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Obert Chifamba-Agri-Insight
PREPARATIONS for the opening of the 2022 tobacco marketing season have reached the home stretch, torching an avalanche of expectations among stakeholders in the sector, particularly farmers, who are not making it a secret that they want a review of the foreign currency retention percentage.
This comes as curing of the golden leaf is now 30 percent complete, while stakeholder engagement on payment modalities is also work in progress.
Farmers’ organisations have similarly made their submissions calling for an increase in the United States dollar component citing high production costs.
The farmers’ concerns stem from the high cost of inputs and other essential services such as labour.
Casual labour remains a challenge in some areas, forcing farmers to quote payments in foreign currency as a way of attracting extra hands, but pushing up the cost of production in the process.
Labour availability differs from one area to the other.
Some areas have more than sufficient labour, while the story is different in others where prospective labour is moving to competing industries or nearby towns.
Naturally, the payment of wages and incentives in US dollars becomes the biggest attraction to retaining a productive, content labour force, but at the farmers’ expense.
This is a decision farmers have to painstakingly make; fully aware that they might not be able to recover from the loss they will be incurring through the prohibitive investment in labour.
But it has to be done to make sure the crop gets the required agronomic care for good results.
On the one hand, power utility Zesa’s recent extensive load shedding, coupled with faults and infrastructure problems has seen growers going for days or weeks without electricity.
Under such circumstances, growers have to turn to generators, which they run for almost 40 to 50 percent of the day, especially during this peak curing period.
This development means that growers have to contend with the high costs of procuring fuel in large quantities for both the powering of generators and other implements.
Call it a matter of dreadful coincidence or whatever, but the recent upward review of tariffs by Zesa, which came at the most critical moment for the tobacco farmer when she needs power to cure the golden leaf properly also added to the attrition of the farmers’ projected revenue.
The upward review of tariffs means farmers have to go out of their way to mobilise more financial resources once again to secure fuel for generators or buy more power units, which is not sustainable in the long run.
Power shortages were not the only problem stalking the farmers.
There were also the high prices of fertilisers and chemicals, which saw a tonne of ammonium nitrate being sold at US$800 up from US$650 per tonne last season, while high spec tobacco blends moving to US$1 100 from US$800 per tonne.
Under such a scenario, the sad eventuality is that as the US dollar portion in the cost of production rises to above 80 percent, interest rates of eight to 10 percent become a significant cost.
In its crop report for the month of January, the Zimbabwe Tobacco Association (ZTA) confirmed that their submission was focusing on the increased portion of US dollar costs of over 80 percent and the need for a real market exchange rate mechanism for the remaining local currency portion and access to USD and local currency funding geared for tobacco production.
It is unfortunate that while farmers get their local currency component at the prevailing interbank exchange rate, most service providers have since moved to quoting their services or products in US dollar denominations.
The hypocrisy demonstrated by these players is so glaring that they make US dollar prices cheaper than those quoted in local currency, which pushes farmers to go on the parallel market to buy US dollars at atrocious exchange rates.
This has made it critical for authorities to come up with ways of protecting the farmers from these unscrupulous business practices lest the tobacco industry continues dying a slow death.
At least 95 percent of the total tobacco is now produced under contract, which leaves the contractor bearing the responsibility of paying prices that factor in the significant increases in the cost of production and leave a profitable margin.
Contractors must not pretend they are not alive to what is happening on the ground and be honest enough to discuss with farmers how they both can move forward under the circumstances and remain in business.
Some contractors have in recent times taken advantage of changes in the exchange rate to inflate farmers’ debts, yet they would have entered into their agreements without clarifying what they would do in the event of such developments.
It is the farmer that always suffers.
Farmers have even been made to pay for services they never received in some cases, which has prompted the Tobacco Industry and Marketing Board (TIMB) to introduce new requirements to govern the operations of contractors.
This year, for instance, large-scale farmers may need prices at least in the region of US$3,80 per kg if they are to remain in business while their small-scale counterparts may require something not lower than US$2,65 per kilogramme, ZTA has argued.
Their argument is hedged on the assumption that an 80:20 retention ratio will be awarded this season. Payment of the local currency component should also be timeous to ensure that growers can use their earnings while they still have value in the face of constantly changing exchange rates fuelled by the parallel market.
It would also be good if Government could extend its support programmes to tobacco just as it did with cotton and allow growers access to affordable funding options.
The hectarage of the golden leaf has since dropped to 105 613ha this year down from 106 494ha planted last season, which demonstrates that besides climate induced challenges, farmers are also taking the heat from problems relating to the production process such as funding.
In a way, this development is a threat to Government’s projections of turning the tobacco industry into a US$5 billion sector by 2025 given the fact that there was a noticeable decline in the number of both registered and new growers this season.
The tobacco crop value chain is currently raking in something in the region of US$1 billion per year, which makes the crop very important in the development of the economy, hence the need for the playing field to be levelled to enable growers to perform to their full potential.
Online Reporter