eBusiness Weekly
Last Word
The opening of the tobacco sales is a crucial step for Zimbabwe and could not be delayed any longer if there is to be any chance that the economy can be restarted as the Covid-19 threat recedes, but now a lot depends on how our eventual foreign buyers see their markets over the next year.
Tobacco is an export crop. Only a tiny fraction is sold inside Zimbabwe and with the way cigarettes are now taxed, and the general shortage of cash as a result of the lockdown, even that tiny market is going to become smaller.
However, China, which is our largest market, was not just the first country to be hit by Covid-19 but is also the first country to have stopped community transmission, meaning that the country is slowly re-opening and restarting its economy. Smokers will want their cigarettes and so the tobacco factories there will be in production.
Other markets will be in lockdown for a bit longer, but when you are cooped up at home and like cigarettes, presumably you may well smoke more, since the anti-smoking rules so common around the world do not apply to own house.
Even the measures that are likely to remain in place as lockdowns ease — global bans on gatherings, nights out in the pubs, spectators in stadiums, and the like – may well keep the tobacco market reasonably firm since so many will be spending more time at home. So as long as more people around the world are earning a living, as business re-opens, but are denied social pleasures then the tobacco industry probably has a good chance of a decent year.
But we have to be organised our end and our tobacco sales system and the tobacco merchants, who add so much value through initial processing, storage and packing of required grades for final customers, will have to be on their toes.
The sales have started with the auctions, that set the prices, but for the first time most farmers are not allowed to stand there and watch their crop being sold. Regrettably a decentralised selling system, with small auctions in small towns, could not be organised this year.
So already we have farmers making it clear that they are worried that since they cannot see their bales being sold they might be cheated. The system should be able to allay their fears, but this requires those running the system to ensure farmers know precisely and fully what is happening on the floors, not a difficult task with modern communications but one that needs to be done.
More worrisome is not potential cheating but nervousness among the merchant houses who buy the crop for selling to the cigarette factories. If they play totally safe auction prices might be pushed down, even if the final prices are not affected. And here our authorities and the Tobacco Industry and Marketing Authority might have to start thinking about creative strategies to deal with uncertainty.
The old cotton industry had a system that did cope with both uncertainty and the need for fairness. The Cotton Marketing Board, as it was then, bought the crop that it had largely financed and paid a safe price. But once the lint was exported and the seed sold, a final calculation was made to get the end price, and farmers received a second payment.
Sometimes, because world prices were low, this was not very much. Sometimes it was a lot more than the initial price. The advantage of the double payment was that it reduced risk for the buyer, so the board was able to give the maximum price to farmers without having to hedge and be very conservative in pricing at the start.
It was not very popular mind you, and the system simply did not work when hyperinflation hit in a mono-currency environment. But it could spark off some debate in the tobacco industry.
In fact, in an emergency a good hard look at how Britain stopped war profiteering in the Second World War might be worthwhile. In the first World War some fortunes were made by overpricing. In the Second World War a sneaky but simple solution was found, an excess profits tax. This was set at 110 percent on all profits over a reasonable limit, so any attempt to profiteer made you poorer rather than richer.
The TIMB in Zimbabwe, with assistance from Zimra, could examine the profits made by tobacco merchants and then decide if they had been cheating farmers and, if there was that evidence, insist on a division of the spoils, with farmers getting a second slice. This should not be necessary, but even having the possibility on the table might make it unnecessary since merchants would then be more inclined not to hedge at the start.
The tobacco industry, as Minister of Lands, Agriculture, Water, Climate and Rural Resettlement Perrance Shiri has noted, is our most successful farming sector. It is not funded by Government but via the normal merchant banking system and largely through contract agreements.
It has been rebuilt on trust since land reform, a mutual trust between farmers, contractors and merchants. Collateral is not the major obstacle to the funding and contracting since the main collateral is the crop in the ground or the curing sheds and the reputation of the farmers and the funders.
Any attempt to breach these levels of trust will damage the industry severely. But even in the most perfect of worlds, trust needs to be backed by action and by talk. Farmers and merchants need to be in communication, and as this cannot be done much in person this year, other methods must be found.
And the TIMB must remember that it is not just the overseer of the industry, but also the referee when disputes arise. And a good ref, as every is aware, must not only know the rules and be ready to enforce the rules, but have eyes in the back of their head so that they miss nothing.
There are so many advantages to the emergency system put in place this year that if it can work it can become the normal. Consolidated deliveries reduce transport costs for the smaller farmers, the overwhelming majority, decentralisation can pump wealth into local suppliers and reduce transport costs of equipment and inputs delivery, and families of farmers probably like the idea of the farmer not wandering around Harare with a pocketful of cash.
But those advantages require the levels of trust to be maintained at an exceptionally high level, and for everyone to be open, frank and honest in all dealings. In the old days the 2000 large-scale growers who harvested almost all the crop could, at a push, fit into a hall to have it out with the buyers, and the numbers were so small that everyone knew everyone else socially anyway.
This is no longer the case, but modern technologies make it possible for the tens of thousands who now grow the crop to form virtual meetings, to get to know farmers from other districts and to build organisations whose leadership is of an exceptionally high standard and very accountable.
Meanwhile, everyone wishes farmers the best success. The more they earn the better for the rest of us, not only in earning the foreign currency the country needs, but also in having those tens of thousands of families with money to spend on what the rest of us produce, especially in a bad year for urban families.
Economically, land reform is desirable in converting a countryside of large estates with a few rich and many poor into a countryside of middle class producers and consumers. Tobacco is leading that advance into a middle income rural economy, and all the talk of Vision 2030 is not much more than talk unless the rural half of Zimbabwe is included.
This emergency can cement those relations built on trust over 20 years, and take them further, or it can wreck them. Everyone needs to understand that a decent future for farmers, contractors and merchants requires an exhibition of total trust in the present.
