LIVINGSTONE MARUFU
Merchants have tightened their grip on the country’s tobacco sector amid revelations that most contractors are owned by international buyers and being fronted by locals, Business Times has learnt.
There are 39 contractors for the current marketing season. Nearly 75% of the contracted companies depend on tobacco merchants.
In the process of handling farmers’ tobacco, they buy the golden leaf from farmers at a pittance to make profits for the international buyers at the expense of the farmers.
Contractors make their money through buying tobacco at low prices.
A source close to the developments told Business Times that Zimbabwe should move with pace to deal with tobacco financing to reduce the power of the merchants as they control the whole tobacco selling system beyond government’s control.
“We have 39 contractors this season but 30 of those are firmly controlled by the international buyers who can source offshore funds from international lenders. As contractors what we mainly do is to chase after the farmers who fail to repay their loans and agree with them if we can roll over the debt or not,” the source said.
Experts say that the tobacco policy should be rolled into action to thwart the tobacco merchants from financing next season’s tobacco otherwise it could be the same situation.
The average price for the auctioned tobacco stands at US$2.81 per kilogramme against the contracted price of ZWL$2.75 per kg.
According to the Tobacco Industry and Marketing Board (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 three months that the floors have opened the anomaly has dominated the proceedings and the regulator and the Agriculture Ministry have turned a blind eye.
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 14.04% with the contract rejection rate standing at 2.58%.
Official figures obtained from TIMB show that as of Monday this week, US$478.7m was grossed with US$446.8m sold under the contract system.
But from US$478.7m generated so far, the country is benefitting only US$72.7m with US$311m going towards the repayment of offshore loans to the tobacco merchants and insurance.
While on the expected US$540m, close to US$460m will go towards the repayment of loans and insurance while US$80m will benefit the country.
With over 95% of the country’s tobacco production being contract farming, the bulk of money will go back towards the payment of their obligations.
TIMB is pushing for local funding to eliminate various irregularities in the industry.
TIMB chief executive officer Meanwell Gudu told Business Times that the Agriculture Finance Company-led financing will be a panacea to most of the problems.
“There is a lot of speculation and conspiracy theories in tobacco but our focus is to ensure that if we can have an onshore funding rather than offshore we can be able to overcome challenges,” Gudu said.
He wants to improve local funding to 70% in the next four years to improve the viability of the tobacco sector.
Tobacco is the fourth largest foreign currency earner behind platinum, diaspora remittances and gold.
But the sector has been ravaged by the contractors and merchants, who have the financial capacity to extend lines of credit to farmers.
Tobacco merchants deduct their dues at the floors, a situation which has seen some tobacco farmers taking home negative balances as some debts are carried forward.
Zimbabwe Tobacco Association CEO Rodney Ambrose said around 85% has gone to clearance of loans and local funding could change the tobacco marketing landscape.
“The crop is 80% -100% funded offshore with premiums paid externally but this could change if tobacco was locally funded,” Ambrose said.
Farmers’ output, they claim, have not been creating sufficient returns to repay the loans in full and at least take home something significant.
This implies that the pressures on tobacco farmers are significant.
The dire situation has threatened farmers’ viability, a situation that has left most farmers on the margins.
Farmers claim that the debt levels are now unsustainable with some having ballooned to critical levels.
About 90% of growers are now 100% US$ borrowed from their contractor, implying no new US$ comes into the country until US$ loans are repaid.
The government believes the Tobacco Transformation Plan’s objectives will help to increase tobacco production and productivity to 300m kilogrammes annually, primarily through yield increases, and post-harvest loss reduction, while enhancing traceability, compliance and environmental stewardship.
