Tobacco auction floors under threat

via Tobacco auction floors under threat – NewsDay Zimbabwe July 10, 2015

CONTRACTORS now account for 75% of the tobacco sales as Zimbabwe’s auction floors continue to be pushed to the periphery, latest data has shown.

BY NDAMU SANDU

Statistics from the Tobacco Industry and Marketing Board (TIMB) show that of the 183 405 005 kg of tobacco that had been sold as at Wednesday, contract sales accounted for about 75% (137 530 319 kg).

The statistics have raised fears that the auction system was on its way out marking the end of transparency in tobacco marketing. A farmer unhappy with the prevailing price can either hold the crop or take the tobacco to another auction floor.

Under the contract system, a farmer has to sell the crop to the contractor who provided the inputs and expertise.

“Interventions have to be made. Without that we can say goodbye to the auction system. No farmer would want the contract system because of its stringent requirements, but they are forced to embrace it as banks are not financing farmers,” an expert said.

Prices on the auction floors are used to generate the price matrix on the contract sales. This means that 25% of the crop was used to determine the price for the 75% which experts say was bizarre.

There are now fears that the golden leaf sector would go the same route as the cotton industry which was killed by an influx of contractors.

“An influx of contractors who were not properly vetted is what killed the cotton industry. While low international prices were regularly blamed, it is actually the influx of contractors who made regulation very difficult in the cotton industry. This is exactly what is happening in the tobacco industry and in a few years, auction floors will collapse and the transparency in tobacco marketing will be gone,” an expert told NewsDay.

TIMB chief executive officer Andrew Matibiri said the current situation was unfavourable but was necessitated by the absence of funding from banks.

“As long as the situation persists, farmers will be forced to seek funding from contractors,” he said.

“We are concerned by the situation, but without money there is nothing we can do.”

Matibiri said TIMB was in constant discussion with its principals in government and the Bankers’ Association of Zimbabwe.

The dual marketing system of tobacco was introduced in 2004 to help boost output after the fast- track land reform programme had decimated production. The new farmers had neither the knowledge nor financial resources to undertake commercial production.

Banks have not been lending much to the sector as government is failing to bring closure to the land reform programme as the 99-year lease were not substitutes for title deeds and hence cannot be used as collateral to secure funding from banks.

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