Zimbabwe has kept Covid-19 at bay during the 2020 tobacco selling season, reports The Sunday Mail. According to the Tobacco Industry and Marketing Board (TIMB), here have been no reported cases of infection at tobacco auction floors since marketing began on April 29.
Tobacco sales have traditionally concentrated in the Zimbabwe’s capital, Harare. To prevent spread of the coronavirus, the TIMB distributed sales throughout the country. Sales this year also took place in Manicaland, Mashonaland West and Mashonaland Central. The Boka Tobacco Floors, for example, established new sales floors in Karoi, Mvurwi and Rusape.
The TIMB also banned informal trading outside the sales venues. Farmers were not allowed to sleep outside the floors while waiting to sell the commodity.
“I am pleased to say that there has been no confirmed case(s) of the coronavirus infection at all the floors. As the tobacco industry regulator, we put in place strict measures that are meant to curb the spread of the disease, and it has worked thus far,” said TIMB chief executive officer Andrew Matibiri.
Tobacco Reporter covered Zimbabwe’s unusual 2020 selling season in depth in its June print edition.
Tobacco farmers in Zimbabwe have earned US$452 million from leaf sales to date this season, reports The Herald citing statistics from the Tobacco Industry and Marketing Board.
Tobacco deliveries have surpassed 181 million kg as contract floors continue to receive leaf despite the curtain coming down on the selling season for auction floors late last month.
The 2020 tobacco auction season closed on August 28.
The volume received so far is 24 percent smaller than that sold by farmers during the same period last season.
Auction sales were down due to the decentralization that was implemented to avoid the spread of the coronavirus.
On day 89, farmers had sold 171.5 million kg of tobacco worth US$426 million through the contract floors, while auction floors sold a cumulative 9.1 million kg of tobacco worth US$27.7 million.
The highest price offered by buyers at the auction floors remained at US$4.99 per kg, while that of the contract floors was US$6.60 per kg.
Following a radical program of land reform, Zimbabwe’s tobacco business is now dominated by small-scale growers.
Zimbabwe’s tobacco auction season ends tomorrow while contract sales remain open until further notice, said the Tobacco Industry and Marketing Board (TIMB).
The golden leaf is being sold through auction and contract arrangements with the selling season traditionally beginning in March.
This year’s selling season began in April because of the adverse impact of the Covid-19 pandemic. The delay required TIMB to make adequate preparations to curb the spread of the deadly disease.
So far, about 176 million kg of tobacco have gone under the hammer generating close to US$440 million.
Zimbabwe exports 98 percent of its tobacco leaf with tobacco receipts from the foreign markets expected to reach $1,2 billion this year, up from $904 million last year.
The Zimbabwean tobacco industry expects leaf production to hold up despite the Covid-19-related restrictions on movement and a ban on cigarette sales in neighboring South Africa, reports The Herald.
“I don’t foresee any marked change, which would lead to a reduction in the production of tobacco in Zimbabwe,” Paul Zakariya, director of the Zimbabwe Farmers Union, was quoted as saying.
“Covid-19 is just one among other major factors that may affect production,” he added, pointing to other challenges such as the rising cost of inputs.
Tobacco farmers and tobacco auctions were exempted from Zimbabwe’s lockdown and curfew regulations. To limit large gatherings of people, smaller deliveries of leaf were combined into larger ones for transport to the sales floors. And instead of attending the sales process in person, groups of farmers sent representatives. (Also see our June 2020 feature story “Silent Auction”).
The global tobacco market will reach $66,42 billion (in retail prices), increasing at an average of 2.6 percent a year between 2019 to 2024, according to a recent report published by Research and Markets.
Despite a drought in the 2018-2019 cropping season, Zimbabwe still managed to produce a record-breaking tobacco output, reaching an all-time high of 258 million kg.
In the current marketing season, farmers have so far sold 159 million kilograms of tobacco worth $390 million as trading reaches its peak under the World Health Organization Covid-19 health guidelines.
