Local banks have turned their back on tobacco leaving farmers at the mercy of merchants for funding amid calls for the central bank to increase the forex retention threshold from the current 60% and rescue the sector from collapse, it emerged this week.
Players in the tobacco industry told Business Times this week that the reluctance by the lenders to fund the multi-million dollar golden leaf sector, which requires about US$600m a year, has left the merchants firmly in charge.
The merchants have been accused of manipulating the tobacco pricing system.
Local banks have also not shown interest in the US$9m Tobacco Industry and Marketing Board (TIMB) Input Scheme.
Exacerbating the situation are low prices that have kept tobacco farmers trapped in debt and most of them are now living on the margins.
“Tobacco sector needs local funding but with banks not willing to fund the US$9m TIMB Input Scheme, one wonders if they can commit to fund US$600m yearly,” TIMB chief executive officer, Andrew Matibiri told Business Times.
Matibiri said the pension funds have also shunned the tobacco sector.
“Pension funds have the capacity to fund the sector but with them having not benefited immensely from other government programmes [Command Agriculture Scheme], they seem not interested to fund.
“It’s very sad for the sector as this leaves the farmer with the same old tobacco merchants for funding,” Matibiri said.
Matibiri urged the Reserve Bank of Zimbabwe (RBZ) to review foreign currency retention threshold, currently pegged at 60%.
“Farmers urgently need an upward review of foreign currency retention threshold to clear debt, some farmers say they need 70% to break even hence an upward review will enable them to start getting profits.
“However, we need serious funding for the sector but with more relaxed conditions to operate viably,” Matibiri said.
Some critics have accused the RBZ governor John Mangudya of not properly handling the forex retention issue and siding with the tobacco merchants.
However, Mangudya said tobacco merchants were doing a splendid job to keep the sector viable.
He described his critics as people who don’t know the sector well and how it operates.
“I don’t see anything wrong for tobacco merchants to get their money back after sales as they will be deducting the money they would have invested on tobacco growers. They put forex and we give them 100% forex.
“Tobacco farmers are the most privileged exporters as they get 60% of the net sales after all deductions have been made. They should be happy as their gold counterparts are getting 60% forex retention from gross sales,” Mangudya said.
Mangudya said his office was open for engagements with farmers.
However, the Zimbabwe Tobacco Association chief executive Rodney Ambrose said tobacco growers have engaged the central bank on forex retention but to no avail.
“We are tired of this topic [engagements] as we have engaged the RBZ governor for the review of the forex retention levels to sustainable levels but nothing has yielded results,” Ambrose said.
Analysts said the monetary authority should move with speed to save the tobacco industry as the sector’s contribution to fiscus continues to dwindle each passing year.
Tobacco has dropped to fourth position last year from third position in 2019.
Zimbabwe’s tobacco farmers have threatened to dump growing the golden leaf due to viability challenges.
Meanwhile, the country has so far grossed US$15m in the first four days of the 2021 tobacco marketing season compared to US$5.3m earned during the same period in 2019.
This year’s average price per kilogramme is US$2.43 against US$2.32.
The highest price so far is US$6.30/kg against last year’s US$5.50 per kg while lowest is US$0.20 against US$0.15/kg.
Seed sales reflected a 27% increase at 940kgs sold and this could have potentially planted close to 150,000 hectares.
Number of registered growers has remained static at 146,000 with minimal new entrants.
TIMB estimated the yield to be between 200m kilogrammes and 210m kilogrammes.
However, growers project national average yields to be lower than last year at 1400 kg/ha – giving a crop estimate of 180 – 185m kilogrammes.