Buyers’ scandal rocks tobacco sector

 

LIVINGSTONE MARUFU

 

Tobacco exporting companies are in the eye of a storm amid revelations that they have surrogate buyers whom they supply money to buy the golden leaf from areas which they did not fund thereby fuelling side marketing, Business Times has learnt.

These companies are multinationals which have markets outside the country’s borders where they will cash in foreign currency at the expense of the farmers.

According to the tobacco marketing regulations, buyers or exporting companies should share their accounts with the Reserve Bank of Zimbabwe’s (RBZ) Exchange Control division and Tobacco Marketing and Industry Board (TIMB).

But this week’s revelations show that only a few companies are funding tobacco with the rest being fly-by-night operators.

A source close to the developments told Business Times that the surrogate buyers are purchasing tobacco at a low price to get profits at the expense of the tobacco farmers.

“The deep-rooted problems with the country’s tobacco sector are emanating from ownership patterns as we only have 12 tobacco exporting companies that are real funders with over 25 companies being surrogate buyers who work for the main exporting companies,” the source said.

“A few big Chinese companies and subsidiaries of the New York Stock Exchange listed companies have the most surrogate buyers who buy tobacco for pittance at the expense of unsuspecting farmers.”

Experts say tobacco production is likely to plummet in the next five years due to hyper competition.

But the source said TIMB should be interrogated as to why the sector has so many buyers yet there are just few buyers who have side buyers who do their donkey work.

“TIMB should produce a list of buyers and the amount that they brought to prove their innocence, they say they don’t want side-marketing when they approve side buyers who haven’t supplied inputs to any farmer,” the source said.

“The process is that if a farmer produces his or her golden leaf he/she either sells it to the auction floors or contract that is if one is contracted but the surrogate buyers are coming from nowhere wanting to buy tobacco they have not supplied inputs on and the regulator remains silent on the issue.”

Recently, the Justice Mayor Wadyajena-chaired Parliamentary Portfolio Committee on Lands and Agriculture blamed the TIMB for siding with the tobacco merchants at the expense of the tobacco farmers.

TIMB chief executive Meanwell Gudu said the board will tighten the regulations to ensure there is maximum adherence to rules.

“As TIMB we have a register for all the buyers and we are satisfied with what we have seen, according to our discretion but what we are planning to improve on are our rules and regulations to ensure all stakeholders have what is needed to operate,” Gudu said.

Experts warned that the strict policies could have long term effects on the country’s tobacco production.

Tobacco is the fourth largest foreign currency earner behind platinum, diaspora remittances and gold.

But the sector has been ravaged by contractors and merchants who have the financial capacity to extend lines of credit to farmers. The experts say local funding is the way to cut merchants’ influence on tobacco production.

The government through the AFC Holdings is expected to spearhead the local funding to reduce the cost of tobacco production.

Tobacco merchants deduct their dues at the floors, a situation which has seen some tobacco farmers taking home negative balances as some debts are carried forward.

Farmers’ output, they claim, has not been creating sufficient returns to repay the loans in full and at least take home something significant.

This implies that the pressures on tobacco farmers are substantial.

The dire situation has threatened farmers’ viability, a situation that has left most tobacco farmers living on the margins.

Farmers claim that the debt levels are now unsustainable with some having ballooned to critical levels.

The debts have been building up in the past few years.

About 90% of growers are now 100% US$ borrowed from their contractors implying no new US$ comes into the country until US$ loans are repaid.

The average price for the auctioned tobacco stands at US$2.82 per kilogramme against the contracted price of ZWL$2.76 per kg.

According to the TIMB tobacco marketing regulations, the lowest contract average price should be at the same level with auction price but most of the times higher.

But for the majority of the season the auction prices have dominated the proceedings and the regulator and the agriculture ministry have turned blind eye to the anomaly.

In a survey by this publication, the auction system is rejecting farmers’ bales at an alarming rate leaving farmers with no option but to sell their golden leaf to the contractors at a discount.

According to TIMB, the auction rejection rate stands at 13.84% with the contract rejection rate standing at 2.44%.

Official figures obtained from the TIMB say that as of Monday this week, US$522.6m was grossed with US$443m going towards repayment of loans.

With over 95% of the country’s tobacco production being contract farming, the bulk of money will go back towards the payment of their obligations.

TIMB is pushing for local funding to eliminate various irregularities in the industry.

Gudu wants to improve local funding to 70% in the next four years to improve the viability of the tobacco sector.

The tobacco season officially ended yesterday at 188.8m kg with mop up sales expected to end above 200m kg.

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