Future of Malawi top forex earner bleak

The green leaf also employees over 75% of Malawi's population both directly and indirectly and pumps in 15% of the country's gross domestic product (GDP).

On a 14 March 2011, President Bingu wa Mutharika conducted what has become an annual ritual for Malawi when he opened this year's tobacco marketing season at Lilongwe Auction Floors. Unlike the past two seasons, President Mutharika fell short of dictating prices for what is called in the country's market circles as Malawi's green gold.

Defiance from buyers

Last year, for buyers to acquire burley tobacco which the majority of farmers grow, they had to meet the minimum buying price of US$2 (K304) per kilogram while Flue-cured leaf, which is mostly produced by large estates, they needed to acquire it at a minimum price of US$3 (K456) per kilogramme.

There was, however, total defiance from buyers who were not willing to meet the set minimum prices prompting Mutharika to tell the farmers during the opening ceremony of this year that his government is looking for more markets that could act as an alternative when buyers buy at a low price.

"Growing tobacco is hectic and very demanding. That is the reason why I suggested that we should have a minimum price for tobacco. I did this because I wanted farmers to get enough profit," Mutharika said in his opening speech.

Malawi's Tobacco Control Commission (TCC) has said Malawi is expected to produce 218 million kilograms of tobacco, which is a six percent drop from initial estimates of 232 million kilograms.

Dry weather a factor in the price drop

TCC CEO Dr. Bruce Munthali said the drop has not been caused by global anti-smoking campaigns but more so, due dry weather in main growing areas.

Last year, Malawi sold 220 million kilograms at an average price of US$1.89 per kilogram. This earned the country US$416 million in foreign currency against US$433 million in 2009.

After opening Lilongwe floors, Mutharika officially opened the selling of tobacco at Chinkhoma, a newly constructed satellite market in the tobacco growing central region district of Kasungu the following day followed by Limbe Auction Floors 24 hours later.

New infrastructure worth K730 million at the Chinkhoma Auction Floors have just been completed this year.

Mutharika was expected to open the fourth and last market at Mzuzu Auction Floors on March 28 but prices at the opened markets forced government to withhold its decision.

Ironically, TCC suspended tobacco sales on the same day at the Lilongwe and Limbe Auction Floors following complaints from buyers over low prices.

Average prices at the auction floors have remained at as low as 55 cents per kilogram while the majority of the bales were sold at prices below US$1 (K152) per kilogram. The highest price seen was US$2.01 (K305.52) per kilogram.

This year's minimum prices have been set at US$1.80 (K237.60) per kilogram for burley and US$2.83 (K430.16) per kilogram for flue cured. These prices are lower than last year when burley was pegged at US$2 (K304) per kilogram and flue cured at US$3 (K456) per kilogram.

TCC records at the Limbe Auction Floors indicated that for the first time since the market opened the number of bales rejected reached 85%.

Mutharika fingers culprits

It is not like President Mutharika has not tried to pin down culprits that are perpetrating lower prices at the floors; during the opening of Chinkhoma market he accused his cabinet ministers, top government officials and CEOs, of both public and private institutions, that are into the tobacco business, of fuelling the problem.

He accused them of supporting rock-bottom prices from poor farmers to sell at much higher prices for themselves.

"I ask you my colleagues, ministers, principal secretaries and chief executives to utilise this market; you don't use the market because you sell your tobacco by contract," he said before turning to the buyers: "The buyers should realise that farmers can only continue growing tobacco if they are paid prices beyond the cost of production," added Mutharika.

Ever since the market opened this year, tobacco authorities at both Limbe and Lilongwe auction floors have been conducting high level meetings to find long-lasting solutions to the problem of low prices.

Tobacco growers have since asked government to allow them to cross the borders and offer their produce to the foreign market as they say are fed up with the experiences in the local market. The growers claim that in neighbouring Mozambique, buyers are offering better prices of over 2 dollars per kilogram of tobacco.

Buyers have said they cannot up their buying power because of poor quality leaf which is made worse with the inclusion of non-tobacco related materials in the tobacco bales in order to dupe them.

Contending with WHO anti-smoking campaigns

Growers attribute this problem to intrusion by vendors and intermediate buyers who they say are behind the malpractice.
Amidst the confusion over prices at the market, Malawi has for the past three years been contending with the anti-smoking campaign championed World Health Organisation (WHO).

Under the Framework Convention of Tobacco Control put to effect to control growing, exporting and smoking of tobacco especially that of burley type in nature, WHO is asking government to rethink its position.

Nonetheless, TCC - government's tobacco regulator - has always encouraged farmers to pay a blind eye to the ongoing anti-smoking lobby by the industrialised countries most of whom have put to effect a ban on smoking tobacco.

But the National Smallholder Farmers Association of Malawi (NASFAM) has been advising its members to diversify or practice combined farming to avert the problems coming from slow demand in tobacco, however the TCC as a regulator has remained adamant on the threats on the crop going by the newly opened multimillion kwacha Chinkhoma tobacco market.

It is not known where Malawi has to turn to as the bad market trend and the unrelenting anti-smoking campaign has painted a bleak future for Malawi's top forex earner.