THE Tobacco Industry and Marketing Board (TIMB) was forced to dump the controversial pricing matrix in the auction system which accounts for six percent of the total golden leaf sales.
About 94 percent of tobacco is funded under contract farming, raising fears of a potential collapse of the tobacco auction system in the country which trails disparagingly in revenues earned.
The latest statistics from TIMB shows that at Day108, a total of 209 702 946 kilogrammes of tobacco had been sold, of which a paltry 12 515 923kgs, valued at US$35 046 578, went through the traditional auction floors, compared to 197 205 022kgs, worth US$551 507 318 sold through the contract auction floors.
The change of heart by TIMB follows immense pressure from farmers’ unions and the Competition and Tariff Commission.
It also follows Government’s radical decision to inject US$60 million to resuscitate the auction system, which has been under threat from the contract system, to restore sanity, and put the sector firmly on track to achieve Vision 2030.
The 2020/21 season was dominated by 30 contractors – most whom were fronting merchants, amid indiscipline that saw some allegedly smuggling and side-marketing the golden leaf, while some have not paid farmers for the tobacco delivered in May, putting them in a quandary and throwing their preparations for the approaching farming season into disarray.
The dual marketing system was introduced in 2004, with tobacco that is free funded being sold to the traditional auction system, while the one financed through contract farming being sold through the contract system.
The controversial arrangement was prejudicing tobacco farmers as merchants were accused of manipulating the system. Under the existing system, the lowest contract average price should be at the same level or above those prevailing at the auction floors.
This has not been the case, amid fears of collusion between the two floors to rip-off farmers.
TIMB chief executive officer, Mr Meanwell Gudu, confirmed the changes in the pricing matrix, adding that a consultant was engaged to come up with a new pricing matrix. Mr Gudu admitted that the current arrangement was unfair.
“Following a review of competition in the tobacco marketing sector, a study undertaken by the Competition and Tariff Commission in 2016 and a presentation made to the industry stakeholders on the same subject, recommendations were presented to come up with a new pricing matrix,” he said.
“For now, we can safely assume that the new pricing matrix is work in progress which is promising to address the concerns that have been raised over the years with regards to price distortions and price manipulations.”
Tobacco Farmers’ Union Trust (TFUT) president, Mr Victor Mariranyika said TIMB engaged them to suggest alternative tobacco pricing models, and are still consulting their members.
He said one route was setting an entry price at US$3.33, which is the production cost per kg.
“This is what we have been advising TIMB to do over the years, and we are happy that they have finally seen the light. The high volumes coming through contract floors is a reflection that the majority of tobacco growers are contracted.
“Also note that the buyers who participate at the auction system are the same contractors operating at contract floors.
“At auction floors they set pace and determine prices at the contract floors. This season they sealed the highest average price at US$4.99 per kg and the least price at US$0.10 per kg at the auction system.
“This has been the trend for the past seven seasons and calculated to make sure small-scale farmers do not prosper,” he said.
He also queried the wisdom of having two floors at the auction floors – one for small-scale and the other for commercial farmers.