A latest market analysis by the Tobacco Control Commission (TCC) has exposed huge price disparities between auction and contract tobacco, with the latter fetching higher prices than the former.
The revelations in the TCC market update comes barely two weeks after tobacco auctioneer, Auction Holdings Limited (AHL), complained to Minister of Agriculture, Irrigation and Water Development Allan Chiyembekeza that the Integrated Production System (IPS) is disadvantaging tobacco growers under the auction system.
According to the market analysis reviewing the past 21 weeks of tobacco sales, the average price for flue-cured tobacco on contract was $2.60 (K988) per kilogramme (kg) compared to an average price for auction tobacco at $2.18 (K828) per kg. This represents a price difference of 16 percent, according to Business News calculations.
The market update also shows a price discrepancy between auction burley tobacco and contract burley tobacco with the former averaging $1.71 (K650) per kg while the later fetching an average price of $1.79 (about K680) per kg.
A further variation is also evident in the average prices of dark-fired tobacco as the variety’s contracted tobacco averaged $2.10 (K800) per kg compared to an average price of $1.63 (K620) per kg for auction tobacco in the past 21 weeks of trading.
Tobacco Association of Malawi (Tama) chief executive officer Graham Kunimba in an interview confirmed the price disparity of auction and contract tobacco since the market opened in March, but said presently the huge gap has been persistently seen on flue-cured tobacco.
“It is a big problem, mostly on flue-cured tobacco. The gap is lower in burley tobacco but is high in flue-cured tobacco and we are still battling with tobacco buyers on that,” he said.
Kunimba said tobacco buyers continue to argue that there has been an oversupply of flue-cured tobacco this year, hence low prices on the leaf’s variety.
“We need to be cautious next year on flue-cured tobacco production because our flue is labelled as filler type while flue in countries such as Zimbabwe is regarded as flavour type,” he said.
Weighing in on the same, Central Region Tobacco Growers Association (CRTGA) president Ernest Chadzunda confirmed to have received complaints from growers opting for auction system over the same but said most growers under contract arrangements with buyers follow good agricultural practices than those on auction, hence price differences.
Recently, AHL chief executive officer Evans Matabwa told journalists in Lilongwe that growers who have opted for auction system are facing delays in getting their dues in time unlike their counterparts under contract farming.
He said although growers under auction are given only two days per week to sell their tobacco, most of the volume is also being rejected, hence worsening their woes.
“Farmers that have opted to sell their tobacco through auction system are being discriminated as they are not allowed to sell everyday of the week,” said Matabwa, on the sidelines of a visit by the minister at AHL premises at Kanengo in Lilongwe.