The Tobacco Industry and Marketing Board expects farmers to produce about 224 million kg of tobacco are expected this season, down from the previous year’s output level of 259.5 million kilograms owing largely to drought.
On May 15, 2020, South African police in northern Limpopo Province near the border with Zimbabwe impounded four vehicles and cigarettes worth ZAR1.4 million ($83,530).
The drivers, transporting cigarettes smuggled from Zimbabwe, avoided arrest by bolting out of their vehicles and out-sprinting police.
A fortnight later, four South African men and a Zimbabwean woman were arrested in the same province after a high-speed chase while attempting to spirit 10,000 boxes, or 200,000 sticks, of cigarettes into South Africa. In the last two weeks of June, 30 people were arrested resulting in the confiscation of cigarettes worth ZAR4 million.
The consignments had been smuggled through the official border post at Beitbridge, or via some 200 illegal crossing points on the Limpopo River, which forms the border between the two southern African countries.
In Botswana on April 4, police in a northern district close to Zimbabwe arrested a Motswana and a Zimbabwean for smuggling 127 cartons of cigarettes into that country.
On April 16, three men were arrested near South Africa’s border with Mozambique while transporting 20,095 packs of cigarettes worth ZAR900,000. The contraband was coming from Mozambique.
“Cigarette smuggling is a big problem for us,” South Africa Police Service Limpopo Province spokesperson Brigadier Motlafela Mojapelo told Tobacco Reporter.
“We are on alert all the time and make arrests every day, but they are undeterred. I can tell you that since March we have arrested nationals of both countries numbering at least 100. What they tell us during investigations is that the crime pays for those who avoid arrest, but our message to them and would-be smugglers is that ultimately we will catch them.”
Beitbridge Border Post (Photo: Bulawayo24)
Trafficking of cigarettes from Zimbabwe into South Africa, the biggest economy in southern Africa and the most lucrative market for both licit and illicit cigarettes in the region, is rampant. Hundreds are arrested yearly for transporting the illegally imported tobacco into South Africa as well as Namibia and Botswana. Individuals and more organized cartels whose kingpins are rarely arrested are involved.
Apart from being the main destination of trafficked cigarettes from Zimbabwe, South Africa is consistently the biggest African importer of tobacco grown in its northern neighbor. For example, in 2018, South Africa spent $100.8 million importing 32.2 million kg of tobacco from Africa’s top growing nation and the globe’s fourth-biggest producer. In that year and as in other years, South Africa’s spending and volume of imports was second to China, which imported 59.1 million kg of the leaf, worth $449.7 million.
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According to a report by the Atlantic Council of the United States, “The Illicit Tobacco Trade in Zimbabwe and South Africa: Impacts and Solutions,” released in March 2019, high taxes that South Africa, Namibia and Botswana charge on cigarette imports are the major factor discouraging legal importation of the product, encouraging smugglers to try their luck.
Members of the Southern Africa Customs Union (SACU)—South Africa, Namibia, Botswana, Eswatini and Lesotho—charge an average of ZAR16.66 in excise tax on a 20-pack of cigarettes. With a 15 percent value added tax, the total cost of the pack rises to about ZAR20. This suggests, according to an Atlantic Council study, any pack of cigarettes selling for less than the minimum collectable tax of around ZAR20 is likely smuggled or broadly illicit.
An Ipsos study whose findings were released in November 2018 established that Rudland & George cigarettes, manufactured by one of Zimbabwe’s largest tobacco-growing contractors, Gold Leaf Tobacco, had become the biggest-selling brand in South Africa overall, retailing at ZAR10 a pack.
The research estimated that illegal cigarettes accounted for 33 percent of all cigarettes sold in South Africa. The tobacco is especially prominent in the informal trade where they make up about 42 percent of that market. Due to their low prices, illegal cigarettes are an attractive bargain for smokers.
A separate research by the Tobacco Institute of South Africa (TISA) said 38 percent of the illicit sticks were smuggled from Zimbabwe, making that country pivotal for any illicit trade strategy.
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The financial prejudice of smuggled tobacco to the economies of Zimbabwe and South Africa is not accurately known, said a Harare-based tax consultant, Tendai Mavima.
