Tobacco farmers want the Reserve Bank of Zimbabwe (RBZ) to devalue the local currency to 1:50 from the current fixed exchange rate for the industry to get value for receipts that come in local currency.
Tobacco farmers retain half of their receipts in foreign currency and the remainder is given in local currency at a fixed exchange rate of 1:25
and a time parallel market rates have surpassed 1:80. This means that farmers are losing ZWL$55 on each dollar.
The development comes at a time when gold which is the highest forex earner has its forex retention reviewed to 70% from 55% to woo the
yellow metal producers to sell the precious metal to formal channels.
An estimated 97% of the tobacco delivered has come from the contract crop, with 3% being sold under the auction floors.
Zimbabwe Tobacco Association president Rodney Ambrose told Business Times that all payments are going according to plan except that farmers are not getting anything from their local currency balance.
Ambrose said the re-tooling exchange rate for the local currency was above the 1:25 leaving farmers at a precarious level where they struggle to
repay loans later alone purchase new inputs.
“During our meetings with the RBZ we agreed that the previous floating exchange rate policy for our local currency component was going to be
adjusted according to the movement of the exchange rate but we are stuck to 1:25.
We want the exchange rate to be reviewed to around 1:50 to help the farmers to pay back loans,” Ambrose said.
“The sudden fixed exchange rate policy aimed at stabilising prices of goods and services, has left our farmers with nothing to account for their hard work.
This will be difficult for most farmers to repay loans and go back to the field.”
He said the central bank has promised to review exchange rate in the near future.
“The hyperinflation environment and continued increase in retooling exchange rates, now at 1:80, against a fixed exchange rate 1:25 were highlighted to be the main viability concerns to the sector and these have been continually highlighted to the central bank and most recently
to the TIMB,” Ambrose said.
He said as an example of a rate disparity, tobacco seed is priced at US$4 or ZWL$320 implying an exchange rate of 1:80 against a growers return
rate of 1:25.
This means the grower has to sell US$8 worth of tobacco to buy ‘US$4’ priced tobacco seed.
Ambrose said US dollar borrowings are higher this season due to limited ZWL$ liquidity in the formal lending market, therefore the realisation of the retention will not be significant.
He said an urgent review of the current exchange rate policy was required to save the industry from shrinkage, increased grower debt and less
US dollar currency generation for the country.
Tobacco growers expect its presented request to be attended to with central bank to urgently engage the industry on the critical issue.
Experts argue that farmers are not getting the expected rewards as most of their money is lost through unfavourable payment regimes. Prices for
contract tobacco have generally been better.
Buyers have offered the highest price of US$6.60 per kg at the contract floors, while the highest price at the auction floors has remained at
US$4.99 per kg.
But sales started later this year, mainly as a result of needed measures to exempt them from the lockdown.
Most farmers are now producing tobacco under contract farming.
Under this arrangement, farmers are guaranteed timely supply of inputs and, in some cases, funds to pay workers.
Contractors have justified their prices at the floors, saying they would want to reward their loyal farmers so that they do not engage in sidemarketing of the crop they have invested in.
But contract farmers have, in some cases, complained of high inputs prices being charged by some contractors.
Last year, tobacco exports tumbled 7% to US$846.7m from US$907.8m due to unfavourable tobacco selling regimes.
Buoyed by last year’s success of over 258m kg of the tobacco output, latest statistics say 81 977 hectares of tobacco had been planted compared to
79 708 hectares for the same period last season.
Tobacco registrations were down 16% to 149 502 tobacco growers for the 2019/20 season by April 30 2020 as compared to 178 721 tobacco growers
who registered during the same period last season.
New registrations were 7736.