Zimbabwe is anticipating a 21% increase in tobacco production this year, yet a recent foreign exchange policy change is raising concerns among farmers over reduced earnings.
Record Production Amid Policy Concerns
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 tobacco cultivation to 125,000 hectares, up from 113,000 hectares last year, pushing projected output from 230.9 million kg in 2023 to 280 million kg, according to Agriculture Minister Anxious Masuka.
“We are certainly headed for a bumper harvest if the rains continue for the next two weeks,” Masuka stated.
Foreign Exchange Policy Raises Farmer Concerns
Despite the promising harvest, a new Reserve Bank of Zimbabwe (RBZ) policy has dampened farmers’ enthusiasm. The tobacco industry is largely controlled by foreign merchants, who buy 95% of the crop, leaving local farmers with limited profits.
In February 2024, the RBZ reduced the foreign currency retention threshold from 75% to 70%. This means that farmers now receive 70% of their earnings in USD and 30% in Zimbabwe Gold (ZiG). However, the Zimbabwe Tobacco Association (ZTA) highlights that nearly all production costs—including fertilizers, chemicals, fuel, equipment, and labor—are in USD.
“Your USD production costs range from 85% to 100%, yet you will only be retaining 70%,” the ZTA stated. “The 30% in local currency will not be sufficient to cover production expenses and ensure sustainability.”
Farmer Confidence at Risk
The number of registered tobacco growers has increased by 11% to 127,311 in 2024, reflecting previous confidence in returns on investment. However, the new forex policy threatens to erode this confidence as many farmers budgeted their costs based on the previous 75% retention rate.
“Growers who have already committed to production costs based on the previous rate now face financial pressure to recover expenses,” warned the ZTA.
Financial Sustainability in Question
While Zimbabwe’s tobacco sector is poised for record production, the revised forex policy could jeopardize farmers’ financial stability. Without adjustments, many may struggle to remain viable in the coming seasons, potentially impacting the long-term sustainability of one of Zimbabwe’s most critical agricultural industries.
