Tobacco inputs costs increased by 40 percent, according to industry players, largely driven by rising global inflation and tighter supply chains due to the war pitting Russia and Ukraine.
Also, the 4 percent Intermediated Money Transfer Tax (IMTT) on foreign currency transactions, to encourage use of the domestic currency and arrest exchange rate volatility, has also reportedly exerted some pressure on the costs of producing tobacco.
Industry players warned the situation threatened production of the country’s largest foreign currency earner.
With the costs increasing by 40 percent, contractors who are the major funders of tobacco farming, also known locally as the “golden leaf,” will need to increase their funding levels by the same percentage if they are to finance the same hectare as last year.
“It is a major concern for us as farmers,” the Zimbabwe Tobacco Association chief executive Rodney Ambrose told The Herald Finance & Business in an interview.
“The international costs, which relate to procurement of fertilisers, fuel, and chemicals have gone up while the local costs in the form of taxes (the 4 percent Intermediated Money Transfer Tax on all foreign currency transactions) have pushed the cost of production up. We are concerned about the impact this will have on the hectarage to be financed by both contractors and self-financed growers.”
The conflict between Russia and Ukraine has partly led to cuts in fertiliser shipments, which has pushed prices to record highs, with far-reaching consequences for farmers.
With Russia’s status as a primary exporter of ammonia, knock-on effects from sanctions imposed on the country by the west over its military operation in Ukraine have disrupted the fertiliser supply chain, triggering concerns over food security globally.
Last year, Russia and Belarus accounted for 40 percent of global exports of potash. Russia also accounted for 22 percent of global exports of ammonia gas, 14 percent of global urea exports, and 14 percent of mono ammonium phosphate.
Since the outbreak of the war in Ukraine on February 24 this year, the price of petrol and diesel in Zimbabwe has gone up by 20 percent and 22 percent, respectively, which has exerted pressure on the cost of production across the world.
This month, the price for blended petrol shot up to US$1,73 per litre and diesel rose to US$1,76 per litre. With little prospects of conflict resolution, further increases are expected, with oil prices expected to hit US$150 per barrel by September.
“If farmers are to remain viable, we need to have a corresponding increase in the price to avoid (the costs) eating into the viability of the farmers,” a senior executive with a leading tobacco contracting company said. “It is a major concern.”
Zimbabwe Commercial Farmers Union president Abdul Nyathi said in an interview that the price increase of fuel would have a major impact on the output of tobacco.
“The hectarage depends on inputs deployed into the fields; so with reduced inputs packages, we are going to see a significant reduction in (planted) hectarage; reduced and ultimately low prices…and we are out of business,” said Mr Nyathi.
This year, farmers have so far delivered 151,1 million kg, a 11 percent decline from last year valued at US$456 million. The average price is up 9 percent compared to last year.