COTTON producers have joined tobacco farmers in 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 their crops while giving the farmer only 20% in hard currency.
But unlike tobacco farmers, who want to be allowed to retain 80% of their earnings in forex, cotton growers want the central bank to increase their retention to 50%.
The measures, which were announced by RBZ governor John Mangudya in his monetary policy statement last October, also allowed 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.
In addition to that, the RBZ also wants 20% of offshore loans for production of cotton while the investor gets 70%, a development which players in the sectors say deters investors.
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.
Cotton is Zimbabwe’s second biggest foreign currency-earning crop after tobacco.
Zimbabwe National Farmers’ Union (ZNFU) chief executive Edward Dune said the 20% forex retention was unsustainable since cotton production requires a lot of inputs that now require foreign currency.
“We thank the government for the 20% allocation this year, considering that last year the farmers were not getting any forex. However, the 20% allocation for farmers is too low, we would actually be comfortable with a 50% allocation as this will go a long way in incentivising the farmer, considering the effort he would have put,” Dune said.
He added that the recent price hikes could have a negetive impact on the cotton sector.
“The recent price hikes, mainly that of fuel, is going to affect the cost of tranporting the produce to the market because the cost of transport has often been related to productivity so given that fuel has increased by over 150% it is obvious that the transportation of crops is going to increase as well,” he said.
Rewai Muchada, a cotton farmer from Nyagore in Mutoko, said he expects the government to increase the foreign currency allocation to at least 50%.
“The prices of goods have gone up, some of the commodities that l used to buy cost three times the original price and the other problem is that l have a wife and children whom l also have to take care of also so it would be beneficial to us as farmers if the government would increase the forex allocation to 50%,” he said.
Zimbabwe Farmers Union (ZFU) executive director Paul Zakariya said the cost of producing cotton has increased significantly in recent months and payment in foreign currency would protect cotton growers.
“Cotton production has been on the increase over the last few years, this upward trajectory is anticipated to continue albeit the slow start to the season and erratic rainfall that has been experienced so far,” he said, adding last year’s subsidies for cotton farmers had helped to keep the production levels relatively low.
The subsidy has since been scrapped.