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Tobacco Farmers Drowning In Debt

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OCCRP


WHEN John Ruvanga started growing tobacco for the Zimbabwean subsidiary of China’s state cigarette company in 2014, it seemed like he would be able to make enough money to provide for his family.

As a contract farmer for Tian Ze Tobacco Company (Pvt) Ltd., he was given seeds, fertilizer, chemicals, and training upfront, which he would pay for once he had sold his crop at the end of the season. At US$3 for a kilogram of tobacco, he got paid more too.

In the first year, Ruvanga’s income from his 3.5-hectare farm in Kazangarare, in Zimbabwe’s north, reached $3,500, leaving him with more than $2,300 in profit.

“I was able to pay back the loan, still have some money to pay my bills, school fees, rent in town, buy cattle, goats, and other things that my family needed,” Ruvanga told OCCRP, sheltering from the midday sun under the wide branches of a muchacha tree.

But things soon changed. The price he received for his tobacco, which he was obliged to sell to Tian Ze, was cut to $2 per kilogram. Meanwhile, Ruvanga said the company provided him with fewer inputs for his crop, then automatically deducted the same amount as he had paid the previous year, pushing him into debt.

By 2018, Ruvanga found himself trapped in a cycle of debt, where his earnings were never enough to repay his loans. The following year he stopped farming tobacco under contract to Tian Ze, but he still owed the company $3,000. His tractor, water pump, and other equipment were confiscated under a court order to collect his debts.

More than 20,000 farmers in Zimbabwe grow tobacco for Tian Ze, a subsidiary of the state-run China National Tobacco Corporation and the top buyer of the country’s tobacco by value. Established in 2005, the Chinese-owned company has been credited with resurrecting Zimbabwe’s tobacco industry after it was crippled by a violent land reform program and Western sanctions.

The relationship has proved mutually beneficial for longtime allies Harare and Beijing: Zimbabwe, now Africa’s top tobacco producer, offers China Tobacco a ready supply of leaf to feed its growing business, while tobacco exports have become an important source of badly needed foreign currency for Zimbabwe’s government.

But as the two governments profit, it is farmers who are paying the price. Growers say they often end up trapped in a painful debt cycle as they struggle to pay for expensive inputs they can ill afford — a claim backed up by researchers  — while a controversial currency system run by Zimbabwe’s central bank saps much of what is left of their income.

Caught in a system that seems rigged against them, many growers have been left ruined. Ruvanga said he now relies on subsistence farming to support his family.

Tian Ze spokesperson Li Wenjie denied that it overcharged for the inputs it provides to its growers and argued that it is the only company that offers interest-free loans and pays the highest average prices for tobacco in the country.

“All the inputs we give to farmers are given at the suppliers’ price; we do not [add] any markup,” he said. “We support the farmers.”

Asked for comment, Reserve Bank of Zimbabwe governor John Mangudya referred reporters to a previous statement he made on Zimbabwe’s monetary policy. He said the exchange system was vital to ensure the country had enough foreign reserves, and that tobacco farmers actually had to surrender less of their foreign currency earnings than other businesspeople.

“Tobacco farmers are in a much better position compared to other exporters when it comes to forex surrender or retention requirements,” he said.

‘Vicious Cycle of Poverty’

Zimbabwe has been scrambling to get hold of U.S. dollars since its currency collapsed in 2007, precipitating the country’s spiral into hyperinflation, and a desperate economic crisis that continues to this day.

The Reserve Bank of Zimbabwe has rules requiring all traders to surrender part of their foreign earnings, which is then converted into a quasi-currency based on government bonds — either physical bond notes or their digital equivalent. But because the bank uses an official rate that overvalues the local tender, it ends up keeping most of traders’ incomes.

Zimbabwe’s government uses the foreign currency it accrues to service its international debt, about a third of which it owes to China. Some is spent on critical imports such as fuel and medicine. But some reportedly goes to luxury goods for senior officials, including buying top-of-the-range vehicles for ambassadors, senior civil servants, and army officers.

