US tobacco firm denies sanctions busting

United States tobacco firm Dimon denied that it was buying tobacco from farms occupied by the Zimbabwe Defence Industries but it admitted that it was working with Sentry Financial and the Commercial Bank of Zimbabwe, then known as Jewel Bank, on a tobacco-for-grain swap.

The company said it was buying 32 percent of Zimbabwe’s tobacco but was still unable to meet demand.

It had been unable to sell Zimbabwe-grown tobacco to Philip Morris and JT International since the start of the land reform programme.

Full cable:

Viewing cable 04HARARE1585, Tobacco Merchant Adjusts to Post-Land Reform

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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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