US embassy cable - 04HARARE1585

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, Land Reform 
SUBJECT: Tobacco Merchant Adjusts to Post-Land Reform 
Zimbabwe 
 
Summary 
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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 
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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