eBusiness Weekly
Martin Kadzere
Zimbabwe has raised its tobacco production target for 2023 to as much as 270 million kilogrammes after eclipsing the previous record of 253 million kg in 2018 this week.
Industry regulator, the Tobacco Industry and Marketing Board (TIMB) initially set the target at 230 million kg, but after day 66 of the sales, deliveries had reached 263 million kg, putting the country on course to attain a target of 300 million by 2025.
A number of factors have been attributed to the increase in output including a surge in global demand for local tobacco, favourable weather that was characterised by both dry and wet spells, better agronomy practices, and improved participation by the smallholder farmers who produced the crop using their own resources.
“It has been a very good season for the country and I think this will be sustained,” TIMB chairman Patrick Devenish told Business Weekly in an interview.
“Because of the contract scheme, the agronomy support continues growing and this had a very positive impact on the yields and the quality as well,” he added.
The deliveries represent a 55 percent increase compared to the same period same time last year.
Industry players cited a combination of better prices and the decentralisation of the contract floors among the reasons for a massive jump in deliveries. The value of tobacco is at US$793,2 million, up 53 percent from US$516 million last year.
About 244 million kg were sold through contract while 18,6 million kilogramme were sold via auction.
“The 75 percent foreign currency retention has actually attracted people with free funds and this could be the reason why we have a much bigger volume, which was sold through the auction system,” Zimbabwe Tobacco Growers Trust Association president George Seremwe said in an interview.
“However, we can’t rule out incidences of side marketing but that’s to a very lesser extent.”
Devenish said several farmers were becoming “financially stable” and expected more banks to increase support to smallholder farmers not participating in contract schemes.
“I think more banks will try and fund small-scale farmers in the future,” said Devenish.
Over the past few years — the auction system–which determines minimum grade prices for contract sales, has been falling with only 3 percent sold through auction last year.
Some industry players had raised concerns over the potential collapse of the auction system, saying the dominance of contractors in the marketing of the “golden leaf” could see price manipulation in favour of the merchants, which would, in turn, frustrate tobacco farmers from growing this key export commodity.
Zimbabwe’s tobacco auction system used to be the marketing model of tobacco in the world, but self-funded tobacco volumes has been shrinking as farmers joined contract schemes because they lack collateral to obtain loans from the banks.
Prior to 2004, tobacco marketing was done exclusively through an auction system whereby producers mobilized the necessary cropping resources on their own and took their crop to an auction floor of their choice. However, in 2004, this system was changed after the introduction of the contract growing of tobacco.
Under the contract system, licensed tobacco buyers provide the inputs to the farmers, with the contractor—or the off-taker–guaranteeing to buy the tobacco contracted at prices (per grade) equal to or higher than those prevailing on the auction floors.
“(The) auction (system) is a good platform for price discovery and its rebound is good for the industry going forward,” agricultural economist Takesure Zimbarei said.
Tobacco farming stands out as one of the biggest empowerment stories not just in the history of Zimbabwe but at a global level.
Prior to the land reform program, launched at the turn of the millennium, tobacco farming was a preserve of large-scale commercial farmers with negligible numbers of black farmers.
Smallholder black farmers were actively discouraged from producing tobacco as it was said to be too technically challenging for them.
When black farmers delivered tobacco to the floors it was sold in what was then termed the “Chitungwiza” sale at punitive prices. Prior to land reform about 2 000 large-scale commercial farmers produced 200 million kg, an average of 200 tonnes per farmer.
With the advent of land reform, the number of farmers has increased to nearly 150 000.
This represents a clear transfer of wealth from large-scale commercial growers to a broader grower base.
Rural communities have been transformed as a result and despite the effect of illegal sanctions, tobacco production has remained resilient, driven by the handsome profits that a broad base of farmers are now enjoying.
However, the successful empowerment of the sector at the primary level has not translated to gains further down the value chain, where superior returns are being made by leaf merchants and cigarette manufacturers.
By way of an illustration, the top price for tobacco on auction floors is US$6 per kg. The same kg retailing in developed country markets sells for US$500 after blending with lower-cost tobaccos from other markets.
About 98 percent of tobacco produced in Zimbabwe is exported in green (semi-processed) form by exclusively big tobacco merchants.
With one or two exceptions, indigenous tobacco merchants have failed to penetrate this market due to formidable entry barriers in the form of access to low-cost funding, long working capital cycles, access to markets in the exclusive old boys club of global tobacco as well as lack of factory processing capacity.
As a result, indigenous merchants have been condemned to trading as speculators on the auction floors, surrogate buying on behalf of the big merchants as well as management of contract growing schemes on behalf of the large merchants.
Returns from all these activities are a pittance in relation to the returns that indigenous players could make in export markets as leaf merchants or cigarette manufacturers.
Effectively the indigenous tobacco merchant does not have a seat at the main table and is surviving on the crumbs dropped by the larger merchants.
While tobacco farming provides handsome returns, especially in relation to other crops, the farmer is only participating in one percent of the value chain, some analysts say.
