Tobacco farmers seek forex retention review

... as they fail to repay US dollar loans

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LIVINGSTONE MARUFU

TOBACCO farmers want the Reserve Bank of Zimbabwe (RBZ) to review the foreign currency retention threshold from 50 percent on net sales after a number of golden leaf growers failed to clear loans from their contractors due to depressed tobacco prices.

Tobacco earnings have fallen 40 percent, registering US$365,6m, three quarters into the selling season against US$611,4m in the same period last year.

Given that the prime tobacco had already been sold, most farmers believe that the selling season is all but over for them as prices are now more depressed.

Zimbabwe Tobacco Association president Rodney Ambrose told Business Times that the farmers are engaging RBZ to review the forex retention levels to capacitate farmers to pay out loans.

“As the entitlement is based on a farmer first clearing his US$ loans, and in a season with depressed US$ prices against high US$ seasonal borrowings, very few farmers have been in a position to benefit from the retention to date. Therefore, there is need to engage RBZ to review the 50 percent forex retention threshold,” Ambrose said.

He said farmers also need to have generated sufficient RTGS dollars income from their sales to pay back their entitlement, which has further reduced the number of farmers benefitting.

ZTA said there has been a delay in crediting farmers’ tobacco with forex.

“Many farmers are trying to retool, using RTGS$ revenues generated at official exchange rates, at inputs being priced at close to parallel rates, which is an almost impossible task to accomplish,” Ambrose said.

“There are minimal surpluses being generated. Coupled with the high inflation environment, farmers will have little income once to sustain themselves.”

He said the number of sellers to date are similar to 2019, however auction sellers are down 25 percent and 70 percent of registered farmers have sold to date.

RBZ governor John Mangudya said the bank is ready to engage and map the way forward once  formal communication has reached his office.

“Currently, we haven’t received any formal communication from the farmers but as soon as they reach out to us, we are ready to engage and map the way forward. If we happen to meet the farmers’ representatives we will iron out all the sticking points and clarify
some issues that may need clarification,” Mangudya said.

Tobacco revenues are expected to drop by 42 percent in 2019 to around US$427m from US$737m last year.

Actual US$ inflows from sales are estimated to be under US$200m as merchants offset US$ sales proceeds against 2018 US$ growing loans first before bringing in new US$ to purchase  the crop.

This will impact negatively on the country’s forex generation as tobacco remains the second largest single forex earner after gold earnings of close to US$1,6bn.

It is understood that some companies have separated their loan accounts to the satisfaction of their farmers, in line with an earlier RBZ Exchange Control Directive and such issues are being looked at on a company by company basis.

Farmers said selling charges both on auction and contract floors are a major concern as they also impact on viability.

Selling charges vary from US$7,50 to US$9 per bale settled at the prevailing day of exchange.

Recently, auction floor charges were raised by over 60 percent at a time farmers’ real returns are on a decline and farmers already incur other high marketing charges and levies.

Given the poor prices and complex payment methods, the appetite for growing tobacco is likely to go down next season. Latest statistics available to 17 June 2019 reflect a 58 percent drop in seed sales at 145 550 grammes compared to 346 195g in the
comparable period last year.

While seed sales picked up in the month of May, the statistic remains an indication of the lack of confidence by farmers to start preparations for next season.