HARARE – Zimbabwe’s tobacco output is set to rise by 21% this year, but a new Reserve Bank of Zimbabwe (RBZ) policy is eating into farmers’ earnings, dampening the otherwise positive outlook for the sector.
The 2024 tobacco selling season opened on Wednesday at the Tobacco Sales Floor, with prices ranging from US$1.60 to US$4.65 per kilogram. Farmers expanded plantings to 125,000 hectares, up from 113,000 hectares last year. As a result, production is expected to increase from 230.9 million kg in 2023 to 280 million kg, according to Agriculture Minister Anxious Masuka.
“We are certainly headed for a bumper, bumper harvest if the rains continue for the next two weeks,” Masuka said at the opening of the selling season.
RBZ Policy Cuts Farmers’ USD Retention
Despite the promising harvest, a recent RBZ policy shift is causing concern among farmers. In February, the central bank cut the foreign currency retention threshold from 75% to 70%, meaning that tobacco farmers now receive 70% of their payments in USD and 30% in ZiG.
However, as the Zimbabwe Tobacco Association (ZTA) points out, almost all production costs—including fertilisers, chemicals, fuel, equipment, and labour—are in USD.
“Your USD production costs range from 85% to 100%, yet you will only be retaining 70%,” said the ZTA in a statement. “Your 30% in local currency will be insufficient to help recover your production costs and keep you viable in coming seasons.”
The association also highlighted that many farmers based their cost projections on last year’s 75% forex retention rate, meaning that the sudden policy change puts additional pressure on their finances.
Tobacco Growers on the Rise, But Uncertainty Looms
There are 127,311 registered tobacco growers this year, an 11% increase from last year, according to ZTA. The growth has been driven by farmer confidence and improved returns in recent seasons. However, ZTA warns that this confidence could be eroded by the new forex retention policy.
“Growers who have already committed to production costs based on the previous retention rate now face additional pressure on their operating capital and recouping expenses,” the ZTA said.
The tobacco industry, which accounts for 60% of Zimbabwe’s agricultural exports, remains largely controlled by foreign merchants, who buy up 95% of the crop. This has already limited profits for local farmers, and the new RBZ policy is likely to squeeze margins even further.
With the season now underway, farmers will be hoping for policy adjustments to ease their financial burden and ensure Zimbabwe’s biggest cash crop remains profitable.
Source: NewZWire
