Minister of Agriculture Lobin Lowe says low tobacco prices offered by buyers threaten to force farmers out of production of the green gold next season.
The minister said this on Monday during an impromptu visit to Lilongwe Auction Floors to find out why some buyers offered prices below the government set minimum prices as the market was clearing remaining stocks.
Lowe, who temporarily suspended the market, pleaded with the buyers to refrain from exploiting farmers by offering as low as $0.50 (about K405 per kilogramme (kg) instead of recommended minimum of $0.90 (about K730) per kg
In an interview, he said he feared that the practice would discourage farmers from producing the crop, which brings in about 60 percent of foreign exchange earnings, next year.
Said Lowe: “Unfortunately, they [tobacco buyers] are buying below minimum prices, if you consider production cost, it’s a total loss.
“This is why I suspended the market so that we could talk with buyers and map the way forward. We have agreed that they should improve on their prices so that farmers are compensated adequately.”
The minister said government will push for a review of the Tobacco Industry Act to ensure that there is enforcement of minimum prices.
During the visit, a group of farmers pleaded with Lowe to intervene on the prices, saying their dependence on tobacco is fast diminishing because the production and marketing challenges are enormous.
While assuring the farmers that government is already working to resolve the challenges, Lowe described the concerns as genuine, saying it was unfair to see tobacco that was produced at $1.45 per (about K1 174) per kg, selling at $0.50 (about K405) per kg.
However, during the meeting between the minister and the buyers’ it transpired that during the day, the market was dedicated to merit sale—an arrangement where buyers offer any price for rejected tobacco that was supposed to be returned to the grower.
In an interview, AHL Tobacco Sales general manager Graham Kunimba said prices have slightly gone down towards the end of the marketing season, averaging $1.64 (about K1 328) per kg down to $1.60 (about K1 296) per kg as at week 19.
He said so far, the market has sold 120 million kg with projection to reach 122 million kg at the end of the marketing season, which is lower than what buyers demanded. The rejection rate shot to 70 percent on average.
On his part, Tama Farmers Trust chief executive officer Nixon Lita said some tobacco sold on merit sale at $0.50 was of good quality; hence, farmers were being exploited.
About 8 000 bales have so far been put up on merit sale with the lowest price pegged at $0.50 (about K405) per kg against government set minimum price of $0.90 (about K730) per kg.
Speaking on behalf of buyers, Limbe Leaf Tobacco Company Limited head of leaf sales Chris Malila said the tobacco sales committee earlier agreed that the return to grower leaf should be bought on merit sale to ensure farmers get at least something than losing out completely.
Malawi was expected to produce 122 million kg of tobacco against the buyers’ demand of 132 million kg.
In the previous year, earnings from tobacco plunged by 27 percent to $174 million (about K140 billion) against $237 million (about K191 billion) earned in 2019.
Tobacco markets at Limbe in Blantyre and Chinkhoma in Kasungu closed earlier this month while Mzuzu Auction Floors closed on August 18.