The Sunday Mail
Special Correspondent
THE Tobacco Industry Marketing Board has come under heavy media scrutiny in recent weeks. The main argument was that TIMB is sleeping on the job and that they could do more to bring order in the marketing of tobacco. However, to properly evaluate TIMB’s role, we need to look at the legislation and whether TIMB is enforcing this legislation for the benefit of the country.
The most important legislation in the tobacco industry is contained in the following documents: Tobacco Industry and Marketing Act, Farmers Stop Order Act, Statutory Instrument (SI) 61 of 2004, SI 229 of 2004 and SI 29 of 2000.
Well, SI 61 of 2004 is the principal finance order and is very critical to the way tobacco purchases are made and financed. Section 4 sub-section 3 of the SI reads:
For the avoidance of doubt it is declared that no tobacco buyer shall, for the purpose of purchasing any contract tobacco or auction tobacco:
a) draw on its corporate foreign currency account; or
b) purchase, borrow or raise foreign currency funds from onshore funds, the interbank market, an authorised dealer or any domestic source whatsoever.
Also, SI 61 of 2004 Section 5 reads: (1)Contract tobacco shall not be purchased by any person other than the contractor with whom the tobacco grower concerned entered into the contractual arrangements referred to in the definition of the term contractor”.
Similarly, there is need to examine SI 61 of 2004 Section 7, which notes that (3) A tobacco buyer referred to in subsection (2) shall be deemed to be an “exporter” for the purposes of the Exchange Control (Currency Exchange) Order, 2004, published in Statutory Instrument 9 of 2004, except that the foreign currency surrender requirement in that order will apply to the net and not the gross export proceeds realised by the tobacco buyer from the sale of exported tobacco.
According to SI 61 of 2004, subsection (2), “tobacco buyer” means a person who is:
(a) licensed or required to be licensed under the Tobacco Industry and Marketing Act [Chapter 18:20) as a buyer of auction tobacco; or
(b) registered or required to be registered under the Tobacco Industry and Marketing Act [Chapter 18:20) as an authorised buyer of auction tobacco;
(c) a contractor.
Linking section 2 and section 7 of SI 61 of 2004, it is clear that a contractor is a buyer and a buyer is an exporter.
If we put Section 5 of the same SI into the equation, it follows that a licensed contractor should buy all the contracted crop for purposes of EXPORT!!
If the tobacco industry fails to adhere to these seemingly few provisions in our legislation, this industry will die.
I believe that there has been violations of these legal provisions, particularly SI 61 of 2004.
Firstly, we have licensed buyers/contractors with no capacity, let alone intention to export any of their purchases. Their intention after purchase is to resell locally at higher prices.
This makes them middle men who reap benefits with no value addition to the product — this results in ARBITRAGE , a practice that has destroyed many sectors in Zimbabwe.
This practice is illegal as far as tobacco legislation is concerned.
Tobacco buyers are regarded as exporters by the law and as such, they should export what they buy.
While TIMB allows inter-merchant purchases to balance stocks and styles, these purchases should be negligible compared to what the merchant/buyer would have bought from farmers.
Secondly, a lot of contractors are in violation of SI 61 of 2004 Section 5 and it seems TIMB does not mind.
The law says a contractor should buy all the crop brought by their contracted growers.
However, a number of contractors are now proxies for the bigger buyers.
On the ground, what is happening is that a contractor gets a list of growers, most of these growers having received no financial support but having been promised better prices.
The contractor then enters into an arrangement with a bigger buyer like Tianze, MTC or ZLT. The bigger buyer actually gets a buying code from TIMB to allow them to buy on another contract floor which is not theirs! This is contrary to the law that says one of the condition for getting a contractor license is the ability to buy (and by inference, export) all the crop purchased.
The reason why the law specifically required contractors to buy what is delivered to them and not invite other buyers was to avoid “mini” auction floors where one or two buyers participate. Such an arrangement removes the transparency in tobacco marketing and prejudices the farmer, who would have benefited from multiple buyers bidding for their crop.
There are several violations that TIMB is accused of being aware of. For example, Tianze only buys what they call Chinese styles on their contract floor. It is alleged that more than 50 percent of the crop brought to Tianze is not Chinese style. This crop is bought by MTC. For all the non-Chinese styles, Tianze is just a proxy for MTC. This is in direct violation of regulations which require a contractor to buy/export almost all their purchases.
Also Tianze seems to buy from middleman such as Voedsel, which is in direct violation of TIMB regulations which define a tobacco buyer as an exporter, hence prohibiting them from reselling locally, unless with authorisation. There are further allegations of pseudo grower numbers. In fact, the arrangement mentioned by Dr Matibiti in the media that some buyers go into arrangements with Tianze to resell to them is in direct violation of his own Board’s regulations.
Why they do not seem to notice or care raises eyebrows.
There are also cases where MTC buys tobacco from other contractors contrary to regulations, while Midriver is another Chinese contractor accussed of reselling most of the crop they buy at higher prices.
In my opinion, it is impossible for TIMB to produce an annual stock report that shows that what the buyer/contractor purchased is what they exported.
How the enforcement of tobacco legislation has an impact on prices
Tobacco laws were designed to protect the industry and tobacco growers.
These current violations have a far reaching effect on the sustainability of the industry.
By providing fertile ground for middleman to thrive in the tobacco industry, TIMB has helped fuel arbitrage and in the process, prejudiced farmers of significant income.
The middleman in the industry have also obliterated pricing transparency which used to be the hallmark of the tobacco Industry.
If a contractor can buy from another contractor or buyer at higher prices, why did they not just pay this higher price to the farmer?????
Proposed way forward
The Ministry of Agriculture and the TIMB Board should act fast in restoring confidence in tobacco industry. The following are points to consider:
1. TIMB should make available the stock reports for the past two years, indicating the percentage of inter-buyer purchases. These reports, we guarantee, will be shocking!
2. Any contractor who only buys certain styles (like Chinese styles) should buy on auction where they have the liberty to only buy specific styles, rather than have a contract where more than 50 percent of the crop is bought by another buyer who they chose instead of that crop being transparently sold to many bidders.
3. Like the transparency at auction floors, contract floors should have transparency. One way to do this is to bring all contract sales under one roof. This would mean growers are fully aware of the pricing models of each contractor. At the auction, everyone can see everyone else’s prices, why can this not be implemented at contract floors by bringing all contract sales under one roof? Under one roof, these bogus middlemen will not be able to resell when everyone is watching!
This opinion was contributed by an official privy to the goings on in the industry.
