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Government says IPS stabilises tobacco market

Farmers realised superior returns under IPS
Farmers realised superior returns under IPS

Malawi Government says the introduction of Integrated Production System (IPS)—a contract system of tobacco growing and marketing approved in 2012—has stabilised Malawi’s tobacco market and resulted in better prices than before.

Minister of Agriculture James Munthali, in a write-up made available to Business News yesterday, noted that most farmers who participated in IPS in 2012/13 season benefited from superior returns, since it provided them with training and access to loans and fertilisers.

“All of these combined, enabled burley tobacco farmers to have better yields. Under IPS, the growers have doubled their yields per hectare as compared to that of the non-IPS farmers. In addition, improved quality, in turn, led to better average prices for IPS farmers,” he argued.

Figures from the Ministry of Agriculture show that  in the 2012/13 season, IPS farmers achieved an average price of $2.05 (K805) per kilogramme (kg) against the $1.95 (K766) per kg paid for on auction.

Tobacco output in last year’s season jumped 103 percent to 168.7 million kg in 2013 from 79.8 million kg last year, raking in revenue of $361.8 million (K142 billion, at the current exchange rate) from $177 million (K69 billion) the year before.

Out of this output, two thirds of the burley tobacco—grown by a majority of smallholder farmers—was sold on contract, representing 80 percent while just one third on auction.

Tobacco remains Malawi’s lifeline, wiring in more than half of the country’s foreign exchange earnings, contributing 13 percent to the gross domestic product (GDP), 25 percent of tax revenue and employs more than 50 percent of Malawians directly or indirectly.

Munthali, in a write-up titled, “Contract farming has long-term benefits for all of Malawi,” said contract prices were 21 percent higher over minimum prices compared to 15 percent for non-contracted tobacco farmers.

Meanwhile, the tobacco industry regulator, Tobacco Control Commission (TCC), is planning to hire a consulting firm to review the efficacy of IPS in view of the teething problems that the system faced.

The minister has observed that IPS is specifically intended to address the issues of over-production that has suppressed market prices, discouraging tobacco farmers leading to underproduction in the 2012 season, worsening the country’s foreign exchange deficit.

Munthali said the problems associated with IPS were inevitable for a system that is new, but argued that government has worked with all players in the industry to address the issues.

“For example, some farmers expressed concern that they were contracted without any price indication prior to the start of the season. This is obviously contrary to the basic principles of this system and is an administrative issue, unlikely to happen again.

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