Angry tobacco farmers have dealt another blow to Zimbabwe's troubled economy, halting the first day of the annual auction that is the country's biggest hard currency earner.

Hundreds of small-scale tobacco growers occupied the auction floor to protest over the government's pricing policies.

Zimbabwe is the world's second biggest tobacco grower.

Farmers object to the system under which tobacco is sold in US dollars, but they get paid in local currency at the official exchange rate of 55 Zimbabwean dollars to one.

Industry in jeopardy

The Zimbabwe Tobacco Association (ZTA) has warned the tobacco industry could collapse if the government does not offer farmers a better exchange rate.

"There's just no viability in the industry," Chris Mowlem, chief executive of the ZTA said.

Early bids by international buyers averaged around $2 a kilogram, or Z$11, while industry estimates put the cost of growing a kilogram of tobacco at Z$300.

The farmers who import equipment and other goods must pay for them at the black market rate of about $1 to Z$340.

"Costs for chemicals, fertilizer are too high, but now prices (for tobacco) are too low," said Christopher Chaterera, a small-scale farmer who has grown tobacco for the last six years.

"If it goes on like this, by next year, some of the farmers will not grow anything," he said.

Land reforms

Many growers at the auction refused to allow their bales to be sold.

Some white tobacco farmers, who have borne the brunt of land confiscations by the government, also withheld their crops.

Farm disruptions caused by the land seizures have reduced this year's tobacco crop from about 205,000 tons last year to 168,000 tons, according to the Tobacco Industry Marketing Board.

Under the government's two-year-old land reforms, which have targeted about 80% of white-owned farms for resettlement by blacks, the number of small-scale tobacco farmers has tripled from 7,000 to about 22,000.

They will grow less than 6% of the 165 million kilos of tobacco crop expected this year.

Currency shortages

The government has refused to devalue the local currency out of fears of spurring inflation, currently at a record 113%.

Last year's auction season raised about $400m of foreign currency.

However, falling foreign currency reserves have led to acute shortages of gasoline, power, medicines and other essential imports.

Tobacco accounted for more than 30% of Zimbabwe's hard currency earnings last year, ahead of mining and tourism.

Tourism revenues have declined by up to 80% since March 2000, when occupations of white-owned farms began.