Tobacco contractors in US$200m scandal

… Merchants capitalise on country’s currency confusion … Farmers threaten to smuggle tobacco to Zambia



TOBACCO contractors have been fingered in a US$200m scandal where they are said to be conniving with buyers to purchase the golden leaf at very low prices so that they can get a massive mark-up for the job

Across all tobacco floors and contractors, this year’s tobacco is selling at an average price of US$1.72 per kilo against last year’s price of US$2.76/kg.

Given that international buyers mobilised close to US$1bn for the purchase of Zimbabwean tobacco, low prices show that there are some underhand dealings going on.

In a survey done by Business Times, various contractors are blaming erratic rainfall patterns and stellar tobacco seasons in China and Brazil, two of the world’s biggest tobacco producers for the low prices.

Despite that claim, the world requires three million tonnes of tobacco annually and China and Brazil have only managed to grow close to two million tonnes, which means there is still a huge gap and high demand for raw tobacco due to low output in Malawi and Zambia.

A source within the Tobacco Industry and Marketing Board (TIMB) told this publication that most contractors had seized the opportunity on the currency confusion in Zimbabwe to make money from very low prices offered to the farmers. 

“Contractors have capitalised on the central bank’s delays to announce proper payment methods on time and have convinced the buyers that tobacco can be bought at a rate just above US$1/kg and the farmer will get that amount tripled or quadrupled in local currency,” the source said.

“On the deal, the buyers [who mobilised US$1 billion] will use close to US$400m to purchase the country’s golden leaf, then give contractors US$200m for ensuring that they get tobacco at very low prices, and the remaining US$400m will return to their respective countries, resulting in Zimbabwe losing millions of forex,” the source added.

This is likely to further reduce already dwindling exports as tobacco is one of Zimbabwe’s largest foreign currency earners,accounting for a fifth of total export earnings. Last year, tobacco was the second largest forex earner (with US$892m), behind gold which raked in US$1.5bn.

The low prices have discouraged farmers from delivering their crop. They are holding on to it to see if the situation will change.

By Tuesday (Day 19 of the marketing season), farmers had delivered 15.1 million kg of tobacco while earning US$26m in the process, against 34.8 million kg delivered during the same period last year which earned them US$96.3m.

Some farmers are opting to sell their crop to middlemen at an average price of US2/kg, which is better compared to the prices on the tobacco floors, given that a farmer does not have transport headache and other costs when selling to the middlemen.

Business Times learnt this week that some tobacco growers are planning to smuggle the golden leaf to either Malawi or Zambia where prices are better.  The smuggling threat comes at a time Zimbabwe has already projected an output of between 220 million and 240 million kg this year.

Tawanda Nyamande, a Shamva farmer, said the Reserve Bank of Zimbabwe should hold an emergency meeting with farmers to correct the deepening anomalies in the tobacco sector as what is happening now would make farmers to sell their crop in alternative markets.

“As long as we are still getting a dollar per kg, we will not sell to auction floors. We will sell it to middlemen or hold on to our crop to see if there is a change, and if not we will seek alternative markets,” Nyamande said.

He blamed the government for the current low prices as the government. “Some opportunists have already found an opening and they have already pounced. The country will lose the much needed forex through these poor prices and the authorities are not taking any action to rectify that,” Nyamande bemoaned.

However, a number of contractors believe that farmers are still bringing their primings, which don’t fetch much money.

But Kuda Saringo, the Agritrade leaf tobacco field operations manager, said the country’s tobacco had been affected by very dry weather conditions in mid-February, hence the major decrease in quality. He said buyers wanted “good value for their money. Good quality tobacco always attracts good money.”

According to him: “The country has had a good tobacco crop all along but serious moisture stress in February caused false ripening, resulting in farmers getting poor tobacco this year,” Saringo said.

Despite his justifications, there is still quality tobacco being sold for a song (US$1.30/kg).

On a number of floors, it is rare to see a price above US$2/kg, which experts say is suspicious since there are a number of big tobacco farmers who have irrigated their crop and were not affected by the dry spell.

If some farmers complain about low prices, some contractors separate them and offer them a high price of around US$4/kg, this paper was told this week.

The accused contractors are offering farmers good transport costs from their collection points and free tea for all who bring their tobacco to their premises.

Auction floors are not even better in terms of prices as almost the same prices of around US$1,30 per kg are more frequent at the floors.

Isheunesu Moyo, TIMB spokesperson, said no case has been reported to them, though they “just hear in the corridors that there are such cases of money dealings and how farmers are being short-changed farmers.

“However, we are going to carry out independent investigations on the allegations to see if they are true or not. If the alleged perpetrators are found guilty, they will be banned for many years or even for life, and the law of the land will take its course,” Moyo said.

Early this month, TIMB chief executive Andrew Matibiri told Business Times that the tobacco regulator would pounce on all errant tobacco merchants, mafia, cartels and middlemen who “make tobacco trading difficult or make life harder for our farmers who are putting so much effort to generate forex.

“We are going to revoke licences for all unscrupulous dealers and suspend them for a year or two,” Matibiri said. “Some contractors like Agritrade witnessed our ugly side last season when we closed their floors in Rusape. This year we will deal decisively on all cartels or mafia and the police will be readily available to help us in these operations.”

Ethical Leaf Tobacco (ELT), which was at the centre of last year’s controversy of fleecing tobacco farmers said it was not their fault that most farmers found that they were erroneously included in their database. Instead ELF blames TIMB’s old system for inaccurately registering tobacco farmers with various contractors.

Doesmatter Muvimbi, ELT spokesperson, told Business Times that his company was not part of the alleged shenanigans as ELT was offering the highest prices for tobacco across all floors and contractors.

“Currently, we have the highest price of US$5.60/kg, way more than anyone in the market to date,” Muvimbi says. “Those controversial issues of a US$200m payment may be found at auction floors where many buyers and operators meet to discuss prices. I’m not laying the blame on anyone or defending other contractors, but auction floors might have those issue, rarely contractors.” 

 Mary Machingaidze, the managing director of Tobacco Sales Floor (TSF), said the floor was selling its tobacco on commission and would want farmers to get high prices so that TSF would get high commissions.

She said TSF was concerned by the current prices, given the “hard work” that farmers put in, in producing the crop. 

“We don’t know anything about what is being said and what is happening, but we are all hoping to see prices increasing after the Easter
holidays,” Machingaidze said.