…Average price nosedives …TIMB probes anomaly
LIVINGSTONE MARUFU
The Tobacco Industry and Marketing Board (TIMB) has launched a probe into how contractors could be ripping off farmers by manipulating prices of the golden leaf as fresh troubles hit the multimillion dollar sector, it has been learnt.
The investigation comes as prices being paid by contractors are lower than those prevailing at the auction floors with farmers saying price manipulation is taking a toll on their operations.
TIMB chairman, Patrick Devenish, told Business Times that the tobacco industry regulator has observed that anomaly and investigations were underway.
“We are following up those developments and after the completion of investigations we hope to resolve that anomaly as quickly as possible,” Devenish said.
Farmers want the government to intervene in order to rescue them from ‘greedy’ merchants.
It is understood that more than 95% of tobacco farmers are contracted by merchants and other private companies, who have the financial wherewithal to fund inputs and other critical raw materials. The majority of them are incurring severe losses as merchants would then deduct what they are owed at the point of sale of the golden leaf.
According to the Tobacco Marketing and Levy (Amendment) Act of 1997, all tobacco contracts should fetch prices higher or equal to those prevailing on the auction floors.
But, for the first time in many years, the price of tobacco auctioned, has been higher than the contract prices.
At the beginning of the selling season, contracted tobacco was fetching an average price of US$2.40 per kilogramme (kg) while auctioned tobacco averaged US$2.15 per kg.
But, last week, the price of contracted tobacco was pegged at US$2.60 per kg compared to US$2.66/kg for auctioned tobacco.
This was a violation of the Tobacco Marketing and Levy (Amendment) Act of 1997.
Farmers who spoke to Business Times this week described the merchants as “mafia”.
Zimbabwe Commercial Farmers Union president, Shadreck Makombe told Business Times that the drop in contracted tobacco prices will impoverish the farmers.
“In the past few weeks, I have seen a significant drop in contract prices compared to the auction ones, this is worrisome in that the majority of farmers are now contracted and they can’t service off their debt.
“This may result in some farmers losing their cattle, carts and other valuables when merchants move to recover their money,” Makombe said.
He added: “On Monday, over five farmers came to my office with zero balances in their accounts and we have to run around to see that they can go back home safely. This is not supposed to happen at a time when one has a business contract with a tobacco merchant, therefore there should be an arrangement which should leave a farmer with a certain amount of money that can allow him to go back home and rearrange.”
Several farmers said the situation was worrisome.
“The tobacco contractors have colluded on prices to ensure that farmers will languish in debt and will not be able to finish off debt. Having seen that farmers were starting to gain ground, the merchants convened mid-April to start fixing the prices and from the early 20s of April the pricing started falling,’ one source said.
“These people are a mafia who operate the underworld market and they don’t want a farmer to have something to count on his or her toil. The same way they denounced e-marketing so that it would be deemed worthless is the same way that they have manipulated the contract system.”
This year’s tobacco was commended for its good quality but the tobacco merchants are seeing otherwise.
It was expected that from the US$600m brought by contractors and merchants, local tobacco farmers would get a significant chunk.
But projections are that they will get less than US$150m.
The low foreign currency retention level is also contributing significantly to the crisis facing local tobacco farmers, the farmers said.
Tobacco has been one of the leading foreign currency earners for the foreign currency-starved economy.
It emerged this week that the contractors and merchants, who have extended lines of credit, are deducting their dues at the auction floors, leaving some farmers taking home negative balances as some debts are carried forward.
Farmers’ output, they claim, has not been creating sufficient returns to repay the loans in full and at least take home something significant.
Most farmers who have been over relying on borrowing said they can no longer carry the debts, which are spiralling out of control.
The dire situation has threatened farmers’ viability, a situation that has left most tobacco farmers living on the margins.
The farmers claim that the debt levels are now unsustainable with some having ballooned to critical levels.
About 90% of growers are now 100% US$ borrowed from their contractor, implying no new USD comes into the country until USD loans are repaid.
Makombe said local financing of tobacco is the way to go.
“We are planning to take a bull by its horns as we want to push for the tobacco financing at Agriculture Finance Corporation to reduce the influence of merchants in the tobacco sector. This could see our farmers borrowing at a single digit and improve production along the way,” Makombe said.
A recent report by the Zimbabwe Tobacco Association report shows that irrigation yields vary from 3200 to 4000kg/ha.
Agriculturalists say though the quality of the crop cured is very good, diseases such as angular, wildfire, altinaria were reported in a number of areas.
Dry land estimates go as low as 2000kg/ha up to 3000kg/ha for commercial growers and 800kg/ha to 1400kg/ha for subsistence farmers.
The higher than normal rainfall has resulted in some areas experiencing water logging of fields and leaching of some crops with a thinner crop expected.
Reaping is estimated towards the end of April.
Wood continues to be the major source of curing fuel. This has seen the depletion of tracts of forests with little intervention by any of the authorities or the industry at large.
Seed sales reflected a 27% increase at 940kgs sold and this could have potentially planted close to 150,000 hectares.
The number of registered growers has remained static at 146,000 with minimal new entrants.
Auditing of contractors’ submissions is still underway, but it could be estimated that 124,000 hectares were put under contract plus a further 5% of crop under auction; implying total hectares planted could be close to 130,000 hectares.
A significant number are middlemen buyers/contractors for the larger companies, who remove value from the tobacco bought from farmers.
This contributes to lower prices being paid.
Across the country middlemen have capitalised on low prices offered at the contract floor to mop up tobacco in various farming areas to buy tobacco at an average price of US$2.20 per kg.
The middlemen would say that the farmers will not have transport costs, floors charges and bank charges among other costs.
