Cartels emerge in tobacco industry

23 Mar, 2018 - 00:03 0 Views

eBusiness Weekly

Golden Sibanda
Caprious cartels have emerged in Zimbabwe’s tobacco industry, as it emerged merchants are prejudicing farmers of millions of dollars through a finely crafted syndicate that is colluding on prices and making a killing out of reselling their crop.

Tobacco farming has grown to become one of Zimbabwe’s foremost strategic industries, employing hundreds of thousands of workers and supporting several industries directly and indirectly.

Sources say the fraudulent practice has been going on for years amid a proliferation of inter-merchant tobacco sales, reportedly being sustained, largely, by trade in a tobacco crop bought at grossly discounted prices from the hapless farmers.

The syndicate also takes advantage of farmers’ lack of knowledge of processes, which also sees tobacco financed from own funds being diverted and sold as if it was grown under contract system, with farmers eventually getting a pittance.

In instances, farmers lose out completely as their crop disappears at the auction floors after it is diverted or stolen.

This also happens through spot registering farmers, who produce with own funds, to sell as contract farmers, as well as charging auction fees on unsuspecting farmers who are self-financed.

The fact that unlicensed merchants are also operating willy-nilly has thrown into question the efficacy of the regulatory system, with opportunist buyers operating freely and undercutting farmers.

The practices are threatening the production of Zimbabwe’s single biggest foreign currency earner, as some frustrated farmers mull dumping tobacco farming over lack of viability due to low prices.

A similar scenario collapsed cotton farming, which peaked at 352 000 tonnes in 2011, but plunged to 28 000t in 2016, as farmers protested over low producer prices. With better prices, cotton production has since recovered to about 100 000t.

Zimbabwe, now Africa’s biggest tobacco producer; produces three known species of the crop, namely burley, oriental, and Virginia flue-cured tobacco.

While the industry has blossomed, some farmers are crying foul over poor prices, claiming this has made their business unviable.

With unconfirmed reports from the industry saying external buyers have committed about  a $1 billion to purchasing of tobacco in Zimbabwe this year; very little might accrue to the farmers who toiled all year round to produce the golden leaf.

A total of 104 397 hectares was planted in the 2017/18 season compared to about 106 000 last season. Average yield for this year is expected to be 2 300 kg/ha for the irrigated crop and average output per hectare of dry land is seen at 1 700kg/ha.

Farmer registrations increased by 45 percent to 122 520 from 84 221 this year. New growers rose 125 percent to 33 605 this year.

But question is; will farmers smile all the way to the bank this year.
In recent years, farmers have mourned about grossly low prices for their crop, despite apparently delivering good quality crop, which is graded poor, bought at outrageously low prices, but brought back via the back door and resold at huge premiums.

Farmers are reportedly being cheated out of potential income through underhand schemes where the crop is classified either as low grade or diverted to contractors, even when self-financed, due to rampant collusion in the industry.

Tobacco Industry and Marketing Board chief executive Andrew Matibiri said that reports and allegations of such conduct had been lodged with TIMB and where such claims rang a bell, TIMB always moved to correct the anomalies.

“We get all kinds of complaints all the time, it is nothing new. When we hear of such things, we always move in to investigate,” he said, adding some merchants buy and sell to each other. Dr Matibiri however said only class A buyers were licensed this year while no one was issued any B licence.

With farmers unaware of how they are cheated, tobacco is reportedly repacked and sold under a different grower’s number. “They even reduce mass declared to the farmer and take value for the difference from reduced weight,” a source said.

The cartels are now fully established, as it emerged several merchants, as much as 10, are reportedly housed under a single roof at one of the country’s biggest tobacco auction floors.

This comes amid serious concern over the number, 29, that TIMB has licensed as contractors/buyers for the 2017/18 season, figures deemed too high and blamed for the proliferation of unscrupulous merchants conniving to fleece farmers.

“Recently, Tobacco Industry and Marketing Board issue 29 licences to contract buyers, some who never gave any inputs to farmers to buy and resell the tobacco to other merchants.

“The issue of inter-merchant sales has become the order of the day. These merchants have become middlemen who buy the farmers’ tobacco cheaply and resell to other merchants. These contractors are also known to charge farmers auction fees, even when tobacco is not sold under auction.”

Investigations by Business Weekly revealed that while having a contract with an external buyer of tobacco was a precondition merchants needed to obtain a buyer’s licence, the majority of current licence holders were mere intermediaries buying tobacco to resell at a premium in Zimbabwe.

But this year, Zimbabwe’s tobacco auction floors have come under sharp scrutiny again this year, following a seismic shift that saw auctioneers breaking ranks with auction floors to form an independent association that could reduce the conspiracy.

Auctioneers, aggrieved by ill-treatment they suffered under auction firms, teamed up to form what the now independent Tobacco Auctioneers Association of Zimbabwe, which will assign its members to conduct the auctioning.

TAAZ will now receive half of the fees charged by auction floors.
The 2018 marketing season kicked off on Wednesday amid high expectation average prices to farmers will be higher and marketing orderly and transparent compared to previous years.

Well-placed sources said auctioneers, who preside over virtually all transactions in marketing of tobacco, had been aware of the fraud against farmers, but could not speak out to prevent it, as most were previously employees at the auction floors.

Further, the auctioneers broke ranks with their former paymasters, whom they accused of pocketing most of the income from sales of tobacco each season while they were paid peanuts and were made to sign short contracts of about two months per season.

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