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NewsDay

AMH is an independent media house free from political ties or outside influence. We have four newspapers: The Zimbabwe Independent, a business weekly published every Friday, The Standard, a weekly published every Sunday, and Southern and NewsDay, our daily newspapers. Each has an online edition.

Skewed payment mode killing tobacco sector

Editorials
Side marketing is a form of contract default, whereby contracted tobacco growers sell their crop to third parties in breach of a contractual agreement, which states that the tobacco shall only be sold to or bought by the contractor who provided inputs to the grower.

A FEW days ago, we reported how five tobacco exporters lost as much as US$57 million last year due to side marketing of the crop, with the situation set to worsen as authorities seem reluctant to stem the tide.

Side marketing is a form of contract default, whereby contracted tobacco growers sell their crop to third parties in breach of a contractual agreement, which states that the tobacco shall only be sold to or bought by the contractor who provided inputs to the grower.

The practice can be perpetrated by either a farmer or illegal buyers who also include errant licensed contractors.

Side marketing of the tobacco crop has been worsened largely by the central bank policy to pay part of deliveries in local currency, which is rapidly depreciating on both the official and parallel markets.

This is obviously unattractive for tobacco farmers who need to buy inputs for the next season in foreign currency or local currency indexed against the parallel market rate.

Third parties have maximised on this policy drawback by offering more lucrative fees to farmers, shortchanging contractors in the process.

These third parties, or middlemen, are said to be even travelling directly to the tobacco farms where they are offering lower prices for the golden leaf in return for instant payments wholly in forex.

Some of these middlemen are now working with officers at the tobacco auction floors to sell the leaf for huge profits.

The Tobacco Industry and Marketing Board (TIMB), the Zimbabwean regulatory and advisory statutory board covering the golden leaf, has promised to act decisively to curb side marketing.

However, as long as tobacco farmers do not retain 100% in foreign currency, the TIMB threats remain hollow.

After all, tobacco farmers are only being paid 75% of their export earnings while the rest is converted at the official exchange rate currently at US$1:$408,56. Alternatively, the parallel rate is US$1:$820 to $850.

Third parties are offering 100% retention or a chance to convert their foreign currency at the parallel forex rates which can be used to buy the greenback which will always be the preferred option for tobacco farmers looking to maximise earnings from their crop.

TIMB may be well meaning in vowing to fight side marketing, but its efforts will remain an exercise in futility if tobacco farmers continue to be partly paid in the Zimbabwe dollar that has no store of value.

It’s easy to talk about the demerits of middlemen without addressing the elephant in the room, which is the payment mode for the crop.

Tobacco is a significant forex earner and the country will continue to lose out on earnings if the payment mode is not changed.

No amount of browbeating or threats will work in curbing side marketing. The sooner government acknowledges this the better.