It’s back to same old problems

The  2022 tobacco marketing season opened yesterday and will face the same old challenges that have been synonymous with the golden leaf.

The opening price was US$4.20 against US$4.30 last year.

Expectations are high when the season opens as the golden leaf is the fourth largest foreign currency earner behind platinum, diaspora remittances and gold.

Monetary authorities look up to the season with keen interest as it brings fresh money into the economy thereby oiling the markets.

This comes against the backdrop of an increased demand for foreign currency by companies as they expand their operations to take advantage of the removal of Covid-19 restrictions that haunted them for nearly two years.

Companies say the foreign currency auction system does not meet all their needs as it caters for 30%, leaving them to source the remainder in the alternative markets where premiums are high.

The tobacco industry has its fair share of challenges which authorities are taking time to resolve. The absence of local funding of the crop means that merchants have to take the bulk of the money in the season after deducting the costs of inputs.

Farmers toil throughout the year but get a pittance after merchants deduct the costs of inputs. Some farmers go home with negative balances. Some have been trapped in debt and there is no way out.

Despite the government announcing plans to fund the sector to the tune of US$60m, the plan is still to take off.

The marketing season also opens at a time the Tobacco Industry and Marketing Board is still to come up with a new pricing matrix to determine the price of the golden leaf at the contract floors as per a directive by the Competition and Tariff Commission (CTC).

The CTC argues that the current system is flawed as it leads to price distortions and prejudice of farmers as tobacco merchants would restrict the auction system to determine the whole tobacco selling system.

Critics say the pricing matrix is flawed in that the auction system, which accounts for 5% of the total sales, should not determine the price ranges for the contract system which accounts for the majority of tobacco.

The high cost of production is close to 80% of the total earnings which means that any forex retention below 85% will be insignificant and affects output. There are fears that some farmers would dump the golden leaf as they feel authorities are squeezing the goose that lays the golden eggs.