eBusiness Weekly
Martin Kadzere
The Tobacco Industry and Marketing Board (TIMB) has cancelled operating licences for six merchants who failed to demonstrate capacity to fund the crop in line with the minimum funding requirements, acting chief executive Meanwell Gudu has said.
More tobacco merchants were also likely to be de-registered, Gudu warned in an interview with Business Weekly, as TIMB intensifies enforcement of regulations. He said five new applicants were dismissed after they failed to provide viable funding plans for their contract schemes and off-take agreements with buyers.
According to regulations, merchants are required to provide inputs worth US$1 000 per head for small-scale farmers and US$4 000 for large-scale farmers per hectare.
This year, TIMB is enforcing another regulatory requirement, which had been ignored for years — the mandatory establishment of trees on 0,2 ha for every tobacco hectare financed.
Merchants are required to prove their export markets. “As we enforce, many will fall by the wayside,” said Gudu.
“This time, we are being very strict.”
Debt trap
Tobacco is Zimbabwe’s second largest foreign currency earner after gold and is largely grown by smallholder farmers. Many tobacco merchants have been accused of short-changing farmers by inflating the value of inputs.
They also determine the price of extension services and the price of the crop, sometimes leaving farmers in huge debts.
“Many farmers are finding themselves in huge debts because year-in and year-out, they are failing to service their debts of inputs whose value would have been inflated,” said Carlos Tadya, an analyst with a local research firm.
“They are surrogate companies, fronting probably 10 top companies. A total clean-up is needed.”
A few years ago, Zimbabwe embarked on decentralisation of marketing of tobacco aimed at de-congesting three buying facilities in Harare and for the convenience of farmers.
This saw a few companies investing in facilities outside the capital, Harare, where the marketing of tobacco was done mainly at Boka Floors, TSL Floors and Premier Tobacco Floors.
However, several buying points have mushroomed in towns surrounded by tobacco farming communities like Rusape, Marondera, Mvurwi and Karoi.
There are now more than 65 contract floors around the country, with the majority being makeshift facilities, presenting major transparency risks and efficiency issues in tobacco marketing.
The current state of affairs, analysts and players say, erodes the appetite of genuine investors to invest in modern marketing facilities in line with global trends. This poses a major threat to the industry.
Concerns have already been raised by industry players over the risk of defaults given lower investment recovery rates by private merchants due to “disorderly marketing.”
This year, some private tobacco merchants have failed to recover their investment due to unprecedented levels of side marketing and defaults.
With more than 65 buying sites for tobacco across the country, the marketing model has created loopholes as regulating the sale of commodities has become more difficult.
