TIMB seeks to unlock bank loans for tobacco farmers

03 Sep, 2023 - 00:09 0 Views
TIMB seeks to unlock bank loans for tobacco farmers

The Sunday Mail

Business Reporter

THE Tobacco Industry and Marketing Board (TIMB), in partnership with local banks, is working on a scheme to provide funding to farmers, a senior official has said.

This is in line with the Government’s thrust to increase local funding for production of the crop.

About 90 percent of tobacco production is financed through offshore loans under contract schemes, which means the profits are enjoyed beyond Zimbabwe’s borders.

In line with the Tobacco Value Chain Transformation Plan, the country raised the threshold of localisation of tobacco funding to 70 percent by 2025 to keep more value in the country.

Some local banks have been reluctant to extend credit to farmers due to lack of security, but the proposed model seeks to enable growers to access the loans even without collateral, TIMB acting chief executive Emmanuel Matsvaire said in an interview on Thursday.

“We are working on a strategic scheme that will see banks supporting farmers using local money,” said Mr Matsvaire.

“This will ensure that farmers get cheaper loans than what they are getting under the offshore pre-financing model,” he added.

The offshore pre-financing arrangement means tobacco merchants bring into the country part of export proceeds in the form of inputs. After exports, the bulk of the proceeds are used to pay offshore loans (capital plus interest).

However, concerns remain over the value of inputs. There seems to be a consensus among stakeholders in the industry that the costs of inputs and other consumables are, in most cases, highly inflated.

It has been noted different merchants have been supplying inadequate inputs or inflating the costs. Merchants have also been using different costing structures for inputs, with most tending to principally make money through inputs distribution.

Some put huge margins, add administration costs, or impose interest charges on the value of the inputs extended to farmers, and this has become a channel of transfer pricing, according to industry players.

This has the effect of increasing the price of the inputs and, in turn, increases foreign obligations and reduces net export proceeds. While tobacco is the second single largest foreign currency earner after gold in Zimbabwe, the central bank estimates average net inflows from tobacco are just 12,5 percent of total exports.

Increasing the localisation of tobacco funding would keep the auction system alive, industry players said, and this would help curb price manipulation by the tobacco merchants.

Over the years, the auction system, which determines minimum grade prices for contract sales, has been falling, with the bulk of the crop now sold through contract.

Some industry players are worried that the sharp decline of the auction system could see price manipulation in favour of the contractors, which would frustrate tobacco farmers from growing this key commodity.

Zimbabwe’s tobacco auction system used to be the marketing model of tobacco in the world.

However, “free” tobacco volumes have shrunk as farmers, mostly those who benefited under the land reform programme, joined contract schemes, as they did not have money to finance themselves.

“Having banks on board is what the farmers have been looking for,” Mr Clemence Rwasoka, an agricultural specialist with a local non-governmental organisation, said.

Zimbabwe Farmers’ Union executive director Mr Paul Zakariya recently said, while boosting local funding of tobacco was a welcome development, the industry needed to move away from the contract farming model, while boosting the processing and manufacturing capacity if the country was to realise more earnings.

“The financing mechanism through contract is not viable, even if we are to fund tobacco using local money,” said Mr Zakariya.

“We need to alter the whole production environment to an extent that farmers can be self-financed and get loans from the banks and sell tobacco at the auction. It is equally critical that exports of processed tobacco are regulated so that more volume can be fed into manufacturing plants.”

Under the Tobacco Value Chain Transformation Plan, the country seeks to unlock as much as US$5 billion through beneficiation and value addition.

Last month, the Reserve Bank of Zimbabwe scrapped the requirement compelling merchants to source offshore financing to fund production and buying green leaf from farmers.

In terms of the Exchange Control (Tobacco Finance) Order, Statutory Instrument 61 of 2004, merchants were required to source offshore financing to produce and buy back green leaf tobacco.

The merchants who failed to secure offshore financing were required to apply to the Reserve Bank of Zimbabwe for authority to raise money on the local market.

Tobacco is the country’s largest foreign currency earner after gold, and this year, the country produced a record 294 million kg of tobacco. Under the Tobacco Value Chain Transformation Plan, the country is targeting an output of 300 million kg.

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