GOVERNMENT is in a fix as its bid to promote the use of the Zimbabwe Gold (ZWG) hit a snag after farmers last week forced authorities to pay them in United State dollars for wheat deliveries, NewsDay can report.
The farmers rejected payment in local currency citing its sharp depreciation against the US dollar.
The ZWG (formerly ZiG), introduced in April this year in a desperate attempt to mitigate currency instability and hyperinflation that has plagued the country for decades, has lost at least 40% of its value.
Payment of wheat farmers in US dollars will trigger the rejection of the local currency by other farmers and exporters, thereby weakening attempts to build forex reserves, experts say.
Government has been building reserves using the retention rule, in which exporters would get part of their proceeds in local currency.
NewsDay heard this week that wheat farmers were threatening to withhold their harvest in protest over payment in local currency, fearing losses.
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Last season, farmers were paid US$440 per tonne split as 75% in US dollars and 25% in local currency at the prevailing interbank rate.
However, the growing discontent among farmers, who play a vital role in Zimbabwe’s food security, forced the government to reconsider ZWG payments.
Sources said the fear of wheat shortages and the potential economic consequences of a disrupted wheat supply proved too significant to ignore.
In a circular dated September 13, 2024, Grain Marketing Board (GMB) chief executive officer Edison Badarai confirmed the US dollar payments.
“Grain Marketing Board advises all its valued farmers and stakeholders that the winter wheat marketing price has been approved with 100% payment in USD currency,” Badarai said.
“GMB will purchase all wheat financed under the Presidential Input Programme and also wheat from self-financed farmers, wherein self-financed farmers will sell to the best advantage, either to GMB or the market.”
Prices will range from US$450 per metric tonne for standard grade wheat to US$470 per metric tonne for premium grade.
Badarai said GMB has partnered the Zimbabwe Mercantile Exchange (ZMX) to offer commercial warehouse receipt services to all players in the industry.
The warehouse receipts will enable farmers to store their produce and sell at the best market rates, while also providing an option for those who might not sell immediately after harvest.
“In addition, GMB remains the buyer of last resort. Contractors will buy back contracted wheat at market prices. Furthermore, GMB, working with ZMX, shall provide commercial warehouse receipt services to all players,” the GMB boss said.
While the reinstatement of US dollar payments may provide some relief to farmers, it remains to be seen how the government will address the underlying issues that led to the initial controversy.
Former Zimbabwe Commercial Farmers Union president Wonder Chabikwa told NewsDay that US dollar payments will ease the burden of farming costs.
“As wheat farmers, we have always preferred to be paid in USD directly because we are always seized with recapitalising our farms in terms of irrigation infrastructure and farming inputs,” he said.
“To be able to acquire these things, we need foreign currency. Most providers of these services want to be paid in foreign currency so it is making life very difficult for us.”
Zimbabwe National Farmers Union president Monica Chinamasa said payment should be timely so that they hedge against losses.
“We prefer to be paid in the USD component because all our financial obligations are in USD,” she said.
“We pray and hope it will be paid in time, not six months down the line when interest will have accumulated on our obligations.”
Unveiling the local currency in Zimbabwe’s sixth attempt in 15 years to have a stable currency, central bank governor John Mushayavanhu said the ZWG would be backed by forex and gold reserves.
At the time of its introduction, the ZWG was trading at 1:13,50 against the greenback.
Today, it is trading at between 1: 25-30 on the black market, with some service providers now pricing their goods exclusively in US dollars.
However, there is wide mistrust of the central bank because of previous cases of massive money printing which saw inflation galloping out of control in 2008.
Zimbabwe has been struggling with high inflation for a long time.
In 2008, hyperinflation peaked at staggering levels, which pushed the economy to dollarise.
Official dollarisation was introduced in 2009 when the country dumped the local currency for a basket of currencies dominated by the US dollar.
Since then, the US dollar and other foreign currencies have been widely used throughout the economy.
Economist Gift Mugano said the move to pay farmers exclusively in US dollars was unprecedented, adding that it killed confidence in the local currency the government was trying to promote.
“If government makes a decision to pay farmers 100% in US$, it means ZiG has been rejected by its own parent (government). Government is supposed to be the defender of its own currency by insisting that we are paying in ZiG,” Mugano told NewsDay last night.
“In the spirit of cushioning the farmer, they would have paid part in ZiG saying we are in a multi-currency regime. It’s a better argument than to give farmers 100% in US$.”
He said it was not by default that wheat farmers will be paid in US dollars, but that policymakers were the biggest winners since they were farmers.
“The very same policymakers who are making noise on social media saying ‘ZWG is here to stay and we are going to defend it’ don’t want to see it when it comes to real transactions, the same way we see it in the fuel sector, passport services,” the economist said.
Social commentator Maxwell Saungweme said the local currency’s future was uncertain and farmers had a right to demand to be paid in a stable currency.
“It is right for farmers to demand to be paid in a realistic currency and for the government to admit that, they’re actually admitting that ZWG is not a real currency and they have no confidence in it,” he said.