Subdued competition affects tobacco prices—AHL Group

AHL Group formerly Auction Holdings Limited, has said reduced competition on the auction market has pushed tobacco prices down, increased rejection rate and affected revenue realised from the leaf this year.

Figures show that at this time last year, tobacco—the country’s main foreign exchange earners—had raked in about K154 billion whereas this year, the crop has fetched only K102 billion, a 33 percent drop.

AHL Group corporate affairs manager Mark Ndipita said in an interview on Monday the minimal competition has come about because tobacco buyers recruited about 45 percent of farmers into the non-funded category of contract farming.

He said: “We have a lot of non-funded contract farmers that were just recruited by merchants, even if these farmers were not supported. This means that we have more volumes of tobacco on contract sales which has reduced competition on auction sales.

“This scenario has forced buyers to buy tobacco on contract sales as they have more volumes on contract.”

Ndipita explained that there was no non-funded category when Integrated Production System (IPS) was first introduced in 2012.

“This year, about 35 percent of farmers were funded and there can be traceability with the IPS while about 45 percent are non-funded growers, but were recruited and listed to sell on contract whereas about 20 percent were not recruited and are the ones selling on the auction, facing high rejection rates and lower prices.

“If there was no non-funded category, we could have about 65 percent of the crop on auction sale, which could bring more competition and probably higher prices and lower rejection rates,” he said.

Tobacco Control Commission (TCC) chief executive officer Albert Changaya agreed with Ndipita, saying that auction floor prices, especially for burley tobacco, could have been better if it was not for supply glut.

“I would not say yes or no to the notion that prices of tobacco on auction could have been good because some types of tobacco are doing well, while burley is the one which has given us problems.

“The problem of over-supplying on the contract marketing came about because some farmers, despite being given estimates, decided to over-produce; hence, affecting the market,” he said.

Tobacco Association of Malawi (Tama) vice- president Reuben Maigwa said this year’s tobacco selling season has been full of challenges.

He asked TCC to put in place measures to ensure that there is no repeat of this scenario next year.

Apart from being the major foreign exchange earner, available figures show that tobacco contributes about 13 percent to gross domestic product (GDP) and 25 percent to the tax revenue.