A latest market report by Tobacco Control Commission (TCC) summarising this year’s tobacco sales has exposed a glaring gap between contract and auction tobacco prices.
The report shows that since the market opened on April 8 2015, there has been a wide gap between tobacco sold under contract and tobacco sold under auction system with the former fetching better prices than the latter.
The three-year-old contract system, also known as Integrated Production System (IPS), allows tobacco buyers to offer farmers necessary inputs, extension services and loans and also providing direct facilitation of growers by processors and buyers.
The system runs side by side the traditional auction system in which tobacco growers are not under the watch of tobacco buyers and are left at the mercy of tobacco merchants.
Meanwhile, AHL Group and the Tobacco Association of Malawi (Tama) have expressed reservations over the price disparities despite the quality of leaf under the two systems being almost the same.
The TCC report shows that during the first week of trading, for instance, auction burley tobacco price averaged $1.30 (about K715) per kilogramme (kg), while contract tobacco averaged $1.32 (about K726) per kg.
During the second week, according to TCC statistics, burley tobacco sold under auction averaged $1.24 (K682) per kg, while burley tobacco sold under contract averaged $1.33 (K731) per kg.
In week 10, the report also indicate that average price for burley tobacco under auction was 10 percent lower than that of contract with the former averaging $1.48 (K814) per kg while the latter averaged $1.64 (K902) per kg.
The price difference between the two systems is also reflected in other weeks with average price for burley sold under auction in week 20 of sales averaging $1.53 (K841) per kg against the average price of $1.72 (K946) per kg for burley under contract system.
Reacting to the price disparity, AHL Group corporate affairs manager Mark Ndipita admitted that that this year, all types of tobacco sold under auction system have fetched low prices compared to tobacco sold under contract system.
On the other hand, Tama chief executive officer (CEO) Graham Kunimba suspected that tobacco buyers are deliberately offering higher prices for contract tobacco to compel farmers to switch from auction to contract system.