ZTA President’s message to Congress

Seasonal review: 63rd Annual Congress

Past ZTA Presidents, current Vice-Presidents, ZTA Trustees, ZTA councillors, the ZTA Executive, ITGA President Jose Aranda, ITGA CEO Mercedes Vasquez, ITGA Market Analyst Manager Ivan Genov, TIMB Board members, CEO and their representatives here present, TRB Board members, CEO and their representatives here present, Tobacco Leaf Exporters Association of Zimbabwe (TLEAZ) Executive Director and other members of the trade, recognized growers associations leaders and representatives, invited guests, delegates, ZTA staff and all our ZTA members. Good morning and welcome to our 63rd Annual Congress.

The Zimbabwe Tobacco Association (ZTA) is well represented at the highest level internationally at the International Tobacco Growers Association (ITGA) which we co-founded in 1984 and today we are honoured to have our ITGA President, Jose Aranda, from Argentina, as our Guest of Honour, along with the members of the ITGA team based in Lisbon, Portugal. Mr Aranda in his presentation, later, will highlight the work of the ITGA and its importance.

I will start my address with a brief review of the 2022 season. The final crop sold was 212 million kg at an average price of USD 3.02/kg; an increase in price of eight per cent, but well below what was required to adequately cover the rising costs in production of over 15 per cent experienced in that season. The Russia–Ukraine war continued to have an impact on the supply and prices of inputs and this further saw a sharp rise in inputs, particularly fertilisers and crude oil-related costs. This prompted us to start engaging with the trade both locally and internationally, much earlier than usual, about these significant increases and stating that, while growers were committed to growing a crop, there had to be a significant increase in prices offered in the 2023 season. Assurances were given that there was a full appreciation of the global increase in the costs of inputs, but also, there was a strong need for the industry to work together to reduce domestic costs such as government taxation, fuel levies, VAT on coal, transacting costs, selling charges etc., which I will expand on later so that we become more competitive.

On these assurances, we prepared for the 2023 tobacco crop. It was probably one of the most ideal growing seasons we have had in many years in terms of weather conditions. We received above-average early rainfall, resulting in desirable growing conditions for a well-natured, good-quality crop. We were, however, faced with record-breaking high costs of inputs. Rolling power outages further increased these costs on power generation, pushing our costs of producing the golden leaf even higher. Coupled with the decreased yields on the commercial crop, our reliance on improved pricing became even more important. The early start to the rains allowed for the planting of vastly increased hectarages of small-scale tobacco crops. The end result is the record crop size we are seeing today of over 275 million kg sold so far at an average price of USD 3.02. Although the commercial crop is of a high quality there has been some cause for concern on the quality of the small-scale crop. This may be down to leaching rains and no additional fertiliser being applied, poor curing practices due to insufficient curing fuel and inadequate curing facilities, the use of cheaper chlorine-based compound fertiliser or other similar agronomic failures.

Even though the crop is well above the 230-240 million kg predicted, we are hearing that all the crop has a home and we have also seen new players entering the market. That being said, we still need to make sure that the crop remains of a desirable quality if we are going to continue to market a large crop size going forward, as we have this year. I commend the trade in remaining stable on their pricing even after exceeding our estimated volumes. China remains important for our market and we are buoyed by the fact that they are increasing their orders from Zimbabwe and are widening their spectrum of grades bought. The result of this should aid in the strengthening of our national average.

On the international front, apart from Brazil, other key producing countries while attaining firmer prices for some grades and qualities of tobacco are on similar averages as to last season – a replica of our position. This is something we will discuss further in our ITGA Africa Region meeting this week.

In March this year, we conducted district tours to speak to as many growers as possible. These tours are important for us to meet with the growers, face to face, to hear directly from them on what their issues are and to brainstorm ideas of how to tackle those issues. At these meetings the concerns that were raised were very similar across the country: Low commodity prices, high costs of production and hence poor viability, being the main areas of concern. With rising costs and pressures of compliancy, farmers are worried about viability going forward. We will pursue all avenues available to us for alleviating the strains of the high costs of production, but our customers can be reassured, we will do this whilst remaining steadfast in our goals of becoming an even more compliant market for well-flavoured flue-cured tobacco, than we already are.

