Mugabe’s Seized Farms Boost Profits at British American Tobacco
December 01, 2011, 1:36 PM EST
By Brian Latham
Dec. 1 (Bloomberg) — Robert Mugabe devastated Zimbabwe’s tobacco industry
in 2000 by driving white farmers off their land and giving it to his allies.
Now British American Tobacco Plc is profiting from tobacco grown on those
properties.
BAT, through its partner Northern Tobacco Ltd., is among processors that buy
from farms taken by backers of the 87-year- old president. In addition to
purchasing the leaf, the companies lend to finance crops, even as the ousted
white farmers retain title deeds. First-half net income at BAT’s Zimbabwe
unit rose more than tenfold to $2 million while revenue increased 88
percent, the company said on Aug. 29.
Income generated from the farms may help extend Mugabe’s 31 years as
president by shoring up support within his Zimbabwe African National
Union-Patriotic Front party before elections next year, said Anne Fruhauf,
an Africa analyst for political risk company Eurasia Group in New York.
While the travel bans and asset freezes imposed by the European Union and
the U.S. on Mugabe and his close allies have reduced their wealth, many
still profit from farming and diamond mining, she said.
Farming the seized tobacco land is “vital for the patronage network,”
Fruhauf said on Nov. 21 from Bogota. Mugabe needs the system “to keep
individual Zanu-PF members happy and to bolster party coffers ahead of the
election.”
BAT is not taking sides, Patrick Rose, head of the leaf division of British
American Tobacco Holdings Zimbabwe Ltd., said in an interview at the company’s
headquarters in Harare. BAT-Zimbabwe is listed on the Zimbabwe Stock
Exchange.
Not Judging
“Land and who is farming it here is always going to be an issue,” he said.
“We recognize that, but we’re not judging anyone on any side of the farm
argument. We’re a business and we need quality tobacco.”
In the seven years following the start of the violent seizures in 2000,
Zimbabwe’s world rank as an exporter of top- grade, or flue-cured, tobacco
slipped to sixth from second. The country experienced years of famine. The
economy shrank 40 percent between 2000 and 2007, according to the
International Monetary Fund.
The involvement of overseas companies has helped Zimbabwe’s tobacco industry
recover. Revenue from tobacco sales was about $357 million in 2010,
according to calculations based on production and price figures on the
website of the Zimbabwe Tobacco Association. That compares with $400 million
in 2000 and a low of $155 million in 2008.
White farmers have sought the return of their properties in courts around
southern Africa. The campaign forced more than 3,000 of them off their land
and displaced 1 million farm workers and their dependents, according to a
2008 estimate by the United Nations Development Programme.
Killings, Displacements
At least 30 people died during the invasions and thousands were beaten,
tortured or raped, John Worsley-Worswick, director of Harare-based Justice
for Agriculture, said in an interview on Sept. 27.
“The thought that these companies are making a profit on what is legally my
land at the expense of my family and the 300 workers we employed is
sickening,” said David Marais, who farmed in northern Zimbabwe until
gun-wielding police and self- styled militias forced him off his land 2002.
BAT plans to boost the amount of tobacco it buys in Zimbabwe by contract
from farmers to 25.5 million kilograms next season, a 70 percent rise from
the 15 million kilograms in the 2004-2005 season when it began the program,
Rose said in an August interview that he confirmed on Oct. 20.
Rising Production
Kate Matrunola, a spokeswoman for BAT in London, said in an e-mailed
response to questions that the Zimbabwean unit would speak for the company.
BAT owns 57 percent of the unit.
The amount of tobacco-growing land in Zimbabwe has surged to an estimated
84,000 hectares (207,568 acres) this year from 41,000 in 2004, according to
the website of the tobacco association, which represents growers. That’s
about the same as the 84,893 hectares in 2000, the year the country reaped a
record crop of 236.7 million kilograms and Mugabe’s land invasions began.
BAT Zimbabwe plans to boost production of cigarettes to 1.4 billion this
year from 1.2 billion last year, Gaborone, Botswana-based Imara Africa
Securities said in an August report on the sub-Saharan Africa tobacco
industry. Imara forecast a more than doubling of BAT Zimbabwe’s revenue
between fiscal 2010 and fiscal 2012, to $54.7 million.
