A storm is brewing in the tobacco industry amid revelations that a number of buyers were getting the golden leaf at low prices at auction floors and reselling to contractors at higher prices.
BY NDAMU SANDU
The move comes when farmers have complained over low prices were being offered at the auction floors amid allegations that buyers were colluding to rip them off.
But Tobacco Industry and Marketing Board (TIMB) chief executive officer Andrew Matibiri said there were some agents registered to buy the crop and sell to China via Tian Ze.
Tian Ze is both a buyer and a contractor and active on the contract side.
Matibiri said if the farmers were being ripped-off, “then there is a problem”. Twenty “A” class buyers were licensed for this marketing season. “A” class buyers directly export most of the tobacco they buy.
Five of the licensed buyers were new ones. TIMB also licensed 15 contractors NewsDay was told yesterday of the resurgence of “B” class buyers — abolished some years ago accused of ripping off farmers — in the tobacco industry.
“B” class buyers did not have a market outside the country and would buy the golden leaf for the purpose of reselling it.
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Players in the industry said a tobacco sale “after a tobacco sale” was prevalent, accusing the regulator of turning a blind eye on the malpractice.
“This is when a tobacco buyer attends a first sale with growers where they are buying at lower prices. After the initial sale, the buyer carries their tobacco, drives a few kilometres to another buyer where the tobacco is laid again and new higher prices are put. The difference between the prices is the profit earned by the middle man. This practice is mainly common among Chinese tobacco contractors,” a source said.
Industry sources said the excuse given by TIMB that contractors were guided by price matrix on the auction floors was invalid.
“The price matrix is generated by figures from auction floors yet all auction floors account for only 25% of the total crop. This means that 25% of the crop is used as price benchmark for the other 75%. This is bizarre to say the least,” the source said.
Experts say unless the system was checked, the sector would suffer the same fate that befall the cotton industry. “An influx of contractors who were not properly vetted is what killed the cotton industry. While low international prices were regularly blamed, it is actually the influx of contractors who made regulation very difficult in the cotton industry. This is exactly what is happening in the tobacco industry and in a few years, auction floors will collapse and the transparency in tobacco marketing will be gone,” an expert said.
Speaking at the official opening of the tobacco selling season early this month, TIMB board chairperson Monica Chinamasa questioned the huge disparity in prices prevailing at auction and contract sales.
She said the maximum price ceiling of $4,99 per kg that had prevailed at the auction floors for the last two years was not desirable and not reflective of the true value of the leaf.
“My question to the buyers is that, does it mean that auction tobacco cannot fetch a price higher than $4,99, while at contract sales, prices as high as $6,20 were witnessed in 2014?”
