The Sunday Mail
Clemence Machadu
It is, therefore, important for more farmers to insure their tobacco crop in order to safeguard their businesses, and to also enhance research on weather patterns in order to empower insurers with unequivocal methodologies that can guarantee their stay in the sector.
Howdy folks!
The tobacco industry plays an important role in Zimbabwe’s economy. It provides jobs to a lot of people across the country, incomes to rural-folk and other commercial producers as well as tax revenue to Government.
Most importantly, it gives the country the much-needed foreign exchange through exports.
Between January and November last year, for instance, Zimbabwe accrued about US$775 million from the export of flue-cured Virginia tobacco.
Imagine what could have happened to the country’s trade deficit without this huge contribution to export receipts?
Government is expecting 200 000 tonnes of the golden leaf to be harvested this year.
While Government has been playing its part to support the tobacco industry, farmers, too, should reciprocate by treating tobacco farming as a serious business and not a gambling expedition.
We are now experiencing unpredictable and sometimes extreme weather patterns and farmers can’t just bet on the best case scenario and be content with that.
There are a number of risks like hailstorms, heavy rains, strong winds, fire and pest infestations which can destroy the tobacco crop and reduce yields substantially.
Farmers may fail to recoup input costs in the event of these risks falling without being insured, leaving them grounded. Mashonaland West, for example, has the largest tobacco hectarage as it accounts for circa 41 percent of the area planted nationally; and should, therefore, lead by example by increasing insurance uptake for their crops.
The good thing with tobacco insurance is that farmers pay the premiums at the end of the season after they have sold their crop and received payment, which should encourage uptake.
But then again, many farmers who insure for one season and do not experience any disaster are the ones who normally don’t take up the insurance when the next season comes under an erroneous impression that it is an unnecessary expense which doesn’t add value to their businesses.
They will only realise its importance when danger strikes while they least expect it.
Prevention is always better than cure. You will realise that most small-scale farmers are the ones without insurance, not just because of lack of information but due to the dis-economies of scale associated with the nature of their Mickey Mouse operations.
They incur high costs to accrue smaller margins, which compels them not to further contract their margins by adding insurance to their costs of production, leaving the fate of their business in the hands of weather.
Even the 2018 National Budget Statement exempted registered buyers of tobacco from withholding 10 percent in order to ease the tax burden on tobacco farmers who are facing viability challenges.
Government argued that the operations of most farmers at communal level were not viable due to the huge expenditures they incur in growing and marketing the crop.
It is hoped that enhancement of the tobacco input finance facility to US$70 million, together with the issuance of well-secured tobacco production financing bonds to diaspora investors, will help boost competitiveness at the bottomline.
You see, for competitiveness to improve in the tobacco value chain, it has to start at the farm and given how communal farmers contribute to total tobacco production, it might be prudent, going forward, to provide them with production incentives that enhance productivity as opposed to those that simply reward those who will have produced without regard to how they have done it.
For instance, won’t there be an improvement in production and competitiveness if all the money for the 12,5 percent tobacco incentive scheme is given to farmers as they go to the field to plant?
Between May 2016 and December 2017, circa US$60 million was given to tobacco growers who delivered their crop. Suppose for this season we had added that US$60 million to the US$70 million that was allocated under the tobacco input finance facility.
US$130 million was going to be available for tobacco production, with a potential of realising hundreds of millions of kilogrammes of tobacco. This would also make it easier for small-scale farmers to insure their crops if the inputs side of things is taken care of.
Insured farmers can also use that cover to negotiate lines of credit from banks.
But then again, some take comfort in the fact that they have never experienced any disaster on their tobacco before, while others have lost confidence in insurance firms because of the way they have been treated before.
Some insurers take advantage of gullible communal farmers by not fully explaining the fine print to them.
You have to note that the proliferation of more risks as a result of these increasingly unpredictable weather patterns has also chased some insurance companies away from the tobacco sector.
Some insured farmers also side-market their crop, which also discourages these insurers.
At the end of the day, premiums might be forced up by the low insurance uptake by farmers, which results in a shallow risk pool, coupled with the lesser number of insurers which results in less competition, leaving us with monopolistic competition in the tobacco insurance sector.
It is, therefore, important for more farmers to insure their tobacco crop in order to safeguard their businesses, and to also enhance research on weather patterns in order to empower insurers with unequivocal methodologies that can guarantee their stay in the sector.
Given the importance of the tobacco crop to the economy, all stakeholders cannot afford to be on the sidelines.
Any “accident” will kill the livelihoods of many and compromise our economic prospects.
The same way motor vehicle insurance has been made a mandatory requirement at law, tobacco insurance, too, should be made mandatory.
It is a serious business.
Clemence Machadu is an economist, researcher and consultant. He writes for The Sunday Mail in his personal capacity.
