Several tobacco merchants have seen losses estimated at $20 million by some industry players due to lower than expected output and side marketing, reports The Herald, citing the Tobacco Industry and Marketing Board (TIMB).
Due to drought, there was a 29 percent drop in crop production to 179 million kg from 252 million kg last year. This year’s crop projection was 233 million kg.
Andrew Matibiri, TIMB CEO, said that side marketing is “rampant;” about 80 percent of tobacco farmers in the country are financed under contract schemes. “Side marketing takes place when parties to the contract violate the agreement, either when a farmer chooses to sell to other merchants or when a company buys from farmers it has not contracted,” according to the Herald. This practice almost caused the cotton industry to collapse.
Many tobacco farmers cannot borrow from banks to finance their operations, so they go into contract arrangements where merchants finance the farmers and then recover their money from the crop proceeds. Due to travel restrictions to stop the spread of the coronavirus, side marketing was more prevalent, and some merchants took advantage of that by buying directly from farmers.