HomeBusiness DigestTobacco farmers demand more forex

Tobacco farmers demand more forex


THE tobacco industry pushed for further improvements in foreign currency retention thresholds on Tuesday, a day after the Reserve Bank of Zimbabwe (RBZ) hiked the figure to 75%.

Until last week, tobacco farmers, along with exporters were allowed to retain 60% of their export proceeds in United States dollars.

The remaining 40% came through in Zimbabwe dollars at the prevailing official exchange rate.

But in his monetary policy statement announced Monday, RBZ governor John Mangudya hiked this to 75%, as he moved to ameliorate a sea of hurdles confronting farmers.

“The financing models for tobacco and cotton require a refinement of the export retention threshold to increase participation by small-scale growers and to boost tobacco and cotton production in the country,” Mangudya said.

John Mangudya

“Accordingly, the retention threshold for tobacco and cotton growers shall be increased to 75% for the forthcoming tobacco and cotton marketing seasons. The funds retained by the growers shall continue to be treated as free funds. Tobacco merchants will retain 80% of the portion of the incremental value addition repatriated into the country and 100% of proceeds from local sales of tobacco through inter-merchant sales,” said the central bank chief.

But several farmers’ leaders said the RBZ’s offer was too little compared to rising costs.

Costs have increased even in United States dollar terms, they said.

They said to give farmers capacity to produce profitably, reviews of up 80% should have been made.

“We intend to engage urgently with the RBZ, the Tobacco Industry and Marketing Board (Timb) and our parent ministry,” Zimbabwe Tobacco Association chief executive officer Rodney Ambrose told businessdigest.

“It remains (tobacco farming) unviable. We should have been awarded a minimum of 80%. Horticulture farmers and the manufacturing sector were awarded 100%. It is a very, very difficult growing season, which is still under way, with significant increases in US dollar costs. It is going to be very difficult to motivate growers to continue with the season,” he said.

Rodney Ambrose

Tobacco Association of Zimbabwe president George Seremwe said the government should consider increasing the retention threshold to 100%.

“We welcome the increase,” he said.

“But profitability is being affected by 25% (costs) which we lose due to inflation. Fertiliser is expensive this season. So the increase is good but Covid-19 affected every sector. We appeal to the government to rethink and consider the plight of the farmer and bring the retention to 100%,” he said.

George Seremwe

In its latest  report,  the Zimbabwe Tobacco Association (ZTA) said 95% of the crop this season was grown under the contract system.

He said contractors must pay prices that factor increases in production costs.

The ZTA said to break even this season, large-scale producers require US$3,80 per kg while small-scale producers require US$2,65 per kg.

These computations were based on a retention threshold of 80%.

“Through the Timb, main industry stakeholders have submitted proposals on payment modalities for this coming season. Our submission focused on the increased portion of US dollar costs in the production model +80%, the need for a real market exchange rate mechanism for the remaining Zimbabwe dollar portion and access to local US dollar and Zimbabwe funding geared for tobacco production. The engagement process remains ongoing,” ZTA said.

In addition to the rising cost of employment, prices of fertilisers, fuel and some chemicals have risen significantly and will impact on the new season’s cost of production.

“Ammonium nitrate prices, for example, have risen to US$800 per tonne from US$650 per tonne, while high spec tobacco blends can reach US$1 100 from US$800 per tonne. Electricity tariffs have also been reviewed upwards. Increased generator use will also contribute to an increase in production costs. Interest rates of between 8% and 10% become a significant cost. Tobacco prices have to take into account these significant increases in production costs. Viability of the sector is already on a knife’s edge. Production is not forecast to increase, and if not addressed adequately this season, will result in a further decline in growers willing to take part in tobacco farming,” it added.

As of week ending January 28 , 112 619 hectares were grown during the 2021/22 season as compared to 110 155 ha planted previously.

The ZTA also bemoaned extensive load shedding coupled with faults and collapsing infrastructure for affecting production.

“This has got to be one of the worst seasons with regard to consistent supply from the (power) utility. Extensive load shedding, coupled with faults and collapsing infrastructure have seen growers go for days and weeks without power. The utility’s teams on the ground, however, are to be commended for doing the best they can but the challenges outstrip the resources available,” ZTA added.

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