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Cablegate: Reading the Tea Leaves in Zimbabwe: Troubled Times

VZCZCXRO3419
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0277/01 0951100
ZNR UUUUU ZZH
R 041100Z APR 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 2698
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 1899
RUEHAR/AMEMBASSY ACCRA 1879
RUEHDS/AMEMBASSY ADDIS ABABA 2002
RUEHRL/AMEMBASSY BERLIN 0575
RUEHBY/AMEMBASSY CANBERRA 1279
RUEHDK/AMEMBASSY DAKAR 1636
RUEHKM/AMEMBASSY KAMPALA 2058
RUEHNR/AMEMBASSY NAIROBI 4489
RUEHGV/USMISSION GENEVA 1129
RHEHAAA/NSC WASHDC
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUAEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHEFDIA/DIA WASHDC

UNCLAS SECTION 01 OF 03 HARARE 000277

SIPDIS

AF/S FOR S.HILL
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN
TREASURY FOR J.RALYEA AND T.RAND
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
COMMERCE FOR BECKY ERKUL

SIPDIS

E.O. 12958: N/A
TAGS: EAGR ECON ETRD PGOV ASEC ZI
SUBJECT: Reading the Tea Leaves in Zimbabwe: Troubled Times

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SUMMARY
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1. (U) Production is down at Zimbabwe's two largest tea estates in
the face of a severe labor shortage and lack of foreign exchange for
inputs. In addition, the move to mechanization has reduced tea leaf
quality and the amount of exportable product. Both estates have
sought deals to improve their standing with government and taken
over the provision of many government services in their communities,
but management recognizes that the present situation is commercially
unsustainable beyond the short term. END SUMMARY.

------------------------------------
Labor Shortages Cripple Tea Industry
------------------------------------

2. (SBU) Zimbabwe's commercial tea estates used to rely on
hand-picking to provide high quality tea leaves for international
black tea blends such as Lipton's and Five Roses. However, despite
80 percent unemployment in the formal sector, Zimbabwe's two largest
tea estates located along the Mozambique border in the Eastern
Highlands of Manicaland province, have struggled to keep employees.
Tanganda Tea Company Ltd, the largest tea estate in Zimbabwe with
9400 hectares spread across five farms in Chipinge, has lost about a
third of its permanent staff while Eastern Highlands Plantation Ltd
(EHPL), a foreign-owned, 6400-hectare estate in the Honde Valley,
has been harder hit with its total employment down by 57 percent.
Both tea estates have lost nearly 90 percent of their tea pickers.
Hyperinflation has severely reduced the purchasing power of tea
pickers' wages although the tea estates strive to maintain a U.S.
dollar wage of 59 cents per day through wage hikes and benefits such
as commodity packs of the staple maize meal, sugar and other basics,
plus housing, electricity, and transport.

3. (SBU) Especially since the price control crackdown and
subsequent decline in production of food and consumer goods,
informal trading now provides a better income for the tea pickers
than working on a tea estate. Workers cross the border into
Mozambique, buy goods and return to Zimbabwe to either use the goods
or sell them on the informal market. Much of the skilled labor has
migrated to South Africa. The Managing Director of EHPL, Nick
Fawcett, explained that even if wages were raised, hyperinflation
would force the employees to leave the estate to spend their wages
as quickly as possible. Fawcett doubted that the tea pickers would
ever return to work on the estate, in part because internationally
tea was a low margin, high volume business that required wages of
USD1/day or less to be profitable; wages were unlikely to be
competitive with other sectors of the economy even in a stable
economy. Also, Zimbabwe's young, relatively well-educated workforce
could get higher paying jobs than hand-picking tea and had little
desire to do farm labor.