“There are no records for smuggled goods, so we cannot be specific in the economic impact,” he said.
“But it is known cigarettes are being smuggled every day. Both economies suffer because if cigarettes are smuggled, it means losses in income tax, value added tax, excise duty and other taxes applicable to cigarette trade. For Zimbabwe, illegal exports in cigarettes means loss of foreign currency.”
A Japan Tobacco study released in March 2018 suggests that South Africa lost about $1.5 billion in tax revenue to illicit trade between 2010 and 2016. BAT South Africa estimates that the illegal cigarette market cost South Africa “a conservative” ZAR8 billion every year.
In its March 2019 report, the Atlantic Council of the United States said although cigarettes are smuggled from Zimbabwe into Botswana, Namibia and Mozambique, the three countries have smaller and poorer populations, leaving South Africa as the most attractive market for cigarette smugglers keen on large profits.
South Africa police stand guard over Pacific Breeze cigarettes smuggled from Zimbabwe (Photo: OperaNewsHub)
Actors are not only small-time traders who use undesignated exit points along the Limpopo River but also some “untouchables” who are well connected to the ruling elites in Zimbabwe and South Africa. Small traders typically use small vehicles to carry the contraband, but the “untouchables” carry theirs in large trucks that pass through Beitbridge Border Post where some officials are bribed to wave the vehicles across the border.
“A former smuggler claims that one of these cigarette-smuggling cartels involves politicians in the highest levels of government from both Zimbabwe and South Africa but would not divulge names,” the report says.
“This cartel is said to operate a smuggling scheme that runs from Harare to Durban. Huge trucks are used to smuggle the cigarettes from their loading points in Harare through formal border crossing points and onwards to their destination. These trucks are not stopped or searched on the Zimbabwean side of the border. The cigarette brands that are most frequently smuggled are Remington Gold and Pacific Blue, both owned by Savanna Tobacco [now known as Pacific Cigarette Company]. Beitbridge border post is a major point of entry.”
In late March 2020, South Africa banned tobacco and alcohol sales, saying consumption of both increased the risk of spread of Covid-19. The Fair Trade Independent Tobacco Association, an industry lobby group in that country, argued in a statement that the ban only worsened the black market and the smuggling of cigarettes.
Gift Mugano, a researcher at South Africa’s Nelson Mandela University, told Tobacco Reporter that individual smugglers and large companies are taking advantage of porous borders in southern Africa and poor government monitoring of their tobacco value chains. Countries, he said, lose much money in the forms of import and export taxes, excise duty and value added tax.
“Our borders in the region are porous,” he said.
“For example, there is no fence separating Zimbabwe’s border with Mozambique, the same for the border between Zimbabwe and Botswana. People, some of them smugglers, just walk or drive across. Even the formal border posts are porous because officials can be bribed.”
Echoing the Atlantic Council report, a World Bank study, “Confronting Illicit Tobacco Trade: A Global Review of Country Experiences,” which focuses on SACU, expresses concern over criminal enterprises’ close ties to leading political figures in South Africa.
“Recently, a notorious cigarette smuggler’s lavish birthday party is reported to have been attended by high-profile policemen and politicians,” said the report released in January 2019.
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“Similarly, multiple reports allege that a leading cigarette smuggler met with South Africa’s ex-president to secure a votes-for-protection agreement. All future policy and enforcement measures must reckon with the reality that, in this region, the tobacco industry is disproportionately powerful.”
The paper says government agencies in the SACU region have had little impact on illicit tobacco trade because of lack of focus, priority and resources allocated to tobacco regulation and to excise goods in general. Furthermore, they are unable to effectively secure tobacco supply chains at key points especially at production, shipment and on the retail segment. Some law enforcement agencies, the document adds, do not have nonintrusive inspection assets, such as scanners, to detect undeclared goods.
“Tobacco is like gold,” Mugano said.
