Tobacco and cotton farmers will get 20% of their proceeds in foreign currency in the 2018/19 marketing season. This was said by Reserve Bank of Zimbabwe (RBZ) Governor John Mangudya. Mangudya said government will retain the remainder in order to cover foreign currency requirements for other essential commodities like medicines, fuel and inputs.
The farmers have been lobbying government to pay them in foreign currency to allow them to procure inputs whose prices have been distorted by the forex problems. According to the Tobacco Industry Marketing Board (TIMB) Chief Executive Andrew Matibiri, farmers had given government two options. One was to be paid in foreign currency in full and the other was to receive part of their proceeds in forex and getting priority in allocations. It looks like government has settled for the latter option with the Reserve Bank Governor pointing out that, on top of the 20% threshold, tobacco farmers who need to import their requirements will be given preference.
Tobacco and cotton production
Tobacco production was at 252 million kilogrammes for the 2017/18 season, the first time it has surpassed the 1999/2000 figure of 236 million kilogrammes. Cotton was at 142 000 tonnes this year, a commendable yield considering the poor yields recorded in the past four years. All things being equal, government will be targeting a better yield next time around. However, all things are not equal. Foreign currency shortages have resulted in massive price hikes for basic inputs. Admittedly, government’s capacity to continue subsidising farmers in terms of inputs is now limited. It will be a challenge for production to reach these figures.
Comparison with other exporters
Considering the percentage of foreign currency that other industries are getting, a 20% retention threshold may be seen as inadequate. Gold, platinum and chrome mining companies are now getting 55%, up from 30% that they were previously getting. Surely it looks like the tobacco and cotton farmers are being treated unfairly. Tobacco and cotton brings in a considerable amount of foreign currency through exports and it would be ideal for the government to reward and motivate them to produce more. Sadly, tobacco and cotton farmers may face viability problems and this may discourage many from engaging in tobacco and cotton farming. Overall, production may not reach the required targets next season.
It is not all doom and gloom though. Cotton Producers and Marketers Association President Stewart Mubonderi said the move to pay 20% is a “good starting point.” However, he pointed out that there is need to continue engaging with authorities. To add on, Wonder Chabikwa, Chairman of the Federation of Farmers Union also hailed this as a step in the right direction although he said farmers would have wanted a higher retention threshold. With suppliers of agro chemicals mainly demanding to be paid in foreign currency, the farmers can now afford the chemicals and this may motivate them to keep on producing.
While it is a noble cause for government to use proceeds from tobacco and cotton farming and other exporters to pay for inputs and fuel, this arrangement is unsustainable. The inputs are distributed as subsidies to farmers whose production levels may not be commensurate with the amount of support they receive. Some even sell the inputs. On the other hand, the fuel is sold in bond or RTGS. This is not cost efficient. The fuel industry can be regulated in such a way that garages do not have to rely on government. This will result in more proceeds from tobacco and cotton farming actually being directly ploughed back to the farmers.
Government needs to focus on those interventions which help increase tobacco and cotton production. This will lead to increased foreign currency earnings. There is also need for government to be more responsive to farmers’ requests. In the current uncertain environment, it is not surprising to see the farmers coming back with other new requests in the near future. Government needs to consider these swiftly and equitably.
There is no arguing that increased tobacco and cotton production can boost foreign currency inflows through exports. With regards to whether the 20% foreign currency retention is enough to drive production, time will tell.