Tobacco growers lose K24bn on kwacha gain
Tobacco growers in Malawi have lost an estimated K24.4 billion (about $61m) as at mid June 2013 due to the recent kwacha appreciation which started in early Apirl, according to calculations by a renowned farmer.
Malawi’s Minister of Agriculture and Food Security Peter Mwanza has since admitted that the appreciation of the kwacha, though good for the economy, has been costly to tobacco growers during the 2013 marketing season.
A K24.4 billion loss, according to a six-page analysis by Felix Jumbe, former Farmers Union of Malawi (FUM) president, is enough money to purchase over 250 000 metric tons of NPK fertiliser.
The money is also enough to establish over 15 banks in the country as the Reserve Bank of Malawi (RBM) only requires $5 million (K1.7 billion) as a minimum requirement capital for establishing a bank.
Jumbe also challenges that such an amount of money can enable growers to buy off the struggling Malawi Rural Financial Company (MRFC) and have it converted into a farmers bank, “and be left with enough change to give out to farmers as loans”.
“If one takes the official numbers i.e. $300 million expected from tobacco and working with the pre-season exchange rate of K405.1815 as at end of March 2013, farmers have been robbed K24.4 billion,” says Jumbe in the analysis titled, ‘The appreciation of the kwacha, what it means for the ordinary farmer: K24.4 billion robbed from them in broad daylight’.
The kwacha, which has in recent weeks started depreciating marginally, appreciated against major foreign currencies since early April 2013, for the first time since Malawi adopted a floating exchange rate regime on May 7 2012.
The appreciation was a result of the availability of foreign exchange on the market and the effectiveness of the tight monetary policy stance by authorities since the second quarter of 2012, according to RBM.
“If farmers lost K24.4 billion, it follows that somebody got this exchange rate gain. This gain has been shared between banks and importers,” argues Jumbe.
The kwacha which depreciated to around K420 to a dollar in March this year, has in recent weeks been gaining in value and traded at K339 before depreciating marginally to around K345 to a dollar.
When he opened the Tobacco Association of Malawi (Tama) 24th congress, Mwanza said as a ministry, they are aware that the appreciation of the kwacha has come with a cost to tobacco growers due to loans that were borrowed while the kwacha ‘was at its lowest ebb’.
Said Mwanza: “We are doing all it takes to ensure farmers do not suffer the effects unnecessarily by encouraging our buyers to improve in terms of the way they are paying for our leaf as a cushion and am sure this is forthcoming.”
According to the Tobacco Control Commission (TCC), tobacco production is estimated at 156.1 million kilogrammes this year from 79.8 million kg last season.
The projected volume is expected to bring in $300 million in foreign exchange.
Tobacco is Malawi’s principal export crop which wires in about 60 percent of all foreign exchange earnings.
