Zimbabwe’s fourth largest foreign currency earner, tobacco, is under threat as farmers warn of a drop in production next season, frustrated by rising input costs, Business Times can report.
They said one of the cost drivers is fuel.
Farmers said rising fertiliser prices coupled by supply chain disruptions caused by the Russia-Ukraine conflict will likely cause viability challenges in tobacco production.
“With the Russia – Ukraine war, costs are estimated to increase even further and prices paid for tobacco this season have to also take this into account,” Zimbabwe Tobacco Association CEO Rodney Ambrose told Business Times.
Ambrose said the recent increase in the price of fuel has seen the local cost of flue cured production rise by 8.3% and that the increase in tobacco costs may see growers turning to food and export crops.
The Russia-Ukraine war will also see countries dependent on food crops imports, offering higher incentives and prices on food crops, Ambrose said.
“This may see a further drop in flue cured production in 2023 as ably resourced growers consider reducing their tobacco hectarage in favour of the attractive food crops. This could be an option for growers in Zimbabwe, Brazil, USA and Zambia,” he said.
Tobacco Industry and Marketing Board CEO Meanwell Gudu said viability challenges will adversely affect tobacco production with the Russia-Ukraine conflict worsening the situation.
“Prices for inputs have definitely increased and this is affecting the viability of tobacco production. The two warring countries are traditionally big suppliers of raw materials for fertilisers,” Gudu said.
Ambrose said the average prices will be closer to US$3/kg up from US$2.70/kg in 2021.
“For Zimbabwe, all of the above dynamics point to much firmer prices this season.
“While there may be minimal upward movement in top leaf prices, especially China grades, there will be strong demand for the middle and bottom plant positions. An 15% – 20% increase in average US$ prices is expected this season,” Ambrose said.
Gudu said the board is also expecting tobacco prices to go up but “can’t absolutely quote a percentage increase figure.”
Globally, costs of producing a hectare of tobacco have increased significantly and will continue into 2022.
Countries have reported increases of 15 -20% in costs with fertiliser, labour and fuel being the main cost drivers.
Ambrose said the retention threshold of 75% with the remainder liquidated at the prevailing official exchange rate will “negate all the anticipated positives for the season hence diversification and identification of alternate crops to tobacco remains key for all growers”.
“Demand for Zimbabwe’s flavour tobacco remains very high, however it is poor, inconsistent monetary policies that are hurting the local industry and impeding its growth,” Ambrose said.
The golden leaf has cumulatively contributed around US$6.3bn since 2015 or an average of US$800m yearly.
Last year, tobacco growers earned US$150m from the expected US$600m.
The 2022 tobacco marketing season kicks off on March 30.