This year’s tobacco marketing season was riddled with poor prices and high rejection rate. Our business reporter GRACE PHIRI analyses the performance of the season and challenges encountered and prospects for next year.
At the onset of the 2015/16 tobacco season, Malawi was hit by a dry spell induced by El Nino climate phenomenon. This was a setback, as Malawi, being an agro-based economy, sneezes whenever tobacco has not performed well.
Demand for tobacco fell by 12 percent to 158 million kilogrammes (kg) as per international trade requirements from 179.1 million kg because buyers overbought the leaf last year buying 192.7 million kg against the trade requirement of 179.1 million kg.
Looking into the future, Tobacco Association of Malawi (Tama) chief executive officer Graham Kunimba hopes for a better tobacco growing season in 2017 because of the new registration system being put in place by players in the industry.
In February, Tobacco Control Commission (TCC) deputy chief executive officer David Luka said the tobacco regulatory body had banned the increase of quotas in 2016 tobacco selling season to align output to demand to achieve sustainable production and marketing of the leaf, whose value chain provides jobs to millions of Malawians.
Later, it was found out that tobacco output rose by 33 percent over the international trade requirement of 158.1 million kg, putting output at 211 million kg.
In March, just a month before the opening of the 2016 tobacco marketing season, the kwacha started appreciating from K750 to around K690 to a dollar.
This did not please Famers Union of Malawi (FUM), whose president Alfred Kapichira Banda described the pace and timing of the appreciation as shocking, which compels one to suspect that there is a hand behind the current movement.
He said that Minister of Finance, Economic Planning and Development Goodall Gondwe’s remarks during the Mid-year Budget Review that the local unit had reached an equilibrium point had sent a strong message to the industry.
He said the minister’s remarks and the continued appreciation of the kwacha had threatened the tobacco markets, which were earning less in kwacha terms due to the gaining in value of the kwacha.
To protect local growers and help them realise more from the country’s main foreign exchange earner, TCC introduced a new billing system for the leaf’s transporters in which bales were based on weight and distance instead of the usual flat charge.
At the time President Peter Mutharika opened the 2016 tobacco marketing Season in Lilongwe, 30 percent of bales offered under the auction system were rejected. The President warned buyers against exploiting growers and urged them to offer fair prices.
It was established that burley tobacco—mostly grown by smallholder farmers—fetched the lowest price of $0.80 (about K552 in April) and the highest price of $1.80 (about K1 242) per kg. This was in sharp contrast to 2015 when the first bale on auction system was bought at $2.32 (about K1 044 at K450/dollar) per kg.
In contrast, all tobacco sold under the contract system or Integrated Production System (IPS)—where farmers get inputs from tobacco companies—were bought and at good prices.
Just 24 hours after the market opened, the rejection rate worsened to 76 percent coupled with lower prices.
This irked tobacco growers who protested by forcing the market to close at Lilongwe Floors.
Experts have long argued that the Tobacco Bill is one of the solutions to ending price woes growers have been facing.
Ministry of Agriculture, Irrigation and Water Development Principal Secretary Erica Maganga said Parliament would table the Tobacco Bill in June, but this did not come to pass.
In a desperate move to push up tobacco prices, Minister of Agriculture, Irrigation and Water Development George Chaponda said he would meet with the tobacco buyers and growers’ representatives to find a lasting solution. This did not bear any fruit either.
As the situation on the tobacco market with regards to prices started deteriorating, the Competition and Fair Trading Commission (CFTC) indicated it was probing the tobacco market on suspicion of price collision among buyers. This did not help the situation at all.
Although the move was welcomed by all stakeholders in the industry, namely AHL Group and Tama, the results of the probe are yet to be released.
After a volatile period of high rejection rates, reaching as high as 90 percent, the price increase was minimal to make an impact on growers’ take-home earnings.
“My worry is that my tobacco is losing quality and by the time a buyer will be interested in the crop, it will be of poor quality and it will fetch low prices,” said Goodson Mateyu, a tobacco farmer from Zomba found at the Limbe Floors.
Economists had however warned that low tobacco earnings would haunt the kwacha.
Industry players hoped the inflows from the green gold, which account for about 60 percent of foreign exchange income would bolster the country’s forex reserves.
TCC chief executive officer Albert Changaya, while admitting that the performance registered this year was not satisfactory, said they hope to do better in the next season having learned from the mistakes made.
However, Chaponda said Malawi will continue growing tobacco despite worldwide anti-smoking campaign championed by the World Health Organisation (WHO).
However, experts believe Malawi should seriously consider diversifying away from tobacco because the crop’s future is not guaranteed, with its earning dropping by 18 percent this year. n