As the tobacco selling season kicked off this past Wednesday, indications are spelling a dim picture for farmers who are not likely to get enough for their hard earned produce.
The 2018/2019 tobacco selling season kicked off with the green leaf racking $4.60 per kilogramme.
Reserve Bank of Zimbabwe (RBZ) has clarified that farmers will be paid 100% of the funds in Real Time Gross Settlement dollars, but have choice to have half the amount in US$. “Farmers have choice to purchase 50% of funds disbursed in foreign currency at the ruling Inter-Bank exchange rate of US$1:RTGS$2.50 through a booking via Tobacco Industry Marketing Board (TIMB) with cash expected to be settled into the farmers’ Foreign Currency Accounts (FCAs),” said the bank.
However, the ZimBollar Research Institute says the mechanism will be prejudicial to farmers.
“The reward mechanism seems not to favour our hardworking farmers to go back into the crop next season, and might affect the country’s future foreign currency earning capacity.
“Whilst the move to allow farmers to bid for forex equivalent to 50% of the Net Sales is commendable, there is however a real risk that farmers will not readily access the money in USD as they would require,” ZimBollar says.
The Institute added that the situation will actually work against the farmers as some of them have obligations payable in USD or for those in contract farming arrangements/ imports needs for fertiliser, chemicals payable in USD etc.
ZimBollar Research Institute says; “If tobacco farmers fail to get USD withdrawals off their FCA accounts in time, they will definitely fall victim to middle man, typical of alternative market activities. This will introduce a middle tier alternative market rate pitting FCA, USDs, RTGS dollars, against cash trading at a discount.
As at Dec 18, the country had $670million of FCA deposits, covered by $340million in Nostro and cash forex. This is an FCA forex cover of 50%, ZimBollar says this ratio points to a bigger problem in which institutions handling the FCA deposits might actually fail to honour FCA USD withdrawals at call.
This also comes at a time the same State is claiming that Month on Month inflation is falling towards single digits. However, analysts say despite a sustained growth in Bond Notes, the trend in Growth of Exports on a Month on Month basis suggests that there is a weak link.
In the same vein, renowned international economic analyst Professor Steve Hanke says while Zimbabwean government says annual inflation has reached 59.4% with signs that month-on-month inflation could “reach close to zero by year-end, this is not what is on the ground. “By my measure, Zimbabwe’s annual inflation rate is actually at 232 per cent with no signs of slowing. The government of Zimbabwe is not to be trusted,” he says.