Zimbabwe Tobacco Sales Seen Down, Crisis to Deepen

Source from:  Tue Mar 28, 2006 4:14 PM GMT By MacDonald Dzirutwe HARARE (Reuters) 03/29/2006

Zimbabwe's tobacco sales are expected to fall by a third when auctions open in April, further eroding the country's meagre foreign exchange earnings and deepening its economic crisis, industry officials said on Tuesday. Zimbabwe has grappled with six years of recession widely blamed on mismanagement by President Robert Mugabe's government, with shortages of fuel and foreign exchange compounding problems in the key agriculture sector. The Zimbabwe Tobacco Industry and Marketing Board (TIMB), which initially expected a larger tobacco crop to reverse a five-year decline, said on Tuesday the 2006 crop would drop to 50 million kgs from 74 million kgs in 2005, a multi-year low. "We are expecting a crop of around 50 million kgs this year which is much lower than what we had in 2005 due to the numerous difficulties that farmers are experiencing on the production side," Stanley Mutepfa, TIMB general manager told Reuters. Tobacco exports used to be Zimbabwe's main source of foreign exchange, but have been replaced by gold as sales of the crop steadily dropped from 236 million kgs in 2000. Foreign currency earnings fell 14 percent to $118.2 million in 2005 as a result of both low tobacco leaf prices and output. Some analysts blame Mugabe's controversial land reforms, which have displaced the white farmers who used to produce most of the lucrative crop. But triple-digit inflation and interest rates have also pushed tobacco production costs beyond most farmers, some of whom have benefited from Mugabe's land seizures but are unable to secure bank loans because they do not have collateral. TOBACCO EARNINGS HIT Analysts said farmers' earnings -- which are in Zimbabwe dollars -- will also be affected by the central bank's currency management system which has kept the local exchange rate static since January, even though the costs of their inputs are rising. Exporters complain that they are getting less for their hard currency after the central bank artificially halted the depreciation of the Zimbabwe dollar in late January at 99,201 to the greenback. Inflation has continued to rise, hitting a record 782 percent in February. "We are engaging the Reserve Bank with a view to improve the current exchange rate if farmers are to return to farming this year," said Elfanos Mashingaidze of tobacco farmers' group Tobacco Growers Trust. Analysts said further falls in tobacco earnings would make prospects of a quick economic recovery less likely. "This is bad news for the economy because the central bank was anticipating inflation to stabilise on the back of higher export earnings, including from tobacco," said James Jowa, a Harare based economist. "It is reflective of the lack of planning in agriculture, which is supposed to anchor economic recovery. You cannot have meaningful production when farmers do not have title deeds and are unsure of whether they will be farming tomorrow," he added. Zimbabwe has not received balance of payment support since 1999 over policy differences with international lenders, hitting an economy which Mugabe argues has been sabotaged by Western countries opposed to his land seizure drive. Enditem