RBZ throws tobacco farmers into vicious debt trap

BY FIDELITY MHLANGA

ABOUT 90% of Zimbabwe’s tobacco farmers have been thrown into a vicious debt trap that could be difficult to exit unless the government announces a payment model that addresses glaring shortcomings, the Zimbabwe Tobacco Association (ZTA) warned this week.

Speaking ahead of the 2021 marketing season “unilaterally” set for April 7 by the Tobacco Industry and Marketing Board (TIMB), the ZTA said the debt situation had hit crisis levels with only US$150 million out of about US$600 million generated by farmers annually flowing into the country.

The rest was being held back by foreign contracting firms.

For the longer part of last year farmers were paid 50%  of their revenues in forex, with another half being paid in Zimbabwean dollars at a fixed rate US$1:ZW$25.

This was far below black market rates of up to US$1:ZW$165 during the first quarter of 2020, before the Reserve Bank of Zimbabwe (RBZ) introduced the forex auction system in June.

Ahead of the new season the RBZ reviewed retention thresholds to boost farmers’ incomes.

But ZTA chief executive officer Rodney Ambrose said the RBZ’s reforms would make no impact.

“Ninety percent of growers are now 100% US dollar borrowed from their contractors, implying no new United States dollars comes into the country until USD loans are repaid,” said Ambrose.

“So while on paper tobacco sales may earn US$500 million to US$600 million per season, real inflows are about a quarter of this. Roll out of diversification cropping programmes for tobacco growers remain paramount so that their general livelihoods are protected, as tobacco viability diminishes each season. Tobacco growing currently is not an attractive crop to venture/expand into and such growth will remain subdued.

Under new payment modalities announced by the central bank, tobacco growers will this season receive 60% of their earnings in forex, with the remainder paid in Zimbabwean dollars.

“We appreciate that for the purpose of retention levels tobacco growers will now enjoy the same level as other exporters, that is 60% in foreign currency payable into growers FCAs (foreign currency accounts) and 40% converted at the prevailing auction rate on the day of sale payable into local currency growers’ account, both amounts payable net of foreign currency denominated loans,” said Ambrose.

“He however, said the 60% falls short of their foreign currency cost of production component which reflects a minimum of 70%. “Compounded to this shortfall is that 40% of sales proceeds will be paid at the official rate of ZW$84:US$1 versus re-tooling rates above ZW$100:US$1. Growers’ viability will not improve with the retention levels announced and we plead with the authorities to review the foreign currency retention level before the start of the selling season. Improving growers’ viability is paramount in ensuring the targeted growth in the sector is achieved and the country realises improved foreign currency inflows,’’ the ZTA CEO said.

Tobacco farmers have every season found that their profits have been declining while debts owed to contractors in United States dollars have been mounting.

Ambrose said the pricing of contract tobacco, which makes up 95% of national production, should not continue to be based on the minimum of tobacco prices paid on the auction floors.

He said this outdated legislation had to be changed.

“While auditing of contractors submissions is still underway, but it could be estimated that 124 000 hectares were put under contract plus a further 5% of crop under auction; implying total hectares planted could be close to 130 000”, he said.

“National average yields will be lower than last year at 1 400 kg per hectare — giving a crop estimate of 180 – 185 million kilogrammes. TIMB (Tobacco Industry and Marketing Board) are finalising their crop assessment and more accurate figures will be used to determine a national crop size. The announcement of the opening of the auction and contract selling floors as announced by the TIMB was done without growers consultations”.

Ambrose further said: “This is a first.

It is disheartening to note that despite growers bodies formally writing to the TIMB requesting for time to finalise payment modalities, the board proceeded to engage with the Honourable Minister of Lands, Agriculture, Water, Fisheries and Rural Resettlement knowing full well growers, the primary producers, had not submitted any input into the date. This lack of consultation by the regulatory body on such an important issue is very concerning.”