To ease your site search, article categories are at bottom of page.

June 23, 2019

Tobacco Prices Go Up In Smoke In Zimbabwe

A sudden drop in the price of tobacco could not have come at a worse time for Zimbabwe. Halfway through the selling season, the price is about 37% lower than in 2018 — at a time when, on its current trajectory, inflation could hit 100% by year-end.

It’s a blow for a country already in dire economic straits. Tobacco is a leading foreign currency earner. It accounted for nearly a fifth of Zimbabwe’s $5.3bn export earnings in 2018, bringing in almost $1bn.

It’s also a large employer: there were about 172,000 growers this year — up from 111,000 for last year’s bumper season — but only about 2,000 grow more than 2ha.

The average price at last count was $1.82/kg, against $2.87/kg a year ago, with little wriggle room. Insiders predict that, at the outside, it could rise by US20c.

The situation will put the screws on producers already under strain. According to tobacco expert and opposition MP Rusty Markham, tobacco is an expensive crop, costing about $12,000/ha to farm.

In the wake of the post-2000 land invasions, the state’s land bank collapsed. Then, as a result of the nationalisation of agricultural land in 2005, commercial banks withdrew from the tobacco market, citing a lack of security to cover loans.

It means that about 80% of tobacco operations are financed in US dollars — mainly from tobacco contractors and merchants in the US, UK and Zimbabwe. Farmers, large and small, are paid in real-time gross settlement dollars (RTGS$) — but they have to repay their funders in US currency, at a crippling rate of about RTGS$5.7/$1. Though they can later claim 50% of their earnings back in US dollars, that process has not always proved easy.

Industry insiders, including Markham, predict the low price will leave top growers in debt. "They will not cover costs — and will therefore not be able to pay back all the money they borrowed from contractors to grow their crop. The [exchange] rate will also hit them hard," he says.

Those in the know doubt that defaulting growers will be closed down ahead of the planting season, as the tobacco merchants and contractors need to ensure continuity of flavour and quality in their products. But there must surely be a limit to that patience.

But part of the problem is the contractors/merchants themselves. The auction system no longer works for the large growers, who produce about 80% of the crop. So they are beholden to merchants — China’s Tian Ze, British American Tobacco through Northern Tobacco, and several other local and international buyers — and the prices they dictate.

t’s unclear what exactly is pushing the price down, but industry speculation points to the US-China trade war, a glut of Zimbabwe’s main flavours on the market, contractors punishing the government for paying growers in RTGS$, and fewer people smoking, including in Asia, the primary export market.

The potential fallout of the price drop does not seem to have sunk in yet. Some speculate that this is because of the glut of other bad news, including electricity load-shedding — 10 hours a day — which will continue at least until the end of the year.

But until the country’s currency woes are resolved, it’s unlikely that the bad news cycle will be arrested.

BusinessLive

Article Categories

AGRA agribusiness agrochemicals agroforestry aid Algeria aloe vera Angola aquaculture banana barley beans beef bees Benin biodiesel biodiversity biof biofuel biosafety biotechnology Botswana Brazil Burkina Faso Burundi CAADP Cameroon capacity building cashew cassava cattle Central African Republic cereals certification CGIAR Chad China CIMMYT climate change cocoa coffee COMESA commercial farming Congo Republic conservation agriculture cotton cow pea dairy desertification development disease diversification DRCongo drought ECOWAS Egypt Equatorial Guinea Ethiopia EU EUREPGAP events/meetings exports fa fair trade FAO fertilizer finance fisheries floods flowers food security fruit Gabon Gambia gender issues Ghana GM crops grain green revolution groundnuts Guinea Bissau Guinea Conakry HIV/AIDS honey hoodia horticulture hydroponics ICIPE ICRAF ICRISAT IFAD IITA imports India infrastructure innovation inputs investment irrigation Ivory Coast jatropha kenaf keny Kenya khat land deals land management land reform Lesotho Liberia Libya livestock macadamia Madagascar maize Malawi Mali mango marijuana markets Mauritania Mauritius mechanization millet Morocco Mozambique mushroom Namibia NEPAD Niger Nigeria organic agriculture palm oil pastoralism pea pest control pesticides pineapple plantain policy issues potato poultry processing productivity Project pyrethrum rai rain reforestation research rice rivers rubber Rwanda SADC Sao Tome and Principe seed seeds Senegal sesame Seychelles shea butter Sierra Leone sisal soil erosion soil fertility Somalia sorghum South Africa South Sudan Southern Africa spices standards subsidies Sudan sugar sugar cane sustainable farming Swaziland sweet potato Tanzania tariffs tea tef tobacco Togo tomato trade training Tunisia Uganda UNCTAD urban farming value addition value-addition vanilla vegetables water management weeds West Africa wheat World Bank WTO yam Zambia Zanzibar zero tillage Zimbabwe

  © 2007 Africa News Network design by Ourblogtemplates.com

Back to TOP