“Many find it profitable to smuggle both commodities within the region and millions [of dollars] are involved. Like gold, cigarette smuggling is done by syndicates involving big companies. Those money-mongers are connected to figures in high places politically. Because of that, containing smuggling will be difficult.”
In her book Dirty Tobacco: Spies, Lies and Mega-Profits, published in June 2020, Telita Snyckers, a South African author and a tax and customs lawyer, argues that some tobacco companies smuggle their own product to evade tax. Illegally trafficked cigarettes, the book adds, are potentially more profitable than cocaine, heroin, marijuana and guns.
“The industry—even licensed, bigger players—has a long and consistent history of fines, felonies and infringements, spanning decades, across the globe,” the book reads in part.
“There is ample proof that the tobacco industry incorporated smuggling and other tax and duty evasion measures as an explicit part of its business strategy,” writes Snyckers.
Zimbabwe earned $326 million from the sale of 135.42 million kilograms of tobacco leaf since the beginning of the selling season in April, according to statistics from the industry regulator.
The Tobacco Industry and Marketing Board said the sales as of July 12 were about 18.36 percent higher than the same period last year, which stood at $275.69 million. The crop sold at an average price of $2.41 per kilogram, higher than the $1.84 during the same period last year.
Zimbabwe’s previous currency was rendered worthless by hyperinflation. Photo: Taco Tuinstra
The reintroduction of the Zimbabwean dollar late last year has taken a toll on legal cigarette sales, reports New Zimbabwe.
Market leader British American Tobacco experienced a 17 percent drop in sales for the fiscal year that ended Dec. 31, 2019. The company attributed the decline to the weakening of the Zimbabwe dollar, which has eroded disposable incomes and forced people to cut down on smoking.
“It was a challenging year for the business mainly driven by significant changes to the macroeconomic policies and in particular, the introduction of the Zimbabwe dollar that was floated against the U.S. dollar,” said company Chair Lovemore Manatsa.
Manatsa said the local currency devalued against major trading currencies further impacting consumer disposable incomes, which saw inflation increasing to 521 percent by the end of December 2019.
Zimbabwe replaced its currency in 2009 with the U.S. dollar to stop hyperinflation. In November 2019, Zimbabwe’s central bank reintroduced the currency to ease a severe cash shortage, but the new Zimbabwe dollar too is quickly losing value.
Zimbabwe has earned US$117 million from leaf sales since the tobacco season opened on April 29, according to the Tobacco Marketing and Industry Board (TIMB). Farmers have sold 51.66 million kg to date.
This year’s season was characterized by delayed rains and prolonged drought.
The TIMB said sales increased twofold from $46.83 million earned from 26.70 million kgs of the golden leaf sold in the comparable period last year.
Average price at both auction and contract floors stood at $2.26 per kg, nearly 30 percent higher than during the comparable period of the 2019 marketing season.
Despite the comparatively good prices, farmers are concerned about their income.
Half of their crop is paid at a fixed exchange rate of US$1:$25. The other half is paid into local currency bank accounts at the pegged interbank rate and they feel the huge gap between the official and black market rates might affect their viability since many of their suppliers use the black market rate when calculating prices.
Tobacco is Zimbabwe’s second largest foreign currency earner after gold.
Rules on social distancing make for a very different tobacco marketing season in Zimbabwe this year.
By Thulani Mpofu
Photos: Taco Tuinstra
All tobacco grown in Zimbabwe since 1936 has been sold at open auction and contract floors in Harare with thousands of growers thronging the southern end of the capital from March to August yearly to sell the “golden leaf.”
Some growers traveled to Harare for hundreds of kilometers sitting precariously on top of tobacco bales loaded in small lorries while others from nearby villages brought theirs in ox-drawn carts. Many slept for days in queues out of trading floors awaiting their turns to sell their tobacco.
Vendors selling food, clothing, radios and cellphones among other items plus agents for formal businesses selling farm inputs, vehicles and insurance policies added to the commotion around the tens of contract floors where contracted growers delivered their crop and the three open auction floors that serve self-funding growers. Bars nearby would remain open late serving growers who were known for lavish spending around their once-in-a-year paydays. Pickpockets, sex workers and beggars found business there too.
