Standoff looms over tobacco forex retention



A standoff is looming between tobacco farmers and the Reserve Bank of Zimbabwe (RBZ) ahead of the opening of the tobacco selling season next month after growers demanded 60% foreign currency retention in a bid to boost productivity.

The central bank, however, wants to maintain the existing 20% retention level.
On Tuesday this week growers’ associations and the Tobacco Industry and Marketing Board met with the RBZ governor John Mangudya and discussed a position Paper proposed settlement of farmers’ proceeds for the 2019 marketing season.

The paper touched on previous support measures for farmers, overview of the crop to date, COP analysis –including a breakdown of RTGS, USD prices of inputs, their seasonal increases, implied cross rates and impact of 2% transaction tax on farmers’ prices.

Rodney Ambrose, the Zimbabwe Tobacco Association president said : “Given what has happened in the economy in the past six months, with the local currency depreciating to a 1:3.8 level, there is need for the government or the monetary authorities to raise the forex retention level for tobacco farmers to between 40% and 60% to sustain operations and increase production on farms. The RBZ’s 20% retention level proposal is unsustainable and unacceptable.”

Ambrose said tobacco farmers and the RBZ were still in a dialogue over the issue, “so that we can get a reasonable forex retention level of around 60% and the balance put in the exporters RTGS account at thrice the amount to equal the US dollar value.”

In response to the farmers’ representative presentation the Mangudya stated that there will be no redollarisation of the economy. “Increased local demands for full USD settlements of wages, investments by various sectors will not be supported. Export Incentive was no longer attractive and other options will be explored.

“The economy is operating at a rate and this was well presented in the position paper and as such there was a need to formalise this for certain sectors. A balance will be found between the contents of the farmers position paper and government’s monetary and fiscal policies for the year and beyond. A Monetary Statement will be announced by the middle of the month and it will contain the settlement of tobacco farmers’ sales proceeds,” said Mangudya.

After the statement Mangudya expects further engagement with farmers to ensure that the model announced is viable and sustainable.

TIMB Input Scheme / Command Tobacco will continue to be supported and may be extended to include centralised curing projects.

Farmers expressed concerns that out of $800 million that tobacco generates, only $400 million is new money, the rest is contractors loan offsets and this is not sustainable moving forward.

However, Wonder Chabikwa, the Zimbabwe Commercial Farmers Union president, said a 40% forex retention level should be viable for tobacco farmers as other sectors would need forex to run the economy.

“Yes we need foreign currency to sustain operations,” Chabikwa said, “but we also need the other economic sectors to utilise these earnings to continuewith their operations. The government needs forex to import fuel, but how can we get fuel for farming under various programmes when we have takenthe whole 100% forex from tobacco sales? We should enable other sectors to use our forex as this will help us during dry periods when the tobacco sector does not have forex but the mining sector has more forex earnings than us.”
Alious Nyarambi, a tobacco farmer in Goromonzi, said the 60% forex retention will go a long way in helping farmers to return to the fields.

“As small-scale farmers, we want the central bank to allow us the 60% forex retention to improve our lives. If the government insists on 20%, farmers will not grow the crop in the next farming season and it won’t be good for the economy,” Nyarambi said.

Over the past decade, tobacco has been the single largest forex earner used to address the country’s liquidity challenges due to a lump sum paid by international buyers who mobilise an average of US$900m per season.

But with farmers threatening to hold their tobacco, the country is likely to suffer more in the impending standoff as farmers are comfortable dealing with international buyers directly without the central bank’s involvement.

However, the RBZ remains unmoved in the face of the farmers’ threat and wants the whole economy to benefit from the tobacco proceeds.

Last October, Mangudya allowed third parties such as retailers, technology groups, and rival lenders (who are referred to as authorised dealers), access to customers’ accounts.
Currently, the RBZ retains 70% of tobacco forex proceeds and allows farmers 20% while authorised dealers get the remaining 10%.

But farmers want the 20% increased to 60%. This is where the friction lies.
The RBZ is hoping that the tobacco selling season, which traditionally kicks off in mid-March, will help ease the crippling foreign currency crisis bedevilling the economy.

Buoyed by last year’s tobacco output of 252 million kilos, 168,847 farmers registered to grow the crop this season, which is a 49% jump from the 113,619 farmers last season. However, most farmers are going to get RTGS payments this season as most of them are under contract farming.

From the 252 million kilos produced last season, over 216 million kilos were grown under contract farming, earning US$639,4m, while self-financed farmers contributed 35,7 million kilos, earning US$97,6m.