“Tobacconomics”
Having been involved in tobacco farming for a while I have
now learnt a few tips that can make you a successful tobacco farmer in Zimbabwe
and I thought I could share some tips with you.
With this experience in tobacco
production, I have decided to define “tobacconomics”
as “the combined analysis of production and finance of tobacco farming.” Many
farmers make impulse decisions in to growing this golden leaf without full
knowledge of what they may be getting into. Tobacco production has complex elements that
are usually overlooked by many “fly-by night” farmers and many have burnt their
fingers in the game. One needs to
understand the game in order to make meaningful returns.
At what level do you want to operate?
You can only
make money with Commercial Tobacco Farming only when you have access to the
RIGHT CAPITAL. When you chose to go
commercial, make sure you are well capitalised in terms of your farming
equipment, curing facilities and working capital. The moment you compromise any of these, then
your demise is knocking at your door. Many
small scale farmers have been successful because they have managed to keep
their cost down by use of equipment such as ox-drawn equipment and conventional
(now constructing rocket barns) which do not attract high costs and makes it
profitable for the farmer. Despite that
they get low yields, their costs are also low that they make a reasonable margin.
The power of leverage
Return on equity (ROE) is the best way to
learn how much money a company is making for its investors and is calculated as
follows:
Asset Turnover x Sales Profitability x Leverage
= ROE
Profitability
and Turnover in commercial tobacco production is generally low and hence the
need to rely on leverage to make a good return on investment. This Leverage can be obtained by accessing
contracts from tobacco contracting companies, for example. It is therefore not advisable to use your own
capital when engaging into this farming enterprise.
Controlling losses and managing risk
Due to the
high financing levels of tobacco required, it is imperative that one controls
all possible losses in each operation.
All operations have a high potential for loss, therefore, as a farmer
you should be able to identify the risks and losses associated with each
process and define clearly how these can be mitigated. Tobacco responds to good growing and handling
conditions and these should be as precise as possible to maximise your
profit. The biggest challenge with our
farmers is that they are not aware of these potential losses and so they cannot
formulate processes to mitigate the drastic effects of these. Most of these risks and losses are farm and
situation specific and need to be attended situation by situation. Investing in irrigation is a good way to
managed your risk and increase your yield.
Focus on
Yield and Quality (then price)
In a
compensatory nature, most farmers tend to blame the price matrix for their low
yields. Prioritise yield maximisation,
then Quality and then the price will take care of its self. Normally when your yield is right, it follows
that your quality will be good and hence you have a good price. In some instances I have advised farmers to
top their crop at lower leaves eg 14 and 16 so that they can maximise on the
length of their leaves. Long leaves
normally attract a good price, yet your weight will not be different from one
who has topped at 18. In cases where the
prices are not favourable, as long as you have the yield, you are bound
to perform above average.
Efficiency
is everything about tobacco production
You cannot
compete with the system when your methods of production are extremely
inefficient. Tobacco production systems
over the years have been progressing.
Each farmer should be conscious of how to improve efficiency on the
following determinants; Labour and curing fuel, as these are the farmer’s major
costs. In modern systems of production,
on a communal scale, the use of rocket barns will increase curing efficiency
and on a commercial scale, tunnels are much more efficient than any other
system of curing tobacco. Hence, it will
be difficult to compete with one who has good curing systems, even when the
prices of drop. Labour efficiency can be
achieved by mechanisation and use of tools suck as clips instead of strings.
It doesn't cost much to pay attention to detail
The cost of ignoring
certain detail is greater than paying attention to detail. A simple misplacement of fertiliser on the
station can cost more that correctly placing it. It is very imperative to be aware of what
detail is required on every operation.
In most cases farmers are ignorant of the type of detail that affects
their margin.
Having
analysed the above, one should be encouraged to assess their risk involved in
tobacco production, prior to engaging themselves fully as many have in actual
fact made tremendous losses whilst they thought the game was easy. Maximum benefits can only be achieved when
farmers start engaging themselves in precision farming practices.
