Zimbabwe farmers this week said the US$60m seed money promised by the government through the AFC Holdings to finance the local tobacco farming is a drop in the ocean as the sector requires at least US$350m a season, Business Times can report.
Government announced this week it would mobilise US$60m for local funding of tobacco, a move expected to rescue tobacco farmers from the shackles of tobacco merchants and contractors.
The cartel has the financial wherewithal to lend cash in hard currency to desperate farmers at punitive interest rates and controls the sector.
The cartel would then deduct their money on the spot at the floors.
This means, the country is only getting about 12.5% of the exported tobacco due to the repayment of loans.
Consequently, most tobacco farmers are now living on the margins.
Zimbabwe Tobacco Association CEO Rodney Ambrose told Business Times that the US$60m revolving fund was insignificant.
The sector, Ambrose said, required at least US$350m local funding.
“Given that we have over 180. 000 registered farmers, the US$60m is too little, the tobacco sector requires at least US$350m to begin the real journey of local tobacco funding, otherwise the money is for a few individuals who have collateral,” Ambrose said.
“It is high time the government begins serious financing and starts the disbursement of loans as the contractors have already started registering the farmers and distributing inputs. We are likely going to have the same situation next year as the process is very slow. We know that by August most of the dryland farmers would have planted their seeds with few farmers left with seeds for additional hectarage.”
He added: “…..If not carefully monitored the tobacco merchants will take the bulk of the (US$60m revolving fund) as they are the ones with collateral and capacity.
In order to get enough benefits from the US$60m revolving funding Tobacco Industry and Marketing Board [TIMB] should work with AFC to finance the farmers, especially the small scale.”
Ambrose is hoping that the authorities will make the local loans easily accessible for tobacco farmers as more than 75% are small-scale who do not have collateral.
Some players in the sector said local banks were charging punitive interest rates.
“The biggest challenge with the local funding is that our banks have high interest rates compared to the offshore lending rates of less than 10%, therefore not many farmers will be able to access loans and most farmers will opt for outside loans. The other thing is that our financial institutions are mainly focused on reducing non-performing loans hence the AFC model should be single digit to enable farmers to repay loans,” one industry player said.
TIMB chief executive officer, Meanwell Gudu, said there was a lot of work that needed to be done to transform the tobacco industry value chain.
“Part of the objectives of the tobacco value chain transformation plan are to prioritise strategic interventions in the localisation of tobacco funding. This is to ensure retention of the foreign currency that accrues to the country through tobacco exports. But, at this point we cannot pre-empt the plans of the Ministry until the Strategy has been officially adopted,” Gudu said.
At a post Cabinet briefing on Tuesday this week, Information, Publicity and Broadcasting Services Minister, Monica Mutsvangwa said the tobacco sector will be provided with seed money to the tune of US$60m in order to establish a Revolving Fund for the local financing of tobacco to be a success.
Tobacco is the fourth largest foreign currency earner behind platinum, diaspora remittances and gold.
Official figures obtained from TIMB showed that as of Monday this week, US$533.6m was grossed with US$466.9m going towards repayment of loans.
On Monday the total output stood at 192.6m kilogrammes with mop up sales expected to end above 200m kg.