TIMB suspends 550 grower numbers as probe continues

Side marketing is a form of contract default where contracted tobacco growers sell their commodity to third parties in breach of the contractual agreement

The Tobacco Industry and Marketing Board (TIMB) has launched an investigation into suspected fictitious grower numbers that have been allegedly used for side marketing by some companies and farmers.

Last week the TIMB, the regulator of Zimbabwe’s tobacco industry, blocked nearly 550 grower numbers on strong suspicion that they were being used for side marketing.

In an interview, TIMB acting chief executive Emmanuel Matsvaire, said the investigations were in full swing with offenders likely to be heavily fined or totally banned from participating in the sector.

“The investigations on individual grower numbers is ongoing but will take a bit of time,” he said.

Side marketing is a form of contract default where contracted tobacco growers sell their commodity to third parties in breach of the contractual agreement, which states that tobacco shall only be sold to or bought by the contractor who provided inputs to the grower. It is sufficient to mention that side marketing can be perpetrated by either a farmer or illegal buyers who also include licensed contractors.

Prior to 2004, tobacco marketing was done exclusively through an auction system whereby producers mobilised the necessary cropping resources on their own and took their crop to an auction floor of their choice. However, in 2004, this system was changed after the introduction of the contract growing of tobacco.

Under the contract system, licensed tobacco buyers provide the inputs to the farmers, with the contractor—or the off-taker – guaranteeing to buy the tobacco contracted at prices (per grade) equal to or higher than those prevailing on the auction floors.

Despite guarantees of fair payment under the contract system, some growers and contractors engage in the criminal practice of side marketing. In the same vein, middlemen also illegally buy tobacco at less prices and resell it at the auction.

Some licensed contractors also buy tobacco from farmers not contracted to them.

It, therefore, implies that losses through side marketing can also be attributed to some illegal practices by contractors purchasing tobacco they did not sponsor.

Implicated merchants

Some TIMB sources said three tobacco merchants have so far been implicated in the scan.

“We have established some grower numbers (provided) that have been internally generated by three companies (named provided) and have been used to sell huge volumes,” said one source who requested not to be named because the matter is private.

“We are still doing some verifications but the areas where this practice is prevalent in Rusape and Mvurwi. “I hope action will be taken against these companies. “We just have to be thorough so that we come up with a credible outcome.”

Huge losses

Side marketing is responsible for the loss of millions of dollars annually and has the potential to collapse the tobacco industry.

While the TIMB cannot accurately ascertain how much is lost annually since side marketing is an illegal activity whose statistics cannot be accurately ascertained, it is expected that in 2021 alone, five exporters lost US$57 million due to several factors, and chief among them side marketing.

And to further put this into perspective, side marketing almost collapsed the country’s cotton sector. Between 2011 and 2013, many cotton contractors either pulled out of the sector or significantly reduced their funding after suffering heavy losses.

From the peak production of 351 million kgs in 2010, Zimbabwe’s cotton output declined to 28 million kg, the lowest in nearly two decades because of lack of funding.

“Of course, there were other factors such as poor prices but side marketing contributed more and that virtually killed the investor appetite,” a former senior manager with Cargill. The U.S based firm divested from Zimbabwe in 2011 due to side marketing.

Uncovering the scam

The suspicion of 448 grower numbers came after the TIMB “interrogated the tobacco selling system, according to sales points, looking for an irregular activity that strongly indicates the illegal practice. Some of the grower’s numbers had sold tobacco five times or more in only 13 days.

“It is illogical and cost-ineffective to bring 20 bales to market on a Monday then bring 10 on Wednesday and 15 on Friday the same week only to bring similar amounts of tobacco in the following week,” TIMB said in a statement. “Such sales behaviour is typical of tobacco farmers who sell tobacco on behalf of their peers or illegal tobacco buyers who buy the golden leaf from farmers at low prices only to come and resell it at auction or contract floors at a higher price,” it added.

Lack of regulatory enforcement

While Zimbabwe used to pride itself on a vibrant auction marketing system, the viability of tobacco farmers has, however, been seriously eroded as a result of the introduction of the dual marketing system now dominated by contract floors.

Presently, there are more than 65 contract floors around the country, with the majority being makeshift facilities that present major transparency risks and are seen as compromising efficiency of tobacco marketing. Moreso, the current state of affairs erodes the appetite for genuine investors to invest in modern marketing facilities in line with global trends, Takura Naishe, an agricultural economist said.

This poses a major threat to the industry, which is arguably one of the most successful empowerment stories not just in the history of Zimbabwe but at a global level.

Some analysts also believe the mushrooming of the “fly-by-night” merchants is also contributing to the disorderly marketing of the crop, a major export earner for Zimbabwe. Strengthening the marketing system by eliminating fly-by-night merchants has been identified as key to improving transparent and efficient marketing of tobacco, they say.

This can lead to improved production in line with the Government’s target of reaching 300 million kilogrammes and encourage investment in value addition and beneficiation.

Compliance enforcement

TIMB said it was accelerating the drive to ensure orderly marketing to curb side-marketing.

“We are armed with Statutory Instrument 77 of 2022 as well as the Contractors’ Compliance Administration Framework as our main tools to fight side marketing and there will be no sacred cows and unturned stones. All tobacco stakeholders are mandated to fully utilise the TIMB booking system. A grower should book their tobacco for sale in advance. This helps us detect side marketing and stop it,” said TIMB.

It added that it had also extended the arm of its inspectorate department, which would be conducting random inspections of farms, sales floors, and warehouses during the season.

The inspectors would also conduct intelligence-led operations in partnership with law enforcement agencies for example surveillance patrols and stops and search at roadblocks.-eusinessweekly