HARARE, May 14– Zimbabwe’s tobacco auction houses say the current low prices that buyers are offering are affecting their viability and threatening their future.

Statistics released by the Tobacco Industry and Marketing Board show that the gap between prices at auction and contract floors have been widening from 4.5 per cent in 2012, to 5.6 per cent in 2013. Currently the gap is at 26.7 per cent.

Buyers are currently offering a maximum of 5.80 US dollars per kilogramme of tobacco on the contract side while at the auction floors the same buyers have set a price limit of 4.99 USD per kg.

Boka Tobacco Auction Floor chief executive officer Rudo Boka told the Parliamentary Committee on Lands, Agriculture, Mechanisation and Irrigation that the low prices being paid for tobacco was impacting on their operations because they survived on commission from handling the crop.

“One would think there is an invisible hand in the market. Whether it is an agenda to say that the auction market is unprofitable or inferior,” she said. “If we extrapolate the gap between auction floors and contract, what we will notice is that we (auctions) will be non-existent within the next five years,” she said.

Boka said auction floors would soon be out of business if the low-price regime continued. “My particular floor is operating at 40 per cent capacity. We have seen the buyers controlling the market and if the market is totally contract, we no longer have the free market which is auction,” she said.

“The auction market is important in that it is a measure to keep buyers in check and it will stop our growers from being taken advantage of.”

She said high prices offered by contractors were attracting farmers, leaving the auction floors without business. Boka also said 17 licensed tobacco floors were too many considering the volume of tobacco being produced in the country.

She said as a result, the three auction floors were sharing 30 per cent of the tobacco produced in the country while contractors handled 70 per cent. “A total of 70 per cent of this crop is going to the other 14 floors, so three auction floors are battling for 30 per cent of national production. We have to compete with decentralized floors and other 13 floors in Harare,” she said.

Premier Tobacco Auction Floor managing director Philemon Mangena said the price matrix should be implemented so that all farmers benefited. “Contract system prices are said to be determined by a price matrix received from auction statistics but in practice we are not seeing it. Low prices at the auction encourage side marketing,” he said.

To date, 135 million kg of tobacco has been sold at both auction and contract markets since the opening of the marketing season.