Did you know, Zimbabwe is among the biggest exporters of unmanufactured tobacco in the world?
In 2021, according to Statista, Zimbabwe ranked 4th in terms of kilogrammes of unmanufactured tobacco exported. Brazil (434 million kg), China (192 million kg) and India (190 million kg) were the only three countries ahead of Zimbabwe’s 177 million kg exports putting the African country’s exports ahead of countries like the USA, Greece, and Germany.
Just like any other good statistic about the country such as high foreign currency receipts, or budget surplus, it is easy for the numbers to fail to speak directly to the ordinary citizen in the country. Well, fortunate enough, for tobacco it does, the golden leaf has become a source of livelihood for many farmers across the parts of the country.
If you have ever walked around the auction floors during the tobacco marketing season or any surrounding area for that matter, you could not help, but notice the activity. This is a highlight and culmination of months of dedicated efforts to produce the golden leaf. Tobacco farmers, who have earned themselves the nickname Brazilians due to Brazil’s high tobacco production, are also known to be big spenders in the city during that time. The whole town is usually lively towards and during the tobacco selling season as the Brazilians make those once-off huge purchases.
The Tobacco Industry and Marketing Board (TIMB) earlier this year announced that the tobacco marketing season will commence on March 8 with actual sales expected the following day. The previous season started at the end of March 2022 and the earlier commencement of this season is to allow for a smooth finish before the country has its general elections.
The 2023 tobacco marketing season might even be bigger with better incentives for Brazilians. Ever since the de-dollarisation process started, there has always been qualms around which currency the leaf should be sold in, to the extent that at some point it even threatened the viability of farming due to the local currency component. It, however, seems that the authorities have given a gracious ear to the concerns and responded in a somewhat positive manner.
During the 2022 season, farmers were getting 75 percent of their sales in the greenback, while the rest of the other exporters were retaining 60 percent.
According to the Reserve Bank of Zimbabwe (RBZ) exchange control directive RY002 that operationalised the monetary policy, the retention threshold of sales proceeds in the US dollar will increase to 85 percent this season and that portion will continue to be treated as free funds.
The golden leaf is of paramount importance to the Zimbabwean economy not only as a foreign currency generator, but provides employment for more than 106 000 small-scale farmers, as of 2021 according to TIMB.
Of course, the foreign currency part goes without saying. Tobacco in 2022 contributed 13 percent towards export earnings while Agriculture, Hunting and Fishing and forestry up to September 2022 had contributed 8,8 percent towards the country’s GDP according to ZimStat.
The biggest buyers of our tobacco are South Africa, Indonesia, Mozambique, China and the Netherlands according to the Observatory of Economic Complexity, a leading platform for the visualisation of international trade data.
The bulk of tobacco farming in Zimbabwe is via contract farming whereby the farmer gets the inputs and all necessary equipment needed and will repay upon selling.
Although this helps farmers to ease the process, it usually turns out to be an unattractive deal if the prices of tobacco are on the lower side. Usually, repayment is independent of the selling price and after repaying everything sometimes farmers walk away with pennies for every dollar.
According to TSL, a listed company and parent company to Tobacco Sales Floor, about 6 percent of the crop was grown independently as of July 2022, with the rest under contract farming. The tobacco selling price started at US$4,60 per kg and dropped to an average of US$3,05 per kg according to multiple sources.
Banking institutions in Zimbabwe are overweighting their loan book towards the agriculture sector where horticulture and maize farming are also targeted. The Government through the National Development Strategy (NDS1) aims at achieving a US$8,1 billion agriculture sector by 2025. If this is to be achieved, tobacco as the highest agricultural export earner has to improve significantly from the under US$1 billion average.
Analysts and other economic agents have, however, questioned the sustainability of the strategy to grow and sell raw tobacco. Although British American Tobacco (BAT) does value addition through cigarette manufacturing among other products, the bulk is still exported in its unmanufactured form, which brings the question as to whether we are getting the best deal out of our tobacco by pursuing the strategy that we are currently using.
Hozheri is an investment analyst with an interest in writing about capital markets, the economy, and international trade. He holds a B. Com in Finance from NUST and is progressing well with the CFA programme. He uses Rufaro Hozheri as the username for all social media platforms and can be contacted at 0784707653 for feedback.