To this end, we will be working in-house to get every grower more compliant with an emphasis on doing it in a viable manner so as not to add further strain on our growers’ viability. This will aid us in chasing the best price possible for our tobacco crop but will not be our sole agenda. Growers’ viability is foremost in our vision and I implore growers to improve on their already high standards where ever possible. Get back to basics and viably achieve the highest standard you possibly can at each stage of producing the crop. To assist in pursuing these goals we have taken on the services of Bruce Hartman as our ZTA Growers’ Liaison. Bruce brings with him vast experience and in-depth knowledge of production and marketing in tobacco. We welcome Bruce into the ZTA team to assist our growers where ever possible. To supplement our efforts we will need to work closely with the trade, Ministries of Agriculture and Finance, lending institutions, the Tobacco Industry and Marketing Board (TIMB), and the Tobacco Research Board (TRB), to achieve these goals.

I thank the Reserve Bank of Zimbabwe for increasing the growers’ level of USD retention to 85:15, up from 75:25 a year ago. This is the kind of assistance and fairness that the growers are asking for and we look forward to receiving assistance from all the above-mentioned bodies to make our growers more viable, as they are the backbone of the tobacco industry. Our nation’s target of 300 million kg is achievable and sustainable only if the grower is viable. We cannot afford a yo-yo-ing tobacco crop that is difficult to predict and therefore difficult to market.

Costs of production

Initially, we need to begin by tackling the high local costs of production, which are some of the highest in the region.

Levies on tobacco farmers. The MOA levy, as it is intended for the running of the TRB which will be rebranding later this week and diversifying into many other crops, can now be reduced for tobacco farmers who have had the sole responsibility of carrying the burden in the past. The levy can now be split with all other cropping categories now encompassed by the TRB.

The afforestation levy needs to be done away with completely, as the trade and the growers themselves have been leading, and will continue to lead, the industry in afforestation practices. Funds deducted in the past need to be reimbursed to the growers to help them tackle curing efficiencies immediately. Along these lines, growers will become more viable and sustainably produce their tobacco crops.

Our diesel prices are the highest in the SADC region, at USD 1.60/litre, whilst the region averages below USD 1/litre for diesel fuel. We plead with the ministry to aid agriculture and so reduce the strain on one of our highest cost centres.

We will ask the Ministry of Finance to remove VAT on curing fuels. This alone will speed up the move to more sustainable, renewable fuels. We will also ask for an IMTT exemption on borrowings as it is costly that a grower incurs IMTT charges on borrowings and then again on the later transactions of those borrowings. Levels of interest above 10 per cent PA are unsustainable in an industry that is facing record high costs of production and is only adding fuel to the flame that is the unviability of the tobacco crop.

TIMB stop order commissions are overcharged and over-applied. We ask the TIMB to revert to their old model of having stop orders on 3rd party loans and arrangements only. We should not be paying stop orders on our primary loans. This creates an unnecessary burden to the grower and their primary loan giver.

ZINWA’s basic megalitre (ML) usage data is out of date and needs to be rectified. With the increased use of centre pivot and drip irrigation, our ML/ha of irrigation has been curtailed and our consumption is far lower than what we are currently charged for. We call for some constructive dialogue with ZINWA to relook at this.

We thank the NEC for Agriculture for their all-inclusive dialogue during the past year and we kindly request for a reduction in their percentage fees to alleviate the strain on the payroll and on the wages for all employers and employees.

Hail insurance premiums last year reached an all-time high, but a welcome relief in this regard will be seen this season, as the industry has worked hard to re-align itself and provide a more affordable and fairer cover for the tobacco crop.

We have seen a positive step by Northern Tobacco to reduce the costs for growers by introducing barn door grading and straight-laid tobacco sales. There needs to be a greater uptake of this by all stakeholders for it to be successful.

Once we rein in ballooning costs on our side whilst improving on our compliance, we ask for the trade to negotiate improved prices on their side, and by tackling these areas together it will speed up the compliancy and viability issues of the industry.

Simply put the cost of production has increased, but the average prices have not followed suit. The evidence is unequivocal. All we need to do is look at the statistics going back 10 years. For example, in 2013 our national average was USD 3.67 and our ZTA commercial growers’ average was USD 3.99/kg. This was at the end of an economic period that had seen the economy move across to the USD and costs had soared in real value for the growers. But with these averages, we were obtaining for our crop, the tobacco sector was in a good predicament and crop sizes continued to grow.

