14 May 2014

Zimbabwe: Price Disparity Pushing Tobacco Farmers to Contract

Tobacco auction floors say price differences and the high number of contract floors in the country are threatening their existence as 70 percent of the crop is now produced under contract.Auction floors said since almost three quarters of the crop is now contracted the three auction floors are left to share 30 percent of the crop being produced through self financing farmers.

Appearing before a Parliamentary Portfolio Committee on Agriculture, Boka Auction Floor chief executive Ms Rudo Boka said there are now 14 contract floors.

"This threatens our viability as auctions because we are competing with so many contract floors with 70 percent of the crop already going to contract floors, with three auctions basically competing for 30 percent of tobacco produced nationally," Ms Boka said.

She said the price disparities have seen the buyers setting the highest price under contract at $5,80/kg and the same buyers have set a price limit of $4,99/kg for auctioned tobacco.

Ms Boka said price differences between auction and contract floors has been widening from 4,5 percent in 2012 to 5,6 percent last year with the price disparity further widening to 10,67 percent this year.

She said around 1999 and 2000, there was only one floor; that is Tobacco Sales Floor (TSF), which handled about 166 million kilogrammes of the tobacco produced crop throughout the country.

"To date we have 17 floors marketing a crop size of over 160 million kilogrammes. This is actually putting us out of business," she said.

According to the Tobacco Industry and Marketing Board, Zimbabwe is expecting about 185 million kilogrammes of tobacco this year from 170 million kilogrammes achieved the prior year.

She said monopolistic buyers set unrealistic prices that do not reflect market issues. "As auction floors we do have any influence on prices, we facilitate, payments and underwrite the transactions thus once we have an all contract there will be no open market."

About 70 percent of Zimbabwe's registered tobacco growers this season were on contract, putting the future of the local auction floors in a compromised position.

A huge proportion of Zimbabwe's farmers are now dependent on tobacco production, while the crop now accounts for a good chunk of gross domestic product.

Speaking during the official opening of the 2014 marketing season TIMB chairperson Mrs Monica Chinamasa said more than 88 000 growers had registered to grow the crop this year compared to about 65 444 previous season.

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