The Sunday Mail
THREE tobacconists were recently suspended by the Tobacco Industry and Marketing Board (TIMB) for failing to comply with marketing regulations, a move seen as a positive step towards restoring normality in marketing Zimbabwe’s second largest source of foreign currency.
The sector regulator has suspended the companies – Munakiri Leaf Tobacco, Vision Leaf and Mbaluk Leaf – for purchasing more tonnage than the maximum allowed under the contract.
Excess tonnage is supposed to be auctioned off.
“On June 14, 2022, TIMB suspended the operations of three contracting companies for breaching Section 5 of Statutory Instrument 61 of 2004 (Exchange Control Tobacco Finance Order), which states: “A contractor shall purchase as much of the value of contract tobacco produced by a contract grower is equal to the amount used by the contractor to finance the grower, and any remaining balance may be sold by the contract grower as tobacco at auction,” the TIMB said. “As a result of deviations outside the regulations. . . all three were discontinued for this season.
Munakiri Leaf Tobacco, for example, funded tobacco to the tune of $380,000 to support nearly 400 hectares.
However, as of Tuesday, the company purchased 1.72 million kg worth approximately $4.8 million, according to TIMB’s suspension letter. Industry players said strict enforcement would promote investor confidence and eliminate shadow marketing.
“Contract farming is one of the proven value chain finance models that has sustained our tobacco industry,” said Dr. Midway Bhunu, Agricultural Economist.
“Bringing common sense to the system is a noble development. We strongly recommend the multi-stakeholder dialogue for a critical analysis of the problems of the parties concerned, in particular the contracting companies and the farmers. The main drivers of shadow marketing are low productivity, low prices and poor pricing policies. Farmers behave this way to maximize their profits. I therefore recommend a holistic approach to the problem.
Parallel marketing takes place when a trader buys tobacco that he has not contracted or when a farmer chooses to sell to another trader. What usually drives farmers to turn to the parallel market includes attempts to avoid repaying loans they would have obtained in the form of inputs. Almost 95 percent of tobacco in Zimbabwe is financed by private merchants under various contract farming schemes.
While Zimbabwe boasted a vibrant auction marketing system, however, the viability of tobacco growers has been seriously eroded following the introduction of the dual marketing system now dominated by contract floors. There are more than 65 floors under contract across the country, the majority of which are makeshift facilities that pose major transparency risks and are seen as undermining the effectiveness of tobacco marketing. In recent years, many tobacco growers have failed to recoup their investments largely due to shadow marketing.
Low yields can also lead to poor recoveries. In some areas, the recovery rate has been as low as 40%, according to some traders.
“The idea of having many subcontractors is not bad as long as they follow the laws,” said Commodity Analyst Mr. Carlos Tadya.
“Having many contractors gives farmers more choice, which forces traders to offer better deals to farmers, but it becomes a disaster if compliance is not rigorously enforced.
“However, the multiplicity of contracting companies has led to a lack of adequate regulatory enforcement, which has created fertile ground for shadow marketing. ‘outside.
“The closer traders get to farmers, the greater the propensity for parallel marketing.”
Analysts maintain that shadow marketing presents a “tremendous challenge” to growing an industry that supports nearly 150,000 households. Effective enforcement is considered essential to curb the practice.
At the start of the tobacco marketing season, the government issued regulations to punish players who break the marketing rules. Contractors and contract growers involved in parallel marketing are now required to compensate three times the loss suffered by any tobacco dealer involved.
Merchants must also meet minimum funding requirements.
The chief executive of the Zimbabwe Tobacco Association, Mr Rodney Ambrose, told the Sunday Mail Business that shadow marketing increases the risk for investors.
The suspension of errant traders, he said, was a “very positive move by TIMB”, adding that blacklisting producers who engage in shadow marketing would improve investor confidence, would reduce risk and guarantee better prices for producers. Tobacco contributes about 10% to the gross domestic product (GDP) and is one of the main export products. Production gradually increased to a record 252 million kg in 2019.
The government plans to increase production to 300 million kg and encourage investment in value addition and beneficiation.