The currency exchange system has been denounced as illegal by Zimbabwe’s own lawmakers. A 2019 report by the Public Accounts Committee found the central bank had retained billions of U.S. dollars under these rules, which it described as “an unlawful appropriation of private property” that breached the Constitution.

Believe Tevera, president of the Tobacco Farmers Union of Zimbabwe, called the central bank’s system “exploitative.”

“We have been lobbying the government to change, but it is not yielding because [tobacco export earnings] provide easy and cheap access to foreign currency,” he said.

Zimbabwe requires Tian Ze to pay its contract tobacco farmers through the Central Bank in a mixture of U.S. dollars and local quasi-currency, while their loans must be paid off in foreign currency alone.

Most of their earnings get eaten up by paying back loans for inputs like seeds and fertilizer. Then, because the official exchange rate for the quasi-currency is drastically overvalued compared to the commonly used black-market rates, farmers lose much of what’s leftover.

Many farmers end up with barely enough to survive.

A Tian Ze contract for the 2019-2020 season shows how the system is rigged in the company’s favor, with farmers running the risk of shouldering debts larger than they are likely to earn from their tobacco. Loans must be paid in full before the grower makes any profit, and sometimes their property is offered as collateral in case they default.

If contract farmers don’t pay Tian Ze and a legal process ensues, the farmers are required to pay the costs of the proceedings.

A 2020-2021 contract for Mashonaland Tobacco Company (Pvt) Ltd, a Zimbabwean subsidiary of Pyxus International, Inc. that has sold to Tian Ze, has similar terms.

Tian Ze’s contract system, which is now being adopted by other tobacco companies, leaves farmers more vulnerable to sliding into debt. A 2019 paper by academics from the University of Cape Town School of Economics based on research done in Manicaland, Zimbabwe’s fourth-biggest tobacco-growing region, found contractors were 15 to 20 percent more likely to be in the red than independent growers.

“The debt compels them to grow tobacco in the following farming season, in an often-vain attempt to repay the debt,” the authors wrote. “The cycle is usually repeated, making tobacco-growing a debt trap, leading to a vicious cycle of poverty.”

Spokesperson Wenjie said Tian Ze was engaging with the Ministry of Finance and the Reserve Bank of Zimbabwe about the currency exchange program, which she said also drives up costs for the Chinese company.

“The official rate is around ZW$85, but outside they use a black-market rate which is much higher so this actually increases our cost of operation and adds the extra cost to the company,” said Wenjie.

Zimbabwe Tobacco Association chief executive Rodney Ambrose said that, because so much of tobacco farmers’ income goes to paying off loans, only a fraction of export earnings actually end up in the country.

“While on paper tobacco sales may earn [Zimbabwe] $500 to $600 million per season, real inflows are about a quarter of this,” he said.

But with bank credit hard to come by, 95 percent of tobacco sales in 2020 were from contractors, according to the Tobacco Industry and Marketing Board. Farmers say people are so eager to get a foot in the door they often sign contracts they don’t understand.

Tawanda Muchenje thought Tian Ze’s model sounded like a godsend when he heard about it from his neighbors. A mineworker with no savings, he decided to turn his hand to farming and was granted a 10-hectare plot under the government’s land reform program.

He planted the first tobacco crop for the Chinese company in Karoi district in 2015. That year he borrowed $5,000 to buy inputs and made $6,000 from his crop, leaving him $1,000 profit. In the second season, Muchenje produced roughly the same quantity of tobacco and got paid $5,000, meaning he broke even.

But in 2017 his output fell, leaving him owing $500. As the seasons went by, Muchenje’s debts grew to $3,500, forcing him to quit tobacco farming. The sole breadwinner for his family, he has sold all his livestock to pay his debts to Tian Ze, and now relies on subsistence farming.

“Contract farmers have been left to uncaring, big international companies who ill-treat them and the government has never done anything to help the dire situation,’’ said Muchenje.