Bloomberg News

Mugabe’s Seized Farms Boost Profits at British American Tobacco

December 13, 2011

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.

--Editors: Antony Sguazzin, Karl Maier, Anne Swardson

To contact the reporter on this story: Brian Latham in Johannesburg at blatham@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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