Tobacco farmers and the Reserve Bank of Zimbabwe (RBZ) are on a collision course after the golden leaf was left out when monetary authorities standardised foreign currency retention at 70% for all exports.
In his recent monetary policy statement, RBZ governor John Mangudya set the retention threshold for all exporters at 70% given the positive impact of the auction system in price stability and the need to sustain the auction.
The central bank has however, maintained the retention threshold at 50% for tobacco.
Zimbabwe Tobacco Association (ZTA) chief executive Rodney Ambrose told Business Times that the failure by the central bank to increase the retention threshold has seen confidence at an all-time low which will have a serious impact in the upcoming season.
“The 70% forex retention did not apply to tobacco farmers. While other sectors are being rewarded with increased retention levels, the poor tobacco farmer, who is a key forex generator for the country has been left out and remains at 50%.”
According to ZTA tobacco report as at August 25, 2020, a total of 176.2m kg were sold at an average price of $2.50/kg, an 28% increase in the seasonal average price when compared to 2019 levels.
Ambrose said notwithstanding the firming prices, the fixed exchange rate of 25:1 (against retooling rates of 100: 1) which was in place until June, when “over 60% of the crop had already been sold has threatened viability and sustainability of the growing industry moving forward”.
“They have been no compensatory measures for farmers who sold at 25:1,” he said, adding that the “easiest start is to announce 100% retention of USD proceeds, with the status of free funds remaining and compensatory measures for those who sold at a fixed rate of 25:1”.
But Mangudya dug in saying the tobacco season was almost over and there was no need to review their forex retention, later alone, pay compensation for the losses incurred when the fixed exchange rate was in place.
“How could we review tobacco forex retention levels when we all knew that the season was almost over with most farmers having delivered their tobacco? We can’t review because the season is over,” Mangudya said.
“And there is no compensation we can do as that was fixed rate at that time and that was fair at that time. We are not obliged to make payments.”
He said the current position also takes account of the fact that funds deposited by growers in their FCA accounts are not subject to liquidation after 60 days.
Agricultural experts say the disadvantage of tobacco farmers is that once they grow their crop there is little they can do to convince the buyers or RBZ to increase forex payments and cannot be easily smuggled as gold.
Seasonal auction price is 61% up, while seasonal contract price is up 25% when compared to 2019. Crop volumes are down 23%, as yields were negatively affected by the adverse weather and the low monetary returns in 2019.
According to the ZTA report hectares planted and numbers of growers were reduced due to poor viability in 2019.
However, the auction volumes remain very low, accounting for 5% of the total volume sold to date, compared to 16-18% in previous seasons.
Side marketing has been high as some growers delivered to their nearest selling point, ignoring to whom they were contracted to.