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Low prices constrain tobacco deliveries

Tawanda Musarurwa and Kudakwashe Mhundwa
Low prices have resulted in constrained delivery of tobacco to the auction floors as farmers apparently hold on to their crop in anticipation of an improvement in the price.

Official figures from the Tobacco Industry Marketing Board (TIMB) show that farmers have to date sold 101 million kilogrammes of the golden leaf to the tune of US$184 million, reflecting negative variances between volumes sold since the start of the marketing season in March and deliveries over the same period last year.

The volumes sold thus far this year are 20 percent lower than the 107 million kilogrammes of flue-cured tobacco worth US$361 million that had been sold by farmers during the same period prior year.

Finance and Economic Development Minister Mthuli Ncube acknowledged the weak prices in his State of the Economy address recently, hinting at a global economic slowdown as a contributory factor.

“The average for the season is US$1,78 per kilogramme compared to an average last year 2018 of US$2,87 per kilogramme. You can see that there is a drop in the average price by 38 percent,” said Minister Ncube.

“The global economy depicted signs of cooling down during the first quarter of 2019 on account of a confluence of different factors. Trade tensions between the United States and China which were showing signs of thawing are actually flaring up again, posing larger disruptions in the global trade and supply chains.

“Uncertainty about the United Kingdom’s departure from the European Union remain heightened, posing a number of risks to the Euro Zone and the rest of the global economy. These developments represent a drag on global trade in general and are also reflected in lower commodity prices in general.”

Deliveries to the tobacco floors were low during the first days of the season as some farmers adopted a wait-and-see approach, while those who sold their crop were not happy with the low prices on offer. During the first days of the current tobacco marketing season, variance between this year’s deliveries and last season’s was around 90 percent.

The tobacco auction floors opened on March 20, with only 3 888 kilogrammes being delivered to the floors on the day compared to 165 000 delivered on the same day last year, with the average buying price on opening was 17 percent lower at US$1,83 per kilogrammme compared to US$2,22 paid for the same day last year 2018. And as at March 2019, about 538 000 kilogrammes had been sold through the auction floors at an average price of US$1,67 per kilogramme. This falls short of the 6,8 million kilogrammes delivered for the same period last year at the average price of US$2,78.

Latest statistics from the TIMB show that the prices have not improved significantly.

The statistics show that the average price is now at US$1,72 compared to last year’s average price of US$2,76 per kg at the same stage of the marketing season.

The highest price offered so far since the opening of the tobacco auction floors is US$5,10 compared to last year’s US$6,22 per kg.

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