2881 3361 3837 4321 4802 5762 6722 7202 7682 8163 8643 9603 3361 3837 1bvid 80/.D 965 1126 1286 1448 160919302252 2413 257427342895 3217 1126 1286 AND aWkn4763 5715 6668 7621 8573 9526 11431 13336 14288 15241 16193 1714.6 19081 666 7621 Od ur qpaus 328 394 458 524 590 656 787 918 964 1050 ills 1181 1312 456 524 253 303 354 405 455 505 607 708 758 809 859 910 1011 354 406 &up=o I 12 15 17 20 '22 24 29 34 37 39 42 44 49 17 20 ?muL 13664 18006 Z?802 27591 3233 37189 46779 56370 61165 659~61 70754 75651 85141 :4q06 33850 BWiA K1.D a 1540,60 1MO 31 (1975) 1u1±tal 1984/85 Capftal Dud*t ibmi.r 12, 1984 ZAIIB IA Agricultural Pricing and Parastatal Performance Study ROP (1975) Limwited - Overhead Costs and Operating Margins 1980 19RI * 19R2 1983 IqR4 I of I of Z of I oof K'(OO Cost K'O() Costs K'000 Coats KKOOO CoCts K'IOO Comte Turnover Sale. 30,426 14,350 40,024 55,677 73.270 Raw Material Costs 21,037 22.584 26,371 39,157 49,025 Gross Margin 9,389 11,766 13,293 16,520 24,245 Salaries and Wages 3,616 32.3 3,852 15.0 4,h60 36.8 5,116 33.3 5,RR0 12.9 Production 2,242 2,109 2,806 3,071 3,679 A.iinlstration 8R1 1,1129 1,248 1,450 1,5R7 Sales 513 514 606 615 614 Otler Expensea 5,023 44,6 4,666 42,4 5,530 43.6 7,463 48.4 5,063 45.1 Produiction 2,214 2,159 2,393 3,507 3,802 Adainlatration 1,710 1,672 2,141 2,622 3,166 Sales 1,109 135 996 1,334 1,095 Depreciation 960 8.S 965 8.7 1,191 9.4 1.2R8 8.3 2,098 11.7 Prodtictlon 763 658 819 905 1,708 Pn Ad aIn ItratIon 144 118 155 162 165 w Sales 53 169 219 221 225 Financial Expensee 1,638 14.6 1,526 13.9 1,292 10.2 1,538 10.0 1,837 10.3 Total eosts 11,257 1n0.o I I,n)9 In0.( 12,675 1n0.0 15,425 100.0 17,87A 100.0 Of Which Prodtictlon 5,279 46.9 5,127 46.5 6,018 41.5 7,413 4R.5 9,190 51.4 Administration 2,755 24.5 2,819 ZS.8 3,544 27.9 4,233 27.4 4,919 27.5 Sales 1,585 14.0 1,518 13.8 1,821 14.4 2,169 14.1 1.934 10.8 Finance 1,635 14.6 1,52h 11.9 1,292 10.2 1,538 10,0 1,837 10.3 Total Costs as 2 of - Gross Mdrgin 119.9 93.6 95.4 93.4 73.7 2 of - Sales 37.0 32,0 31.7 27.7 24.4 ecember 13, 19A4 I D ZAMBIA Agricultural Pricing and Parastatal Performance Study ROP (1975) Limited: Financial Performance Ratios Net Shareholders 1/ Pre-tax 2/ Return on Assets Funds Turnover Profit Assets S. Funds Turnover ------------------------…KOOO…------------------------ … 1979/80 17,684 5,559 30,426 (2,938) (16.6) (52.9) (9.7) 1980/81 19,514 13,486 34,350 (172) (0.9) (1.3) (0.5) 1981/82 21,173 15,677 40,024 618 2.9 3.9 1.5 1982/83 20,883 16,811 55,677 1,095 5.2 6.5 2.0 1983/84 25,768 22,111 73,270 6,365 24.7 28.8 8.7 1/ Capital and Reserves excluding provision for long term debt 2/ Excluding exceptional items and adjustments in respect of previous years SOURCE: ROP (1975) Limited Annual Accounts December 13, 1984 s-'F wr~ ~ ~~2 srx r, _ & ZAMBIA TNAI EXISTING TRANSPORT SYSTEM ' / T ZN - : RVS mxfos N 0 R R *t* Ailelds~L AP 8 ~~~~~~~~~~~~InI.rvat.nol inbava dr;,., A N G,0/ L A) ; A R g~~r N Or0A e I / SOUTH\N ZIMBABWE (CES N AC T R A L M | ^X$\= F > ) = / ~~~~~~~~~~ h ~M O Z A M El I o u E L~~~~~N- A MI3