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Obert Chifamba
Agric-Insight
ONE intrinsic characteristic of rain-fed agricultural production is that it is seasonal yet demand for produce by consumers is continuously active with farmers (smallholders in most cases) who supply the products getting their earnings once a year — at the conclusion of every season.
This makes it prudent for the markets that absorb the produce to ensure they expeditiously pay for products delivered since most farmers use the marketing period to settle the bulk of their outstanding financial obligations. And they have to do it fast.
Sadly, this has not been happening in most cases with buyers of produce either taking their time to pay or offering prices that fall way below the expected benchmarks that allow producers to re-finance operations for a new season and take care of their socio-economic obligations as well.
In recent times this unfortunate development has given birth to a monster called ‘side marketing’ that has threatened to kill agricultural production if the root cause is not addressed effectively.
Side marketing involves a contracted farmer deliberately selling produce to a third party or parties in violation of a contractual agreement, which states that the product shall only be sold to or bought by the contractor who financed its production.
Of course, this is tantamount to committing a crime that results in loss of millions of dollars annually and has the potential to kill any farming sub-sector.
Exporters in the tobacco industry, for instance, lost revenue in the region of US$57m in 2021 because of several reasons that included side marketing, which in this case, stuck out like a sore thumb. At least 125 people were also arrested for side marketing last year.
Interestingly, the crime of side marketing cannot be blamed on the farmer alone. It can be committed by either a farmer or the illegal buyers who also include errant licenced contractors at times.
Farmers have in all cases presented a plethora of explanations behind their side marketing escapades. They have always argued that contracting companies short-change them in terms of prices.
The prices are not fair given the amount of work and resources they would have committed to produce a crop, they always complain. Their claims make a lot of sense given that most contractors do not invite farmers’ contributions in fixing prices and expect farmers to just take prices they unilaterally set.
It is unfortunate that the prices do not take into account the circumstances under which the crop would have been produced especially the prevailing economic conditions and the potential impact of their (contractors’) assistance on the production matrix.
Ironically, in some cases the margin between the profit earned by the self-financing farmers is a lot higher than that of the contracted farmers while the negative return on capital and return on sales obtained by contracted farmers will pointing towards serious losses.
This leaves the farmers unable to meet obligations such as paying their children’s school fees and other socio-economic demands. Such farmers usually end up throwing caution to the wind and side market crops to get quick money.
Sometimes contractors take their time to release payments while farmers will be expecting to do a lot of things using the earnings. Sometimes the revenue generated from the crop will all go towards servicing the input loans, which leaves the farmer with little or no cash to meet other obligations.
She therefore chooses to side market and default on loan repayment for the sake of her family’s welfare.
It is therefore fast becoming apparent that the farmer is always bearing the brunt of being resource poor and therefore perennially needing assistance to produce effectively.
On the one hand, contractors should also commit efforts towards making the contracting process diligent enough to exclude potential defaulters. This means they should have monitoring mechanisms and conditions that would-be beneficiaries should meet first.
This will enable them to realise improved recoveries on input loans, as was the case in the 2013/14 cropping season when Cottco recorded a nine percent increase in recoveries despite the lower intakes achieved.
This may require proper screening of would-be contract farmers in line with ordinary credit facility arrangements while efforts are also being made to manage output and curtail overproduction of crops to levels that outstrip current consumption.
Contracting companies should champion this initiative because they also stand to incur losses in the event that farmers end up side marketing produce and not deliver to them.
On their part, farmers need to be alive to the relevance of market forces in price determination and should control their costs by improving overall productivity on the land rather than fight for price increases, which are beyond the control of all players.
Prices for crops like cotton and tobacco are influenced by global events in most cases so to be safe, farmers should also make sure they manage their production costs properly paying close attention to potential outputs.
Full article on: www.herald.co.zw
Essentially, side marketing undermines the investment into any farming sub-sector because it brings in disorderly marketing that scares away investors because they will not be certain they will recover their money.
It is a cancer that can effectively ruin the financing models of any farming sub-sector, for instance, the tobacco and cotton sub-sectors.
The decision by the Government to introduce Statutory Instrument (SI 77 of 2022), which prohibits side marketing of tobacco making it criminal for both the farmer and unsanctioned buyer to trade in the crop was noble given that most farmers are failing to produce to their potential because of resource constraints, key among them, the absence of reliable funding.
Contractors are bringing in the missing link to make sure there is productivity in the agriculture sector so there is need to ensure the enjoy a healthy relationship with farmers.
In most cases farmers end up in messy legal cases with contractors and the sad thing is that they are the ones that usually come out with more bruises than their sparring partners. Sometimes they have property attached or even get custodial sentences yet they could have easily avoided such a pitfall.
Generally, most farmers find themselves doing side marketing because they would have either under-produced due to poor agronomic practices or they would have been affected by bad seasons, hence the push to maximise the profits for their own benefits at the expense of the creditor.
It is obvious that such farmers naturally decide against delivering all of the contracted crop because that will leave them with nothing at their disposal to meet other socio-economic obligations. In the end they find themselves in hot soup especially at a time like this when side marketing attracts a custodial sentence of six months or a punitive fine.
Tobacco farmers, for instance, that are found guilty of the offence will be made to compensate the contractor three times the value of the side marketed tobacco.
Online Reporter