Poor prices dampened cash crops’ prospects

Prospects of the country’s key cash crops were subdued in 2020 due to Covid-19 that continues to affect international markets,  resulting in farmers and the economy losing.

Cash crops such as cotton, tobacco, tea, coffee and sugar, recorded poor performance in the year with cotton being the worst hit due to disruption of international markets.

Malawi exports cotton, tea, sugar, coffee to Europe and China, but travel restrictions induced by the coronavirus negatively affected international trade.

The country relies on exports of such mostly semi-processed cash crops to earn foreign exchange.

In terms of tobacco, although prices were good compared to last year, the volumes uptake by buyers remained low.

This was attributed to slow marketing due to Covid-19 and high rejection rate, especially on the auction market as buyers were cautious to uptake more volumes due to fears of international markets affected by travel restrictions.

At the end of the marketing season on August 28, the country raked in $173.5 million (about K130 billion) from about 113 million kilogrammes (kg) sold. This was 32 percent lower than last year’s 165.6 million kg sold.

The outcome was attributed to climate change induced poor weather, which affected the anticipated output.

On sugar production and marketing, Illovo Sugar (Malawi) plc managing director Lekani Katandula complained in an interview that prices shrunk by about 11 percent, adding that the company is largely depending on proceeds from the local market because the international market is currently not lucrative.

Cotton was the most affected as the majority of ginners pulled out of the market at the eleventh hour due to insignificant international demand as textile factories were on lockdown.

Cotton Council of Malawi executive director Cosmas Luwanda said, so far, growers rested their hope on Agricultural Development and Marketing Corporation (Admarc) and other two ginners to buy cotton.

But the State produce trader was under-resourced to buy cash crops from farmers as government prioritised maize purchases.

Luwanda said the majority of cotton ginners, before pulling out, wanted to buy the crop at K240 per kg against government set minimum price of K300 per kg.

An analysis of the 2019/20 cotton production and marketing season by the African Institute of Corporate Citizenship shows that farmers still have 6 000 metric tonnes of cotton, which would translate into K2.3 billion loss at K389 per kg.

As of the third quarter of 2020, Reserve Bank of Malawi reported that tea production amounted to 5.1 million kg, lower than 10.6 million kg produced in the preceding quarter and 5.1 million kg similar to the corresponding quarter of 2019.

Total sales at the Limbe Auction Market amounted to one million kg, a moderate increase from 0.4 million kg in the preceding quarter and 1.1 million kg sold in the corresponding quarter in 2019.

As a result of this, tea proceeds increased to $1.6 million (about K1.2 billion) from $0.4 million (about K304 million) realised in the preceding quarter.

Average tea price stood at $1.58 (about K1 200) per kg in the review period compared to $1.44 (about K1 094) and $1.32 (about K1 000) per kg in the preceding quarter and the corresponding quarter of 2019, respectively.

Tea Association of Malawi chief executive officer Beyani Munthali said the poor prices were compounded by the twin challenges of Covid-19 that affected international markets and the oversupply situation that has persisted since last year.

“The prices were already affected by oversupply, but the situation has been worsened by Covid-19 which has come with travel restrictions affecting merchants as they are subjected to 14-day quarantine,” he said.

The International Coffee Organisation (ICO) trade report showed that the ICO composite indicator price decreased by 4.1 percent to an average of $1.04 (K774) per pound towards the end of the year and a low of $0.98 (K690) mid-year.

In December, the base price for arabica futures contracts for September 2020 was averaging $1.40 and $0.99, which was below the cost of production for most coffee farmers.

Betchani Tchereni, economic professor at the Polytechnic— a constituent college of the University of Malawi, said the combined poor showing of cash crops affected foreign exchange.