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 
 
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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. 
 
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Comment 
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¶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