Identifier
Created
Classification
Origin
07HARARE137
2007-02-22 13:39:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Harare
Cable title:  

A TENUOUS RECOVERY FOR ZIMBABWE TOBACCO

Tags:  EAGR EFIN ETRD ECON PGOV ZI 
pdf how-to read a cable
VZCZCXRO4700
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0137/01 0531339
ZNR UUUUU ZZH
P 221339Z FEB 07
FM AMEMBASSY HARARE
TO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 1150
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHUJA/AMEMBASSY ABUJA 1480
RUEHAR/AMEMBASSY ACCRA 1336
RUEHDS/AMEMBASSY ADDIS ABABA 1484
RUEHBY/AMEMBASSY CANBERRA 0745
RUEHDK/AMEMBASSY DAKAR 1110
RUEHKM/AMEMBASSY KAMPALA 1538
RUEHNR/AMEMBASSY NAIROBI 3934
RUEHFR/AMEMBASSY PARIS 1307
RUEHRO/AMEMBASSY ROME 1963
RUEHBS/USEU BRUSSELS
RUEHGV/USMISSION GENEVA 0647
RHEHAAA/NSC WASHDC
RUCNDT/USMISSION USUN NEW YORK 1701
RUEKJCS/JOINT STAFF WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC//DHO-7//
RUCPDOC/DEPT OF COMMERCE WASHDC
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK//DOOC/ECMO/CC/DAO/DOB/DOI//
RUEPGBA/CDR USEUCOM INTEL VAIHINGEN GE//ECJ23-CH/ECJ5M//
UNCLAS SECTION 01 OF 03 HARARE 000137 

SIPDIS

SENSITIVE
SIPDIS

AF/S FOR S. HILL
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN
STATE PASS TO USAID FOR M. COPSON AND E.LOKEN
TREASURY FOR J. RALYEA AND T.RAND
COMMERCE FOR BECKY ERKUL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS

E.O. 12958: N/A
TAGS: EAGR EFIN ETRD ECON PGOV ZI
SUBJECT: A TENUOUS RECOVERY FOR ZIMBABWE TOBACCO

REF: HARARE 01492

-------
Summary
-------

UNCLAS SECTION 01 OF 03 HARARE 000137

SIPDIS

SENSITIVE
SIPDIS

AF/S FOR S. HILL
NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN
STATE PASS TO USAID FOR M. COPSON AND E.LOKEN
TREASURY FOR J. RALYEA AND T.RAND
COMMERCE FOR BECKY ERKUL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS

E.O. 12958: N/A
TAGS: EAGR EFIN ETRD ECON PGOV ZI
SUBJECT: A TENUOUS RECOVERY FOR ZIMBABWE TOBACCO

REF: HARARE 01492

--------------
Summary
--------------


1. (SBU) Embassy interlocutors in the tobacco sector told us
Zimbabwe would likely produce 70-80 million kg of tobacco
this season, up from last year's all time low of 55 million
kg. They attributed the improvement to massive (and
unsustainable) off-budget subsidies, favorable growing
conditions, fewer disruptions to the remaining highly
productive white commercial tobacco growers, and increased
"contract" farming for large multinational tobacco
corporations. Our interlocutors confirmed that the
government will open Harare's tobacco auction floors six
weeks early hoping to draw in foreign exchange from the
improved crop. However, without a steep currency
devaluation, growers were unlikely to bring their crop to
market early. End Summary

-------------- --------------
Subsidies, Rainfall, Stability Lead to Production Increase
-------------- --------------


2. (SBU) Embassy interlocutors in the tobacco sector told us
that Zimbabwe would likely produce 70-80 million kg of
tobacco this year, up from last year's smallest crop since
1948 of 55 million kg. Andrew Ferreira, Vice President of
the Zimbabwe Tobacco Association, said on February 9 that
tobacco seed sales were up 20 percent, area planted to
irrigated tobacco up 30 percent, and dry land planting up 20
percent this season.


3. (SBU) Ferreira attributed the increases to massive
government subsidies including top-up bonuses on sales,
foreign exchange retention incentives, and deeply discounted
loans. Lodwin Gatsi, Operations Executive of Tobacco Sales
Floor Limited, noted that the RBZ's Agricultural Sector
Enhancement Facility (ASPEF) loaned funds at 50 percent
interest. This created a huge incentive for tobacco growers
to borrow, given that inflation was well over 2000 percent.


4. (SBU) Ferreira, Gatsi and other interlocutors also
attributed the increased production to favorable rainfall.
They noted that the rainfall this year had been uneven across
the country and less than ideal for maize, which would likely
see another bad harvest. However, the rainfall had been very
favorable for tobacco. The result was not just increased
production but also improved quality. In addition, the
irrigated crop, which yields nearly double the tobacco leaf
of dry land crop, had benefited from ample water collected
during last year's abundant rains.


5. (SBU) Our interlocutors also pointed to greater stability
in the sector as a factor in the production increase.
According to Ferreira, of approximately 400 white commercial
farmers still in business, about 158 grew tobacco this year.
Gatsi said he knew of very few white tobacco farmers who had
received eviction notices since entry into force of the

HARARE 00000137 002 OF 003


Gazetted Land Act in December 2006 (reftel). Andrew
Englebrecht of U.S.-owned Zimbabwe Leaf Tobacco (ZLT) said
that of the 75 commercial growers contracted by ZLT,
two-thirds were white farmers none of whom had had a serious
disruption this season.


6. (SBU) Our interlocutors claimed that multinational
tobacco corporations were renewing their interest in
Zimbabwe. Gatsi said the biggest tobacco companies were once
again "pouring money" into Zimbabwe despite insecure land
tenure. Englebrecht confirmed that ZLT and the other major
U.S.-owned company, AllianceOne, had decided to maintain
their investment in Zimbabwe in the hope that the worst of
farm seizures and disruptions was over.


7. (SBU) By contracting directly with big tobacco growers
(i.e. those with over 15 hectares),our interlocutors said
the big multinational tobacco corporations had improved
access to inputs and expanded the area under cultivation. A
minimum crop of 40 million kg would be produced under these
contracts this season, more than half the total. Englebrecht
said that although the multinational tobacco companies had
chiefly invested in big growers, they had also contracted
with small, new farmers in a successful effort to transfer
expertise and thereby hopefully increase the future crop
size.

-------------- --------------
Unprecedented Early Opening of the Tobacco Auction Floors
-------------- --------------


8. (SBU) Gatsi said Harare's three tobacco auction floors
would open on March 14, about six weeks earlier than usual,
driven by the RBZ's acute need for foreign exchange and
concern that the cured crop would mold if held too long in
the sector's deteriorating barns. However, Engelbrecht said
he doubted the growers would deliver the crop early absent a
significant currency devaluation along with other incentives.
Gatsi said the RBZ was making concessions already, noting
that it had agreed to allow growers to hold 15 percent of
their forex earnings in Foreign Currency Accounts (FCA) this
year. Last year, the RBZ had promised the growers a 15
percent "entitlement" to their forex, which it had then
refused to honor.

--------------
Comment
--------------


9. (SBU) Although still less than half of Zimbabwe's peak
tobacco production, the larger crop this year after six
consecutive years of decline is a welcome bit of good news
for Zimbabwe's struggling economy. However, it comes at the
price of large and unsustainable government subsidies that
further distort market incentives and investment patterns.
In the short run, the improved crop may provide a bit more
foreign exchange for the government. In the long run, only a
comprehensive package of reforms, including better governance
and renewed respect for private property, can restore
investor confidence and begin turning the economy around and

HARARE 00000137 003 OF 003


with it the tobacco sector.
SCHULTZ