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2019 tobacco season: What went wrong?

BY FIDELITY MHLANGA

THE 2019 tobacco marketing season ended with a plethora of short-changings that must never be allowed to recur if authorities are keen on sustaining tobacco farming in the country.

It is well known that tobacco farming is a billion-dollar industry that cashes in essential money critical for the importation of needed pharmaceuticals, fuel, raw materials and wheat.

The first week of this year’s season started on a low note after tobacco merchants offered low prices in protest over the overburdening 2% intermediated transfer tax.

The disagreement on loan repayment model by contract farmers after the introduction of local currency was also another hurdle that affected the success of the season.

Merchants who had bankrolled the tobacco cropping in hard currency were not happy to recover part of their money in local currency, as per authorities’ instruction.

Farmers were also not amused by the huge cost incurred during the handling of rejected crop at the floors.

The central bank was paying growers 50% of their earnings per sale in foreign currency or using the interbank rate with the remainder paid in local currency.

Farmers were saddened by the fact that they were receiving local currency payment via the interbank rate of the day of sale, but the issues emanated when payments were delayed due to various reasons.

As such, farmers felt disenfranchised to then get payment after two weeks when the exchange rate has shifted and the money has lost its initial value.

Last week, farmers complained that Goldern Barn, a tobacco contracting firm, failed to pay for delivered crop a month after delivery, raising fears that they could have been duped.

One such instance was in June when there was mayhem in Mvurwi as farmers protested against Voedsel Tobacco over payment delays.

Farmers also lambasted the central bank’s inefficiency in allocating forex in nostro as the payment process failed due to lack of transparency.

At the end, farmers who initially were entitled to get half payment in forex via nostro accounts could opt for a 100% payment in local currency as the payment process was opaque and murky.

Some veiled organisations deducted money through a stop order system from farmers without their consent, thereby eroding farmers’ earnings.

As has become cancerous, the cash crisis continued to ravage tobacco farming, with farmers spending days at auction floors desperately waiting for cash.

Despite being introduced three years back to weed out collusion and dispense transparency, the Tobacco Industry and Marketing Board has failed to effectively operationalise the electronic marketing system.

Zimbabwe Commercial Farmers Union president Shadreck Makombe pleaded with authorities to show commitment of ironing out some of the pressing issues bedevilling the sector.

“The meeting I once attended with the Minister of Agriculture (Perrance Shiri), you would see the willingness is there. Unfortunately, the situation is so porous that you would find these opportunists are the ones causing problems because farmers would want to do business, but because farming is the only industry which appears to be ticking, hence everyone from everywhere will be there to get something. To me, it needs a concerted effort, but am not seeing it happening given the environment which we are operating in. So it’s quite tricky from my own assessment,” Makombe said.

Some of the factors that contributed to the lower tobacco prices this season, according to a Zimbabwe Tobacco Association (ZTA) market report, included policy inconsistency throughout the selling period, especially on the loan separations in the form of Real Time Gross Settlement dollars and United States dollar and lack of confidence by important buyers due to the general economic environment.

Other factors that contributed to lower prices were over-production coupled with a high carry over of unsold stock from the 2018 selling season, lower quality for certain types of tobacco, caused by the drought, changing demand for leaf styles and qualities in key markets and increased demand for value tobacco from non-premium markets.

This season, the golden leaf average price were deplorably low at $2 per kg down from $2,92 registered last season at a time the 2019 total output grew to 259 million kg from 253 million kg last year.

While output grew exponentially, authorities need to reign in certain wrongs to ensure viability according to ZTA. Auction floor deliveries have plunged from an all-time high of 76, 8% in 2004 to 14% this season.

“Prices on the auction floors remained depressed throughout the season, though there was a slight improvement after three quarters of the crop had been delivered already. Most of the growers who sold on the auction floors have received sub-economic returns and this will have an impact on their ability to finance themselves for the next season and, resultantly, most have turned to contractors to look for inputs and working capital support. This will naturally lead to further declines in auction tobacco,” ZTA said.

“Although a record volume of tobacco has been sold this season, US dollar earnings to the farmer and the country dropped significantly by 30%. This has had a direct impact on growers’ overall viability this season. Significant upwards movements in the official exchange rate towards the end of the season meant prices for imported inputs such as fertilisers, chemicals, fuel became unaffordable to many farmers who sold earlier in the season and attempted to retool in August and September.”

Source :

NewsDay

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