eBusiness Weekly
Golden Sibanda and Martin Kadzere
The Reserve Bank of Zimbabwe (RBZ) says it has started working on refining last year’s shambolic tobacco payment modalities to ensure farmers receive 50 percent of their tobacco sales as hard currency.
After getting half the money for tobacco crop in US dollars, farmers will then receive the balance in local currency. This comes after most tobacco growers last year got paid the interbank equivalent of their US dollar dues.
Farmer associations said members failed to access their US dollar portion, although the policy existed, because of the complex and long processes that were involved before a farmer could eventually get the US dollars.
The long process started with an application placed with the merchant, who would send it to TIMB, which would forward the request to the Reserve Bank, which would then liaise with banks to see if they had the funds.
As such, farmers failed to get the US dollars after either walking away out of frustration or would not have the RTGS dollars to buy back their entitled quarter of the US dollars by the time they became available.
Coupled with a disorderly start of last year’s tobacco marketing season, which also opened with grossly low prices, a number of farmers threatened to abandon production of the golden leaf out of frustration.
Merchants also infuriated farmers by suppressing prices in protest over the RBZ’s directive that they recover a third of loans given to farmers in local currency after obtaining offshore loans to contract the farmers in foreign currency.
The farmers got a raw deal last year. After being paid in foreign currency to incentivise them to grow Zimbabwe’s second single biggest export earner, after gold, they were paid in the inflation ravaged local dollar.
The situation has become all tangled up after the country switched from a US dollar denominated multi-currency to a local and mono-currency monetary regime, which also saw inflation bolt away, especially after the currency was floated.
Tobacco earns Zimbabwe an average of US$1 billion annually from its export and goes a long way in improving foreign currency liquidity during the peak of the marketing season and causing a liquidity crunch in the off season.
The cumbersome payment framework, which required growers to have foreign currency accounts (FCAs) and only allowed small growers to withdraw US10 cents per kilogramme as cash up to US$50, also angered farmers.
As some farmers decided to cut on tobacco production, statistics showed a -16 percent decline in tobacco grower registrations for the 2019/2020 season in November last year compared to the same period the prior year. An exercise is reportedly still underway to determine the potential yield for this year.
Reserve Bank governor Dr John Mangudya, said yesterday they had started working together with the Tobacco Industry and Marketing Board (TIMB) to refine this year’s payment modalities to make the system more efficient.
“We didn’t change anything, which is what we were doing last year that 50 percent of the proceeds will be paid in US dollars and 50 percent is paid in local dollars. All we are saying is that we want to make the system more efficient than last year to ensure farmers get their money on time every time,” Dr Mangudya said.
“We did not change the system, we are using the same system like last year, 50 percent US dollar and 50 percent Zimbabwe dollars, and so this year we want the system to be more efficient and more orderly. The farmer must get their money on time so that they can go back to the fields” the central bank governor added.
TIMB chief executive Andrew Matibiri concurred with the RBZ said saying they were working on refining modalities to ensure that farmers get 50 percent of their tobacco sales as cash US dollars and the balance as local currency. “It’s true (that we are working on refining the system), but we are still at the initial stages,” he said.
But Dr Matibiri attributed farmers’ failure to access the 50 percent portion they were entitled to as hard currency to the fact that farmers did not have the RTGS dollars to buy the US dollars when they became available.
Farmers were required to maintain an FCA and an RTGS account but had all their proceeds deposited as RTGS dollars and one has to indicate if they wished to access US dollars, which they would obtain by buying back.
Dr Matibiri said farmers would have their FCA credited with US dollars and their RTGS account debited with the RTGS dollars equivalent of US dollars they wanted, at the interbank exchange rate that prevailed when sold their crop.
“The major problem was that farmers did not have the RTGS dollars to buy US dollars when they became available because farmers would quickly spend the money once it entered their accounts,” he said.
Zimbabwe Tobacco Association (ZTA) chief executive Rodney Ambrose, said farmers did not get their US dollar entitlement for the crop because the chain of procedures they needed to complete was too long and complex.
He said ZTA is preparing a position paper detailing their demand to be paid in hard currency as well as the need for a more simplified system that would allow them to get the US dollar component more easily.
“We are preparing a position paper that will be sent to authorities. Farmers could not get 50 percent of their tobacco sales proceeds because the system was just too complex, we are proposing a more simplified system,” he said. Last year, Zimbabwe surpassed the previous year’s production record of 252,6 million kilogrammes— despite the drought experienced, setting a new record of 259,5 million kg although the seasonal target of 260 million kg was missed.
Zimbabwe Farmers Union president Paul Zakaria said they are still consulting among members and associations what their demands will be regarding payment modalities for their tobacco crop this season.
