LOWER than expected tobacco output and rampant side marketing has seen several merchants incurring huge losses during the just ended selling season, a senior official said.
“Generally, there was under production and several merchants made loses,” Tobacco Industry and Marketing Board (TIMB) chief executive Dr Andrew Matibiri said.
A devastating drought led to a 29 percent decline of production of crop, the country second single largest foreign currency earner after gold — to 179 million kilogrammes from a record 252 million kg last year. Zimbabwe had projected an output of 233 million kg.
While Dr Matibiri could not quantify how much tobacco companies have lost due to poor recoveries, some industry players said the losses could be around US$20 million.
“The amount is quite significant . . . around US$20 million,” said one official with a leading tobacco company, adding that side marketing also led to poor recoveries.
Dr Matibiri said while reduced production was largely the reason behind huge losses by merchants, he also confirmed that side marketing was “rampant”. About 80 percent of tobacco farmers in Zimbabwe are financed under contract schemes.
Last year, about 30 tobacco merchants were registered by the TIMB. Several small merchants have been accused of fuelling side marketing. Side marketing takes place when parties to the contract violate the agreement, either when a farmer chooses to sell to other merchants or when a company buys from farmers it has not contracted.
Zimbabwe’s cotton industry almost collapsed as a result of the practice as many companies, including US-based Cargill, closed shop after incurring successive loses. Some companies are now worried about investing more and this may result in further decline of production.
“What tobacco merchants will probably do is to blacklist all cheaters because they can’t afford to lose more money. It just make the business model unsustainable,” economic analyst Mr Tobias Marewo said in an interview.
The majority of tobacco farmers are small holders and lack of security to borrow from the banks.
Under contract arrangements, farmers are given the inputs by merchants who then recover their money from crop proceeds.
This year, side marketing was more rampant than previous seasons due to travel restrictions imposed by the Government to curb the spread of coronavirus.
Some merchants and individuals took advantage and went on to buy directly from farmers.
Zimbabwe Farmers Union executive director Mr Paul Zakaria urged farmers adhere to their contracts “so that our relationship with the private sector continue growing. This coming season, we also want to work with the private sector to do credit referencing so that we can flush out farmers violating their contracts.”
Mr Marewo said while the farmers have been largely blamed for side marketing, it was equally important for authorities to “severely punish” on companies involved in practice.