Glitter of golden leaf eludes farmers

Published: 28 April 2019

Since the beginning of the tobacco marketing season on March 20 this year, the disappointment by expectant farmers continues to grow by the day.

A toxic cocktail of low prices - despite an arguably quality crop - inconvenient payment systems and inordinate delays in effecting payments is frustrating most producers of the golden leaf.

However, growing allegations of well-knit syndicates fronted by fly-by-night "merchants" - who seemingly disguise themselves as saviours of farmers whose bales would have been suspiciously rejected or ridiculously discounted at auction floors, only for them to round-trip the same bales at the same auction floors for relatively higher prices - are now threatening the integrity of the local tobacco marketing system.

It also threatens to kill the goose that lays the golden egg.

And the consequences could be dire.

Huge Knock

The country, which desperately needs foreign currency resources to oil current economic recovery efforts, could, therefore, experience a huge knock in hard-currency earnings.

By the end of last week, signs were ominous.

Latest statistics from the Tobacco Industry and Marketing Board (TIMB) show that farmers have so far delivered 29,3 million kg worth US$51,1 million, compared to 53,9 million kg valued at US$151,1 million in the corresponding period last year.

This represents a massive US$100 million drop in revenues.

Also, the average price of US$1,75 per kg is about 38 percent lower than last year's price.

Zimbabwe Tobacco Association (ZTA) chief executive officer Mr Rodney Ambrose warns that current challenges at the auction floors could shave US$200 million off the country's projected revenues for the current marketing season.

"When compared to 2018, with almost 30 million kgs sold, at US$1 per kg less than 2018, the country's earnings are already US$30 million less. If this trend continues, earnings will drop a staggering US$200 million! (based on a 200 million kgs). Therefore, there is an urgent need for full stakeholder engagement in order to establish the rationale behind the low US-dollar prices," he said.

Last year, the country earned more than US$920 million from record deliveries of 236 million kgs.

Cartels

But farmers are worried that wheeler dealers who are allegedly conniving with staff at the auction floors to rig prices are benefiting from the fruits of their hard work.

Zimbabwe Farmers Union (ZFU) director Mr Paul Zakaria implored authorities to investigate the suspected cartels.

"It is strange that these cartels are being given free reign at the expense of the struggling farmer. The fact that are some unscrupulous people are allowed to buy the tobacco outside the auction floors, only to resell at the auction floors shows that there is something fundamentally wrong with the system because only those with growers' numbers should sell the tobacco. The question is who then is giving these unscrupulous buyers the growers' numbers? There is definitely a lot of connivance and it should be investigated," he said.

Mr Mwalimu Tarikamu, who grows the cash crop at his Gunguwo Farm in Chiweshe, Mashonaland Central, said although the quality of his crop has remained the same, last year the highest price he got was US$5,80 per kg, compared to US$1,60 per kg this year.

However, most disconcertingly, the payments have been slow while the process of opening nostro accounts is considered cumbersome.

"I arrived last Sunday, sold the crop on Tuesday and to this day, I am yet to be paid a penny. I found the process of opening a nostro account too cumbersome. I have resigned to the fact that I will come back later to pursue my payments . . . I have been begging for food from fellow farmers and sometimes I sleep on an empty stomach," he said in an interview with The Sunday Mail at Consolidated Tobacco Processors in Harare.

But contention on prevailing tobacco prices is not peculiar to Zimbabwe alone.

Farmers in Malawi — the second-largest producer of tobacco on the continent after Zimbabwe — similarly grumbled over low prices at the Lilongwe Auction Floors last week.

Their marketing season began on Thursday and was officially opened by Malawian President Professor Peter Mutharika and his Tanzanian counterpart, President John Magufuli.

The highest price for tobacco on the opening day was US$2,20 and US$2,30 on auction and contract markets, respectively, while the lowest price was US90 cents.

Malawi, which similarly experienced inclement weather conditions during the 2018/2019 summer cropping season, is expected to eclipse its Southern African peer.

Estimates suggest it will haul more than 205 million kgs of the golden leaf.

However, TIMB expects local deliveries to top 200 million kgs.

Delays

Government has tried to bend over backwards for tobacco farmers by increasing the foreign currency retention threshold from the initially proposed 30 percent to 50 percent.

During last year's marketing season, the threshold stood at 20 percent.

The remainder is also credited at the prevailing interbank rate, which presently stands at 3:1 to the US dollar.

But to access the money, tobacco farmers — the bulk of who are communal small-scale producers — have to open a separate nostro foreign currency account.

But the farmers can only access cash at a rate of 50 cents per kg of tobacco sold, and up to a maximum of $300, including withdrawing US10 cents per kg per sale, up to a maximum of US$50.

Therein lies the problem.

It is argued that process is as cumbersome as it is burdensome.

ZTA believes Government's "favourable grower-viability policies" have been affected by both payment delays and low prices.

"Payment systems need to be improved. While RTGS-dollar payments are being made in reasonable time-frames, growers are finding the process of claiming their USD entitlements complicated. It is our recommendation that settlement of USD entitlements should be at the point of sale, as with RTGS sales proceeds. In this way, a grower is paid his or her full value for their tobacco at the point of sale within 48 hours," said Mr Ambrose.

He added: "Grower viability is seriously under threat and so is future production.

"We are concerned about the very USD low prices prevailing both on the auction and contract floors, and it's very concerning too, that apart from two contractors, the seasonal USD averages for merchants and buyers are all under US$2 per kg. We don't believe that the crop is of a significantly lower quality when compared to previous seasons. There is also reduced global supply. This season there have been favourable grower-viability policies in the form of a rate of exchange, a portion of seasonal loans repayable in the form of RTGS dollar at 1:1 and a USD entitlement; however, all these are being negated by the prevailing low US-dollar prices."

The Parliamentary Portfolio Committee on Lands, Agriculture, Water, Climate and Rural Resettlement recently visited the auction floors on a fact-finding mission.

It will submit its recommendations when Parliament resumes sitting on May 7.

TIMB chief executive officer Dr Andrew Matibiri could not be reached by the time of going to print.
- sundaymail

Tags: tobacco,