Tobacco farmers will this year retain 60 percent of their earnings in foreign currency while the remainder will be liquidated at the prevailing exchange rate, the Reserve Bank of Zimbabwe has said.
"We have standardised everything . . . just like all other exporters; they (tobacco farmers) will retain 60 percent while 40 percent of net earnings (after loan deductions) will be sold at the auction market," central bank governor Dr John Mangudya told our sister publications eBusiness Weekly in an interview.
Cotton merchants will retain 60 percent.
This is, however, below between 70 and 80 percent the farmers had requested.
Zimbabwe Farmers' Union president Abdul Nyathi said they engaged the central bank seeking upward review of the retention threshold to as much as 80 percent from 50 percent and were still waiting "for feedback."
"As farmers, if this is the arrangement (60-40 percent), we are not agreeable. We engaged in good faith and we are still hoping for a positive response from the Reserve Bank."
Tobacco farmers have expressed concern over the disparity between the parallel market exchange rate of approximately $125:1 US$ and the official auction exchange rate of $83:US$1.
However, the foreign exchange exposures would be minimised as loan deductions would be made on the 40 percent portion of their earnings.
This means net earnings, after loan deduction, from the 40 percent will be sold on the auction system.
The date for the commencement of this year's tobacco season has not yet been advised but the industry has reportedly proposed March 24.
Unlike previous years, much activity would be concentrated outside Harare due to limited volumes that would be sold through auction system.
This season about 96 percent of tobacco was funded by merchants who have since set up buying facilities outside the capital.
Farmers will also be less keen on using facilities in Harare due to high costs associated with logistics and high risk of contracting Covid-19.
Companies that have decentralised include Boka Tobacco Floors, which has set up facilities in Rusape, Karoi and Mvurwi.
This year, tobacco output is expected at 200 million tonnes, up from 174 million tonnes produced last year on the back of good rains.
Experts, however, said the excessive rains which the country received throughout the season had a negative impact on quality of the crop, particularly weight.
The RBZ chief is on record that tobacco exports alone earn revenue enough to import fuel to run the country for 12 months. At least close to US$ 1 billion is earned annually from tobacco.