The Reserve Bank of Zimbabwe (RBZ) has granted tobacco growers the nod to access foreign currency on the auction system on their 25% portion of receipts liquidated in local currency in a major boost for golden leaf production, Business Times can report.
Prior to this development, tobacco farmers were living on the edge with ballooning debts which were spiraling out of control due to high costs of production and low forex retention levels.
This year, the central bank reviewed forex retention levels to 75% from 60% last year but farmers said the review was not enough to meet the high cost of production which surpassed 80%.
In a letter dated March 16, 2022, RBZ governor John Mangudya said the 25% to be paid to tobacco growers in local currency is applied on the net sale proceeds after the settlement of all the loans, levies and other marketing costs.
“The net effect of this arrangement is that the tobacco grower shall effectively have a retention of between 80% and 85% in foreign currency,” Mangudya said.
“Furthermore, tobacco growers shall be eligible to participate at the Foreign Exchange Auction System for the purposes of importing key inputs required in the production of tobacco.”
The Zimbabwe Tobacco Association CEO Rodney Ambrose told Business Times: “This is a dawn of a new era for tobacco growers as they can access another chunk of forex from the auction system. It is a major breakthrough for us as we can be able to start self-financing some of our projects without borrowing.”
Ambrose said the development would “go a long way in improving the tobacco sector’s viability”.
At the opening of the 2022 tobacco marketing season yesterday, Lands, Agriculture, Fisheries, Water and Rural Development minister Anxious Masuka said farmers are at the core of the Tobacco Transformation Plan imploring the rebranded Tobacco Industry and Marketing Board (TIMB) to look at the challenges facing farmers.
“The TIMB should aspire to achieve better livelihoods for farmers and sustainability for the tobacco industry, and we all need to rally and support these great endeavours,” Masuka said.
“With a more stable macro-economic environment this selling season, and no fixed exchange rate, growers should clearly get better value for their effort,” he said, urging merchants to “do their part by paying fair prices for this tobacco”.
Masuka said the demand for Zimbabwe’s flavour tobacco remained high and with the monetary authorities changing policies for the better, growth is expected going forward.
TIMB chief executive officer Meanwell Gudu said the foreign currency option for farmers was “a very positive development as it is in addition to the 75% forex retention threshold”.
The golden leaf has contributed around US$6,3bn since 2015 or an average of US$800m yearly.
Last year, tobacco growers earned a paltry US$150m from the US$600m amid revelations that rising United States denominated debt burden owed to contractors and merchants was choking the sector.
A Goromonzi-based tobacco farmer Joshua Nyamukacha said: “It is a good development but we wait and see if we can be able to access that money from the auction.”
Business Times learnt that the contractors and merchants, who have extended lines of credit, will deduct their dues at the auction floors starting yesterday, a situation which could see some tobacco farmers taking home negative balances as some debts are carried forward.
Zimbabwe has been depending on tobacco to oil the economy but the debt has caused 75% of the amount mobilised to be deducted and repatriated to the merchants’ respective countries as about 95% of tobacco farmers are under contract farming, an arrangement in which they are assisted to get inputs through lines of credit.
The balance would be inconsequential for farmers and the economy.
Ambrose said contract farming accounts for 95% of the total tobacco output, a situation that has left farmers trapped in debt.
If left unchecked, the contract system would decimate the golden leaf in the same manner it destroyed Zimbabwe’s white gold, cotton, critics have warned.
Cotton was once the second highest forex earner in the country but has seen its fortunes tumbling over the years.
Of the 122 000 registered tobacco growers, 118 000 are contracted tobacco farmers. TIMB estimated the yield to be around 200m kg.
The first bale was yesterday sold at US$4,20 per kg against US$4,30 per kg last year.