Record tobacco output — Govt doing something right

24 Nov, 2023 - 00:11 0 Views
Record tobacco output — Govt doing something right Zimbabwe produces 6 percent of the world’s tobacco

eBusiness Weekly

Ranga Mataire

Group Political Editor

After Zimbabwe began reclaiming its land just over two decades ago, many began writing obituaries for the tobacco sector, the cornerstone of Zimbabwe’s agriculture.

In 2008, they seemed to be vindicated, as tobacco production plummeted to 48 million kg from a peak level of nearly 260 million kg 1998.

However, Zimbabwe adopted a long-term plan to remodel and revive the sector.

In March this year, the Tobacco Industry Marketing Board (TIMB) projected an increase in tobacco output by 8,5 percent year-on -year to 230 million kg for the 2022/23 season due to good rains and better agronomy.

More land was also put under the crop.

“It looks like we are going to have a good crop. We are expecting 230 million kg,” Patrick Devenish, the TIMB chairman said then at the onset of the 2023 marketing season.

Many dismissed Devenish’s forecasts.

Fast forward to November 2023, his figure of 230 million kg has since been surpassed as the country attained a record 296,1 million kg of tobacco worth US$896 million.

The attainment of this record figure is by no way an oddity of nature or just an opportunistic occurrence.

This has been achieved through deliberate Government policy interventions aided by the Tobacco Value Chain Transformation Plan.

The plan is the brainchild of the Minister of Lands, Agriculture, Fisheries, Water and Rural Development Dr Anxious Masuka.

In an interview with Tobacco Reporter, an US based online magazine, Masuka said he floated the idea of the Tobacco Value Chain Transformation Plan to President Mnangagwa way back in 2018 when he was still in the private sector.

The plan was approved for implementation by the Cabinet when he took office as Minister.

To understand how we got here, we must first go to the background to the Tobacco Value Chain Transformation Plan. Zimbabwe produces 6 percent of the world’s tobacco. The global estimated global market value of tobacco stands at US$850 billion. In 2020, Zimbabwe produced and exported over 200 million kg of tobacco worth US$991 million, leaving a scope for massive value retention in the country.

In short, the transformation plan seeks to increase tobacco production to 300 million kg by 2025 and transform the industry into a US$5 billion industry through exports of tobacco value-added products.

Given the record production of the 2022/2023 season, the impact of Government’s policies is beginning to bear fruit. Government’s broad objectives are to accelerate the localisation of tobacco funding, increase productivity and production, increase production of alternative crops and also increase contribution to farmers’ income.

Currently, 93 percent of production is funded through contract farming. We do not have enough lending from our local financial institutions, especially for small-scale farmers.

This is mostly because banks require collateral. As a solution, the Government intends to avail US$60 million as seed finance to establish a revolving facility.

The plan will operate alongside contract schemes.

In August this year, the Reserve Bank of Zimbabwe scrapped the requirement that compelled merchants to source offshore financing to support the production and buying of the green leaf from contracted farmers.

In terms of the Exchange Control (Tobacco Finance) Order, Statutory Instrument 61 of 2004, merchants were required to source offshore financing to produce and buy back green leaf tobacco. The merchants who failed to secure offshore financing were required to apply to the RBZ for authority to raise money on the local market.

The development is expected to boost funding of tobacco using local money and is in line with the Tobacco Value Chain Transformation Plan.

This is how Zimbabwe can anchor growth to 300 million kg and retain more value.

Masuka is confident that the plan will drastically transform the agriculture sector and increase the overall contribution of tobacco to export earnings.

“We seek to localise the financing of tobacco. We wish to transform the tobacco sector so we don’t export value. This industry is on the cusp of growth,” said Masuka as he addressed journalists in post-cabinet briefing in October.

Weighing in on the optimistic projection in the agriculture sector was the Minister of Information, Publicity and Broadcasting Services, Dr Jenfan Muswere.

He recently briefed journalists that there had been an increase in volume of tobacco as a result of post-harvest loss reduction and yield increase.

Now that progress has been made in increasing volumes, the sector is now turning its attention to value addition.

“There are opportunities to increase the level of value addition and beneficiation of tobacco into cut rag and cigarette production from 2 percent of tobacco produced to 30 percent,” said Muswere, adding that the construction of a new cigarette manufacturing plant and cut rag processing factories was underway.

Price transfer

As at November this year, tobacco exports were just over US$1 billion, up from US$766,7 million in the same period last year. About 98 percent was exported in green (semi-processed) form by exclusively big tobacco merchants.

Under the offshore pre-financing arrangement, tobacco merchants are required to import agricultural inputs. Upon exporting the tobacco, the majority of the export earnings are used to settle offshore loans used the procure the inputs (principal plus interest).

There is a widespread agreement among industry participants that input costs are often inflated.

It has been noted that some merchants have been supplying inadequate inputs or inflating the costs.

Merchants have also been using different costing structures for inputs with most tending to principally making money through inputs distribution.

Some put margins, add administration costs or put interest charges on the value of inputs and this has become a channel of transfer pricing, according to industry players.

This has the effect of increasing the price of the inputs and in turn, increases foreign obligations and reduces net export proceeds. While tobacco is the second single largest foreign currency earner after gold, the central bank estimates average net inflows from tobacco are just 12,5 percent of total exports.

This could be a thing of the past when some processing facilities become operational as the country would be in a position to retain more value through beneficiation.

Wealthy transfer

Following the implementation of land reform in 2000 and the resultant change in the demography of farmers, tobacco output has been increasing over the years. A record 251 million kg was produced in the 2019/2020 season, a feat achieved by predominantly small-holder farmers who constitute 85 percent of the growers.

Before the land reform program, tobacco farming was exclusively the domain of large-scale commercial farmers, with a negligible presence of black farmers.

Smallholder black farmers were actively discouraged from venturing into tobacco production due to the perceived technical complexity, which was deemed beyond their capabilities.

When black farmers delivered tobacco to the floors it was sold in what was then termed the “Chitungwiza” sale at punitive prices. The participation of indigenous farmers marked a shift in wealth distribution, shifting the balance from a few white commercial farmers to a broader community of black tobacco producers.

Ranga Mataire

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