Tobacco farmers have demanded payment of their golden leaf deliveries for the upcoming selling season in United States dollars as confidence in the Zimbabwe dollar wanes, Business Times has learnt.
Government last year halted the multicurrency system which had been in place since 2009 as a way to make domestic exports more competitive.
But the policy shift appears to have backfired barely a year after the Reserve Bank liberalised the foreign exchange market before effectively reintroducing the local unit in June of the same year.
Before the new demands, farmers were getting 50% of their sales in hard currency while the remainder was paid in local currency using the interbank rate.
The development comes at a time when the local currency has plummeted to the ratio of ZWL$17:US$1 on the interbank rate and ZWL$26:US$1 on the parallel market, making it difficult for farmers to continue operating.
In a letter seen by Business Times, dated February 7 2020, Zimbabwe Tobacco Association (ZTA) made fresh submissions to the central bank calling for payment of deliveries in hard currency.
“The major demands of tobacco growers for the 2020 tobacco marketing season include getting 100% of sales proceeds in United States dollars, after US dollar loan repayments, are paid into growers nostro accounts,” the ZTA said.
“Resolution of the 2019 outstanding balances in United States dollar and 2008 US dollar Treasury bills should be addressed before the commencement of the forth coming tobacco selling season.”
The cash crop, now the second largest foreign currency earner employs thousands of families across the country.
Zimbabwe is raking in at least US$1bn on average annually from tobacco exports. Industry experts say government’s sudden monetary policy shift has hit hard farmers who were receiving lower prices for the crop while contractors on the other hand are struggling to settle their US dollar debts as well as attract more funding for the marketing season due to the exacerbating country risk.
The complex pricing system has allowed some shrewd tobacco dealers to capitalise on the flaws, a situation which cost the country a great deal of forex.
In adding to the demand to be paid in US dollars, the tobacco farmers also want proceeds to be paid by the contractor, not RBZ via a commercial bank at the point of sale into growers US dollar nostro account.
Last year, tobacco growers were given a 30-day window to utilise the United States dollars locked up in their nostro accounts or risk converting those funds into Zimbabwe dollars.
The farmers rejected that. ZTA and other farmers’ organisations said there should be a favourable exchange rate when liquidating his or her nostro funds.
Tobacco farmers demanded that a minimum of ZWL$600 case per sale should be made on the liquidation of nostro funds. These demands were made after the tobacco growers associations met on January 23 2020 to discuss the matters affecting the tobacco sector.
Last year, tobacco exports tumbled 7% to US$846.7m from US$907.8m due to unfavourable tobacco selling regimes. “Following significant loss of value of tobacco proceeds during the 2019 tobacco marketing season, many growers have been exposed to reduced profitability, inability to retool for 2020 season, multi-tier pricing regime, inability to access 50% of proceeds as per forex retention threshold and local currency as per RBZ guidelines,” tobacco farmers said.
The sprouting up of such problems has led to the increase of dominance of the contract farming which is believed to be around 90% this year. RBZ governor John Mangudya could not be reached for comment at the time of going to print.
Last year RBZ proposed 20% of offshore loans for the production of the crop and 10% for value addition while the investor gets 70%. Before that, the forex retention for offshore loans was 100%, farmers are clearly opposing that move.
RBZ is hoping that the tobacco selling season, which traditionally kicks off in March, will help ease the crippling foreign currency crisis confronting the economy.
Buoyed by last year’s success of over 258 million kilogrammes of the tobacco output, latest statistics say 81 977 hectares of tobacco had been planted compared to 79 708 hectares for the same period last season.
According to TIMB bulletin tobacco registrations have fallen 15% to 143 568 in 2020 season from 168 735 the previous year while new growers fell 82% to 7447 from 40 772.