Farai Mabeza, Senior Staff Writer 
THE Tobacco Industry Marketing Board (TIMB) says production of the golden leaf faces viability challenges emanating from a high cost of production fuelled by currency challenges obtaining in the country.
TIMB chief executive Meanwell Gudu told a media briefing this week that the volatility in the currency market was a major concern for farmers.
“The cost of production is quite high, with prices being indexed to the parallel market rate while the US dollar component is increasing as well.
“For example, workers are now demanding salaries in US dollars, which is a cost that needs to be met,” Gudu said.
TIMB chief executive Meanwell Gudu
The current cost environment is expected to affect Zimbabwe’s competitiveness on the global market.
“Brazil has an almost similar flavour to Zimbabwe but faces challenges with consistency in the supply of orders and some changes in flavour due to sometimes natural disasters like floods. However, Brazil tobacco is generally cheaper than Zimbabwe due to lower production costs,” Gudu said.
He however, stressed that lower production volumes in Zimbabwe this year would push prices up as the marketing season commences on March 30.
“Due to anticipated reduced volumes in Zimbabwe this season, there will be more pressure on the demand side to take the crop, which should naturally increase prices upwards.
“This is likely to be experienced in the medium to filler grades,” Gudu said. “Some kind of hoarding of tobacco is likely to happen that may influence prices to be better because of disruptions in logistics caused by Covid-19. “Supply chains were disrupted from 2020 into 2021 due to shortage of vessels and the closure of some shipping lines.
“Now that the world has lifted the Covid-19 restrictions and uncertainty in the possibilities of other waves, customers are likely going to grab this opportunity to stock up their tobacco, thereby increasing artificial demand.” Brazil, however, is likely to be 80 million kilogrammes short of its usual production level because of drought. “This creates less competition for us,” Gudu said.
On the other hand, another major global player India has fixed its 2021-22 production of FCV up to 270 million kilogrammes, against 236 million kilogrammes in the previous year.
In Zimbabwe, the rainfall season was generally late, with effective planting rains received around end-November to mid-December 2021.
“The irrigated crop is medium to heavy bodied, predominantly lemon in colour and reflecting a fair to good quality.
“The main dryland crop is medium bodied in the commercial sector, while being light to medium bodied in the smallholder sector,” the TIMB boss said, adding that the late dryland crop has poor stand due to prolonged dry spell, which was experienced post planting time towards end of December.
TIMB expects top quality tobacco grades for premium brands are likely to remain unchanged (US$3,50-US$5,40/kg) in prices compared to last season.
“The high-end market for this grade has reached its ceiling in price increase. The major market for these grades is in China and there are no indications to change prices upwards,” Gudu said. Zimbabwe’s tobacco sector is also affected by limited local financing and low net export benefits.
The financing of tobacco production and marketing is regulated by the Reserve Bank of Zimbabwe (RBZ) through the Exchange Control Tobacco Finance Order of 2001, which requires tobacco merchants to borrow offshore in order to buy green leaf tobacco. After export, only the value-added component accrues to the country while the rest of the export proceeds are used to service offshore loans accessed during the buying season.
“Localisation of tobacco production and marketing financing has potential to maximise the net export proceeds. This is an investment opportunity,” Gudu said.
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