Going, going ... gone!
ZIMBABWE’S main tobacco regulatory body is lobbying Government to provide financial support to auction marketing system, warning that its collapse could lead to massive price manipulation.
Zimbabwe has a dual marketing system where produce is sold via auction or contract.
CEO of the Tobacco Industry and Marketing Board Dr Andrew Matibiri told The Sunday Mail Business that stakeholders had engaged Government to make a case for auction sales.
“It is something that we are aware of and we have engaged authorities to consider funding tobacco farmers to ensure the auction system remains alive,” Dr Matibiri said.
Reserve Bank of Zimbabwe Governor Dr John Mangudya confirmed the central bank was talking to the TIMB and other stakeholders about the matter. The RBZ has been supporting agriculture, including cotton and tobacco production.
The auction system, which determines minimum grade prices for contract sales, has been falling with 80 percent of the crop now being sold via contract.
Tobacco is Zimbabwe’s largest foreign currency earner, with production in 2016 reaching 200 million kg, earning the country close to US$1 billion dollars.
Some industry players are worried that the decline of the auction system could allow price manipulation in favour of contractors.
Zimbabwe’s tobacco auction system was once the world’s marketing model, but “free” produce has shrunk as farmers fail to self-finance.
About 2 000 commercial farmers — mostly white — were involved in tobacco production prior to the Fast-Track Land Reform Programme. Land reforms opened up the sector and there are now around 100 000 registered tobacco farmers.
And Zimbabwe Commercial Farmers Union president Mr Wonder Chabikwa says these growers need funding models that lead to self-sufficiency.
“The auction marketing system is dying because about 80 percent of these farmers are financed by the contractors, as they cannot get credit from banks,” said Mr Chabikwa. “We must appreciate that this is not the best model of financing agriculture. We used to have 20 percent of the crop coming from contractors, but it is now vice-versa. We must avoid what happened in the cotton industry, which saw the sector virtually collapsing.” The cotton industry was viable until the early 2000s, but a combination of factors — key among them low bank financing — saw it slump until the very recent revival occasioned by Government intervention.
Zimbabwean farmers find it hard to access credit from financial institutions because they do not have security.
Government has issued 99-year land leases and permits to some farmers, but growers say banks do not recognise these documents as collateral. Top banker Mr John Mushayavanhu said most banks were recognising permits and 99-year leases as collateral, but loans application were being rejected for “other reasons”.
The Zimbabwe Tobacco Association said the pricing regime needed to be urgently reviewed to restore viability in auction tobacco and increase competition.
“The contractor is the lender, input provider, classifier, purchaser — all in one,” ZTA chief executive Mr Rodney Ambrose said. “We see a prevailing situation were growers are being deliberately kept in debt or near break-even, through micromanagement so that contractors can have a guarantee of supply for medium to long-term.
“This is the reason why we see prices declining each season despite demand and supply dynamics, yield and quality variances.” The RBZ recently unveiled a US$50 million export facility, being disbursed through Agribank, to fund agriculture. There is a lobby to have a chunk of these steered towards tobacco because the crop would bring in revenue.
Zimbabwe has finalised modalities to decentralise tobacco auctioning starting next year. This will de-congest the floors in Harare and reduce costs incurred by growers when delivering their crop.
Boka Tobacco Floors, the country’s biggest auction market, said it would comply with decentralisation but questioned if it was viable to have buying points around the country when farmers were increasingly taking the contract route.
“Government has made a position that we should set up minifloors outside Harare and we are investigating how best we can establish infrastructure in areas that would provide better investment case,” it said.