Source: EDITORIAL COMMENT : Let’s open more forex generating avenues | The Herald July 25, 2019
News that tobacco farmers have been paid an equivalent of US$460 million, using the interbank exchange rate, after delivering 233,6 million kilogrammess of the golden leaf in the current marketing season sounds intriguing.
Indeed US$460 million sinking into our farmers’ pockets gives the impression that they had rich pickings and the majority smiled all the way to the bank and are likely to produce more so that the country earns more foreign currency.
Tobacco Industry and Marketing Board (TIMB) chief executive Dr Andrew Matibiri marvelled as he presented these statistics to the Parliamentary Portfolio Committee on Lands, Agriculture, Rural Resettlement, Water and Climate chaired by Nembudziya (Zanu-PF) legislator Justice Mayor Wadyajena on Tuesday.
Despite depressed deliveries compared to last year which saw a record delivery of 253 million kg, Dr Matibiri said indications on the ground are that this year’s target will still be realised and so far projections are that 245 million kg will go under the hammer.
The reduction in deliveries this year does not worry players in the sector because the drought which characterised the season as a result of El Nino-induced weather patterns affected the crop in nearly all major producing areas.
As a result, in some areas the crop succumbed to the drought, while in other parts of the country where the crop survived, it suffered pre-mature ripening, in the process compromising quality and weight. During this marketing season prices are calculated in US dollars, but farmers are paid the equivalent in local currency using the interbank exchange rate, which was at $9 to US$1 this week. Inasmuch as the average price was US$2,99 per kg, there are cases where a kilo fetched at least US$0,10.
The TIMB boss did not address the issue of depressed prices that saw some farmers walking away with nearly nothing, defeating the notion that the tobacco auctioning system is a better way of determining prices. Cartels took over the buying of tobacco and were colluding to peg some unviable prices. The farmers this time did not have the protection of the regulator, the TIMB, which became a player-referee as it was also buying tobacco after contracting farmers with resources acquired from the Reserve Bank of Zimbabwe.
This saw the regulator also getting interested in all prices offered by some buyers amid reports that the TIMB would at times force some buyers to reduce prices they were offering farmers.
We believe this idea of turning a regulator into a player will have serious ramifications to the tobacco sector because no one wants to venture into a business where there is no recourse when there are malpractices.
As players celebrated making a killing through exploiting the tobacco farmers this season, they should be mindful that their actions destroyed the goose that lays the golden eggs. Disillusioned farmers refused to buy seeds to prepare for the next planting season. This means there will be no much tobacco to celebrate next year.
According to Dr Matibiri: “The situation is very worrying on seed sales. The amount of seed that we have sold in quantity this year is 318,005 grammes compared to 711,750 grammes last year. This indicates a massive 55,3 percent reduction in the amount of seeds sold which is very worrying.”
“We would have expected that around this time our farmers especially from the northern areas would have started showing more activity. We witnessed the similar scenario in 2016 when farmers started to be paid their proceeds straight into the bank accounts, but the amount of seeds sold eventually came up to numbers we excepted.”
With the way tobacco farmers were treated, any observer was expecting what Dr Matibiri told Parliament. The RBZ Governor Dr John Mangudya said the US$1 billion generated through the exports of tobacco is enough to import fuel to run the country for almost a year.
Now that it is clear that there will be little tobacco next year, the authorities have to start investing in new ways to earn foreign currency to cover the tobacco void this time next year.
We all know that unlike tobacco, gold is difficult to control as a huge chunk of it is smuggled out, it cannot be a natural replacement of the golden leaf next year. Besides, if we have a good rainy season, artisanal miners stop producing as shafts are flooded.
What this means is if there is no forward planning by our economic planners and establish low hanging fruits to replace tobacco earnings this time next year, we are headed for a serious foreign currency crunch.
For the country to escape the foreign currency crunch as indications are at least US$500 million might not be accessed through tobacco next year, we need the following to happen.
1.To incentivise gold miners so that they do not sell to smugglers.
- Improve the easy of exporting goods and remove some unnecessary restrictions.
- Close gaps that have been used to externalise foreign currency by some individuals and exporters
- Continue to improve the ease of doing business and attract more descent Foreign Direct Investment.
- Scout for more low hanging fruits and support them such as the horticulture and beef sectors
Moving into the future, Government should ensure an all-inclusive mechanism that does not allow individuals to make personalised decisions for personal gains that later kill an entire economic sector worth over US$1 billion.