The Covid-19 pandemic has upended it all this marketing season.
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To promote social distancing, trading floors have been decentralized from Harare to tobacco growing localities while trading floors that remain in the city do not allow more than 20 growers inside at any time.
Voedsel Tobacco International, a local contractor, has taken advantage of the decentralization to invest in a trading floor in Marondera, a small town 76 km northeast of Harare.
“This is Marondera’s first tobacco trading floor and our first out of Harare,” Innocent Mahufe of Voedsel Tobacco International told Tobacco Reporter.
“Because we are a contractor, ours is a contract buying floor. We are in Marondera to be closer to the farmer and decongest our main floor in Harare. In total, we have 16,000 farmers under contract, and of that number, we expect Marondera to serve 5,000 farmers in Mashonaland East [whose provincial capital is Marondera] and Rusape [in neighboring Manicaland Province].”
At the new trading floor that was opened on May 1, Voedsel Tobacco employed three qualified nurses who check temperatures for all staff and farmers who call in to deliver their tobacco.
“The nurses also sanitize our clients; they oversee the disinfection of the buying floor to ensure [the] utmost hygiene,” said Mahufe. “We also have an isolation room on site just in case anyone is found to be unwell. Social distancing is a must; the same with wearing a mask. We are fully compliant with government regulations to fight Covid-19.”
Zimbabwean authorities are keen this year to avoid the clusters of people like this one at the Harare Tobacco Sales Floors in 2018.
Because of tobacco’s central role in Zimbabwe’s economy, the leaf selling season is a huge moment for the country and always presided over by the national president, his deputy or a delegated minister. This year, the event was delayed from mid-March to April 29 to enable trading floors to set up systems that promote high personal hygiene and social distancing in response to the Covid-19 pandemic. By May 10, Zimbabwe had 36 Covid-19 cases, nine recoveries and four deaths. President Emmerson Mnangagwa declared the disease a national disaster and ordered a seven-week national lockdown beginning March 30.
Tobacco, affectionately known locally as the “golden leaf” not only because of its color when cured but also because of its high export potential, is Zimbabwe’s most lucrative crop and the second biggest foreign exchange earner after gold. In 2019, it generated $747 million in exports mainly to China, South Africa, the United Arab Emirates and Belgium, according to the regulator, the Tobacco Industry and Marketing Board (TIMB). Africa’s largest flue-cured Virginia tobacco growing nation and the world’s fourth biggest after China, Brazil and the U.S. produced 256 million kgs of the crop in 2019, a record since commercial tobacco growing started in the country in the 1890s.
However, because of erratic rainfall, the TIMB expects output to fall to between 225 million kgs and 230 million kg this year. The regulator says 148,084 farmers grew tobacco in the October 2019 to March 2020 farming season. Were it not for Covid-19, this mass of people would have traveled to Harare from the beginning to the end of the marketing season.
“Circumstances demand that we sell tobacco differently this year. This is a big crop for the economy, but the health of the people is supreme,” said Mahufe, whose company is planning to set up three more contract buying floors at Mvurwi and Karoi in Mashonaland West Province as well as at Rusape.
Two weeks prior to the start of the trading period, the TIMB ordered the three licensed tobacco auction floors—Tobacco Sales Floor, Boka Tobacco Floors and Premier Tobacco Auction Floors—and the 65 buyers and contractors to decongest their premises in Harare and decentralize their operations to the four major tobacco growing provinces—Mashonaland West, Mashonaland Central, Mashonaland East and Manicaland. They are bound to set up on-site isolation facilities, provide alcohol-based hand sanitizers and running water.
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A farmer will be allowed to deliver tobacco for sale only once per week. Those selling fewer than 100 bales are barred from attending the sale of their crop but should appoint a representative who will represent other growers to be able to consolidate farmers’ bales to at least 100 and then to deliver them to the auction or contract floors. Farmers and their representatives entering the trading floors must be screened for body temperature and their identification and contact details must be recorded to facilitate easier contact tracing should the need arise in the future. Informal markets were banned.
