No govt funding for tobacco

January 13, 2022

LIVINGSTONE MARUFU

 

The government has failed to avail the promised US$60m funding for the tobacco industry amid fears underfunding will threaten the production of the golden leaf, Zimbabwe’s fourth largest foreign currency earner.

The funding,  which was supposed to be disbursed in  August last year to allow the farmers to draw down the US$60m, is now expected to be disbursed in  March this year to pave way  for the 2022/2023 tobacco season.

This comes at a time when new tobacco registrations have dropped, signalling reduced appetite in the growing of tobacco.

Zimbabwe Tobacco Association chief executive officer, Rodney Ambrose said the failure by the government to honour its promise was likely to significantly affect production.

“Disappointingly, the promised US$60m local funding facility has not come through and this has significantly affected production,” Ambrose told Business Times.

“This will further reduce the new foreign currency inflows from tobacco sales, now estimated to be around US$90m per season from a possible US$650m.”

This year the tobacco farmers’ registrations fell 17% to 119 979 from 140 771 last year while the new farmers registrations plunged 224% to 529 from 1717.

This shows that the appetite for growing tobacco in Zimbabwe has diminished.

Ambrose said the failure by the authorities to set up the tobacco local funding facility will further eat into farmers’ margins.

“Some thoughts into 2022, viability remains unaddressed. Though US$ prices were up last season, the export retention of 60:40 and the stagnant exchange rate eroded all gains. Farmers’ debts increased, so did side marketing,” Ambrose said.

He said the planting for the new season is still ongoing due to the adverse weather in the last quarter of 2021, but overall successfully planted out hectares will not exceed last season.

Yields and qualities of tobacco will be varied.

“US$ costs of inputs have increased at least 15%, not only locally but internationally. This means growers’ cost of production has gone up accordingly. The percentage of input costs in US$ has risen significantly and growers require no less than a 80:20 export retention this season,” he said.

“If the fiscal and monetary policies affecting tobacco growers are not urgently addressed, tobacco production will continue on a rapid decline and none of the objectives of the Tobacco Value Transformation Strategy will be achieved.”

Contacted for a comment, the Tobacco Industry and Marketing Board (TIMB) chief executive officer, Meanwell Gudu said the funding awaits RBZ disbursement.

“The disbursement of the US$60m revolving fund facility by the Reserve Bank of Zimbabwe is still to be rolled out,” Gudu said.

“Stakeholders in the tobacco industry are expecting the fund to be made available before the end of March 2022 to allow for ample time to prepare for the 2022/ 2023 tobacco season.”

When contacted for comment, Reserve Bank of Zimbabwe governor John Mangudya  said the funding is set to be availed in the next few months.

“We are disbursing the US$60m early this year to allow the tobacco growers to draw down the fund so that they can prepare early for next season,” Mangudya said.

Analysts this week indicated that the late availing of funds was a clear indication that the country was not ready for the facility.

Tobacco, which used to be the leading foreign currency earner, has gone down resulting in the golden leaf losing ground to gold, platinum and diaspora remittances.

The majority of the desperate farmers are living on the margins.

Many complain they are in serious debt.

The current funding system is not benefiting the tobacco farmers but middlemen such as tobacco merchants, leaving most of the farmers in dire straits.

It is estimated that over 95% of the tobacco farmers in Zimbabwe are under tobacco merchants’ contracts.

The tobacco merchants provide the farmers with inputs, since most farmers cannot raise their own capital required to undertake a tobacco farming business.

The prices of the inputs are sometimes overpriced, as the merchants take advantage of the desperate tobacco farmers.

Under such contract agreements, the tobacco merchants deduct their dues-the principal amount plus interests- at the auction floors, a situation which has seen some tobacco farmers taking home negative balances as some debts are carried forward.

This situation has affected production.

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

This implies that the pressures on tobacco farmers are significant and the situation has left most tobacco farmers living on the margins.

Farmers claim that the debt levels were now unsustainable with some having ballooned to critical levels with some debts having been building up in the past few years.

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

With over 95% of the country’s tobacco production being contract farming, the bulk of the money will go back towards the payment of their obligations.

 

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