Exchange rate crisis cripples tobacco output
THE 2020 tobacco marketing season was different from previous years. It was the first ever held under strict World Health Organisation guidelines aimed at combating the spread of Covid-19.
In addition, it was a season when farmers bemoaned the fixed exchange rate which eroded their earnings.
Our business reporter Fidelity Mhlanga (FM) last week spoke to Tobacco Industry Marketing Board (TIMB) chairperson Patrick Devenish (PD) to get more insights into the just-ended season and what lies ahead.
Below are excerpts from their discussion:
FM: What lessons did the tobacco farming sector learn from events of the past marketing season?
PD: Several lessons were learned. The industry needs to be more disciplined in its crop estimates and contractors must take crop forecasts seriously.
Contractors must give a full package of inputs to their farmers to ensure that they have the “building blocks” of a good crop.
FM. What is the total output for this season and was it in line with your projections?
PD: We managed to produce 183 million kilogrammes against a target of 220 million kilogrammes.
FM: What were the reasons behind the lower output?
PD: There were a few factors. The second consecutive year of drought had a severe impact especially on rain-planted crops. Growers did not receive full value for their sales in 2019 due to exchange control regulations. This stopped them from growing additional hectares to that provided by their contractors. Fewer farmers produced compared to the previous year.
FM: How many farmers grew tobacco this season? How does this compare to last year?
PD: We had 122 323 farmers growing tobacco this season, against 154 223 for the 2018/19 season.
FM: Farmers were bemoaning a fixed exchange rate of US$1:ZW$25 and advocated for total United States dollar payments. How was this issue resolved?
PD: The industry is working with the Reserve Bank of Zimbabwe to ensure tobacco growers receive full value in order to ensure they reinvest in bigger and better crops.
FM: We have noticed a trend where tobacco deliveries at the auction system have been slowing down compared to the contract system. This season only 5% of the crop was sold via the auction floors.
Are there any corrective measures being taken to save the auction floors from collapsing?
PD: The contracting system has proved to be a very viable one. More and more farmers are being contracted.
In addition, some contractors have provided very small packages to farmers at the end of their growing season, this has meant tobacco destined for the auction floors went to contractors.
FM: Prices for this season were better than those that obtained last season.
This year’s average price, at US$2,50 per kg, was 25% firmer than last year’s. What can this be attributed to?
PD: You will recall that prices for last season were US$1 down on the previous season.
Prices this year reflected a return to normalcy on one hand and better quality in some sections of the crop on the other hand.
There were also global issues such as the quality of the Brazilian crop.
FM: There were reports of sidemarketing as some growers delivered to their nearest selling point. What caused this?
PD: Side-marketing was mainly caused by the exchange rate that was offered to farmers, which encouraged them to sell to illegal buyers for hard US dollars.
Also when a farmer realises he is going to be unable to repay his loan, it induces him to side-market.
FM: Some contracting companies have not paid their farmers for the crop delivered. Are there any measures put in place to deal with such problems? What are you doing to make sure that farmers get their money timeously?
PD: I am reluctant to comment on individual companies. The Tobacco Industry Marketing Board (TIMB) has regulations which ensure tobacco growers are paid timeously. Contractors that do not pay growers will be sanctioned by the TIMB.
FM: In June during a parliamentary tour, it emerged that one player was buying the golden leaf without a licence. What is your comment on this?
PD: I have not been made aware of this. I expect that TIMB management will be managing this.
FM: What is the state of preparations for the 2021 tobacco season?
PD: Preparations are at an advanced stage. The irrigated crop has been planted and now that the rains have started, we expect planting to begin.
FM: What is your projected output for next year?
PD: The projection is yet to be finalised, but there has been a 30% increase in seed sales from last year.
FM: Cumulatively how much has Zimbabwe earned from selling tobacco since 2010?
PD: We have earned about US$6 billion.