Nigel Foto who farms in Macheke, 35 km east of Marondera under contract from Voedsel Tobacco International, is happy having sold 43 bales between $4 per kg and $5.60 per kg since May 1, but he would have wanted to sell his crop himself not through a representative.
“It’s a Catch-22 situation,” he said.
“Everyone must be careful with this disease, but to be forced to sell my tobacco in my absence is concerning. This is my sweat. I must be satisfied that it is rewarded as it should, but if I am represented by someone else, I cannot be convinced 100 percent that I got a fair price.”
Berean Mukwende, president of the Zimbabwe Farmers’ Union, is equally worried over the integrity of middlemen.
“The farmer must pay his representative whose reliability a farmer may not know. This is an extra cost to the farmer,” he said.
“I hope that will be reconsidered. Authorities must consider that small farmers, in their large numbers and few bales, contribute the bulk of national tobacco output. So their concerns must be heard.”
Zimbabwe has decentralized its tobacco sales this year to prevent large gatherings.
Andrew Matibiri (left) and Rudo Boka at the Boka Sales Floors
Official statistics indicate that 85 percent of tobacco growers in the country are small-scale producers who plant an average of one hectare under the crop yearly, reaping about 25 bales per hectare. They normally deliver a few bales at a time spread over the marketing season in an effort to capitalize on periodic price increases.
TIMB Chief Executive Andrew Matibiri said nine days into the marketing season that the anti-Covid-19 measures were doing well, with personal hygiene and isolation facilities in place and social distancing being upheld at trading floors.
“We have so far licensed four companies to decentralize to Karoi, two to Mvurwi, one to Marondera and two to Rusape,” he told Tobacco Reporter on May 8.
“Indications are that there will be two more companies buying in Karoi and one more in Mvurwi. In terms of hygiene, handwashing and so forth, we are satisfied that auction and contract floors are complying. Yes, all these present extra expenses as companies are having to lease or buy space at new sites as well as to put in place health systems, but we have no choice because of this disease.”
Minister of Agriculture Perrance Shiri, who was the guest of honor at the launch of the 2020 marketing season, said decentralized tobacco sales help growers cut transport costs and decongest the main trading floors in Harare.
“Please be consistent in turning your practical guidance into action to avoid continued spread of the disease. I urge everyone to continue to implement these guidelines up to the end of the season even after the lockdown is finally lifted in order to avoid resurgence in cases,” he said.
Deliveries were slow in the first nine days of the trading season partly because of restrictions in movement and farmers still familiarizing themselves with the new guidelines. Average prices were, however, higher this season than in 2019, according to the TIMB.
Tobacco farmer Monica Chinamasa said the quality of the crop that is delivered in the early stages of the trading period is typically poor as farmers sell the crop starting with the lower leaves that tend to be of poor quality thus attracting a low price and progressively reaping the leaves higher up the crop, which tend to be of higher quality and thus cost more.
Social distancing is the way to go in fighting Covid-19, she said, adding that the same holds true for decentralized sales.
“Authorities must be thorough with the regulations as this is all about people’s health, but my fear is on the sales representative,” she said.
“Yes, it is the farmer who chooses him, but that person cannot represent the farmer fully, especially when it comes to the price of my crop. Ideally, the farmer must be present when his or her bales are being sold.”
Boka Tobacco Floors (BTF) has opened a tobacco sales floor in Karoi, Mashonaland West Province. This sales floor will help reduce the number of farmers traveling to Harare to sell their tobacco, ultimately helping prevent further spread of the coronavirus.
The Boka selling floor will serve farmers in Hurungwe District, including Tengwe, Kazangarare, communities around Karoi, Nyama resettlement, Nyamakate and Magunje as well as areas around Chinhoyi.
The auction space is currently a rented building, but BTF is constructing a 12,000-square-meter facility that would be ready for the 2021 selling season.
Measures compliant with the Tobacco Industry and Marketing Board (TIMB) have been put in place to prevent the spread of the coronavirus.
