20 February 2013

Zimbabwe: Record Prices As Tobacco Season Opens

The tobacco selling season opened with good prospects for higher prices this year after prices hit US$4,99 per kg on the first day of trading last week, with the first bale having sold for US$4,70 per kg, up from US$4,45 per kg fetched by the first bale to go under the hammer last year.

Prices for the rest of the crop ranged from US$4,10 to US$4,56 although some of the bales sold for as little as US$1,35 per kg.

The first marketing week at both auction and contract sales ended with the crop selling at an average of US$3,33 per kg, up from last season's price of US$2,73.

By day three, a total of 1,2 million kgs of tobacco worth US$4 million had been sold, down from 1,3 million kgs worth US$4,6 million sold during the same period last year.

Statistics from the Tobacco Industry and Marketing Board (TIMB) show that auction sales from the three auction floors, Tobacco Sales Floor, Boka Tobacco Auction Floor, and Premier Tobacco Auction floors amounted to 580 568 kgs valued at US$1,7 million, while the contract sales raked in US$2,3 million from 621 078 kgs.

Tobacco farmers were urged to properly grade their crop and avoid the seemingly high cases of rejected tobacco because of mixed hands, mixed styles in the hands and wet tips.

TIMB chairperson, Monica Chinamasa, said the leaf produced so far was of excellent quality and had fetched good money, although expectations were high that the prices would still increase as the season progresses.

"The previous season witnessed consistency in pricing and I call upon buyers to maintain that consistency throughout the season. We look forward to fair prices being paid for good quality tobacco," Chinamasa said.

The growth in cigarette demand in emerging markets and the current global undersupply of flavour quality flue-cured tobacco have raised farmers' expectations of better prices for quality leaf this year.

"Higher prices are the only way to ensure that our growers become viable as you are aware that tobacco production is under the threat of being unviable due to increasing costs of production," she added.

It costs between US$3 000 and US$12 000 to produce a hectare of the country's single largest export earning crop.

Although there were four auction floors last year, the TIMB Board licenced only three auction floors for the 2013 marketing season - Tobacco Sales Floor, Boka Tobacco Auction Floor and Premier Tobacco Auction Floor.

Millennium Tobacco Auction Floors did not meet the TIMB's requirements and is reportedly facing operational challenges.

Orderly marketing from last year is expected to continue as farmers were urged to register and submit their crop estimates before marketing.

"Tobacco growers need to adhere to the cardinal rule which says book your tobacco first, then deliver today and sell tomorrow" to ensure systematic marketing."

For the 2013 marketing season, at least 66 000 growers registered compared to 35 000 farmers during the same period last year, with 82 percent of the growers being small scale producers who have positively contributed to the growth of the sector.

In 2012, agriculture grew by 4,6 percent with tobacco contributing the largest to this growth. The crop accounted for 10,7 percent of the GDP in 2012 and constituted 21,8 percent of all total exports, compared to 9,2 percent for other agriculture commodities.

Farmers Development Trust chief executive officer Lovegot Tendengu said the prices so far were reasonably fair considering the first leaves to be sold are primings which usually fetch lower prices.

"We expect prices to increase to at least US$5 per kg because the crop produced this year is of high quality compared to last year. It is a good start to the season and the weather has been favourable for tobacco producers to get the kind of crop that will get them good prices," Tendengu said.

For the 2012 marketing season, TIMB licensed 17 class 'A' buyers and 16 contractors who have played a significant role in maintaining and increasing tobacco output. Chidziva Tobacco Processors has been licenced as the sole buyer of burley tobacco while another company was licenced as the buyer of dark air cured tobacco.

Last year contract sales accounted for 64 percent of total sales, and this year it is estimated that their market share will increase although contractors have complained of under production and side marketing.

"While under production can be addressed and reversed with ease, the scourge of side marketing has to be addressed in a robust manner by all sectors of the industry. All industry stakeholders are guilty by association in failing to stamp out side marketing. I urge the tobacco industry stakeholders to develop new mechanisms to curb or eliminate side marketing as previous known firewalls have proven not effective. This problem can be solved easily if growers develop a spirit of giving unto Caesar what belongs to Caesar," Chinamasa said.

At least 170 million kgs is expected to go under the hammer this year, up from 144,5 million kgs sold last year.

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