The tobacco industry is an important foreign currency earner in Zimbabwe. Last year the government increased the input finance facility for the industry by 150% (in comparison to 2017). It only comes second to mining which tops the list of major foreign currency earners in the country. In 2018 a record-making 252 million kg of tobacco found its way to the auction floors and tobacco exports raked in approximately USD900 million. The most commonly grown type of tobacco is flue-cured tobacco – accounts for at least 95% of all the tobacco grown locally. This year there are projections of a decrease due to a myriad of challenges such as drought and disruptive monetary policies.

A False Start

When the auction floors were opened this year there were initially low deliveries by tobacco farmers. In the opening 2 weeks, sales realized were just over USD19 million which was in stark contrast to USD81 million realized in 2018 for the same period. The price was also in variance from the same period last year being lower this time around. One of the key factors leading to those low initial deliveries was the exorbitance of transportation logistics. The other major blow was the surge of weighing and auctioning charges – not forgetting other levies too. Overall, farmers then resorted to holding onto to their tobacco lying in wait for any desirable shift in the price per kg. The other issue had to do with farmers withholding their crop due to the unfavourable 2% tax. There was then a turnaround when the finance minister announced that tobacco farmers would be exempt from that tax.

Where Are We Now?

As of now, over USD200 million has been realized from just over 50 million kg of tobacco exports. By this time last year, approximately USD140 million had been realized from roughly 30 million kg exported. This highlights a positive trajectory and it still remains to be seen if last year’s near billion-dollar feat will be beaten.

Leakages Are Being Bemoaned

It has emerged that one of the challenges that are being faced is leakages leading to price distortions. There are people who buy the crop straight from the farmers. They then take that crop and deliver it to the auction floors. All this is akin to inside marketing and results in low prices (and remember that low prices discourage farmers from making deliveries). It has been discovered that some of these illegal buyers operate in cahoots with auction floor operators. It has since been emphasised that those caught in these shenanigans will be arrested.

Current Export Stats

Our neighbouring SA is our top consumer so far this year when it comes to tobacco exports. They have since imported from us roughly USD80 million worth of tobacco. China trails behind them having purchased approximately USD70 million worth of tobacco from us. China is traditionally the largest importer of our tobacco.

Some Of The Challenges Being Faced By Tobacco Farmers

This past season one of the challenges noted has been drought due to low rainfall. This has greatly hampered irrigation efforts by most farmers. It has also been further exacerbated by very hot temperatures for the most part.

The other challenge is that of very high operational costs which have forced some farmers to downscale. Roughly 85% of tobacco farmers are reported to be contract farmers. In their pursuit to limit costs, they have to do their deliveries in bulk. However, this still means significant costs and once at the auction floors, they are faced with numerous expenses incurred in getting their crop sold.

There have been indications that buyers are looking to short-change farmers. When farmers bring in their crops the buyers can just say that the quality is low and thus will fetch lower prices. This is seen as a means to get more for less which is at the expense of the farmers. I’ve already highlighted that our flue-cured tobacco is highly acclaimed for its superior quality. So this speculative conduct can cause farmers to hold onto their crop until favourable prices are agreed on.

The foreign currency woes are also not sparing tobacco farmers. Oft time they need to purchase, repair or do maintenance on their equipment which might all need forex. They end up at the mercy of the black market in trying to source forex. Ultimately this narrows their profit margins due to high operational costs (coupled at times with low prices for their crop).

There is a need for favourable monetary policies that serve as incentives for tobacco growing. This past season it’s reported that over 40000 new tobacco farmers joined the trade. It would be important to make the operating environment favourable so that more continue to join in. It’s understood that the government is in need of forex and the tobacco industry is one such source of that forex. I would encourage that tobacco farmers not be short-changed; if their crop is exported in foreign currency it’s only fair that they get paid in foreign currency.