RBZ Scraps Tobacco Support Price

Source from:  By Brian Benza and Martin Kadzere 04/25/2006

THE Reserve Bank of Zimbabwe (RBZ) has scrapped the tobacco support price system it announced three weeks ago and replaced it with a framework that rewards farmers for their quality produce based on the prevailing interbank rate. To boost deliveries, tobacco growers who deliver their produce to the auction floors which open today will be paid a 35 percent bonus of the total value of tobacco sold before July 31. Assuming that a farmer delivers his crop before July 31 at a price of US$1,85 per kg, at the ruling exchange rate of US$-Z$99 201,58, the farmer's payment from the auction floor will amount to $183 522,92 per kg. When the 35 percent bonus ($64 233,02) is added on, the farmer will gross $247 755, 90 per kg. But farmers who will deliver their tobacco after July 31 up to August 31 will be entitled to a 15 percent bonus and thereafter, the bonus system will cease to apply. On April 7, the central bank announced that all growers selling their tobacco would be entitled to a guaranteed floor price of $180 000 per kg plus $40 000 early delivery bonus. The system meant that even the poorest quality of tobacco would fetch at least $220 000 per kg if delivered on time, disregarding the effort that farmers would have put in coming up with a quality crop. Since the modified support system is now based on the interbank rate at 100 percent valuation, resultantly, the 15 percent tobacco growers' retention scheme will now be discontinued. The new framework takes into account that the tobacco industry needs between US$30 million and US$35 million for inputs, the Reserve Bank of Zimbabwe Governor Dr Gideon Gono told journalists at a Press briefing yesterday. "This support framework will allow farmers to unlock capital resources in preparation for the 2006/07 tobacco growing season. "This framework has been put in place to support the entire industry with an in-built mechanism to promote high quality leaf as well as incentives to tobacco growers to deliver their crop early," he said. Dr Gono strongly warned merchants to desist from activities aimed at suppressing prices. "Where negative collusive practices are detected, the authorities reserve the right to take swift corrective measures that are detrimental to merchants concerned," Dr Gono added. The new system has however, not been received well by some players in the industry who feel that it would force smallholder farmers out of growing tobacco. President of the Zimbabwe Tobacco Association Mr James de la Pargue praised the new system as reward is now based on quality. However, he said the changeover would unsettle the industry as already the small-scale farmers and overseas buyers had expectations of the $180 000 per kg support price. He also expressed concern on the viability issue in view of the exchange rate, which has been static since January's monetary policy statement. In his response, Dr Gono said tobacco farmers had enough incentives and should stop complaining and make sure that they just produce a high quality crop. President of the Tobacco Growers Trust Mr Wilfanos Mashingaidze said the new framework would push small-scale farmers out of business as their crop is generally poor in quality. "Most of our small-scale growers spent most of their time last season looking for inputs and financing and not on the fields and therefore their crop this season will be poor. "Now this new system will see most of the small-scale growers being run out of business which might not be good for the industry," said Mr Mashingaidze. The RBZ has always taken a firm stance on non-performers saying they should either shape-up or ship out. Enditem