A WEEK has passed since the opening of the 2014 tobacco selling season. The season is a major highlight on the economic calendar due to significant role the crop plays in the economy. This year in particular, it has come at a crucial time when the economy is faced with a dire need for liquidity inflows.
It is usually expected that the tobacco selling season spurs money supply as has historically been the case, mainly because the crop is a major export revenue earner.
Currently, our export revenues have been on a decline, against escalating imports, resulting in a widening trade deficit. This is mainly because export activities from most previously booming export sectors have shrunk.
The trend is, without debate, undesirable especially in critical times such as the current, where the country is seeking relief of the liquidity strain.
At its peak in 2000, the country produced 237 million kilogrammes of tobacco. Over the period 1996-1998, average annual tobacco exports were 127 million kilogrammes and Virginia tobacco accounted for more than 95 percent of that total.
Over the same period, tobacco accounted for 55 percent of total agricultural exports, which was a decline from the 78 percent peak that was reached in 1992.
Furthermore, the tobacco farming structure was different from the current. The sector was characterised by a few large commercial farmers who accounted for between 80 percent and 90 percent of the total area planted.
Small-scale farmers covered the remaining area planted and had very little impact on overall tobacco produced.
Over the last 15 years, tobacco farming sector has changed altogether.
Small-scale farmers have since taken over the greater chunk of production, with only a few large-scale farmers remaining.
This has predominantly been the result of the land distribution which saw increased participation in tobacco farming by previous subsistence farmers. In addition, the decline in prices for other cash crops such as cotton has forced farmers to migrate to tobacco farming, which still remains a lucrative sector. As much as this has its merits mainly through benefiting the smaller farmers, tobacco has underperformed over the years as an export revenue earner. Export revenues from tobacco over the past years have dwindled and so have other agricultural export crops.
The change in dynamics for Zimbabwe tobacco is a great cause for concern.
Production of the tobacco crop has since declined from the levels recorded during the country’s peak periods.
Last year, a total of 167 million kilogrammes of tobacco was sold at the auction floors which are 70 million kilogrammes less than what was produced in 2000, for example.
As a result, our export volumes are relatively shaved off, and so does our export revenues in the process. The Government has continuously pointed out to idle capacity in the form of unutilised land.
Some new farmers took up land and have failed to utilise it to full capacity, while others have abandoned it altogether. Other new farmers have faced a number of challenges, chief among them capital to increase capacity. All these factors combined, have not done any good to tobacco production.
Furthermore, small-scale farmers are yet to up their game so as to be more efficient. Although production from the group might have increased, productivity is still low. Production was only ramped up by the advent of other small-scale farmers migrating to tobacco farming.
Therefore, what has increased is the number of farmers growing the crop and not necessarily productivity. Their farming process is not as mechanised and most of them are currently going through a learning curve.
Because of all this, production levels are not as high as during the peak and, in addition; the quality of the crop is most probably not high grade.
This means the crop is fetching a lower price than would if the quality was some notches higher. Considering that small-scale farmers now hold the fort in tobacco farming, the effects of such bottlenecks for the same, has a disastrous effect on the economy.
Without disregarding the role that they play, small-scale farmers also do not spur liquidity and economic activity to the desired magnitude. Most of their expenditure is current, and is also channelled towards importing the same type of goods. This just creates a leakage through imports as funds are instantly channelled out of the system. In addition, most small-scale farmers do not use the formal banking channels and hence it will remain as money circulating outside formal financial channels.
Large-scale farmers, by virtue of the level of funds they receive, retain significant funds within the banking system.
Purchases are mainly towards capital equipment which will have positive net inflow in future. Because we have a few of these remaining, the benefit is so much as gone.
Considering that small-scale farmers now play a significant role, there is need for technical support to ensure that the final product is of high grade. Educating small-scale farmers is key to ensure that the product quality improves.
Furthermore, most of them lack resources and rely on highly manual equipment for their farming. These take up time that could be channelled towards increasing planting area.
It is important for contract farming to expand, to finance and support the small-scale farmers. Farmers also need to be encouraged to use banking channels, an area that banks can exploit by providing products well suited for farmers.All these factors combined, can assist in improving both production and quality of the crop, and hopefully regain the export status that the golden leaf used to command.
Unfortunately, we might not see a huge improvement in export revenues this year, as the sector is still hurdled by the aforementioned challenges.
With a trade deficit of US$2,8 billion for the first months of 2013, it would have worked well for the country, if the tobacco crop performance was that of yesteryear.
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