Sunday, March 30, 2014

Jammeh lacks cash to purchase farmers' groundnuts

This is the third in a series of reports on the 2013/14 groundnut buying season, Gambia's single most important cash crop, and the main foreign exchange earner of Gambia's fragile economy.

It is a season that started off in what we described then as "an avalanche of confusion".  First by over-riding the decision of, what was known as the Agribusiness Services and Producers Association (ASPA), about the producer price and the official start date of the season.  The Gambian dictator disagreed with the decisions which led to the immediate disbanding of ASPA.

By a stroke of the dictator's pen, Gambia Groundnut Corporation (GGC) was accorded monopoly status, to be responsible for buying, processing and exporting Gambians premier crop.  We warned against the creation of a vertically integrated company out of a bankrupt GGC.  We also warned against the dangers of creating such a market condition that will exclude private buyers from participating in what should be a free and open market.  We called into question the financial viability and/or solvency of the GGC, not to mention its limited managerial capabilities.  After all, GGC was rescued from bankruptcy a few years back.  It is still being subsidized by government is itself essentially bankrupt.  Its domestic borrowing has reached such unsustainable levels that it's been warned several time by the IMF.  The regime's capacity to borrow has been severely limited with repercussions in this year's buying season.

The above was a strong case for a liberalizing the market by allowing private buyers, including the now-defunct ASPA, to participate fully.  Yet, in typical Jammeh-style, he ignored all rational approaches by following his often erred instincts.

During the last season, after restricting the market to ASPA societies and GGC, the restrictions were lifted, midway into the season, when farmers complained that the prices on offer were lower than what private buyers (namely Chinese middlemen) were willing to pay.  Prices on offer rose by 30% - 40% which benefited the rural farming communities across Gambia.  Acting like any rational human, the farmers, this year, withheld their crops from market in anticipation of a change in policy.  When indications were that the regime had dug-in and will not give in to farmer's expectations, the crops were released only for the farmers to start experiencing considerable amount of delays in getting paid for their crops.  When the principal buying agent, GGC, lacks money, it resorts to credit buying.

The repercussions we warned about emanating from the limited capabilities of the regime to borrow locally are beginning to manifest themselves in subtle but far-reaching ways across the country, although we still lack the proof.  But 'FOROYAA', a local opposition party newsletter is reporting of groundnuts being returned to farmers by buying agents of GGC due to lack of cash to pay for them.  It is anecdotal but revealing, and a warning of things to come resulting from the mismanagement of the most important sector of the Gambian economy by a corrupt and incompetent regime.

The newsletter reported that in Sami District of Central River, 5 tons of the crop were returned at the Kuntaur Depot to farmers for lack of cash to pay for it.  In this particular case, groundnuts were held by the GGC for a week before it was returned to farmers who will now have to see if they can sell it across the border in Senegal or retail the crop sale at local markets (lumos).  How widespread is this phenomenon is still to be determined, but all indications are it is widespread because there's simply no money in GGC's coffers.  The regime knew all along that precarious financial position of GGC which is, for all intents and purposes a bankrupt institution that should be dissolved, and privatize the entire groundnut sector.

We projected that the regime will be lucky to purchase 30,000 tons, the amount purchased last year.  We are maintaining our position despite a source in the North Bank who thinks the figure will be matched.  But when we asked whether the regime's target of 40,000 will be reached, he refused to bet on that number.  Maybe, after reading this report, and surveying the North Bank for similar anecdotal evidence as those reported in Sami, he will sing a different tune.  Meanwhile, we are sticking with 30,000 tons for the 2013/14 season