Zim tobacco: Value addition imperative
ZIMBABWE is Africa’s largest tobacco producer, ranking sixth globally in 2020 as the Covid-19 pandemic took a bite on the golden leaf’s value chain, from the 4th spot in 2019. Beyond any doubt, Zimbabwe is a vital player in the world’s tobacco matrix, making it vital to interrogate Zimbabwe’s strategy as far as the tobacco value chain is concerned.
Zimbabwe is chiefly an exporter of unprocessed tobacco having raked in just below US$1 billion in 2019 accounting for 50% of the nation’s agricultural exports — and over 10% of the GDP.
According to the report “Tobacco and the Economy: Farms, Jobs, and Communities”:
“While the tobacco leaf is the key ingredient in cigarettes and other tobacco products, its value accounted for only 4 cents of each consumer dollar spent on tobacco products…Most of the cigarette dollar goes to businesses beyond the farm gate and government revenues.”
Further studies have shown that manufacturing value-added accounts for over 50% of the tobacco dollar, with wholesale, retail, and transportation at 21% while 26% goes toward federal and state excise and sales tax revenues globally.
According to global cigarette giant BAT, sales for the legal global tobacco market (2019) were worth approximately US$818 billion. The largest global tobacco category remains combustible cigarettes with over 5,200 billion cigarettes consumed annually, it is valued at US$705 billion.
Meanwhile, the global tobacco market size was valued at USD 932.11 billion in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 1.8% from 2021 to 2028 according to a new report by Grand View Research, Inc.
At 184 million kgs and a record 258 million kilograms produced in 2020 and 2019 respectively, It is important to note that of the billions indicated here, Zimbabwe is playing in the 4% quota where it currently stands the 6th largest producer in the world, with China occupying the top spot at over 2 800 million kgs.
Zimbabwe exports its tobacco mostly to China and the European Union where it is processed for absorption and consumption on global markets.
Zimbabwe’s output on the raw tobacco front is merely a fraction of the market value of the entire industry, demanding a shift in the value chain toward tobacco processing and manufacturing. Deliberate moves by both the government and the private sector are imperative in creating an environment that fosters investment in tobacco processing.
In the government’s National Development Strategy 1 (20212025) economic blueprint, the treasury expressed intention to invest in agriculture value addition:
“one of the major outcomes is to improve the performance of the manufacturing sector through value addition. To accelerate manufacturing sector performance, the NDS1 will prioritize the agro-based value chain.”
While that is a noble intention, a clear and deliberate strategy must be tabled to make ‘the dream’ a reality. Notable investment has gone into agriculture over the decades, the time has come for intentional initiatives to be taken where value addition infrastructure and equipment is concerned.
Listed on the Zimbabwe Stock Exchange, TSL, and BAT Zimbabwe are significant players in the domestic Tobacco sector. BAT was rated the top counter on the ZSE top 10 index for the second quarter of 2021- according to the second quarter constituents released recently. TSL scooped the Quoted Companies Survey runner-up in the Innovation & Technology category for 2020.
The 2021 tobacco selling season took off last week, with the first bale selling at US$4.30 per kilogram which was higher than the US$4 that was offered last year. Comparatively, In 2019 and 2018, the first bales were sold at a higher price of US$4.50 and US$4.90 respectively.