The three registered tobacco auction floors opened yesterday, with the first bale selling for US$4,60 a kilogramme — just five cents off last year’s price — tending to confirm predictions that quality leaf will continue to fetch good prices despite the global oversupply of tobacco and the accumulation of stocks.
Auction floors now sell only around 5 percent of the crop, with the remainder going to contractors, whose floors open today.
However, the open‑market arrangement and the very high level of built‑in transparency on auction floors set prices throughout the industry.
As such, they remain a crucial part of the price‑discovery mechanism.
The contract system was critical during the initial transition from about 2 000 large estates producing most of the crop to tens of thousands of farmers — many with small and medium‑sized farms after land reform — along with communal growers now able to play their full role.
But this system required tight policing to ensure fairness to both farmers and contractors.
This oversight was provided by the Tobacco Industry and Marketing Board, which, although it grows nothing, ensures all farmers, contractors and merchants are licenced, and is prepared — as it was this year — to expel those who fail to meet requirements or attempt to cheat.
There is general agreement that while contract farming will remain very important, there needs to be more self‑financed farmers, where growers will borrow at least some of their production costs.
An increase in self‑financing will raise the proportion of tobacco sold on the open auction floors, ensuring that a strong pool of independently priced leaf helps set fair prices across the contract sector so that grade‑for‑grade differences between merchants, contractors and auction floors remain minimal.
At the start of the tobacco revival, most financing came from outside Zimbabwe.
Now, however, 67 percent of funding is local — despite the much larger crop — meaning that more of the value produced remains in Zimbabwe.
It also gives merchants and contractors more flexibility to seek the best markets for the benefit of both themselves and the farmers, as they become less dependent on external financiers. The flexibility may prove critical as Zimbabwe moves up the value‑addition ladder.
The country will increasingly produce cigarettes and other tobacco products that may compete with brands associated with foreign funders.
As with individual farmers, independence at higher levels of the value chain allows more aggressive and strategic marketing.
Despite shifts in funding, quality remains at the core of the tobacco industry’s future.
Zimbabwe has been expanding its annual crop, often breaking records when rainfall is adequate. The country expects to reach 400 million kg this year, up from last year’s record of 355 million kg.
However, this expansion means marketing becomes more important.
Other top producers are large countries with significant domestic consumption.
Zimbabwe, by contrast, exports around 99 percent of its tobacco.
Even with increasing local processing and manufacturing, Zimbabweans are unlikely to consume more than 1 percent of national production.
This means the country must ensure that its leaf, processed products and blends can find premium markets at competitive prices, placing a premium on quality and on producing leaf varieties that fetch the best returns, which demands continuous research and a willingness among farmers to adapt where necessary.
The need for a full range of tobacco types will grow as more of Zimbabwe’s crop is manufactured locally into cigarettes and rolling tobaccos, where blending takes place closer to the source.
In times of global oversupply — as is now the case — buyers prioritise quality leaf that allows them to maintain consistent product standards.
Prices are therefore, likely to fall most sharply in the lower grades, where cheaper alternatives are readily available.
Tobacco, unlike minerals such as chrome, comes in many varieties and grades.
There will always be premium products and premium markets. It is in these markets that Zimbabwean growers and merchants will earn the best returns — supported by increased local financing, which enhances independence in market exploration.
Because almost all the crop is exported, prices reflect global rates for each variety and grade. They cannot be raised — or lowered — within Zimbabwe.
Farmers must therefore work within this system and maximise profits by producing the highest possible quality, especially as the gap between top‑grade leaf and poor‑quality tobacco is likely to widen under current international conditions. – Herald