If you thought the Kwacha appreciation is good for everyone, think again as exporters and manufacturers take a hit whenever the local unit gains against major convertible currencies such as the US dollar.
One such crop which has about 90% of its output exported and earns the Zambian economy the much needed forex is tobacco. This crop has an extensive outgrower farming community which the Tobacco Association of Zambia estimated to be over 16,000 farmers.
This large number of local outgrower farmers that sell in Kwacha to off-takers such as Japan Tobacco International – JTI, Tombwe, Alliance One etc have been hurt by dropping Kwacha prices this year following the appreciation of the Kwacha.
One of the top five Tobacco Processing and Trading companies in Zambia has disclosed that the local prices of tobacco have gone down this year due to mostly the appreciation of the kwacha, a situation that is being interpreted negatively by most outgrower local farmers.
A source who asked to remain anonymous due to the sensitivity of the matter explained that tobacco which is mainly exported is fetching for less in Kwacha terms this year compared to last year because the kwacha to a dollar exchange rate was around K21 per dollar in 2021 but is now trading around K17 per dollar, meaning that even if the prices for export have been maintained in dollar terms, the local farmers will get less Kwacha sells revenues .
Speaking in an exclusive interview with the Zambian Business Times – ZBT, the source explained that tobacco is a crop that needs to be handled carefully because if not cured properly, the crop can be sold for a very low price. The source noted that how much one gets for their tobacco harvest is heavily dependent on the quality, adding that the best quality is currently selling around K76 per kg or $4.5 per kg.
“You can have a big leaf in the field but if not cured properly, you can sell it as low as K2.70. The best grade was K84 in April 2022 but now it’s about K76 as the exchange rate is now at K17, last year, the same quality and quantity of leaf was going for around K110 when the exchange rate was around K21 “, the source said.
The source said a thin leaf was K77 per kg for the best quality when the exchange rate was around K18 but now that the kwacha has slightly appreciated, the same crop would earn the farmer around K64 per kag now.
With Commercial farmers, the outlook may be different as most of these farmers are able to hedge as sell in dollars as well as have dollar denominated cost of production structures and financing facilities. The local financial services industry is yet to come up with tailored solutions for small, medium and emerging outgrower farmers who end up taking up the exchange losses.
Zambia has continued to lag behind its Neighbours Malawi and Zimbabwe as far as Tobacco production and exports are concerned, with analysts challenging government to grow Zambia’s share of the lucrative global export quotas.
