Tobacco farmers have lost a combined ZWL$1.127bn on the sales proceeds
that comes in local currency due to the growing gap between the official and parallel market rates amid fears this will discourage the production of Zimbabwe’s second largest foreign currency earner, an industry expert has said.
Tobacco farmers retain half of their proceeds in foreign currency and get the remainder in local currency at a bank rate of 1:25, at a time the parallel market rate is at 1:60.
The development comes at a time when tobacco has raked in US$64.4m from the sale of 28.2m kg in 16 days, largely driven by higher deliveries compared to last year.
From the US$32.2m that is given to farmers on the local currency at a rate of 1:25 tobacco farmers got ZWL$805m against ZWL$1.93bn which they would have got using a parallel market rate of 1:60. This means that for every dollar, farmers lost ZWL$35. In total, they lost a combined ZWL$1.12bn.
An estimated 97% of the tobacco delivered has come from the contract crop,
with just 3% being sold on the auction floors.
Zimbabwe Tobacco Association president, Rodney Ambrose told Business
Times that prior to the opening of floors, growers’ representatives had discussions with RBZ on a viable, re-tooling exchange rate for the local currency component growers were to receive from their sales
proceeds and were given assurances that this would be in place when the selling season opens.
“The previous floating exchange rate policy gave confidence that this
would be achievable. However, came in the sudden fixed exchange rate policy aimed at stabilising prices of goods and services.
“The hyperinflation environment and continued increase in retooling
exchange rates, now at 1:60, against a fixed exchange rate 1:25 were
highlighted to be the main viability concerns to the sector and these have
been continually highlighted to the central bank and most recently to
the TIMB,” Ambrose said.
He said as an example of a rate disparity; tobacco seed is priced at
US$4 or ZWL$220 and this implies a retooling exchange rate of 1:60
against a growers return rate of 1:25.
This means a grower has to sell US$8 worth of tobacco to buy
‘US$4’ priced tobacco seed and similar comparisons can be made
for all key inputs.
Effectively, US$ costs of production have doubled.
He said a grower only starts to access (non-accumulatively this
season) their US dollar retention once they clear their USD loan
obligations which occur much later in the season; in the meanwhile,
they are attempting to retool at 1:25 with little success.
USD borrowings are higher this season, due to limited ZWL$
liquidity in the formal lending market, therefore the realisation of
the retention will not be significant.
RBZ interventions were favourable, with greater viability as many growers cleared historic debt and started the new season confidently, however, this is not the case in 2020 and leading into the 2021 season preparations.
Ambrose said an urgent review of the current exchange rate policy is
required to save the industry from shrinkage, increased grower debt
and less USD currency generation for the country.
“We look forward to the acceptance of our presented request to the central bank to urgently engage the industry on this critical issue,” Ambrose said.
Experts argue that farmers are not getting the expected rewards as
most of their money is lost through unfavourable payment regimes.
Prices for contract tobacco have generally been better. Buyers have
offered a highest price of US$6,60 per kg at the contract floors, while
the highest price at the auction floors has remained at US$4,99 per kg.
In the same period last year, tobacco had generated US$18,6
million after selling 10,5 million kg of tobacco which is about 37
percent of the deliveries so far this year.
But sales started later this year, mainly as a result of needed measures
to exempt them from the lockdown, so more of the crop was available for
delivery, even with a later start to the growing season.
At this stage this year, 382,149 bales have been laid and 369 862
sold compared to 162,298 laid during the corresponding period
last year, with 150,562 bales sold during the same period last year.
Most farmers are now producing tobacco under contract farming.
Under this arrangement, farmers are guaranteed timely supply of
inputs and, in some cases, funds to pay workers.
Contractors have justified their prices at the floors, saying they
would want to reward their loyal farmers so that they do not engage
in side-marketing of the crop they have invested in.
So far, 27.4m kg of tobacco have been sold through the contract
floors, while 799,966kg have been sold at the three auction floors.
But contract farmers have, in some cases, complained of high
inputs prices being charged by some contractors.
Last year, tobacco exports tumbled 7% to US$846.7m from US$907.8m due to unfavourable tobacco selling regimes.
Buoyed by last year’s success of over 258m kg of the tobacco
output, latest statistics show that 81,977 ha of tobacco had been
planted compared to 79,708ha for the same period last season.
Tobacco registrations were down 16% to 149,502 tobacco growers
for the 2019/20 season by April 30 2020 as compared to 178 721
tobacco growers who registered during the same period last season.
New registration for the 2019/2020 season were 7,736.