Govt plots tobacco merchants’ crackdown

LIVINGSTONE MARUFU

The Tobacco Industry and Marketing Board (TIMB) wants to beef up local funding as it moves to reduce the influence of merchants in the production of the golden leaf, an executive has said.

Merchants fund 95% of the crop and are accused of allegedly establishing cartels that have direct control or influence to keep the price of the golden leaf down.

TIMB’s newly appointed chief executive officer, Meanwell Gudu, told Business Times that it was imperative to end the tobacco merchants’ grip on the tobacco sector.

“We have planned a two-pronged approach that involves local funding and offshore funding with plans already in play to seek offshore lenders with cheap interest rates,” Gudu said.

He said the country needs to reduce foreign currency costs and opt for localised costs to improve viability.

“Our first step towards local funding is to reduce dollarised costs which require a lot of offshore funding. Let us take coal, for example, the stone is mined here in the country but charges are in United States dollars due to dollarised costs from fuel which is used to mine and transport coal,” he said.

“We would like to engage the government to that end to help us get subsidised fuel.”

TIMB is planning to increase the local financing of tobacco production to 70% of total costs through localisation initiatives by 2025, from the current 30%.

Zimbabwe embarked on a dual marketing system in 2004 to improve production that was going down at the time. This saw the entry of merchants to fund tobacco production. The entry of merchants came as local lenders have been shunning the tobacco sector, leaving players at the mercy of deep pocketed tobacco financiers.

However, the majority of farmers are incurring severe losses as merchants would then deduct what they are owed at the point of sale of the golden leaf.

The government is now planning to finance the tobacco sector as part of efforts to improve its viability.

“We know that there are various problems affecting tobacco industry’s viability but we need effort from the Reserve Bank of Zimbabwe, Agriculture ministry, Finance and Economic Development ministry, TIMB, the banking sector, insurance sector and Agricultural Finance Corporation to locally finance the tobacco industry,” Gudu told Business Times, adding that it was not an overnight event but a process that required careful planning.

TIMB said there are plans to keep the auction system running and the only way that can be achieved is to ensure farmers have access to more funds at their disposal. 

Zimbabwe Commercial Farmers Union president, Shadreck Makombe, said local financing of tobacco was the way to go.

This, Makombe said, would help clip merchants’ influence.

“We are planning to finance tobacco through Agriculture Finance Corporation to reduce the influence of merchants in the tobacco sector and we would like to reduce lending to a single digit to improve production,” Makombe told Business Times.

Makombe was recently appointed to sit on the board of the Agriculture Finance Corporation.

Tobacco experts said there was a need to reduce the high-cost structure of producing the golden leaf to improve viability.

The low foreign currency retention level is also contributing significantly to the crisis facing local tobacco farmers.

Tobacco is one of Zimbabwe’s leading foreign currency earners. 

But farmers are complaining that they are being dribbled by contractors and merchants, leaving them with negative balances and in debts.

Farmers’ output, they claim, has not been creating sufficient returns to repay the loans in full and at least take home something significant.

Most farmers who have been over relying on borrowing said they can no longer carry the debts, which are spiralling out of control.

The dire situation has threatened farmers’ viability, a situation that has left most tobacco farmers living on the margins.

The farmers claim that the debt levels are now unsustainable with some having ballooned to critical levels.

About 90% of growers are now 100% US$ borrowed from their contractor, implying no new US$ comes into the country until US$ loans are repaid.