Tobacco farmers to get fairer prices under new system

Martin Kadzere

THE Tobacco Industry and Marketing Board (TIMB) is developing a new system for contract tobacco sales meant to establish a more representative minimum price.

The system, expected to be implemented in the upcoming selling season, will determine the following day’s minimum price based on the average price of all the tobacco sold — both at the auction floor and through contracts — across all grades.

This was confirmed by TIMB acting chief executive Mr Emmanuel Matsvaire in an interview on Friday.

Zimbabwe’s tobacco marketing system operates under a dual structure, encompassing auction and contract arrangements.

In the auction system, buyers engage in bidding for tobacco that has been independently financed by farmers. Conversely, the contract system involves contractors who directly purchase the crop from growers.

Previously, the minimum price was determined solely by the average price of tobacco sold under the auction system.

The mechanism proved problematic, as auction sales represent only 5 percent of national tobacco production, while contract sales account for the remaining 95 percent.

Consequently, the smaller auction market was disproportionately influencing the price of the much larger contract market.

Furthermore, auction prices are often lower, even for high-quality tobacco.

Tobacco industry stakeholders have consistently expressed concerns about the current pricing matrix. They argue that average auction prices, which determine contract sale prices, disproportionately influence the market. This is despite auction sales representing only a small fraction of total tobacco production.

“The TIMB’s new matrix seeks to address this imbalance,” Mr Matsvaire said.

He said auction floors will continue to operate using a competitive bidding method.

In cases of price disputes between a grower and a buyer, the TIMB allows the former to cancel the sale and sell the disputed bales to another buyer of their choice.

The new pricing system is expected to stabilise and potentially strengthen tobacco prices as the season progresses.

This contrasts with previous systems where auction prices typically declined, subsequently driving down contract sale prices as well.

To ensure fair pricing for tobacco farmers, third-party suppliers (also known as surrogate companies), contracted by major merchants, will be required to offer competitive prices. They should match those paid by their principal contractors.

Previously, these surrogate companies often paid less than the major merchants, disadvantaging farmers.

The new pricing system will also help protect farmers from potential price drops, especially given the anticipated large tobacco volumes from Brazil and India, which could impact global prices.

While last year’s global market faced shortages and was willing to pay high prices, this year’s market is expected to be more discerning and less likely to offer premium prices for lower-quality tobacco.

“More training and extension services are needed so that farmers grade tobacco correctly, avoiding the mixing of grades that results in lower prices,” Mr Matsvaire said.

Analysts say the pricing model is a significant step forward for Zimbabwean tobacco farmers.

“By determining contract prices using the industry average, it ensures farmers receive fair compensation for their hard work,” agricultural economist Mr Takesure Makora said.

Contractors will be required to sign an addendum to the memorandum of understanding or compliance framework, formally agreeing to the new pricing model.

The proposed pricing system is one of several initiatives being implemented by the TIMB to ensure a vibrant tobacco industry.

The initiatives span various aspects of the tobacco value chain, from production and marketing to sustainability and value addition.

One of the TIMB’s most notable successes is the country’s record tobacco production of 297 million kilogrammes (kg) last season. This achievement is attributed to several key initiatives, including the “simplify and accelerate concept”, improved accounting of tobacco stocks, and increased order and compliance within the sector.

The TIMB has also reported a 26 percent increase in revenue, driven by efforts to combat corruption and hacking within the stop-order system.

The TIMB has intervened to regularise coal prices, ensuring farmers receive coal at a maximum of US$200 per tonne, depending on their location. This is a reduction from previous prices of as high as US$300.

Furthermore, increased compliance efforts have significantly reduced side marketing, a practice that undermines contract farming agreements, to less than 5 percent.

The TIMB’s focus on fair pricing has also led to a reduction in farmers’ cost of production, as overcharging by contractors has been addressed.

Simultaneously, the board has ensured stable tobacco prices for farmers, maintaining consistency between US$3,05 and US$3,45 for green leaf over the past two years.

In a move to expand market access and promote Zimbabwean tobacco on the global stage, the TIMB successfully hosted the first World Tobacco Africa Expo.

The board is also actively engaging with new markets, including Algeria, to create direct export opportunities.

Efforts to curb corruption in licensing have also yielded positive results, eliminating the speculative holding and leasing of licences.

The board is facilitating local cigarette production, the use of new green threshing machines and the establishment of nicotine extraction factories for four merchants.

These efforts align with the Government’s vision of ensuring value addition and economic growth.

Zimbabwe’s 2025 tobacco selling season is set to begin on March 5, with industry players projecting a harvest of between 280 million kg and 300 million kg.

In 2023, Zimbabwe achieved a record 297 million kg, just shy of the 300 million kg target set by the country’s tobacco transformation plan. Last year, drought conditions subsequently saw the output drop to 231 million kg

Despite the El Niño-induced drought, the worst that the country experienced in more than 40 years, tobacco outperformed other crops, including the typically drought-resistant cotton.