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Monday, 09 August 2010 12:59

Malawi Tobacco Defies W H O Campaign

MALAWI, August 9, 2010 - As the World Bank’s global campaign against tobacco rages on, Malawi is this year poised to register record revenues from its number one foreign exchange earner, tobacco.


Final estimates from the national tobacco regulatory authority - the Tobacco Control Commission (TCC) indicates that this year’s tobacco earnings are expected to reach about $ 348 million up from $ 185 million last year, representing an increase of 88 percent.


TCC General Manager Godfrey Chapola has attributed the development to higher prices the crop has been fetching at the market.


“These are record sales considering the adverse weather we had in the last growing season and improved prices we had for our tobacco”, he said adding that another reason is that some countries which grow tobacco have stopped while others have reduced production levels, causing demand to outstrip than supply.


Chapola said that 143,000 metric tonnes of tobacco was auctioned by the end of July this year as against a total volume of 150,000 tonnes exported in the previous year. The tobacco regulatory authority projects a steady 150,000 tonnes of output for 2008.

Since the start of the selling season in March, average prices have ranged from $270 – $300/kg with some fetching as high as $400/kg. The first day of the biggest auction floors in the Malawi’s capital city Lilongwe saw farmers sell their crop at an average price of eight US dollars a sharp contrast to previous seasons when the average price ranged from $0.70 to $0.40 – far lower than the $1 that it costs to produce one kg of the crop.


Poor prices had over the past years led to more farmers quitting tobacco farming. Tobacco Farmers Association of Malawi said about 40,000 tobacco estate farmers had moved out of the industry between 2000 and 2006 due to declining prices. Most farmers cut down production and others diversified into other economic activities.


Malawi President Bingu wa Mutharika, who is also a tobacco farmer, has previously accused buyers of fixing prices but the buying companies – from the U.S. and Switzerland -- have denied the allegations. President Mutharika had however continued to fight for the survival of the tobacco industry.


In 2006 for the first time in the tobacco’s history, Mutharika imposed a minimum selling price for the crop. The lowest grade was pegged at $110 per kilogram and higher grade leaf was put at $170. This however didn’t go down well with some economists who accused him of defeating the rule of market forces of supply and demand. But Mutharika responded that he couldn’t just look at the farmers being exploited.


The practice has until now become a norm. This year the minimum price was pegged at $250 per kg. Despite the record prices which the crop was fetching at auction floors the season has not been without controversy as the exceptional prices did not last. Days after the record sales, prices began fluctuating, with the value of the leaf dropping to between $2.30 and $0.60 cents for the same quality crop.


In April 2008 disagreements on the prices had led to the suspension of sales for more than five times in less than 30 days. In the northern district of Mzuzu, violence broke out between the farmers and the guards at the market. The farmers physically blocked the buyers from continuing with sales. The farmers were not ready to let go of their demand for higher prices after hearing about the worldwide shortage of tobacco.


The buyers said they couldn’t dig deeper into their pockets for what they called low quality leaf but the farmers denied this. Angered by the buyers who continued to offer lower price TCC suspended the sales. The sales were suspended again on all four auction floors by the end of April following the protests by farmers against the low prices. They reopened a week later after what the TCC said was a fruitful discussion with the buyers.


Meanwhile, Chapola says the prices have stabilized and he wouldn’t expect any protest against prices by September when the floors are expected to close. Malawi derives up to 70 percent of its foreign exchange earnings from the crop and 80 percent of the country’s labour force works in the tobacco industry.


The Tobacco Association of Malawi (TAMA), which promotes and protects tobacco farmers’ interests, says that the leaf also accounts for 13 percent of the country’s gross domestic product and makes up 23 percent of the tax base.


About 2 million of the country’s 13 million people depend on tobacco and related industries for their livelihood. The World Bank report rates Malawi among the world top ten producer of tobacco accounting for 5 % of the world’s total exports and 2% of world’s total production.


In terms of burley tobacco, Malawi produces about 20 % of the world’s total. But Economic commentators have urged the government to find alternative crops that would replace tobacco which is becoming unpopular because of World Health Organization’s anti-tobacco campaign.




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