Errant tobacco merchants under scrutiny

Source: Errant tobacco merchants under scrutiny | Herald (Business)

Tobacco is the country’s second largest export earner after gold.

Martin Kadzere
TOBACCO merchants registered more growers than they funded while others over-declared the value of inputs, the Tobacco Industry and Marketing Board (TIMB) has said.

The TIMB is currently validating the value of inputs and quantities given to farmers this season to ascertain if contractors complied with required minimum support levels.

While the exercise is yet to be completed, indications are that several tobacco merchants had over-declared the value of inputs and the number of farmers supported.

Under the new contract regulations, tobacco contractors are required to provide inputs worth US$1 000 per hectare for smallholder farmers and US$4 000 for large-scale growers.

“What we have is that a lot of big and smaller dealers had registered more growers than they funded and those growers will be de-registered and can sign up with other contractors,” TIMB chairman Mr Patrick Devenish told The Herald Finance & Business.

Contractors who overstated the value of the inputs can only recover what they invested.

“We want to avoid what happened in the cotton industry when merchants registered more growers that they funded,” said Mr Devenish. As a result, some contracts failed to recover their investments due to rampant side marketing.

In 2014, cotton funding dropped to US$22 million from US$42 million in the previous season due to the risk associated with a model where, the higher the level of financing, the lesser an investor can buy.

Cargill, one of the major cotton financers closed down in 2014, while Cottco’s debt soared to nearly US$50 million due to poor recoveries.

Cargill, which had more than 20 000 farmers under its cotton contract scheme countrywide, said it significantly suffered from low cotton output, depressed margins as well as high levels of breach of contractual obligations by cotton growers.

Tobacco is the country’s second largest export earner after gold. This year, output declined to 183 million kg, a 27 percent drop from a record 252 million kg last year.

While the effect of climate change is regarded as a major contributor to poor yields, agricultural analysts say inadequate agronomy support takes a fair share of the blame.

The new funding regulations are expected to flush out errant merchants who have been inflating investment figures or register growers who would have not been supported.

About 95 percent of tobacco farmers are funded by contractors because the majority lack collateral such as land titles to borrow.

Under the contract arrangement, contractors recover their money from earnings through a stop order facility.

In the previous seasons, there had been a spike in the number of contractors accused of underfunding farmers but deduct substantial amounts from proceeds of the crop.

Some critics of the inputs credit schemes say cosmetic financing has been one of the challenges of the financing model not only in tobacco but in other contracted agricultural commodities such as cotton where merchants just provide little support.