Tobacco proceeds channelled offshore
HARARE - There are growing fears that earnings from tobacco, which remains touted as the country’s second single largest foreign currency earner after gold’s net export proceeds, might be far less in foreign receipts compared to other commodities because most of the contract schemes are sponsored using offshore funds.
Reports say after export, most of the proceeds remain offshore in the hands of funders and the country benefits less since it’s just a production platform.
The central bank is on record that the country earns an average US$800 million from tobacco annually, but the huge amounts of money running into billions realised after value adding the cross as it circulates in global value chains is not enjoyed in Zimbabwe.
Stakeholders said it was high time the country reverts to domestic funding of the crop, as was the case two decades ago to also ensure viability of the farmers and continuity of the auction marketing system.
Foreign tobacco merchants claim they bear a lot of costs and risks, including borrowing and production costs, which according to reports, are passed to farmers and as a result making them less viable.
In as much Zimbabwean farmers are paid nothing beyond US$6 per kg, a local contractor that cannot be named for professional reasons, said high quality Zimbabwean tobacco can fetch more than US$15 per kg on global market and the amount increases along the value chains.
Similarly, the bulk of the money earned from tobacco exports is kept offshore largely to repay the said loans obtained for sponsoring the contract schemes mainly inputs.
According to figures from the Tobacco Industry and Marketing Board, about 96 percent of the farmers this season were under contract schemes, amid concerns that this may lead to the demise of the auction system.
“It’s good on paper (the contract farming system) but there are many costs involved which are passed on to farmers and this renders them less viable yet on global market they (contactors) benefit a lot,” Reserve Bank of Zimbabwe Dr John Mangudya said recently.
“The model is now expensive and needs to be reviewed so that we can have kind of an equitable mix of contract and auction.”