Tobacco prices hit the floor
By Dominic Dhiliwayo.
President Robert Mugabe's beleaguered government, which so far this year has had to weather spiralling inflation, unprecedented industrial action and mounting criticism both at home and abroad, looks set to suffer another blow.
A combination of local and international factors is now threatening to permanently damage the country's tobacco industry, Zimbabwe's single biggest source of foreign currency. A combination of the unusually early opening of the country's three tobacco floors, international media coverage of the government's plans to seize white-owned farmland, Asia's economic downturn, and the threat of legal suits facing tobacco companies from people suffering from smoking related ailments, have this year kept the tobacco buyers away.
After opening their doors on 31 March, the tobacco floors sold a little over 15m kg at an average of about US$1.25/kg. This is 40% below both the average price and the volumes seen in the first month of last year's selling season. Normally Zimbabwe supplies approximately 20% of the flue cured tobacco sold on the international market, competing with Brazil and the USA for the title of the world's biggest exporter of the crop. 30% of Zimbabwe's foreign exchange is derived from the sales.
This year the Tobacco Sales Floor, the Boka Tobacco Sales Floor and the Burley Marketing Corporation of Zimbabwe Sales Floor, opened their doors two-and-a-half weeks prior to their usual date after Easter and Zimbabwe's April 18 annual independence holiday.
The initial lack of buyer interest was attributed to the fact that the Brazilian sales were still open. Easter passed however and there has been no improvement; in fact on April 23 a daily average of $1.05 was recorded at the Tobacco Sales Floors which last year sold 77% of Zimbabwe's tobacco. This is the lowest price seen in several years.
The threat of legal action is in part to blame, but it is primarily thought that the government's public threats to seize farms for rural resettlement convinced buyers that less tobacco would be planted this year. In fact the hectarage under tobacco grew 16% to 87,000 hectares and a total crop of 210m kg is expected compared to last year's 180,000kg.
Some farmers continue to cling to the hope that as the season progresses the sale of superior 'leaf' grades, normally around August, will bring better prices. Others are losing hope. The poor prices saw growers reject 56% of their sales offers on the opening day. Only 15-20% of sales offers were being rejected at the end of April, a little above last year's average of 12%.
The Zimbabwe Tobacco Association (ZTA), which represents the country's 1,700 commercial growers and the approximately 4,500 smallhold producers of the crop, say that if the trend continues many farmers will make a loss this year. In past years income from the sales has seen the Zimbabwe dollar appreciate by as much as 7% against major world currencies. The uncertainty that this year's prices has brought saw the currency fall by 5% against the dollar in April. It is now trading at about Z$17:US$1.
The failure of the Zimbabwean government to reach economic criteria set out by the IMF has also delayed crucial aid packages and the country's balance of payments situation is now expected to deteriorate rapidly.
With inflation set to rise from 18-19% to around 30% and a host of other economic and social problems on the horizon this year's tobacco crisis could be one more nail in the coffin of President Robert Mugabe's struggling government.
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