Tuesday, March 13, 2012
Malawi Tobacco Growers Shunning the Crop
By Gregory Gondwe
Bad tobacco prices in the consecutive seasons ever since President Bingu wa Mutharika was re-elected in 2009 has left many tobacco growers shunning the crop this season.
Various tobacco farmers interviewed say, they would rather plant beans, paprika or maize due to poor profit margins realized in tobacco farming.
Investing in nothing
Masuzgo Nhlema of Kafukule area in one of Malawi’s major tobacco growing districts of Mzimba said for the past three farming seasons he has been investing in tobacco with the hope that things might change for the better but to no avail.
“I have invested around MK6 million but you will be shocked what I have managed to get back,” said a frustrated Nhlema.
“I am ashamed to tell you how much I have in my account at the moment; not to mention how deep I have sunk in debt, and how I cannot cultivate the crop anymore,” he said.
Nhlema said last year it was worse because he failed to pay over twenty tenants that he engaged due to lack of turn over after the sales.
“All the money that I made just proceeded to off-set the cost of farm in-puts that I was getting over the years,” he said.
He said the tobacco industry in Malawi if all gloom and hopeless and it is no longer an attraction to growers.
Future still bright for Tobacco
Tobacco Control Commission of Malawi (TCC) Chief Executive Officer Dr. Bruce Munthali chose to differ with Nhlema.
“The future is quite bright for Malawi tobacco,” he declared in an exclusive interview.
Estimates indicate that more than 80% of Malawians are directly or indirectly employed by the tobacco industry.
He said in any business, a year’s mishap cannot cause distortion. According to him, it is only last year that the prices were bad which is in contrast with views of farmers across the country.
“Indeed price related problems were there, but if you look at the reforms we are putting in place, like the switch form burley to flue cured tobacco this is a step in the right direction,” he said.
Dr. Munthali is however spreading the good news even in the face of fresh orders for Malawi tobacco which show that the demand has gone down by 20 million kilograms from 180 million kilograms last year.
Explained Dr. Munthali: “Our expectation is that since it is a smaller crop in terms of volume we will have better prices; The reduction of volume does not mean much; it all depends on the prices, if we will have depressed prices then the economy might be concerned, but with reduced volume which will be of top quality then we are assured of more money.”
Causes of bad prices
Failure for Malawi tobacco to fetch better prices has sent suggestions that range from tobacco smuggling across the borders where prices are better there than in Malawi to conspiracy by the buyers to deliberately offer lower prices. But Dr. Munthali says all these theories are mere speculations.
“Of course you cannot rule out that there was collusion among buyers based on the way they operate although there is no hard evidence that this indeed do happen,” he said.
He also said there is no proof that same buyers were buying more in Zambia and Mozambique than in Malawi.
“This is also speculation because there is no hard proof. I went to Zambia last year to check the prices. I discovered that burley price there, was even lower than that of Malawi,” he said. He disclosed that he also sent a team to Mozambique which established that prices there were comparable to Malawi.
He said they concluded that what is different is in the way the industry is organized.
In Mozambique for example, the TCC boss said farmers do not shoulder a lot of expenses, since most of such expenses like production and transportation are borne by the buyer unlike in Malawi where everything is borne by the farmer.
“That’s what makes the difference in terms of the net margin or the profit margin for the farmer,” he said.
The tobacco controlling body therefore said as part of reform process they want to regulate transport rates.
“We also intend to shorten the delivery system. We want it to reduce the period where sometimes it could take four months from the time that the bales are picked from the farmers to the time they are sold at the auction floors,” he said.
The other thing is that government and President Mutharika have been interefering with buyers and this explains why the buyers should be suspecting of conspiracy.
"For a long time I've been warning these exploitative colonialists to pay fair prices to farmers,” said Mutharika when he expelled four expatriates, who included two chief executives, working for three of the largest tobacco-buying companies in Malawi two years ago.
The minimum prices were introduced for burley and flue-cured tobacco, which the buyers never complied with, attributing their refusal to global economic crisis which made the prices unrealistic.
Re-introducing quota system
Dr. Munthali says they hope to achieve better price regime through reforms that have now been employed to ensure that quality assurance is adhered to.
“Quota regulation has also been introduced so that production is in line with trade requirements,” he said.
Dr. Munthali said this will also ensure that genuine tobacco farmers will grow the crop the way things were in the past.
“Somewhere along the way we went too far with liberalization in production so that also caused problem,” he said, “We experienced negative effects of over production of tobacco in the last season which resulted into poor prices offered.”
Malawi tobacco last season realized about 250 million dollars an equivalent of 40 billion Kwacha representing a 40 percent drop in revenue on comparison to sales same period last season.
Solving the Problem
In order to run away from such eventualities where the control over prices is no longer in their hands, Dr. Munthali said they are closely looking at another element which is value addition.
“We want to venture into manufacturing tobacco into cigarettes, full throttle,” he declared.
He said there are several companies that are coming to put up factories across the country.
“One factory will be in Mzuzu, another in Kasungu and Nsanje Port while in Lilongwe three companies have shown interest,” said Munthali who added: “When you look at these interventions, tobacco has a bright future.”
He however, conceded that tobacco factories are still a pipe dream.
“There are so many things we are currently discussing with these prospective investors. Malawi being a major tobacco producing countries we want to have cigarette manufacturing facilities in most of the places,” he said saying this might be a long term.
While this is being considered he said for a short term, they are also exploring the possibility of increasing number of buyers.
“The last two years we moved from four buyers and now we have seven buyers and we will continue that process in increasing number of buyers so that we have competition,” he said.
Dr. Munthali hopes that the increase of the number of buyers will promote effective competition.
“Sometimes you can have buyers that are just walking through without buying anything on the floors; this is not what we want,” he said.
Decentralizing Tobacco markets
At the moment the Tobacco Control Commission says it is decentralizing its buying system.
The Commission says it is establishing satellites markets that will be brought closer to the farmers to reduce transport cost.
Apart from the Limbe market in the South, another one will be established in Luchenza, while Chitipa will be another one in the northern region apart from the Mzuzu market; likewise Lilongwe will not be the only market in the central region as Chinkhoma in Kasungu has just been constructed.
He said since this year they have reduced production and they are negotiating with the buyers for minimum prices.
“We are still negotiating prices so that the price regime is one that is more rewarding to farmers,” he said adding that this season the volume has been reduced by close to 40 percent.
“We hope leaf will sell better than cutters because they are the ones in demand by the companies abroad,” he said.
It has to take better prices this year, perhaps to change the hearts of growers who have completely lost hope in the crop.