LIVINGSTONE MARUFU
Tobacco growers are demanding full payment of their foreign currency earnings in United States dollars from the current 75%, Business Times can report.
The farmers are getting the balance in Zimbabwe dollars.
A representative of all farmers’ unions in Zimbabwe, Bright Bvukumbwe, told Business Times: “The 75% US$ retention level is insufficient to cover required input components. Therefore, we require 100% retention.”
He added: “The increasing costs of production are not matched by floor prices plus a margin as the 2022/23 recorded high costs of production at an average of 35% – broken down into 25% average increase in inputs and +10% increases in local costs.”
He said local inefficiencies, high taxes, selling charges, and levies are weighing down on growers’ viability.
The farmers said the low foreign currency retention level was also contributing to the crisis facing the local tobacco sector.
Farmers are battling to deal with a debt crisis as the 25% is liquidated into local currency at the official exchange rate which results in exchange losses on the part of growers.
Tobacco has been one of the leading foreign currency earners for the foreign currency-starved economy but with viability challenges, the crop has been relegated to the fourth position.
It emerged that the tobacco merchants, who extend lines of credit, would deduct everything at the auction floors, leaving farmers on the brink.
Farmers have also been hit by crippling power cuts.
According to Research International, it costs US$2.60 for a small-scale farmer to grow a kilogramme of tobacco and the average selling price is US$2.65/kg leaving a farmer with a 2% profit.
The research further notes that it costs US$3.07 for a small-scale commercial to have a kilogramme of tobacco but the average selling is US$2.88/kg, resulting in a loss of 6%.
Also, a commercial farmer needs US$3.19/kg but sells at US$3.11 making a loss of 3%.
“Our conclusion is that growers are producing tobacco because there are no alternate crops.
“Growers are continually seeking alternatives to complement their tobacco production as growing tobacco alone is not profitable,” Bvukumbwe said.
The Tobacco Industry and Marketing Board chairman Patrick Devenish said the viability issues concerning the regulator and strategies are being implemented to ensure farmers get profits.
“Concerns have also been raised about growers facing viability challenges as a result of the increased cost of production.
“Prices of inputs are generally indexed on the parallel market exchange rate. For growers to survive under such a scenario, there is a need to aggressively enhance earnings through increased productivity and quality,” Devenish said.
“Unfortunately for growers, it is not easy to simply increase the yield and quality under the current unfavourable economic environment where some inputs and labour are seemingly overpriced.”
The Tobacco Industry and Marketing Board has come up with a Compliance Administration Framework that every registered contractor should meet.
Devenish said the framework stipulates the minimum inputs package for small-scale and large-scale growers to alleviate some of these challenges.
These conditions also stipulate the last date for input distribution for those who are contracted.
Lands, Agriculture, Fisheries, Water and Rural Development Deputy minister Vangelis Haritatos, who spoke on behalf of his principal Anxious Masuka, said reflecting on the tobacco transformation plan, farmers are at the core of this transformation.
“As we look ahead to the 2022/ 2023 tobacco season indications are that 97% of the crop will be grown under contract. The environment is characterized by high input costs, 30-40 % above last year, and the need to increase stocking levels due to supply chain disruptions. among other challenges.
“By this, the area under production is expected to be 129 500 ha with an estimated volume of 190 to 200 million kg of flue-cured tobacco against a tobacco Transformation Plan Target of 275 million kg,” Haritatos said.
Tobacco farmers have been left exposed to merchants after the government abandoned its earlier plan to set up a US$60m revolving fund to support the industry.
“Golden leaf production needs local independent, concessionary funding outside of contractors and financial institutions.
“Borrowing at +100% interest rates for ZWL loans and +12% for US$ loans is not viable for growers.
“Various announced facilities like a US$60m, US$10m facilities have not come to fruition resulting in new foreign currency generation on the decline each season due to extensive offshore borrowings to fund production,” Bvukumbwe said.
He said support by some contractors is insufficient to cover the full costs of production/ha and growers are having to self-finance a portion.
About 90% of growers are now 100% US$ borrowed from their contractors, implying no new US$ comes into the country until US$ loans are repaid.
A total of 212,711,370 kilogrammes of tobacco had been sold at a value of US$650,308,534.
This is an increase when compared to 211,100,219 kilogrammes sold during the same period in 2021 at a value of US$589,573,827.
