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(SUNDAY MAIL ZW) US firm mired in tobacco storm

US firm mired in tobacco storm
Saturday, 05 May 2012 14:11
Darlington Musarurwa
Business Editor

Mashonaland Tobacco Company (MTC), which is part of an international American leaf tobacco merchant, Alliance One International, is presently mired in allegations of intercepting auction tobacco from local tobacco farmers and classifying it as contract tobacco, an accusation that could attract serious penalties from local authorities if proved true.

Although tobacco deliveries have improved by more than 18 percent as of mid-last week compared to the corresponding period a year ago, the country’s auction floors have handled less quantities of the golden leaf than previously forecast. However, the Tobacco Industry Marketing Board (TIMB) said there was nothing to worry about as the allegations have not been proven to be accurate.

The Sunday Mail Business understands that independent investigations have unearthed alleged irregularities, especially at MTC selling points in Rusape and Karoi.

This year, TIMB, which is a regulatory and advisory statutory body, licensed MTC to open two selling points — one in Karoi and another one in Rusape.

However, the country’s four auction floors — Tobacco Sales Floor (TSF), Boka Tobacco Floors, Premier Tobacco Auction Floors and Millennium Tobacco Auction Floors — have since notified TIMB that MTC is “engaging in blatant activities to secure tobacco which was not intended for their market”, while the price matrix being used by the contractors is causing “disorderliness” and encouraging the side marketing of non-contracted tobacco to the contractors.

Most crucially, it is believed that contractors could be stifling prices at the auction floors and offering higher prices at their private floors in order to lure even non-contracted tobacco farmers.

A copy of the letter sent by the auction floors to TIMB seen by this paper raises a red flag on activities that are believed to be prejudicing local companies that have invested huge resources in ensuring that they are compliant to the stringent conditions required by the regulator.

“It has come to our attention as per attached document and photographs of happenings in Karoi at the MTC contract floor. There is no doubt that MTC are completely out of bounds and are engaging in blatant activities to secure tobacco which was intended for their market: be it auction or other contracted tobacco.

“Floors are clearly exposed as they have not been notified of controls put in place to ensure tobacco which is non-contracted does not find its way into the MTC selling point. Evidence is as shown by farmers busy filling in the standard letter and the number of bales with the hessian marked Propak when we know MTC have their hessian specifically branded MTC.

“Had they been licensed as an auction floor we would counter this by opening our own branches in the same area. However, we are all too well aware that this was agreed at the Rainbow Towers at a function hosted by TIMB and ZTA (Zimbabwe Tobacco Association) that no decentralisation should take place until all stakeholders have agreed to it.

“Price matrix used by contractors is a result of computation of the prices obtaining on the auction floors. Why is TIMB allowing a situation where contractors are stifling prices on auction and yet buying at higher prices at their private floors? This is tantamount to disorderliness as it encourages side marketing of non-contracted tobacco to the contractors,” read part of the letter written by the auction floors.

Since the beginning of the marketing season in February, auction tobacco prices have not been able to breach the $4,99 per kilogramme mark, but contract tobacco prices have risen to as high as $5,45 per kilogramme in some instances.

The auction floors have also indicated that there is a need for further intervention in order to ensure viability of the business.

Added the firms: “It is surprising that the Karoi auction floor, which is used by MTC, is the same auction floor which was not licensed for the 2012 season because of non-compliance, what has changed for the MTC to get a licence?

“Had floors been allowed to levy weighing and auction fees commensurate with the service being offered to growers based on actual figures as presented to TIMB before the beginning of the current marketing season, viability would have been ensured.

“Minimum fees which match services offered should have been around $9 but we are only allowed $4 even after providing for calculations needed to justify this.”

TIMB chief executive officer Dr Andrew Matibiri said in an interview last week the regulatory body will strictly monitor what is happening. He further noted that there was “nothing to worry about”.

“Well, the allegations that are being raised pertain to the side marketing of tobacco. There were fears, especially over the holiday period in April, that the crop was drying up, but deliveries have since picked up.

“MTC is mainly being accused of enticing farmers with promises of future sponsorships in order to lure them. But in my opinion there is nothing untoward in what they are doing.

“When it comes to the issue of the hessian sacks, Propack is simply a brand and farmers are free to use the Propack-labelled sacks or those of their contractors either for auction or for contract,” explained Dr Matibiri.

However, the auction floors maintain there is something irregular since MTC usually brands hessian sacks of its contracted farmers.

Attempts to get a comment from MTC managing director Mr Kenneth Langley were fruitless as his secretary referred questions to the firm’s operations director, Mr Graham

Depreeze, who could not be reached by the time of going to press.

What has riled some quarters and helped fan scepticism of MTC is its links to some white commercial farmers who lost their land during the land reform programme.
For example, MTC’s agronomist, Mr David Taylor, is believed to have lost his farm under the agrarian reforms which were meant to both democratise land distribution and to empower locals.

In addition, the Zimbabwe Democracy and Economic Recovery Act (Zidera) outlaws American firms from dealing with local companies.

MTC’s parent Alliance One International was formed when DIMON Incorporated and Standard Commercial Corporation merged on May 13 2005.

Local subsidiaries were deconsolidated in 2006 “as a result of the political environment, economic instability, foreign currency controls and governmental regulations in Zimbabwe”.

Labels: TAXATION, TOBACCO, ZDERA

posted by MrK @ 12:41 AM