------------------------------
Mechanization: A Costly Savior
------------------------------

4. (SBU) The labor shortages have forced Tanganda and EHPL to
mechanize their harvest by sending workers out with shears and to
use mechanical cutters pulled by tractors or by hand, resulting in
lower quality green leaves and higher costs. Tanganda once produced
80 percent high-quality leaves for export and 20 percent of lesser
quality (and lower price) for sale in Zimbabwe. Now, because
mechanized harvesters cut the leaves and gather too many stems,
Tanganda only produces 60 percent export quality tea. EHPL has seen
its top quality green leaf production fall from 65 percent to 35
percent.

5. (SBU) Despite mechanization, both companies have stopped
harvesting a significant portion of their tea fields. EHPL is fully

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mechanized, but cannot use the current harvesters available on all
of its fields which stretch across the steep slopes of the Honde
Valley. Consequently, EHPL has mothballed 50 percent of its fields.
Turnover has fallen from USD4.5 million per year in 2000 to USD2.6
million per year in 2007. Tanganda has also mothballed fields and
seen its production drop from 10,000 tons per year to 8,500 tons per
year now despite the company's plans to expand production to 15,000
tons per year.

---------------------------------
Economic Downturn Drives Costs Up
---------------------------------

6. (SBU) Zimbabwe's economic decline has also hurt the tea estates'
viability. Electricity shortages forced Tanganda to buy four
generators for its production facility at a cost of USD60, 000 to
UD$70,000. Additionally, the generators cost five times more to run
than electricity from the national power grid. A shortage of
packaging material has also reduced domestic sales and left piles of
tea lying around the factory floor. Tanganda once procured 80
percent of its inputs locally, but now imports parts and fertilizer
among other items. Tanganda also must remit 35 percent of its
foreign exchange earnings at the below-market, official exchange
rate to the Reserve Bank of Zimbabwe, though the company hopes that
its recent consolidation into the new majority black-owned Kingdom
Meikles Ltd. conglomerate may result in a more favorable foreign
exchange arrangement. The Managing Director of Tanganda, Mike
Browne, estimated the estate could only survive another year in the
current economic environment.

7. (SBU) EHPL has been hampered by government efforts to take over
the farm. War veterans settled on nearly 20 percent of the estate
in 2002, and two-thirds of EHPL was listed for acquisition in 2004.
EHPL stopped farming in 2005 in anticipation of the acquisition, but
restarted in 2006 when no more land was seized. Nonetheless, the
threat of takeover caused severe cash flow constraints as banks
became unwilling to lend. In addition, like Tanganda, the company
is unable to access much of its foreign exchange earnings. In
response EHPL had developed a relationship with the local ZANU-PF
Member of Parliament and Energy Minister Mike Nyambuya, who was also
a retired army general and former governor of Manicaland, in the
hope that he could prevent the farm from being acquired. EHPL
planned to address its electricity needs by building a hydroelectric
power station on the estate. Nyambuya sought to take credit for the
power station and gain political capital; thus, he assisted EHPL in
moving war vets who were occupying land above the proposed
hydroelectric plant to another area of the estate. (NOTE: Minister
Nyambuya lost his parliamentary seat in last week's harmonized
elections. END NOTE.)

8. (SBU) ZANU-PF has ceded many government functions to the tea
estates as the government's ability to provide basic services has
eroded. EHPL maintains the power station with its own engineer,
provides transportation to the police and road maintenance crews,
brings the mail in from Mutare on its trucks to the post office
because no fuel is available for these functions, and has replaced
the batteries in the regional cellular phone tower to provide
communications. Tanganda is also known to run one of the best
primary schools in the region.

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COMMENT
-------

9. (SBU) Ironically in its attempt to eliminate the influence of
commercial farmers in Zimbabwe and retain power, the government has
increased the importance of the tea estates in the community.
Though economic stabilization and predictable government policies
would be enormously helpful, the business has fundamentally changed
as the international price of tea has steadily fallen and

HARARE 00000277 003 OF 003


mechanization has reduced the quality of Zimbabwean tea. The
large-scale commercial tea industry in Zimbabwe is likely to be less
profitable than in the past regardless of when things come right.
END COMMENT.

MCGEE

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