No respite for tobacco farmers

LIVINGSTONE MARUFU

Tobacco farmers are feeling the pinch after they have been told there is no room for them to participate at the foreign currency auction system until they pay off  US$ debts owed to merchants, farmers unions have said.

Reserve Bank of Zimbabwe governor, John Mangudya recently allowed the tobacco farmers to access forex from the auction using the liquidated  portion of their export receipts.

The central bank reviewed upwards  the forex retention levels to 75% from 60%, meaning the farmers get 25% liquidated to Zimbabwe dollars using the prevailing formal exchange rate.

“Tobacco growers are yet to access the 25% portion of the liquidated foreign currency as farmers are still grappling with high debts that have piled over the years,” the Zimbabwe Tobacco  Association CEO, Rodney Ambrose, told Business Times.

He said the idea of accessing forex from the auction system was going to improve farmers’ viability but the process has to take a while as “tobacco merchants deduct their dues from the contract farmers”.

“The system of accessing money on the auction will be put to test at later stages when a big chunk of tobacco growers have cleared their debts as only 10% of the total tobacco has been sold so far,” Ambrose said.

The stringent requirements for tobacco farmers to access auction forex comes as more than 90% of tobacco farmers are 100% US$ borrowed, implying limited US$ will come into the country until US$ loans are repaid.

This means farmers continue to live on the margins as the merchants are deducting their dues at the auction floors.

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

According to the latest statistics obtained from  the Tobacco Industry and Marketing Board (TIMB) farmers have delivered 21.9m kilogrammes and US$62.1m has been realised.

From that amount, US$52.7m has gone towards the repayment of loans.

According to TIMB CEO, Meanwell Gudu, Zimbabwe was  getting US$0.15 from every dollar of the tobacco sold with US$0.85 going towards the repayment of the loans.

Experts say with tobacco merchants continuing to finance tobacco production, the farmers’ situation has worsened.

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

Tobacco is the fourth largest foreign currency earner behind platinum, diaspora remittances and gold.

But the sector has been ravaged by the contractors and merchants, who have the financial capacity to extend lines of credit to farmers.

Tobacco merchants deduct their dues at the floors, a situation which has seen some tobacco farmers taking home negative balances as some debts are carried forward.

Marondera-based tobacco  farmer Sylvia Kamuriwo said the monetary authorities should have dealt with   funding mechanisms for tobacco farmers to benefit from the scheme.

“As it stands the tobacco farmers are still grappling with debts of around US$7000 at a time when some of us  have grossed below US$2000 after  we have sold 30% of our total crop. This means we may not benefit from the auction system as all the money may go towards the clearance of the debts,” Kamuriwo said.

The golden leaf has contributed around US$6.3bn since 2015 or an average of US$800m yearly.

Last year, tobacco growers earned a paltry US$150m from the US$600m amid revelations that rising United States-denominated debt burden owed to contractors and merchants was choking the sector.

Of the 122 000 registered tobacco growers, 118 000 are contracted tobacco farmers.

TIMB estimated the yield to be around 200m kg.

Despite the viability challenges that the tobacco sector is facing,  this year’s prices were up 12% to US$2.84/ kg against last year’s US$2.52 per kg.

The highest price from the auction system was US$4.99 per kg against US$6.50/ kg from the auction system.