Rodney Ambrose, the director of the tobacco association, declined to comment
when called and didn’t respond to e-mailed questions that he had invited a
reporter to send.
No Farmer Mandate
“Our mandate doesn’t cover farmers,” said Andrew Matibiri, chief executive
officer of the government’s Tobacco Industry Marketing Board, which
regulates the industry, in an Oct. 5 interview. “We are concerned with
tobacco quality and environmental laws and the volumes produced.”
Zimbabwe’s tobacco in the past rivaled that grown in the U.S. as the world’s
best quality. It is used to flavor BAT-made brands such as Dunhill, Lucky
Strike, Vogue and Kent.
Tobacco is grown on contract for BAT’s partner, Northern Tobacco, and for
the Zimbabwean businesses of Richmond, Virginia-based Universal Corp. and
Morrisville, North Carolina- based Alliance One International Inc., as well
as for a number of other companies, according to the marketing board.
BAT Zimbabwe accounts for about 19 percent of Zimbabwe’s annual tobacco
through its purchases via Northern Tobacco, according to calculations using
BAT and marketing-board figures.
‘Scrutiny and Approval’
“We do have a scrutiny and approval process for and prior to contracting
with growers, but one that must also work within the laws that we find
ourselves operating under,” Karen Whelan, a spokeswoman for Universal, said
in an e-mailed response to questions.
She declined to say how much tobacco her company buys in Zimbabwe. William
L. O’Quinn, a spokesman for Alliance One, didn’t respond to e-mailed queries
and wasn’t available when his office was called.
In Zimbabwe Universal operates through its Zimbabwe Leaf Tobacco Ltd. unit
while Alliance One runs Mashonaland Tobacco Co.
“There’s nothing even vaguely moral about it and they’re doing it openly on
the farm I bought and paid for,” Patrick Newton, who farmed about 50
hectares of tobacco in northern Zimbabwe on a 2,000-hectare property in
which he invested $10 million, said in a Sept. 12 interview. “In 2000 I was
beaten by farm invaders while the police stood by and watched.” A “major
company” buys the tobacco from his land, he said.
Mugabe’s Support
Mugabe’s land seizures helped him gain enough support to narrowly win
re-election in 2000 by securing the backing of voters in poor rural areas,
where subsistence farmers had been pushed into crowded areas during white
rule. While he has won two presidential elections since then, his party has
since 2009 governed in a coalition with the Movement for Democratic Change,
which opposes his land policies.
Mugabe says the seizures were necessary because the U.K., Zimbabwe’s former
colonial power, didn’t honor pledges to pay for more orderly land reform.
The president has visited Singapore at least seven times this year for
medical treatment, the Zimbabwe Standard newspaper reported in October,
citing Webster Shamu, the country’s information minister. While Shamu said
doctors are reviewing an eye operation, leaked U.S. cables exposed by
Wikileaks cite central bank governor Gideon Gono saying Mugabe has cancer.
BAT Zimbabwe doesn’t contract with farmers directly but “causes the growing
of tobacco through local partners like Northern” with which it has an
“arms-length” relationship, the company said in an e-mailed response to
questions. Northern Tobacco and BAT Zimbabwe’s offices share an address on
Paisley Road in Harare’s Southerton industrial area.
No Contest
Northern contracts with 120 large-scale farmers and 4,000 small-scale
farmers to supply the crop, Northern director Heinrich Von Pezold said in an
interview in Harare. Von Pezold oversees tobacco production on a farm he
once owned.
“We’ve long expected that what we’re doing here will be questioned, but I
have to say that we are not farming on any land that is being contested by
the original owners,” he said.
One farm owner lodged a dispute and the complaint was settled, Rose said.
Northern and BAT Zimbabwe define contested land as a property whose
ownership is being challenged legally, he added.
The current system may work against the companies in future should Mugabe
lose power to Morgan Tsvangirai’s Movement for Democratic Change, Fruhauf
said.
“Investors that are seen as lining the pockets of Zanu members could receive
unfavorable treatment from a future MDC administration,” she said in a
separate e-mailed response to questions.