Zimbabwe’s tobacco farmers have threatened to dump growing the golden leaf due to viability challenges, a move which threatens one of the country’s top foreign currency earners, Business Times can report.
The farmers say they are no longer getting a fair return for their crop and they are drowning in debt.
Their struggles have been exacerbated by the tobacco merchants and contractors who have been funding inputs.
They deduct what is due to them at the floors leaving some farmers with negative balances or very little to take home, meaning they would borrow again to be able to farm the next season.
The debt, which is estimated to be over US$150m accrued from last tobacco farming season, was spiralling out of control, farmers said.
The other challenge, they said was low retention levels.
They said this was slowly killing them.
The proposed move to dump tobacco farming could potentially hit the economy and the merchants who are still owed a huge chuck in loans by local tobacco farmers.
This means they would not be able to recover their loans.
Tobacco, according to official figures obtained from the Tobacco Industry and Marketing Board (TIMB), has contributed about US$6.3bn since 2015 or an average of US$900m yearly.
Zimbabwe Tobacco Association chief executive officer, Rodney Ambrose, told Business Times that it was high time monetary authorities take tobacco farmers seriously otherwise the country will continue losing foreign currency.
“Year in year out, we have engaged the RBZ governor, John Mangudya, for a review of the forex retention levels to sustainable levels but all negotiations and persuasions fell on deaf ears. If the situation remains like this, we will leave tobacco for other crops and all the investments that the tobacco merchants put will also go with us,” Ambrose said.
It is understood that tobacco farmers will get US$150m from the expected US$600m when the marketing season kicks off this month amid revelations that the rising debt burden owed to contractors and merchants was choking the sector.
Farmers want to retain about 80% of their forex proceeds, a figure they said would allow them to make a reasonable profit.
“We are getting 60% forex retention, with the balance being converted into local currency at the prevailing auction rate.
The 60% falls short of our foreign currency cost of production component which reflects a minimum of 70%. This means 80% and above forex retention will be ideal to just go above the break-even point,” Ambrose said.
He said the low foreign currency retention level was also contributing to the crisis facing the local tobacco sector.
Ambrose said every season growers find themselves with little profit or in debt with their contractor.
“This debt is in US$ and carried forward to the next season with more US$ loans and debt added due to lower retention levels. About 90% of growers are now 100% US$ borrowed from their contractor implying no new US$ comes into the country until US$ loans are repaid,” he said.
He said contract farming accounts for 95% of the total tobacco output, a situation that has left farmers trapped in debt.
Analysts say the dearth of the golden leaf is similar to how contractors destroyed the white gold (cotton).
Cotton was once the second highest forex earner in the country but has dropped to some insignificant places and with the way cartels have manipulated the systems the golden leaf is likely to go the same way.
TIMB CEO Andrew Matibiri said the sector may go the cotton’s way saying RBZ and Treasury have the powers to decide on retention levels.
“What I think should be done is to leave the tobacco merchants’ offshore funding and try local funding to reduce debts and improve viability,” Matibiri said.
Several analysts this week said improving tobacco farmers’ viability was paramount as this would ensure the targeted growth in the sector is achieved and the country realises improved foreign currency inflows.
Of the 144 462 registered growers, 110 047 are contracted tobacco farmers and if this gigantic number of growers dump the crop, the industry could crumble overnight.