DISCONTENT has been expressed over the disparity in tobacco prices between Zimbabwe and other regional players like Malawi.
Business reporter Bernard Mpofu speaks to the Zimbabwe Tobacco Association (ZTA) president, Andrew Ferreira about this and other issues affecting the industry.
Mpofu: How much does ZTA members contribute to the total crop produced.
Ferreira: ZTA members produce plus or minus 70% of the total crop. Our members comprise 4 500 small-scale farmers (producing less than 8 ha) and 600 large-scale farmers (growing over 8ha).
Mpofu: What is your opinion on the new pricing system after the floating of the Zimbabwean dollar?
Ferreira: We are pleased that we are getting the closest value to the US dollar. This is the closest we have had in the last 10 years. But we have also come through a very difficult season and the Zimbabwe dollar debt could be a problem to many growers. The majority of commercial farmers are contracted to international merchants. These merchants supply inputs and itâ€™s an offset against tobacco purchases.
Mpofu: What has been the response at tobacco auction floors since the new pricing system was introduced?
Ferreira: All growers across the board will try and sell their produce as fast as they can.
Mpofu: Despite various incentives to boost productivity why is production of the cash crop continuing to drop year-on-year?
Ferreira: There has been further erosion of the grower base. This has also led to declining confidence by some farmers. Reported disturbances in the sector could also affect production in future. More so inflation, like in any other sector, is affecting our productivity.
Mpofu: How do farmers seek to address inflationary pressures affecting them?
Ferreira: The only way we can get on top of inflation is through increased production and getting rid of market distortions.
Mpofu: Do you think government policies can ease these pressures?
Ferreira: Under the same government this country produced 237 million kilograms of tobacco (a year) and now we are forecasting just over 70 million kgs. Has anyone ever asked why?
Mpofu: How has the global demand of tobacco amid anti-smoking bans and other health concerns affected output?
Ferreira: Worldwide, there is a global shortage of tobacco and we are in a unique situation. Governments are calling for an increased production of agro-foods and in some cases incentives are awarded to farmers engaging in food production. This has discouraged tobacco farming in some cases resulting in increased demand for tobacco. If we increase our production, we can have a larger global market share.
Mpofu: What is the current average price of tobacco?
Ferreira: The average global prices are around US$2 per kg. The global demand I have alluded to is reflected by the price increase at our auction floors, which are currently averaging $3,30 per kg.
Mpofu: But local farmers were clamouring for a price that tallies with other regional countries.
Ferreira: Once the leaf side of the crop comes on, you are going to see prices firmer.
Mpofu: What do you say about tobacco prices in Malawi which are reported to be between US$7-11 per kg?
Ferreira: There is a lot of distortion in Malawi. The distortion comes from local companies wanting to get a bigger marketshare especially when there is a shortage. In my opinion merchants are paying too much in Malawi.
Mpofu: Has this global demand translated to increased trading at our floors?
Ferreira: Certainly, our daily sales are now averaging 330-350 bales per day compared to about 224 last year. Local Buyers are definitely receiving orders from international merchants who are interested in our tobacco. The Chinese for example are already prepared to pay $4 per kg.
Mpofu: What impact does discontent expressed by some farmers have over non-formal trading such as side-marketing?
Ferreira: It is my concern that differentials in pricing will create side-marketing and we have to prevent it at all costs.
Mpofu: How can this be achieved?
Ferreira: Through the Tobacco Industry Marketing Boardâ€¦ who are the regulators of the industry. They can do so by monitoring daily sales.
Mpofu: The relationship between government and farmers has often stormy with perennial standoffs over pricing of the cash crop. What is the relationship between government and farmers like at the moment?
Ferreira: The main problem that we had was that of the exchange rate. But that has since been resolved. For as long as the interbank rates continue to be trading, farmers will have no worries with the pricing system.
Mpofu: What is the current status of the amounts you are owed by the Reserve Bank?
Ferreira: We were offered three ways of receiving the outstanding balances in the recently announced Monetary Policy Statement. The Reserve Bank announced its commitment to pay us the incentives in foreign currency once sufficient foreign currency is generated. They also promised to pay using the current interbank rates. The issue on 20% has been resolved and it has since been reviewed to 25%.
Mpofu: How much does it cost to produce a hectare of tobacco?
Ferreira: It costs an average of $1,77 trillion per hectare to grow tobacco. This is why it is so important to have concessionary schemes such as ASPEF in order to support farmers. Without ASPEF no one would be farming but it would be better if we create an environment without distortions. Labour costs are increasing because farm workers no longer have the motivation to work.
Mpofu: What impact do reported cases of farm evictions have on the tobacco industry?
Ferreira: These disturbances may dent confidence within the industry; therefore there is need for policies that build the confidence of farmers. Disruptions have an undesirable impact on production. For example, one may ask how long workers are going to be disrupted at night through reported political night vigils? With such low wages, and them being subjected to night vigils, they can be hardly expected to stay on the job. They may actually be left without any choice but to leave their jobs.