THE Zimbabwe Tobacco Association (ZTA) says demand for Zimbabwe’s flavoured tobacco remains very high but poor and inconsistent monetary policies are hurting the local industry and impeding growth.
During this year’s tobacco marketing season, farmers will be paid 75% of their sales proceeds in foreign currency and the remaining 25% in local currency, converted at the prevailing auction exchange rate on the day of sale.
The 75% will be paid directly into the growers’ foreign currency accounts and this is treated as free funds while 25% local currency will be deposited into the growers’ local bank accounts or e-wallets.
However, farmers are demanding 100% of their export proceeds in United States dollars to offset high production costs and make profit.
According to the Tobacco Industry and Marketing Board (TIMB), auction floors will open on 30 March while contract sales will start on 31 March.
In its latest report, ZTA said Zimbabwe’s inconsistent monetary policies were hurting the local industry and hampering growth.
“In Zimbabwe, the US dollar retention level of 75% United States dollar and 25% Zimbabwe dollar at a non-market managed exchange rate, will sadly negate all the anticipated positives for the season hence diversification and identification of alternate crops to tobacco remains key for all growers,” the report reads in part.
“Demand for Zimbabwe’s flavour tobacco remains very high, however it is poor, inconsistent monetary policies that are hurting the local industry and impeding its growth.”
A total of 210 million kgs of the golden leaf were delivered to the auction floors in the last marketing season, generating the country close to US$1 billion.
Tobacco is one of Zimbabwe’s foreign currency earners, providing liquidity in the economy.
The country exports its flue-cured tobacco to over 60 nations around the world, with China, the United Arab Emirates, South Africa and Indonesia being the major consumers of the golden leaf from the country.
In 2021, following increases in production in major producing countries such as Brazil, US and Zimbabwe, global flue-cured production increased by 3% to 1,787 million kgs, while demand continued to weaken as Covid-19 trade restrictions and constraints continued for most of 2021.
In 2022, the report notes that flue-cured production in the southern hemisphere in particular was affected by adverse weather conditions with very hot and dry conditions during the peak planting and growth periods, with South American producers affected the worst.
Countries in southern Africa, though affected by similar conditions did however receive significant rainfall in January of 2022 (cyclone linked) which improved yields, though drier conditions prevail now.
In Brazil, the adverse weather resulted in the top of the plant not filling out and yields are significantly lower than initially estimated. Production is estimated to drop from 573 million kgs to a conservative 460 million kgs.
“While in Zimbabwe production is estimated to drop from 203 million kgs to 190 million kgs, there are smaller drops in production in other producing countries in the southern hemisphere,” the report reads.
ZTA said in the northern hemisphere production is estimated to remain relatively stable, with minimal increases. Production in the US has been affected by the highest recorded increases in costs of production and with just a 10% increase in price this will deter any further increase. China’s demand from its major source countries will not significantly change as supply remains sufficient for their requirements.
Overall, flue-cured production for 2022 is estimated to fall by 9% to an estimated 1,700 million kgs, just below the recorded lowest production of 2016.
With the significant drop in production in 2022, ZTA said reduced uncommitted stock levels and a post-Covid-19 recovery in demand, prices will be firmer this season.
In Brazil, for example, prices are significantly up in 2021 with almost single grading and loose-leaf deliveries.
It is estimated that the average prices will be closer to US$3 per kg up from US$2.01/kg in 2021.
“For Zimbabwe, all of the above dynamics point to much firmer prices this season. While there may be minimal upward movement in top leaf prices, especially China grades, there will be strong demand for the middle and bottom plant positions. A 15% to 20% increase in average US dollar prices is expected this season,” it said.
The TIMB said top quality tobacco grades for premium brands this season are likely to remain unchanged at between US$3.50 per kilogramme and US$5.40 per kg.
ZTA said globally, costs of producing a hectare of tobacco have increased significantly and will continue into 2022.
Countries have reported increases of 15% to 20% in costs with fertilizers, labour and fuel being the main cost drivers.
With the recent Russia – Ukraine war, costs are estimated to increase even further and prices paid for tobacco this season have to also take this into account.
The association said the recent fuel price increase has seen the local cost of flue-cured production rise by 8.3%. The increase in tobacco costs of production, if not matched with cost-plus prices, may see growers looking into alternate food and export crops, ZTA warned.
“The war will also see countries dependent on food crops imports e.g. wheat from the two countries having to increase local production of the food crops by offering higher incentives and prices. This may see a further drop in flue-cured production in 2023 as ably resourced growers consider reducing their tobacco hectares in favour of the attractive food crops,” it said.
This could be an option for growers in Brazil, US, Zambia and Zimbabwe, ZTA said.