Tobacco production costs rising, farmers
THE 2018/19 tobacco production season has been characterised by escalating production costs, erratic rains and an increased wage bill, which is currently threatening grower viability, a farmer representative body has said.
In an effort to recoup their losses, farmers had demanded about 60 percent foreign currency retention from the Reserve Bank of Zimbabwe (RBZ), from the 20 percent they received during the previous marketing season.
Presenting his monetary policy statement recently, RBZ governor John Mangudya announced a foreign currency export incentive of 30 percent for growers, while saying tobacco merchants will retain 80 percent of their earnings. However, the 30 percent was last week reviewed to 50 percent after farmers threatened to withhold the crop.
“The growing season was characterised by the late onset of the rains. With that, prolonged dry spells were experienced in most tobacco growing regions. We have also noticed increasing costs of production, which greatly affected the self-financing farmers. The wage bill is increasing as farm workers are now requesting for cost of living adjustments.
“Farmers have to meet the demands from workers to ensure that the curing stage is not affected. All these issues further threaten grower viability,” Paul Zakariya, the Zimbabwe Farmers Union director, said.
As part of the incentive, the central bank also agreed to allow tobacco growers to hold foreign currency in their FCAs for 90 days, extending the 30-day window laid down in the monetary policy pronouncement.
“It has not been easy for farmers as most of their inputs and spares prices are quoted in US dollars yet they are getting their income as RTGS/bond. This is affecting viability and if not addressed soon most farmers will not be able to produce next season and the country will be short of food,” Antonnette Chingwe, of the Commercial Farmers Union, told The Financial Gazette.
“As tobacco farmers’ associations, we had direct engagement with the RBZ regarding settlement of farmer’s proceeds for this marketing season. The proposed settlement model consists of a portion in US dollars and a portion payable through RTGS at a market related support rate,” Rodney Ambrose, the Zimbabwe Tobacco Association chief executive, said.
Although farmers had previously requested 60 percent foreign currency retention, farmers’ representatives said growers appreciated the 50 percent retention as it will ensure they realise some value from the crop sales.
With auction floors expected to open on March 21, after a delay due to the late onset of the rains, preliminary results from the industry indicate that Zimbabwe will not achieve the 252 million kilogrammes recorded last year.
“On crop size, assessment to establish the actual planted hectarage and condition of the crop is being finalised but what is clear is that the bulk of the crop was a late crop. From preliminary results, we don’t think that we are going to surpass 252 million kg,” Zakariya added.
Buoyed by last year’s tobacco output, 170 000 farmers registered to grow the crop this season, from 118 000 last season.
Grower earnings for 2018 reached $737 million at an average price of $3 per kg, while export earnings raked in $878 million by December 14, 2018.