Zimbabwe: Firm Tobacco Prices Expected At Auction Floors

Zimbabwe: Firm Tobacco Prices Expected At Auction Floors

Preparations for the opening of the 2022 tobacco marketing season are advanced with prices expected to firm due to anticipated reduced volumes.

This year, auction floors will open on March 30 while contract sales will start on March 31.

The bulk of the tobacco will be sold through contract floors as 118 465 registered farmers are contracted while 4 530 self-financed growers will sell through the auction floors.

Ninety-five percent of the tobacco is produced under contract system while 5 percent farmers are self-funded.

This season, tobacco farmers will be paid 75 percent of their sales proceeds in foreign currency and the remaining 25 percent in local currency, converted at the prevailing auction exchange rate on the day of sale.

The 75 percent will be paid directly into the growers’ foreign currency accounts and this is treated as free funds while 25 percent local currency will be deposited into the growers’ local bank accounts or e-wallets.

There will be strict Covid-19 regulations at all auction and contract floors to curb the spread of the disease.

Auction floors are required to consolidate tobacco deliveries to minimise the number of farmers coming to Harare.

Briefing journalists on the state of preparedness yesterday, TIMB chief executive, Mr Meanwell Gudu said prices were expected to improve this season due to increased demand.

“Brazil is likely to be 80 million kilogrammes short of their usual production level because of drought. This creates less competition for us. India has fixed its 2021-22 production of Flue Cured Virginia up to 270 million kilogrammes, against 236 million kg in the previous year.

“Top quality tobacco grades for premium brands are likely to remain unchanged ($3.5 – $5.40/kg) in prices compared to last season. The high-end market for this grade has reached its ceiling in price increase. The major market for these grades is in China and there are no indications to change prices upwards,” he said.

Mr Gudu said Brazil had an almost similar flavour to Zimbabwe but faces challenges in consistency in the supply of orders and some changes in flavour due to sometimes natural disasters like floods.

“Due to anticipated reduced volumes in Zimbabwe this season, there will be more pressure on the demand side to take the crop, which should naturally increase prices upwards. This is likely to be experienced in the medium to filler grades.

“Some kind of hoarding of tobacco is likely to happen that may influence prices to be better because of disruptions in logistics caused by Covid-19.

“Supply chains were disrupted from 2020 into 2021 due to shortage of vessels and closure of some shipping lines. Now that the world has lifted the Covid-19 restrictions and uncertainty in the possibilities of other waves, customers are likely going to grab this opportunity to stock up their tobacco, thereby increasing artificial demand,” he said.

TIMB acting chief operations officer, Mr Blessing Dhokotera said 122 995 growers had registered with the TIMB for the season compared to 145 000 farmers during the same period last year.

Of the registered growers 607 are registering for the first time compared to 1 600 last season.

Mr Dhokotera attributed the decline in registered growers to strict measures taken by TIMB to ensure compliance to regulations.

“TIMB has licensed 33 contractors compared to 39 past year, 33 A class buyers compared to 31 last season and we have also licensed suppliers for wrapping paper.”

“Prices on auction floors will be determined by the bidding process, the highest bid being the final price on every tobacco bale.

“A grade-price matrix derived from the average grade prices from the previous day auction sales will determine the floor price for every grade on the contract sales,” he said.

Source: All Africa