THE current dual tobacco marketing system is here to stay even though auction floors appear to be slowly elbowed out by contractors, the Tobacco Industry and Marketing Board (TIMB) has said.
BY TARISAI MANDIZHA
The contract system was introduced 11 years ago to boost output which had tumbled in the wake of the fast-track land reform exercise that decimated agriculture production at the turn of the millennium.
Contract tobacco marketing is now accounting for 80% of the total tobacco sales, threatening the survival of auction floors.
TIMB chief executive officer Andrew Matibiri last week said that there was no reason to do away with the dual marketing system.
The contract system has in recent years sparked protests by small-scale farmers because of the huge price gap between the tobacco sold through the auction system and that for contract farmers.
“Auction floors have maintained 20% while contractors have maintained 80% of the total volumes,” Matibiri told Standardbusiness.
“More tobacco is being grown under contract schemes because of the funding.
“Financial inclusion is meant to benefit non-contracted farmers who have a good track record.
“When non-contracted tobacco farmers start receiving funding from financial institutions, volumes will increase at the auction floors,” he added.
“Auction floor operators are also carrying out programmes to promote the selling of tobacco under the auction system.”
Statistics from the TIMB showed that as of Thursday, the contract system had handled 159, 5 million kgs while the three auction floors handled a combined 35,7 million kgs. TIMB licensed 17 contractors for the 2016 marketing season.
Tobacco sales for 2016 reached 195, 4 million kgs generating $574,5 million.
The price of tobacco as of Thursday averaged $2,94 per kg, the same price that prevailed during the same period last year.
Commenting on the pricing system, Matibiri said the primings and the lugs were affected by the El Niño-induced drought and this reduced the average prices.
A contract system advocate John Mapondera said it was a choice that the country had made to turn around tobacco production and it was an ideal system given the economic situation in Zimbabwe where funding was a challenge.
“The contract system came about to address the critical issues of funding and with this, Zimbabwe has been able to turn around its tobacco system,” he said.
“There are farmers who are able to fund themselves and they use the auction selling system.”
Mapondera said TIMB was working towards introducing an e-tobacco marketing system, which would contribute to the leveling of the playing field between auction floors and contract system.
“As of now, there are no alternative solutions that can replace the contract system to be able to fund the production.
“TIMB e-tobacco marketing system will contribute to the level playing field between auction floors and the contract system,” he said.
“If it was possible for our banks to access finance to fund local production, we would still need the contract system to boost production.
“Contract system is a choice we have made.”
Zimbabwe Tobacco Association (ZTA) chief executive officer Rodney Ambrose said the reason auction floors were handling less tobacco than contractors was that the main world consuming markets demanded tobacco that was compliant and traceable.
Ambrose said contract tobacco guaranteed this from the seed, chemicals, good agricultural practices and sustainable curing fuels.
“A lot more needs to be done to make auction tobacco compliant and traceable,” he said.
“Also, in the current economic environment, with little financial support to individual farmers from the banking sector, more farmers will favour contract.
“So in the short to medium term, auction floors market share will shrink.”
Commenting on the 2016 tobacco production of 195 million kgs, Ambrose said the volume sold was commendable, given the El Niño conditions.
“We certainly didn’t expect a crop size similar to last season. The late rains did salvage a fair portion of the late dry land crop that was under stress,” he said.
“The El Nino, however, did affect the quality of the tobacco offered and this has resulted in a weaker seasonal average price.”
Ambrose said ZTA was not happy with the 2016 season returns, which was a third consecutive season of diminishing returns for farmers.
“The season is a far cry from the very profitable seasons of 2012 -2013,” he said.
“With no economically viable alternative crop to tobacco, many farmers continue to grow the crop and a large number of them have fallen into spiralling debt.
“The low percentage of farmers who produced good quality tobacco with high yields averaged fair to good returns.
“Production levels need to be controlled, with more emphasis given to yield and quality improvements and compliance per merchants’ requirements.
“Of concern to farmers is the growing profitability to manufacturers while farmers suffer diminishing returns,” he added.
“We are extremely grateful to the government and the Reserve Bank of Zimbabwe for recognising the tobacco farmer as an exporter and awarding them 5% exporter’s incentive to be paid later in the year.
“This will help in some ways to address farmer viability.”