TOBACCO auction floors in Harare stirred to life yesterday as the golden leaf’s marketing season kicked off in earnest, after weeks of uncertainty caused by the Covid-19 crisis.
There is an uneasy relationship between farmers and the government. Farmers do not trust the authorities. To be fair to the farmers, nobody really trusts the government. This week, I had a chat with a frustrated tobacco farmer who likened the government to that hopelessly lazy friend who folds his arms and watches you toil without offering a helping hand — but when the time comes to enjoy the harvest he is quick to sprint to your dining table.
After ripping off the tobacco growers by raiding their hard-earned forex over the years, the authorities have come up with what they tout as a win-win deal: 50% of the sales proceeds will be paid to the farmer in forex and the other half will be paid in Zimbabwean dollars at the inter-bank exchange rate. Is this a fair deal or the usual rip off? On paper, it reads like a better deal than last year’s arrangement, although the farmers will spit in your face if they hear you make such a naive assessment.
This time around, the farmer will presumably have the latitude to use 50% of the proceeds to make telegraphic transfers, settle forex obligations locally or even withdraw the hard currency. It is crucial to qualify this observation with a caveat: everything will depend on whether the government is sincere enough to honour its promises to the farmers. The deal breaker, though, could be the 50% portion to be paid in Zimdollars at a fixed inter-bank exchange rate of US$1:ZW$25. You do not have to be a streetwise hustler to realise that the parallel market is trading at a 100% premium to the hard-pegged inter-bank rate. In every practical sense, this effectively lowers the leaf tobacco’s price per kilogramme.
The fixed inter-bank exchange rate gives farmers a raw deal. I have always argued that the government should do away with this unrealistic peg. While any level-headed observer would acknowledge the importance of forex receipts in the national economic matrix, we must, of necessity, ask how other countries are handling the tobacco trade. In the first place, should a government be hijacking the proceeds of private enterprise in this manner? The forex generated from farming — or any private enterprise for that matter — ought to be sold at the discretion of the farmer or whoever is making that money, on a “willing seller, willing buyer” basis in line with principles of the free market system. One of the biggest sources of grief in this economy is the government’s inefficient and opaque re-allocation of foreign currency. In a country that purports to be a constitutional democracy, the free-market system is a more viable proposition than the commandist approach.
The perennial stench wafting from opaque and inefficient forex re-allocation is never far away from the hotbed of corruption, allocative distortions and rent seeking. From that perspective, the entire forex-retention arrangement is reduced to a monumental fraud. Tobacco farmers deserve respect.