HomeLocal NewsTobacco industry crisis is home-made

Tobacco industry crisis is home-made

MANY have been expecting a huge increase in the productivity of Zimbabwe’s agricultural sector over and above the limited improvement over the last two years.

Eric Bloch

To a major extent the expectation has been founded on the belief that the Minister of Agriculture, Mechanisation and Irrigation Development, Joseph Made, has emigrated.

The assumption of such emigration has been founded upon most products in the shop being endorsed “Made in China”!

However, the reality is that Honourable minister is in Zimbabwe, as evidenced by his statement and comments last week on the decline, and possible demise, of Zimbabwe’s tobacco auction system, and of its tobacco floor enterprises.

He correctly said “it is very crucial to listen to the concerns of tobacco auction owners who are crying foul over the dominance of contract farming.

We have undertaken a massive land reform exercise which has empowered smallholder farmers, medium-sized and A2 farmers.

But we need to understand that the whole exercise of land reform is what we are being punished for.

Our detractors have imposed sanctions on our agricultural industry, all our farmers have to pay cash, whilst the worldwide norm is subsidies for farmers”.

He continued: “We must examine why farmers who are not contracted to sell this tobacco crop to contractors end up doing business with them. We need a thorough examination of all the issues around contract tobacco farming to ensure that this sector will not demise as the cotton sector had done.”

He disclosed that to that end government was also “looking at the possibility of decentralising the tobacco auction system so that all farmers will be able to sell their produce in their own areas.

We may also look at the possibility of decentralising the tobacco auction floor system whereby we can decide to auction the crop (for instance on Monday in Chinhoyi, Tuesday in Marondera, etc.)”

His statement demonstrated how he is grievously misinformed, or how greatly he has misconstrued the realities, or is intentionally myopic to the facts and the realities.

First, and foremost, he has total disregard that almost all the tobacco farmers are not only devoid of working capital resources, but moreover have no ready access to the requisite funding for their operations.

This is almost wholly due to the fact that they have no resources which have collateral value status, and very few lenders are able to provide loans without security from borrowers in the form of meaningful collateral.

This situation is due to all rural lands being state-owned, instead of belonging to the farmers.

Moreover, for much more than a decade, including as recently as four months ago, farmers have been assured that they would be provided long-term formalised leases, and that such leases would be structured so as to accord them collateral value.

But, with rare exception, this has not occurred, leaving farmers devoid of access to critically required funding.

As a consequence of this massive funding constraint, almost 80% of tobacco growers are only able to operate by entering into contracts with major tobacco companies.

Those contracts provide for the companies to provide, or fund, the acquisition of essential inputs, and to fund most operating expenditures of the growers, including wages and energy supplies.

In return, the growers are bound to supply their crops to the funding companies, generally at prices consistent with tobacco floor average prices. The funding provided by the companies is then offset against the amounts payable by for the crops.

Many of the approximately 20% of growers who are not bound by the contracts are increasingly motivated to sell their crops, in whole or in part, to the major companies, instead of via the auction floors.

In part this is because when they perceive a likely decline in auction floor prices, they anticipate marginally higher crop value realisations by direct sales to the companies, and partially it is because of more rapid realisation of crop proceeds for they receive payment immediately upon delivery, instead of having to await the disposal by auction, and then await payment from the floor operators.

Made is also being very unrealistic and unjust in his criticism of suppliers of inputs to tobacco growers for their requirement that they be paid immediately upon supply of the inputs, instead of according credit terms to growers.

On the one hand, any audit facilities would be devoid of substantive assurances of payment when due, and on the other hand the abysmal state of Zimbabwe’s economy in general, and the money market illiquidity, minimise suppliers’ access to lines of credit and other sources of funding.

Moreover, because of the state of the money market, interest rates and allied charges are generally prohibitive and would destroy the viability of the suppliers’ operations.

Instead, if growers are to have the necessary funding to access essential inputs they would need access to meaningful loan facilities from government itself.

However the state is bankrupt, almost wholly devoid of resources to fund such advances to growers and, on the other hand, it has a long track record of promising economic assistance but fails to keep such promises.

Made also erred in drawing a comparison to the provision of credit by agricultural input suppliers in other countries, disregarding the fact that the economies in those countries are generally markedly different to that of Zimbabwe.

In many of those countries the suppliers have the financial resources to enable the extension of credit to customers, or can fund the provision of credit by accessing low cost funding facilities.

In common with the president and his cabinet colleagues, he has sought to attribute the ills of Zimbabwean agriculture to alleged sanctions imposed on the country by so-called international “detractors”, being in the main the United Kingdom, United States and various countries in Europe. The reality is that the only sanctions imposed are upon specific individuals, and upon the government and entities owned or controlled by government.

No sanctions, economic or otherwise, are imposed upon private sector businesses, or the populace in general. So often does government blame Zimbabwe’s economic ills and constraints upon “sanctions” that one must surmise that the Zimbabwean political regime would be greatly distressed if the few sanctions that exist are lifted, for in such an event a new scapegoat for economic ills and mismanagement would have to be identified.

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