In 2019 the economy was in turmoil and loans were shifted between USD and ZWL dollars. Our national average plummeted to USD 2.03 and our ZTA commercial average followed it down to USD 2.90/kg. This was a 45 per cent drop and now reflecting a USD 0.90 disparity between our ZTA commercial average and the national average which had in the past, only differed by USD 0.30. It goes without saying that there was a manipulation of the market and once again the growers were the big losers.

In 2023 our national average is up a dollar from four years ago. At USD 3.03, our ZTA commercial average is USD 3.64/kg. Still well below the prices we used to obtain 10 years ago. But our commercial costs have risen in this period, from on average of USD 8,500/ha to above USD 12,000/ha, a 40 per cent increase in costs from where we were.

It is unviable in this scenario and as an industry as a whole, we need to look at a twofold approach for viability, bringing costs down and improving prices. With USD inflation worldwide it is inconceivable that the customer does not increase box prices on a grade-for-grade basis accordingly.

We were tasked to improve our yields from 2,500 kg/ha on average over a decade ago and we have done so. Most growers are averaging over 3000 kg/ha nowadays.

We were tasked to improve our percentage of Chinese styles within our throw of the crop to remain viable, and we have done so. Today we have around 70 per cent of our throw of crop fitting into these styles compared to 30 per cent in the past.

We have been tasked with becoming compliant on all fronts and we are doing so. Growers are a tenacious bunch of characters, who put their hearts and souls into everything they do. This tobacco industry owes its existence to the fortitude and resilience of the Zimbabwean tobacco grower but we cannot continue to do it on our own. The customer needs to realise that the cost of producing a compliant, well-flavoured crop has gone up. Their wishes will be our goals, but we need them to come to the party, alone it will not be achievable.

What of the small-scale growers? We believe that they are in the same precarious position as the commercial growers, perhaps a season or two behind. Soon their costs of production will escalate as the market increases its demands on good agricultural labour practices, decent housing, the use of sustainable curing fuels, more cost-efficient curing systems, increased PPE for handling chemicals and fertilisers, etc. Afforestation programmes need to be urgently addressed, as 75 per cent of our crop is cured using wood, most of it from unsustainable sources. Desertification of natural woodlands must stop. At an international level, late last year the ITGA and the ZTA, with the support of international partners embarked on afforestation awareness roadshows in each of our main provinces which were very well received. But much more needs to be done.

On our district visits, we also discussed the issues of seed varieties to enhance our already vibrant seed spectrum available to growers to choose from. The TRB, which was present for our district tours to meet the growers, undertook the initiative to bring in some more varieties for trials and eventual release into the market to complement their varieties which are currently on sale. Working with the TLEAZ and growers to identify alternate varieties we should see even more choices on varieties shortly.

Also discussed with the TRB was the relevance of the “sterile period” between destruction dates and planting dates. Is it still relevant, or have the growing of other solanaceous crops such as potatoes and tomatoes within the tobacco growing areas and the unpoliced destruction of tobacco fields negated this protocol? Also do the varieties on offer these days and the chemicals now available to the farmer further negate the need for a “sterile period”? It was resolved that the TRB will carry out new studies in this respect and have some concrete evidence for their conclusions on these matters, namely, destruction dates and their current relevance as well as official planting dates and their relevance.

The last issue discussed with the TRB contingent was ways of improving our soil fertility and general health. There have been a lot of studies done on this and our guest speaker last year went into great depth on this matter. A healthy soil will give a healthy plant.

On the hail front, we have seen the positive involvement of Swiss Re in the market and with a low loss ratio on premiums for this last summer season we should be provided with cheaper hail insurance options for the growers. There will be a variety of schemes available from THI, Alliance and Sanctuary, to name a few. As ZTA we advise growers to look closely at the different packages on offer and make a decision on what best suits you. Please ensure that your curing units are covered as well as your field to the floor. There will also be the possibility of consequential losses being covered so please make time to discuss all options with your broker. The ZTA is part of an inclusive committee, headed up by HRIB, on improving the hail insurance industry and after several meetings locally as well as a meeting-filled trip to Zurich, Switzerland, we are confident that the industry is in a better place now than it was a year ago, and all growers will find cover at more reasonable rates. However, there is still work to be done in this respect and we will keep growers in the picture on the progress hereof.

