Since practically all tobacco production in Malawi is exported, the crop remains a key determinant of foreign exchange earnings and government revenues as well as an important cash crop.
Actually, the Malawi kwacha – US$ exchange rate fluctuation tends to resonate with export revenues from tobacco and the tobacco season.
Based on the 2018 average prices, the leaf will this year projected to rake into the national coffers about US$345.5 million, says Kayisi Sadala, Tobacco Control Commission (TCC) Chief Executive Officer (CEO).
He adds that tobacco is significant to the country’s economy because, among other advantages, it generates about 80 percent of employment in the rural population besides contributing to tax revenue, household food security and is currently contributing positively towards the country’s afforestation drive.
Sadala notes that the numbers of farmers producing the crop vary annually. He says that for 2018/19 season, TCC issued 35,668 licenses to clubs, 148 to corporate estate owners and 16,626 licenses to individual estate owners.
Farm gate prices which farmers get upon selling their tobacco through the licensed selling floors are structured by a Government adopted minimum pricing system which takes in account several factors including the cost of production, demand levels, global outlook, economic factors, percentage share of specific grades to the total, global demand with reference to styles etc.
Over 80 percent of Malawi’s tobacco is produced by smallholder farmers clubs where they benefit from the social capital, (the advantage of cost effectiveness in supplying as group in relation to small land holding capacity) which if done individually would increase overhead costs. Through the clubs farmers also share experiences in crop production that enhances quality of the leaf.
Famer clubs offer negotiating power
Overall, Sadala points out that farmer clubs also offer members the negotiating power to lobby for changes in practice in the industry.
As the opening of the 2019 season draws close TCC says preliminary outlook shows that there would be improved quality of tobacco offered for sale during 2019 marketing season following uniform onset of rains across tobacco producing districts and use of recommended inputs such as certified seeds, fertilizers and chemicals.
“A total of 206.9 million Kg of tobacco is projected to be offered for sale (first round tobacco estimates), representing 2.4% increase over actual sold in 2018,” says Sadala.
According to the Tobacco Act and Control of Auction Floors Act, Malawi’s tobacco can only be sold at the designated or licensed selling points called the auction floors.
“This provides opportunities for Government to track proceeds of tobacco (tobacco being a strategic crop) but also recover tax revenue,” says Sadala adding that “sale of tobacco outside such places would provide conducive environment to evade taxes”.
While tobacco farmers say the four tobacco auction markets spread across the country do not help them reduce costs of transaction including transport costs between farms and markets in a country where logistical and marketing infrastructure is a problem, the TCC CEO says establishment of market centres considers various factors besides bringing the markets closer to farmers which would reduce transport costs.
“Some of the other factors include volumes to be traded in view of costs to be borne by all players to run such centre; cost of investing (infrastructure) such as IT, road network; skilled manpower to man various selling points etc.” he says.
In the 2018/19 marketing season, only eight tobacco buying companies were licensed to purchase tobacco on the selling floors. However, observations by other stakeholders are that these companies have created a wholly oligopolistic market structure that provides suspicions of collusion and cartelism.
But Sadala argues that there is need for empirical research based results to confirm or dispel the suspicions.
As Government continues to lobby for more investors in the cigarette manufacturing value chain, Malawi has three cigarette manufacturers which are Nyasa Manufacturing, Vision Tobacco, and Sino MA Tobacco Company.
Charles Mkula is a journalist who has worked for a number of newspapers and magazines in Malawi since 1998. He has also worked as a communications officer for the Secondary Centres Development Programme (SCDP), an urban development programme in Malawi set up with support from the German KfW to support urban development. Since his entry into the development field, Charles has been passionate about advancing rural and urban development in Malawi.