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Cablegate: Tobacco Merchant Adjusts to Post-Land Reform

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 HARARE 001585

SIPDIS

SENSITIVE

STATE FOR AF/S
USDOC FOR AMANDA HILLIGAS
TREASURY FOR OREN WYCHE-SHAW
PASS USTR FLORIZELLE LISER
STATE PASS USAID FOR MARJORIE COPSON

E. O. 12958: N/A
TAGS: EAGR ECON ETRD EINV PGOV ZI
SUBJECT: Tobacco Merchant Adjusts to Post-Land Reform
Zimbabwe

Summary
-------
1. (SBU) Executives of U.S. tobacco merchant Dimon
forecast Zimbabwe will experience another frustrating
harvest in 2005, as the firm's buying continues to shift
away from the auction floors and toward contract growing.
Dimon does not believe it can revive the interest of
Philip Morris and JT International in Zimbabwean tobacco
until stability returns to the sector. Dimon's
representatives insisted that they have purchased no
tobacco from farms belonging to sanctioned entity
Zimbabwe Defense Industries (ZDI).

Dimon's Predictions
-------------------
2. (SBU) Econchief recently met with three executives
from Dimon, which has had an enormous presence in the
Zimbabwean tobacco market since 1980. The merchant will
purchase and resell to cigarette-makers 32 percent of the
country's tobacco this year. Judging from the seedbeds
already in the ground, the Dimon reps estimate that next
year's harvest may match but not exceed this year's 65-70
million kgs, Zimbabwe's lowest output since 1979. They
have found small Zimbabwean tobacco farms only twenty
percent as productive as the former commercial farms,
yielding 800 versus 4,000 kgs/hector.

3. (SBU) The executives predict that the country's famous
auction floors will gradually disappear over the next
five years. Contract growing, already accounting for
half of Dimon's purchases in Zimbabwe, will replace the
auctions. Through contract schemes, merchants like Dimon
can provide cash-strapped small growers with inputs.
Similar arrangements are now the norm in Zimbabwe's
cotton sector.

4. (SBU) Since the GOZ began fast-track land reform in
2001, Dimon says it has been unable to sell Zimbabwe-
grown tobacco to Philip Morris and JT International.
These large cigarette-makers have mostly replaced
Zimbabwean with Brazilian tobacco. According to the
Dimon reps, Philip Morris and JT International are
unwilling to take a chance on Zimbabwe until long-term
stability returns to the farming sector.

U.S. Sanctions on Zimbabwe Defense Industries
---------------------------------------------
5. (SBU) The executives said they have not purchased
tobacco from farms owned by Zimbabwe Defense Industries
(ZDI), which the Department Treasury's Office of Foreign
Asset Control (OFAC) has designated as a sanctions
target. They acknowledged that they have been working
with Salt Lake City-based Sentry Financial and Reserve
Bank (RBZ) Governor Gideon Gono's CBZ/Jewel Bank in a
tobacco-for-grain swap. The Dimon reps asked that the
Embassy keep them informed about any new financial
sanctions designations.

Overzealous Tax Authorities
---------------------------
6. (SBU) The executives complained that the Zimbabwe
Revenue Authority (ZIMRA) has aggressively harassed them
since March. ZIMRA has searched their offices,
confiscated their records and assessed a bill for US$1
million in delinquent taxes. For the first time, ZIMRA
applied an unused section of its tax code, claiming Dimon
should have paid taxes on marketing expenses, including
commissions to sales agents outside the country. Dimon
reps say they will dispute these charges with RBZ
Governor Gono. If unsuccessful, they said they may
request Embassy advocacy assistance.

Comment
-------
7. (SBU) Tragically, the GOZ undertook its confiscation
of large tobacco farms just after the sector hit a new
production record - 238 million kgs in 2000. For one
brief year, little Zimbabwe became the world's top
tobacco exporter, beating the U.S., Brazil, China and
India. Considering the loss of jobs an

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