On Agricultural Labour Practices, something which our growers are well up to date with and perform admirably. We are part of the discussions for a code to follow and will continue to promote good labour practices amongst our growers. The TIMB must be commended for spearheading and regularising this, as we remain exposed to anti-tobacco lobbyists. Also, key customers are insisting that we now become compliant on this. Once these regulations are made official, you will notice that we already follow them and are sometimes ahead of what may be required of us. Some changes on the farm may need to take place and the ZTA team will be available to help any member in this regard.

The TIMB has worked remarkably hard this season to enforce stricter regulations in the industry and introduced the Contractors Framework Compliance to instil further discipline, transparency and orderly marketing into the industry. As an association, we have undertaken to work much closer with the regulatory body.

As of last Friday, June 23, 2023, we had sold an all-time record crop of 276 million kg, with probably 10-13 million kg still to come in, we will be just short of the targeted 300 million kg as contained in the Tobacco Value Transformation Plan. A record of approximately USD 850 million US would have been generated by the end of sales. However, two issues must be raised. How much of this record crop was sustainably produced? And how much of the record value went into the hands of growers to improve their viability and livelihoods?

I would like to extend my appreciation to all industry stakeholders that have taken the time to meet with us and troubleshoot together with us on our collective industry issues. I acknowledge and thank in no particular order, TIMB, TRB, TLEAZ, our service providers, ZETDC, ZINWA, ZERA, AMA, the Forestry Commission of Zimbabwe, NEC, and of course our staff and councillors at ZTA. Our thanks are also extended to the team at MediaServ who consistently put out the association’s flagship magazine, Zimbabwe Tobacco Today.

Jan Ecob, our accountant who has been with us for 15 years, is retiring. I thank her for her service to the association and wish her a happy, healthy and peaceful retirement.

I thank Grant Gardner who has been unselfish with his time and guidance and remained a part of the team for a year longer so that we could have a seamless handover of responsibilities.

I welcome Rob Millar, Mashonaland West, into the second Vice-President role, it bodes well for the association to have a person like you willing to give more of your time to the association.

I also welcome Richard Taylor, Mashonaland East, into the finance council. He has already represented us in Zurich on hail business and has been a well-needed addition to the finance council. Thank you to Stu Tippett who retired from Council after many years of service.

Thank you to Graham Ross, our first Vice-President, Rodney Ambrose, our CEO, Bruce Hartman, our grower’s liaison, Casper Mlambo, Taffy Sigauke and the rest of the office staff for your commitment and support throughout the past year. It certainly has made my life easier and I look forward to continue working with this team over the next year.

Looking at the prospects for this next season. Tobacco remains the mainstay of Zimbabwean agriculture and growers need to be encouraged to keep growing the golden leaf with an emphasis on compliance. However, there is no substitute for poor quality and no comeback from wasteful spending either. Please tighten your belts and take special attention to producing a quality crop to attain the best prices possible. It looks like we are in for a drought this coming season as El Niño strengthens in the Pacific Ocean, which would translate to a heavier and harder-to-cure crop. Usually, in a drought year, we see an increase in the large-scale grower crop size and a drastic decrease in the small-scale grower crop size. Especially in an early summer season drought, this pushes planting dates later for the small-scale grower, reducing the number of hectares planted. On the flip side, the El Niño effect usually causes excessive rains and floods in the south of Brazil where the majority of their tobacco crops are grown, reducing their crop yields. So it is quite possible that even if we produce a large crop in Zimbabwe for two years in a row, we will see demand for the crop remaining strong. A key point to remember is that the demand will always be strong for good quality tobacco.

Yes, there will be tobacco grown next year and the year after that. You may ask “Why do farmers keep planting tobacco if it is unviable?” The answer is simple economics. It is the only crop that provides relatively stable USD to farmers, albeit in an 85:15 per cent split on retention, this does not mean that the national crop is viable in the long term. We have seen an increase in the tobacco grown this season at the cost of other crops. Once those crops are more viable and tobacco becomes even less viable, will we see the reverse effect. In other words, we must not fall into the trap of being short-sighted, being attractive in the short term, at the expense of long-term viability and opportunism.

Good luck for the rest of the selling season and all the best for the new tobacco season which has all but commenced already. The ZTA team remains at your service and I would like to thank them all for their dedication and commitment to the growers.

Thank you and God bless you all.

Ryan Swales