Tobacco farmers concerned with depressed auction floor prices

Source: Tobacco farmers concerned with depressed auction floor prices | The Financial Gazette June 22, 2017

By Tabitha Mutenga, Features and Supplements Editor

TOBACCO auction floor prices have lagged behind those offered to contract farmers for their crop, triggering speculation that contractors were angling for total control of the market.
The development had angered producers, who say buyers were failing to offer good prices for tobacco sold on the auction floors in order to undermine the market and force farmers into contract arrangements.

Zimbabwe Commercial Farmers Union president, Wonder Chabikwa, said there was volatility on the auction floors throughout the season mainly because of the poor prices prevailing at the auction floors.

“The auction prices are highly disappointing, yet the same merchants who are also the contractors are the people who buy the crop at the auction floors. They offer prices that are below $5 per kg at the auction floors and can go as high as $6,50 for contract sales,” said Chabikwa.

“As farmers, we feel that this move is deliberate as contractors are trying to push for 100 percent contracted crop so that they gain full control of tobacco production in Zimbabwe. For now, they do not have control over the free tobacco.”

Farmers are arguing that this year’s crop cannot fetch low prices because it is of good quality.
But buyers say the crop has suffered from heavy leaching due to incessant rains that affected the weight and quality of the leaf.

“The whole pricing system at the auction floors is highly unfair and even under contract, farmers are just floating or they barely have their heads above water. They are paid enough to survive as merchants a ripping them off,” Chabikwa said.

Last year, 75 000 growers produced 203 million kg of the tobacco crop on 95 000 hectares, with statistics showing the country earned $589 million from that crop, which constituted 15 percent of the country’s gross domestic product.
Yield per hectare was at 2 100 kg, with returns per hectare around $6 100.

The marketing season opened on March 15 with a price of $4,60 per kg, which was two percent higher than the opening price for the previous season of $4,50.

As the season progressed, prices declined by two percent compared to the 2016 prices during the same period.
Area put under tobacco increased by seven percent from 102 000 hectares in 2016 to 110 000 hectares in 2017, while production is projected to reach 215 million kgs, with the Reserve Bank of Zimbabwe Quarterly Report indicating expected earnings of $980 million by the end of the marketing season around the end of next month.

However, stakeholders in the industry believe that earnings this year will be just above $600 million since most of this year’s crop was affected by the heavy rains.

In the 60 days of trade since the tobacco selling season started, statistics from the industry regulator, the Tobacco Industry and Marketing Board, show that from 158 million kgs, the country had earned $457,5 million.
World production data, excluding China, shows that Brazil is expecting 605 million kgs, Malawi 15 million kgs, South Africa 20 million kgs, Zambia 26 million kgs and India 210 million kgs.