Tobacco farmers on the brink

LIVINGSTONE MARUFU

Zimbabwe’s tobacco farmers will get a paltry US$150m from the expected US$600m when the marketing season kicks off next month amid revelations that rising United States denominated debt burden owed to contractors and merchants is choking the sector.

The low foreign currency retention level is also contributing to the crisis facing local tobacco sector, farmers said.

Tobacco has been one of the leading foreign currency earners for the foreign currency-starved economy.

It emerged this week that the contractors and merchants, who have extended lines of credit, would deduct their dues at the auction floors from next month, a situation which could see some tobacco farmers taking home negative balances as some debts are carried forward.

Farmers’ output, they claim, have not been creating sufficient returns to repay the loans in full and at least take home something significant.

Most farmers who have been over-relying on borrowing said they can no longer carry the debts, which are spiralling out of control.

This implies that the pressures on tobacco farmers are immense.

The dire situation has threatened farmers’ viability, a situation that has left most tobacco farmers living on the margins.

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

 Merchants are expected to bring about US$600m into Zimbabwe.

The figures look fine.

But, in reality, about 75% of the amount will be deducted and fly back to the merchants’ respective countries as about 95% of tobacco farmers are under contract farming, an arrangement in which they are assisted to get inputs through lines of credit.

The balance, farmers told Business Times, will be inconsequential.

Tobacco farmers said the crisis in the sector could worsen if the Reserve Bank of Zimbabwe (RBZ) does not review upwards the foreign currency retention level which is currently at 60%:40%.

The Zimbabwe Tobacco Association (ZTA) chief executive officer, Rodney Ambrose, told Business Times this week that the debt crisis was devastating.

“So while on paper tobacco sales may earn between US$500m and US$600m per season, real foreign currency inflows are about US$150m which is a quarter of this and this implies that the tobacco merchants will return with their cash,” Ambrose said.

He 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,” Ambrose said.

“Roll out of diversification cropping programmes for tobacco growers remain paramount so that their general livelihoods are protected as tobacco viability diminishes each season.”

Tobacco has since been knocked off the top spot of being the highest forex earner.

And the golden leaf continues to slide downwards.

Currently, tobacco is the fourth highest forex earner in the country as the sector has been hit by unfriendly policies.

Ambrose said tobacco growing currently is not an attractive crop to venture or expand into and as such growth will remain subdued.

He said contract farming accounts for 95% of the total tobacco output, a situation that has left farmers trapped in debt.

The lower retention level does not allow them to repay the huge debts, Ambrose said.

He said the pricing of contract tobacco (95% of national production) cannot continue to be based on the minimum of tobacco prices paid on the auction floors (5% of national production) as this is an out-dated legislation that needs to be speedily changed by the authorities.

Ambrose said the tobacco sector was not happy with the forex retention levels.

They get 60% and the balance is converted into local currency at the prevailing auction rate. Farmers want at least 80%.

“….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,” Ambrose said.

ZTA said improving growers’ viability was paramount as this would ensure the targeted growth in the sector is achieved and the country realizes improved foreign currency inflows.

Tobacco Industry and Marketing Board CEO Andrew Matibiri said the situation is unattainable for farmers as they are getting too little from their proceeds.

“Tobacco contractors realised over US$350m from last year’s tobacco through debt collections and inputs with many tobacco growers left with nothing to count on for their toil. As long as we continue to have contractors contributing over 95% of the total production, the tobacco merchants will continue shipping money out of the country,” Matibiri said.

“Tobacco merchants mobilised close to US$400m for inputs and us as TIMB mobilised US$9m for the TIMB input scheme mainly for non-contracted farmers but because the Reserve Bank didn’t have that amount we went back to contractors and got the money.”

Zimbabwe has experienced good rains this season resulting in dam levels rising to between 90-100%. Some water sources are spilling, potentially increasing the ability to put more hectares under irrigation.

A recent ZTA report shows that irrigation yields vary from 3200 to 4000kg/ha.

Agricultural experts say diseases such as angular, wildfire, altinaria were reported in a number of areas although the quality of the crop cured was good.

Dry land estimates go as low as 2000kg/ha up to 3000kg/ha for commercial growers and 800kg/ha to 1400kg/ha for subsistence farmers.

The higher than normal rainfall has resulted in some areas experiencing water logging of fields and leaching of some crops with a thinner crop expected.

Tobacco growers said the announcement of the opening of the auction and contract selling floors was done without consultations.

“It is disheartening to note that despite growers’ bodies formally writing to the TIMB requesting for time to finalize payment modalities, the board proceeded to engage with the Honourable Minister of Lands, Agriculture, Water, Fisheries and Rural Resettlement knowing full well growers, the primary producers, had not submitted any input into the date.

This lack of consultation by the regulatory body on such an important issue is very concerning,” reads part of the report.

TIMB estimated the yield to be between 200m kilogrammes and 210m kilogrammes.

However, growers project national average yields to be lower than last year at 1400 kg/ha – giving a crop estimate of 180 – 185m kilogrammes.

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