The 2021 tobacco marketing season opened yesterday amid huge expectations the sale of the golden leaf will help lubricate the forex market and stabilise the exchange rate.
The golden leaf is one of Zimbabwe’s foreign currency earners with a haul of US$782.4m last year from US$860m in 2019.
However, its contribution has been declining over the years due to bottlenecks that have ravaged the sector.
The tobacco farmers want to be allowed to retain 100% of their proceeds in foreign currency instead of the 60:40 arrangement which has been set by the government.
They argue that getting 40% of the sales proceeds at the prevailing auction rate has impoverished them as the rate (at 84.3970 as at Tuesday auction) is below the retooling rate of 120.
The mismatch in the rate has left farmers on the brink and some drowning in debt. The absence of funding has seen merchants coming on board to fund production of the golden leaf.
This is reflected in the value of loan facilities approved by the central bank’s exchange control.
Last year, the exchange control division approved loan facilities amounting to US$1.3bn up from US$1bn in 2019 with the bulk skewed towards the agriculture sector accounting for more than 50% in both years, mainly on account of offshore tobacco financing facilities, according to the central bank.
The absence of government funding to the golden leaf sector has left farmers at the mercy of merchants and contractors.
They fund tobacco and during the marketing season, take what they would have contributed in forex at a time the farmer has been given 60% of the sales proceeds in forex. This has left a number of farmers drowning in debt.
It is estimated that tobacco farmers will get US$150m from the expected US$600m mobilised by merchants as the remainder would cover debts.
There is a need for a lasting solution to motivate farmers to continue growing the golden leaf and rescue from the debts estimated at over US$150m accrued from the last tobacco farming season.
Other than repaying merchants, the farmers have other obligations they are supposed to meet such as paying for labour costs.
This is where the government has to come in for banks to fund tobacco using local funds to make it cheaper and remove the influence of the merchants.
There have been attempts by the government to mobilise funding for tobacco with little success. Last year, it wanted to raise US$9m for tobacco through Agribank but no money came through. This forced the Tobacco Industry and Marketing Board to turn to merchants to rescue the situation.
There are now fears that in the absence of proper funding the golden leaf would take a similar path such as the one that has resulted in low productivity in the cotton sector.
Cotton, once the second highest forex earner in the country, took a dip as cartels invaded the white gold.
But there is a silver lining: The ministry of Lands, Agriculture, Fisheries, Water, and Rural Resettlement is working on a Tobacco Value Chain Transformation Strategy which would result in output rising to 300m kilogrammes annually from below 185m last year and transform the tobacco value chain to a US$5bn industry by December 2025.
This strategy will be utopian if farmers that have sweated all seasons are getting the short end of the stick. This is the time to nurture the goose that lays the golden eggs.