LIVINGSTONE MARUFU
International tobacco buyers will mobilise around US$700m to buy Zimbabwe’s golden leaf amid indications that improved production figures would see enhanced foreign currency inflows into the country, Business Times can report.
This is expected to oil the economy and stabilise exchange rates.
The tobacco marketing season opens on March 8 2023, with over 140 000 farmers anticipated to reap windfalls from the golden leaf.
Tobacco, which used to be the highest forex generator in 2018, has fallen to fourth place following underlying challenges that have affected the sector.
Tobacco Industry and Marketing Board (TIMB) chairman Patrick Devenish told Business Times that the tobacco season was critical to the economy in that it improves US$ liquidity in the market.
“We are expecting the national tobacco output to be around 230m kilogrammes and we anticipate the average price to be over US$3.12/kg hence the international buyers are mobilising a total of between US$650m and US$700m worth of foreign currency.
“The forex is expected to be released soon with the money expected to be released in batches depending on the flow of tobacco quantities,” Devenish said.
“In terms of the money, disbursement to the farmers depends on each bank, some banks have more cash than others and banks through the directive from the central bank will announce the limit on the day of opening the auction floors.”
According to TIMB, tobacco production is expected to increase to 230m kilogrammes (kg) from 212m kg attained last year due to improved rainfall patterns.
Tobacco growers will this year get 85% of their earnings in foreign currency and the remainder in local currency.
However, farmers believe the 85% retention threshold is insufficient and wanted to wholly retain the earnings.
“There is a significant improvement in forex retention but I thought the monetary authorities would have put it at around 100% since the economy has dollarised.
“The 85% US$ retention level is insufficient to cover required input components. Therefore, we require 100% retention,” said Zimbabwe Tobacco Association CEO Rodney Ambrose.
He added: “The increasing costs of production are not matched by floor prices plus a margin as the 2022/23 recorded high costs of production at an average of 35% – broken down into 25% average increase in inputs and +10% increases in local costs.”
Ambrose said local inefficiencies, high taxes, selling charges, and levies are weighing down on growers’ viability.
The farmers said the low foreign currency retention level was also contributing to the crisis facing the local tobacco sector.
