CUTTHROAT competition in Zimbabwe’s tobacco contracting system has thrown almost a dozen players into bankruptcy, the Tobacco Industry and Marketing Board (TIMB) has said, warning of more casualties. The tobacco contract system has assumed greater influence in the past decade, taking advantage of poor funding for farmers struggling to access capital from the banking sector.
Industry experts say up to 96% of the country’s output is now being grown under the contract system.
However, farmers have cried foul, blaming contractors for piling up their misery through poor pricing.
In an interview with businessdigest, TIMB chief executive officer (CEO) Meanwell Gudu said last week about nine contractors had collapsed in the past year, as farmers switched to competitors offering better deals. He, however, refused to name the firms that have been pushed into bankruptcy.
“There is a lot of competition in the contracting space in terms of pricing. If a contractor does not pay the correct price, that contractor will not get tobacco (from farmers). Last year we had 42 (contracting) companies and now (we have) 33. Some of them have fallen by the wayside because they could not compete.
“They were paying very low prices and farmers didn’t like it. Remember a contractor is in the business of selling tobacco. They want the tobacco so they have to pay the right price. I have lost quite a number of (contracting) companies but I can’t mention them. It is because they were not paying good prices” the TIMB boss pointed out.
Former TIMB CEO Andrew Matibiri said last year a staggering 99% of the tobacco crop produced annually by Zimbabwean farmers was being shipped raw by contractors and other players to the international markets.
Over half of the US$748 million earned by golden leaf farmers in 2020 was pocketed by contractors, who are mainly big foreign corporations that repatriate the hard currency back to their countries.
Zimbabwe produced 190 million kg of tobacco during the period.
Only a tiny fraction of this was processed locally.
The rest was exported for processing to create downstream industries, jobs and tax revenues for importing countries, mostly in Asia.
“At the moment only 1% is made into cigarettes,” Matibiri said.
“The Zimbabwean situation is very unique. Our population at the moment is 15 million and the majority of people live in rural areas. They don’t really buy cigarettes from a shop or from a taxable formal market. They roll their own tobacco and smoke,” he said.
Last week, Gudu also said the TIMB was set to crack the whip on tobacco side marketers, with stiff penalties that will see offenders serving up to six months jail terms.
This comes as experts in the industry have been warning that side marketing was turning into a ticking time bomb requiring urgent attention.
Several tobacco growers have been side marketing their produce citing poor prices and late payments from their contractors.
Gudu said the TIMB would be expanding its inspectorate department to address side marketing.
“We are coming up with heavy penalties that are very deterrent,” Gudu told reporters in Harare.
“Remember we talked about reviewing the legislation. We are going to make it very punitive to side market and someone can spend six months in jail. We have got our inspectorate which started last year and there has been a call from stakeholders to expand the unit,” he said.
Gudu said TIMB would be making constant radar sweeps on frequency of sales on grower numbers to identify the ones that would be side marketing.
He said transgressors would be asked to explain suspicious sales.
If the TIMB board is not convinced, it would block and suspend grower numbers of individuals involved, and refer such matters to the police for prosecution.
The board is currently engaging relevant authorities to come up with a Statutory Instrument (SI) on side marketing.
The engagements were now at an advanced stage.
The TIMB has also recruited informants in all farming areas to report illegal buyers in their communities