Tobacco farmers reject 20% forex deal

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Tobacco will perform notwithstanding the dangers associated with excessive rainfall.

TOBACCO farmers are rejecting the Reserve Bank of Zimbabwe (RBZ)’s exchange control measures which empower the central bank to retain up to 70% of foreign currency export earnings from the crop while giving the farmer only 20% in hard currency as the tobacco selling season draws closer.

By Lisa Tazviinga

The measures—announced by RBZ governor John Mangudya in his monetary policy statement October last year—also allow third parties, such as retailers, technology groups and rival lenders, who are referred to as authorised dealers, access to customers’ accounts.

Authorised dealers get the remaining 10% of the foreign currency.

The farmers want to be allowed to retain as much as 80% of their sales in foreign currency. The bank also introduced new drawdowns for offshore loans for production, purchase and value addition of tobacco, the biggest foreign currency-earning crop, which attracts heavy investment.

Dubbed the golden leaf, tobacco is the second largest foreign currency earner out of all Zimbabwe’s exports after gold.

The RBZ wants 20% of offshore loans for production of the two crops and 10% for value addition while the investor gets 70%.

Before that, the forex retention for offshore loans was 100%.

The arrangement implies that in exchange for the foreign currency, the central bank will pay the exporter using Real-Time Gross Settlement (RTGS), thus crediting the exporter’s account with the volatile local currency or the equally unstable bond note.

Government hopes the tobacco selling season, which traditionally kicks off in March, will help ease the crippling foreign currency crisis bedevilling the economy.

But farmers are arguing that the arrangement works against their interests and this could adversely affect their operations.

Zimbabwe Tobacco Association president Rodney Ambrose said farmers were instead expecting that they would be allowed to retain up to 80% of the forex earned.

“Circumstances have greatly changed from the time the proposal was forwarded such that we feel it should be the other way round, that is 80% nostro, foreign currency account 20% bond/RTGS, the current framework is totally unviable in the current economic environment. Being a farmers’ association, we have constant dialogue with farmers and many certainly have said the 20:80 is unviable and needs to be addressed; this is why we are now proposing 80:20 urgently,” Ambrose said.

Zimbabwe Farmers’ Union Crop specialist Simbarashe Muchena said the RBZ should significantly revise the 20% forex retention threshold upwards.

“Given the current economic crisis, the intervention by RBZ is a step in the right direction. However, we do not know how the central bank arrived at that figure,” Muchena said.

“Tobacco farmers play a critical role in generating foreign currency and the 20% allocation is too low for them; it is worrying to note that other productive sectors are getting as high as 55% foreign currency allocation.”
Muchena said his organisation was engaging stakeholders on the way forward.

Charity Bamhara, a tobacco farmer based in Mashonaland West province, said the 20% forex retention was barely enough to cover expenses, let alone allow her to go back into the field next season.

“Profit margin for tobacco is barely 100%, in this tight economy it is almost guaranteed that if we sell our produce at bond note value we will not be able to go back into the field next season, since everything is being sold in relation to the USD it is only fair that they do the same and if they are going to give us bond notes, let it be according to the current bond to USD rate,” said Bamhara.

A large-scale tobacco farmer who preferred anonymity said: “The idea might be humble but the reality is damaging.
The system is not helping us at all as they keep advocating for a 1:1 exchange rate with the bond note yet in reality it is not. When we try to acquire inputs, we get three price variations for the same product. So if a bottle of chemical is costing US$35, it means it is costing US$105 which when converted into RTGS will be US$126. The most disappointing thing is they will be giving me the 80% into my bank account at the rate of 1:1 which will only mean more loses.”

It is general consensus among tobacco farmers that even though it is a very lucrative industry, it does not afford a five-fold profit hence the 20% cut does not cover the basic expenses as the proposal suggests.

Economist Eddie Cross said the payment plan will result in farmers going broke.

“The current inflation rate is probably above 50%, this is inflating costs and farmers must get full value of their crop. The decision to take 80% and convert it into bond at 1:1 would be a disaster,” Cross said.

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