eBusiness Weekly
Hebert Zharare
The much awaited tobacco marketing season opens on Wednesday next week on the back of a prolonged dry spell that could have compromised many farmers’ yields and quality of the crop.
The Tobacco Industry and Marketing Board licensed 30 contractors and 31 buyers for the 2018/19 marketing season amid indications the 253 million kg record of last year might be missed by over 7 percent.
Besides the bottlenecks experienced during the onset of the season, chief among them hostile weather and sky-rocketing inputs prices, the farmers remained steadfast as evidenced by the 170 169 who registered for the current season. This figure shows a 44 percent surge from 118 142 farmers registered in the comparative previous period.
The opening of this year’s golden leaf’s marketing season always brings huge relief to many economic players who are non-exporters and who used to depend heavily on foreign currency allocations from the Reserve Bank of Zimbabwe, but are now expected to obtain the forex through the Inter-Bank system.
The Reserve Bank of Zimbabwe governor Dr John Mangudya is on record saying that the proceeds from the tobacco industry are enough to pay for fossil fuel enough to keep the country running for a year, hammering on the centrality of the crop towards economic revival.
Tobacco is the country’s second biggest foreign currency earner, and the RBZ governor believes the opening of tobacco auction floors will help guide the foreign exchange rate on the interbank market he introduced in February.
“Tobacco auctions will begin on March 20 and we do believe that before or on that date the rate will have reached its equilibrium,” Mangudya told Parliamentarians recently.
The inter – bank market started operating on February 22, at an initial rate of RTGS $2.5 to the United States dollar and all eyes are on the tobacco season to see how it will impact on the rate.
Tobacco Financing System
Although debate might continue raging around the extent to which the free market can influence the current RTGS and US Dollar interbank rate for the entire marketing season and ways in which businesses can tap into abundant US Dollars on the foreign exchange market, strategic thinkers should bother more about sustainable growing of the crop.
Besides the threat of growing campaigns in major tobacco importing countries of the golden leaf persuading people to quit smoking, tobacco farming remains an infinite source of exports for the country.
Minerals such as gold are finite resources only exploited by influential people in society unlike tobacco that be grown by any Zimbabwean with access to arable land and the knowledge.
The current tobacco financing model in Zimbabwe, where contractors with foreign parentage or locals linked to foreign firms finance tobacco growing, might not be the best model for the country as these firms ship out the proceeds from all the tobacco they would have financed to their home countries while the farmers pocket the crumbs.
The billions of United States dollars that Zimbabwe’s golden leaf eventually fetches on the global markets are not realised by our poor farmers who sweat round the farming season, but by moguls in western capitals. The money is shipped out through inputs schemes such as fertilisers, chemicals and other consumables that are overpriced among other shenanigans.
If Zimbabwe is to benefit from its tobacco, local banks and other organisations with access to financial resources should take a greater part in financing the growing of the crop. There are many Zimbabwean farmers that have demonstrated prowess in growing the crop, but thousands of farmers with huge potential are sidelined from funding for various reasons.
It therefore becomes imperative for financial institutions to adopt some farmers with access to land, good soils and requisite infrastructure such as dams and irrigation facilities and provide funding support say for five years under the supervision of extension service providers and leave them once convinced the growers are properly groomed.
Given that some of the major tobacco growers are small holder farmers with little or no access at all to water sources and let alone irrigation infrastructure, the financiers should assist the farmers.
Since 1980 when there were some finance schemes under the Agriculture Finance Corporation now Agriculture Development Bank (Agribank), the small holder farmers never defaulted on loans upon selling their produce. When the scheme mutated to AgriBank, it sidelined the small holder farmers, resulting in a huge financing gab difficult to manage.
Marketing not organised in a manner befitting foreign currency earners
The tobacco farmers are not empowered and in most cases fall prey to unscrupulous dealings of cartels that assume control of the pricing of a crop whose production they did not finance.
Farmers who invest invaluable time and effort become by standers while cartels decide prices of the crop grown mainly by hundreds of thousands of illiterate or semi-literate people.
TIMB which also benefits from levies on tobacco sales appears not to be useful in as far as the protection of farmers is concerned – raising more questions than answers about its role.
Tobacco is given ridiculous grades and sold for a song or deliberately rejected buy buyers to force farmers, who lack transport and storage facilities, to just accept any price put on the table. Unlike their gold mining counterparts who have the option of side-lining Fidelity Printers and sell gold to smugglers, that option does not present itself to the farmers.
This therefore calls for the regulatory body to stand by the farmers and make sure that they are given fair value for their crop and encourage more to join this lucrative sector.
Strengthening of the RTGS$ during marketing season
The Inter-bank market started operating on February 22, at an initial rate of RTGS$2,5 to the United States dollar.
It was introduced to curb the illegal foreign currency market where rates had peaked at 1 US dollar to 4 dollars of the fiat local currency.
Zimbabwe has been facing foreign currency shortages over the past few years, a situation that led to the proliferation of illegal foreign currency trading, where ludicrous premiums are charged.
Announcing the Monetary Policy Statement last month, Dr Mangudya said the central bank had arranged “sufficient lines of credit to enable it to maintain the foreign exchange rate within reasonable bands on the interbank market,” which is currently trading at a rate of around 2,7, compared to an illegal market rate of between 3,5 and 4.
Fears, however, abound that if the RTGS rate firms during the entire period of tobacco marketing, it means farmers who bought their inputs when the rate was pegged at 1:4 will lose out again as during the 1:1 era.
The majority of the farmers frankly speaking will not be impressed by a strengthening RTGS$ because it would meaning forking out more to acquire the US dollar to finance their operations.
