“Collapse” Of Tobacco Auction System Triggers Pricing Headache

The “collapse” of the local tobacco auction system has created a pricing problem with some arguing that minimum auction prices should not continue to determine the pricing of contract tobacco.

Zimbabwe has a dual marketing system where tobacco is sold through both auction and contract and has over the years been using the minimum price paid on the auction market for pricing the crop.

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The pricing model was based on the fact that about half of the total output was being sold through the auction but of late, about 95 percent of farmers were funded by contractors, therefore, tobacco likely to be sold via the auction floors will be very little.

The collapse of the auction system prompted some stakeholders to argue that it would be absurd to continue applying the policy as the tobacco farming landscape has completely changed. 

Zimbabwe Tobacco Association (ZTA) chief executive officer Mr. Rodney Ambrose said:

Pricing of contract tobacco (95 percent of national production) cannot continue to be based on the minimum of tobacco prices paid on the auction floors (5 percent of national production).

This is outdated legislation that needs to be speedily changed by the authorities.

Ambrose’s sentiments were echoed by Dr. Andrew Matibiri, the Chief Executive Officer (CEO) of the Tobacco Industry and Marketing Board (TIMB) who believes it is “unfair” for a small crop size of “lower quality (to) determine” the minimum grade price of tobacco.

Dr. Matibiri added that the TIMB board had agreed that something needs to be done.

Meanwhile, Zimbabwe Farmers’ Union executive director Mr. Paul Zakariya told The Sunday Mail Business in an interview that abandoning the current dual marketing system would leave farmers exposed to potential price manipulation by contractors. Mr. Zakariya said:

We can’t just throw away this important tool of price discovery. The competition at the auction is quite important . . .

Zakariya’s sentiments were supported by Mr. Carlos Tadya, an analyst with a local research firm, said the Government should “seriously consider” funding tobacco to avoid a total collapse of the auction system.

More: The Sunday Mail

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