How to unlock Zambia’s agricultural potential

Zambia has substantial agricultural potential, with a total land area of 75 million hectares, out of which 42 million hectares are arable. However, agricultural productivity remains below its potential capacity. Maize, the backbone of Zambia's agricultural production and diet, is by far the most pivotal crop in the country, accounting for 70% of Zambia's crop output. Despite maize's dominance in Zambia’s agricultural landscape, it also characterises the productivity issues faced by the sector.

There exists a significant discrepancy between potential and actual maize yields. Figure 1 illustrates this divide: it is estimated that Zambian farmers could obtain yields as high as 12.6 tonnes of maize per hectare under optimal conditions and practices. Yet, in reality, the actual yield average is around 2.4 tonnes. This yield gap of roughly 10 tonnes per hectare is one of the highest in the region. If Zambia’s maize production reached its full potential, it would have surged by an additional 15.3 million metric tonnes, marking a 525% increase over the actual yield in 2020-21. Although producing at potential is unlikely as some inefficiencies always persist, this gap underscores the profound scope for enhancing agricultural productivity and the transformative impact this could have on Zambia’s economy.

Figure 1: Potential and actual yields for a selection of countries (2000-2020)

The observed shortfall in productivity, when paired with the fact that only 15% of Zambia's arable land is currently cultivated, translates into an annual maize production of approximately 3 million tonnes. Remarkably, this production level is roughly on par with Malawi, a country with only 4 million hectares of arable land compared to Zambia's 42 million hectares. This raises a critical question - why does Zambia, despite its substantial agricultural potential, not harness greater value from its agricultural sector?

Struggling agri-markets and how to make them work

Zambia needs better functioning agricultural markets that are currently plagued by low returns to production. There are two major components which drive these returns:

1. High fertiliser prices

Zambia experiences some of the world's highest fertiliser prices. While often blamed on import and logistical costs, we still find a large discrepancy between the fair and actual prices when accounting for transport costs from international sources. When factoring in freight charges, port fees, related expenses, and allowing for a 20% trader margin, our calculation yields a fair price of approximately US$ 620 for urea fertiliser in the first half of 2023. Comparatively, actual recorded bulk prices in Zambia stood at US$ 900 per ton, approximately 45% higher than the estimated fair prices. These calculations are outlined in Figure 2.

Figure 2: Cost breakdown of urea fertiliser pricing in Zambia 2023

The aggressive mark-ups on fertilisers in Zambia are indicative of an anti-competitive market. The supply of fertiliser in Zambia is highly concentrated, with two firms accounting for roughly 80% of Zambian fertiliser supply. Moreover, these two firms have close international ties with each other. The Zambian government spends substantial resources annually to subsidise fertiliser costs for selected farmers, mostly through the Farmer Input Support Programme (FISP). This means that farmers and the government effectively pay for these excessive fertiliser mark-ups, thus underscoring the urgent need for a policy review, stricter market oversight, and regulation.

2. Low output prices

Zambia has some of the lowest maize prices globally, much lower than prices in potential export markets. Zambian farmers could use this price advantage to export produce and receive more favourable returns abroad. However, export barriers prevent local producers from tapping into these markets. Transport costs and cross-border inefficiencies are frequently cited as major reasons for a lack of Zambian export opportunities. Yet, our calculations suggest that the export of maize would be highly profitable. Figure 3 showcases how potential maize exports to Kenya could have yielded considerable profit margins, with the potential to exceed US$ 250 per tonne from mid-2022. Repeating this analysis for soybeans, the average attainable profit stood at approximately US$ 300 per metric ton, representing 40% of the selling price. Zambia could add considerable value to its agriculture sector by tapping into these export markets.

Figure 3: Maize prices in Zambia and Kenya, and export parity (less transport) prices to Kenya

Facilitating market access

Proximity to roads is essential for market access, which in turn can enhance income, land value, and agricultural productivity. However, it is estimated that just above half of smallholder farmers reside within 3 kilometres of a feeder road. The significance of road access cannot be overstated, as evidence shows that traders are less likely and willing to access markets further away from feeder roads. This is supported by cross-country evidence, which demonstrates the pivotal role of road infrastructure in increasing the value of agricultural land, boosting production and income, and lowering the market prices of agricultural produce.

Adoption of agricultural technology

Accessibility barriers hinder the adoption of agricultural technology in Zambia. A 2016 study revealed that less than half of smallholder farmers adopt herbicides and animal traction. Tractor ownership stands at a mere 0.2%, and only 1.7% have access to tractor services, reflecting a broader issue around mechanisation. Despite these gaps, there is an evident demand for technological advancement among Zambian farmers, with half of the households willing to pay above market rates for ripping services and 5-10% for direct seeding. These figures show both the challenges around access and the willingness of farmers to integrate more advanced agricultural technologies.

Facilitating access to agricultural finance

Most farmers have limited credit access. Furthermore, within Zambia's agricultural finance landscape, a disproportionate amount of capital—approximately 85%—is allocated to large-scale commercial farmers, leaving smallholders and agricultural SMEs behind. When farmers receive access to credit, they are subjected to steep interest rates; data from 2018 indicates that borrowing costs for agricultural producers often surpassed 25%, with peaks reaching 50%. These financial constraints persist despite compelling evidence that subsidised loans can significantly boost agricultural productivity and wages as well as improving food security.

Areas of future research

A complex web of interconnected factors constrains agricultural productivity in Zambia. While there is an urgent need for more research across all the outlined dimensions, it is especially crucial to investigate the potential impacts of climate change on the sector. While the adverse effects of climate change on agricultural production and welfare are recognised, there is a significant knowledge gap in identifying the most effective support mechanisms for the 75% of smallholder farmers who are extremely vulnerable to climate-related shocks. Collaborative research, co-generated by academics and policymakers, could be instrumental in bridging this evidence gap. The government also needs better evidence on the impact of agricultural programmes and policies, particularly FISP. Such efforts are vital not only for safeguarding against the risks posed by climate change but also for unlocking the significant potential of Zambia's agricultural sector.