By Phillimon Mhlanga
ZIMBABWE’S foreign currency situation is unlikely to get a hefty boost “immediately” as in the past because some merchants will fund purchases from export proceeds earned from last season’s tobacco, market sources said this week.
However, a number of other merchants had still brought in offshore loans for purchase of the golden leaf from the tobacco auction floors. Some of the funding has been mobilised by local banks on behalf of merchants, although some merchants had received support from their correspondents abroad, a source said.
Others had brought offshore funding last year to support contract farmers and were now expected to recoup their money through exports. That funding amounted to an injection of foreign cash during the planting season, one sector source indicated.
Under the current market regime, 80 percent of export receipts from tobacco are surrendered to the central bank, which reimburses merchants through real time gross settlement (RTGS) system, described by critics as a virtual Zimbabwe dollar currency.
The 20 percent is retained by exporters through their banks.
“Yes, there are offshore loans involved, but it’s no longer all coming during the selling season. Some of it was brought in to support contract farmers,” said a banker who cannot be named for professional reasons.
Another banker said: “We already have the money for tobacco merchants in our accounts. There are a number that received cash from offshore.”
Zimbabwe has a two-tier selling system, one involving the open market for unsupported farmers and the other for contract farmers bankrolled by merchants under a contract farming system.
Contract farmers sell their crop to funders, who deduct costs and pay the farmers the difference.
Isheunesu Moyo, the Tobacco Industry and Marketing Board (TIMB) spokesman, said merchants were expected to mobilise “fresh money” for the tobacco auctions.
“It’s an RBZ requirement that fresh money, that is money coming from outside the country, is sourced. Merchants should prove that they have the foreign currency before they are licenced. That money comes into the country through the RBZ, which distributes it to banks. Banks will then transfer that to auction floors, which then make the payments,” said Moyo.
RBZ governor, John Mangudya, did not respond to a request for comment.
Zimbabwe’s tobacco selling season officially starts on March 15 and runs up to mid August. Auction sales will start on March 15, while contract sales are expected to start on March 16.
Tobacco has been critical in liquidity supply and generation of foreign currency in the country for many years.
The country is facing an acute shortage of foreign currency which has ruined industrial operations and disrupted the import of raw materials and other critical products like drugs.
The central bank introduced bond notes in November last year to improve liquidity. But, the country is, however, still grappling with cash shortages.
Zimbabwe’s tobacco has one of the best smoking and flavour qualities and this why it is sought-after by major tobacco markets around the world.
The country last year earned more than US$720 million from tobacco sales, up from US$692,6 million the previous year.
For the 2016/17 tobacco marketing season, the TIMB licenced three auction floors, Boka Tobacco Floors, Premier Tobacco and Tobacco Sales Floor and 16 contract buyers.
Tobacco farmers will start delivering their crop on March 6 ahead of the opening of the auction floors.
The industry regulator estimates that this years’ deliveries will be more than the 202,2 million kilogrammes(kgs) delivered in the 2015/16 tobacco selling season.
TIMB is expected to roll out an electronic marketing platform when the season starts.
Moyo said: “We are moving away from the old way of shouting prices. We are introducing an electronic system. This will enhance transparency.”
Prospects for the 2017 agricultural season are positive as normal to above rainfall was received.
Farmers are said to have planted 32 208 hectares of tobacco during the 2016/17 season, according to TIMB statistics, compared to 28 865 hectares planted during the previous year.
There has also been an increase in the number of registered growers; 73 492 registered for the 2016/17 season, an increase from last year’s 69 518 growers.
The challenge, however, has been that of low prices paid by buyers. The average price paid to growers for their tobacco has been less than US$2 per kg for the lowest grade and less than US$5 per kg for top grade.
Over the years, farmers had to protest over low prices, disrupting sales.
The Zimbabwe Commercial Farmers’ Union of Zimbabwe president, Wonder Chabikwa, this week said they expect favourable prices this year.
He highlighted that any price ranging between US$2,50 a kg for the lowest grade and US$6,50 a kg for the top grade would be favourable.
Chabikwa said: “Our expectations are not wild. We are basing this on cost of production. If the quality is good, we expect the buyer to pay at least US$6,50 and for the lowest grade, our farmers should get at least US$2,50.
“Generally, in Africa, tobacco production is subsidised by between 30 percent and 70 percent. But in our case, all commercial agriculture is not subsidised. So the cost of production and money (interest rates) are too high.
Chabikwa added: “We have also discovered that contracted tobacco is being sold at US$4,99 on average for the lowest grade. Buyers will be giving various reasons including that farmers use banned substances. It appears they want every farmer to go under contract. We believe that is not fair. They are taking a big brother position.
“We strongly suspect that there is conspiracy between contractors and buyers. What we are saying is that let the farmer be viable, and let the buyer be viable as well, that’s the spirit.”
Asked if tobacco farmers would be paid in bond notes or US dollars, Moyo said: “Money is going to be deposited into growers’ accounts. It will now depend with the banks whether they pay in bond notes or foreign currency just like what happens with our salaries.”