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‘Clip tobacco contractors’ wings’

WITH the 2021 tobacco marketing season coming to an end, there has been mixed views about whether farmers benefited from their investments or not. This week, the Zimbabwe Independent (ZI) sat down with Farmers Talk Club chief executive officer Phineas Mukomberanwa  to get insights into on the farming season. Below are excerpts of the interview:

ZI: Tell us about your organisation

PM: The Farmer Talk Club (TFT) is a registered trust, which started operating in July 2020. We are a grouping of farmers and agricultural professionals coming together to bridge the information gap to enhance our production, productivity and profitability. TFT gives farmers the most credible and relevant information as well as teaching them how to grow different crops, mainly tobacco and horticultural crops. Through our Farmer Field Schools, we bring together farmers and professionals to the fields to demonstrate what we are teaching them on social media platforms, thus bringing theory into practice. We also have a Savings and Credit Cooperative (SACCO) to assist our members with capital.

ZI: Tell us your views of the tobacco sector

PM: This is one of the major foreign currency earners in Zimbabwe. It plays a pivotal role in the economy, directly benefiting over 160 000 households. It is also estimated that tobacco exports account for over 50% of agricultural exports. The rural economy in the tobacco growing regions becomes very active and alive during the tobacco marketing season. The industry therefore plays a pivotal role in Zimbabwe.

ZI: What is your assessment of the current tobacco marketing season?

 PM: Although there have been several challenges, notably Covid-19-imposed restrictions, the current season has been way better than the previous one. Until recently, the gap between the auction market and the parallel market has not been bad.

This means farmers have not lost as much value as they did last year when the rate was fixed at US$1:ZW$25 for the greater part of the marketing season. Secondly, except for one or two merchants who bit more than they could chew, we havenot had many farmers crying over non-payment of their delivered crop. Farmers are now used to plastic money. As such we didnot have many of them crying over failure to access money from banks.

 ZI: What is your take on the auction floor and contract tobacco prices?

 PM: The average price on contract tobacco currently stands at US$2,76 per kg, while at the auction floors, is at US$2,82 per kg. Overall, the average price stands at US$2,77 per kg. There is a general improvement on prices compared to last year, when the average price at this time was US$2,47 per kg. However, just by looking at the difference between auction and contract prices, bearing in mind Statutory Instrument 61 of 2004, one cannot but realise there is a big problem in the pricing of tobacco for this season.

ZI: Do you think the contract floors are offering competitive prices?

PM: Based on the above mentioned pricing, contract floors, in my view, are not offering competitive prices. The price matrix is the tool used to determine prices at the contract floors. The price matrix is a combination of prices obtained at the auction floors and is used to determine pricing for the contract floors.

In other words, auction floors set the minimum prices or the tone at which contract prices should follow.  Contractors should pay above auction floors — what is happening indicates something totally different — auction floors are paying more instead of the other way round.

 ZI: How can this be addressed?

 PM: There is a need to relook the whole contracting system as it leaves the contractor or merchant with more power to do as they please. I equate the current contracting system to a butchery owner who gives a farmer some broiler chicks and feeds for rearing on the understanding that the farmer will sell the broilers to the butcher. The farmer then has to ensure there is enough labour, electricity and heating until the broilers are ready for the market. When the chickens are ready for the market, the butcher determines the price, even paying below the market price. No matter how much the farmer cries, the butcher just sticks to his guns, reminding the farmer that he is the one who gave him the chicks and the feeds.  This is what is happening with our contractors. It is disheartening to note that even a farmer who was financed to the tune of only a seed pack, is being forced to sell their entire crop to contractors.

 ZI: Current trends show that the auction floor’s market share is 5%, from 80% in 2004.What is your analysis?

 PM: The introduction of SI 61 of 2004 had negative effects on the current auction system, although it was meant for good. The contracting system was meant to provide funding to resettled farmers who were finding it difficult to access funding. At the same time, it was meant to offer better prices to farmers. Initially farmers benefited through better prices and better input packages offered until floodgates were opened and many companies joined in. This resulted in the abuse of farmers through unfavourable prices. Farmers were now forced to deliver their entire crop to contractors. There is a need for the regulator to come up with strict thresholds and contracting packages. At the same time, the regulator needs to come up with strict guidelines of how much should be delivered to contractors, while the rest of the crop is directed to auction floors. Farmers must continuously be educated so they can clearly see where they are losing value. For example, an informed farmer would not send his crop to contractors, who are offering lower prices if they self-financed their crop. Unions and associations should not sleep on the job.

 ZI: Are tobacco farmers getting value for their investment?

 PM: Most tobacco farmers are not enjoying the fruit of their labour. A number of factors, most of which were mentioned above, are disadvantageous to the farmers.

Apart from contractors who are offering very low prices, it would appear there is also collusion at the auction floors by buyers. This is disadvantageous to the farmer. The seemingly collusive behaviour at the auction floors is also very evident at almost all auction floors where over 90% of contracting companies have average prices below the auction average. It is such a worrisome trend. Some contracting companies are also not paying farmers timeously. It is taking them between two and six weeks to pay. A farmer is supposed to be paid within 24 hours, failure of which the regulator can even suspend defaulting companies from buying.

Government, through the 60%/40% retention policy, is also disadvantageous to farmers. To put this into perspective, consider a farmer who sells their crop and after all deductions is left with US$1 000. They get the US$600 into their nostro account and the rest is deposited into their local RTGS account — US$400 equivalent which is ZW$34 000. He has a choice to buy fertilisers for the coming cropping season or pay wages but alas, no one will take the Zimbabwe dollar. He has to sell the Zimbabwe dollar to buy the United States dollar to pay his workers. He will now go on the open market and buy at the prevailing alternative market rate of US$1:ZW$140, which will get him only US$242. If he goes to a fertiliser shop —  he is met with the same inflated rate. This clearly shows the farmer is not getting value at all. Because of the above, farmers are not enjoying the fruits of their labour.

 ZI: What policy interventions do you suggest?

 PM: Policymakers need to make tobacco farming attractive by ensuring those who are involved in the actual production are rewarded handsomely. The current set up that is rewarding the middleman is highly unsustainable and will result in the industry slowly losing its lustre. There is a need to create a vibrant tobacco value chain that is balanced with different actors equally benefiting from the production of the golden leaf. We all know what needs to be done – and let us work towards that.

ZI: Where do you see the tobacco industry in the next five years?

PM: If we embrace the changes that need to be implemented, we will see a positive growth in the industry to over the anticipated 300 million kg. If we leave the industry to continue in the way it is, we will see production plummeting to very unsustainable levels as farmers will be going to alternative crops like industrial hemp and horticulture among others.

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