Tobacco growers query exchange rate ‘puzzle’

Tobacco growers from Chatoloma in Kasungu on Tuesday took to task Minister of Agriculture, Irrigation and Water Development Allan Chiyembekeza to explain in detail exchange disparities during tobacco marketing seasons.

The growers, speaking after Chiyembekeza had visited some tobacco growing areas in the district, said they are always puzzled to see the local currency, the Kwacha appreciating just after the market opens every March but fast depreciates when the tobacco season closes somewhere in September and October.

One grower, who identified himself as Chipeta, told the minister that growers in the area are usually frustrated during the marketing season, especially when they sell their leaf at appreciated rates.

“Zimatiwawa ife anduna kuwona kuti Kwacha ili ndi mphamvu nthawi yotsegulira msika kenako kugwa nthawi yoti tatseka msika wa fodya. Timaluza phindu lochuluka zedi a nduna

[It pains us honourable Minister to see the Kwacha appreciating when the tobacco market has just opened and depreciating just when the tobacco market closes. We lose a lot of revenue honourable minister,” said Chipeta, attracting cheers from fellow growers who gathered before the minister.
He testified that in the last tobacco season, most growers in the area defaulted their loans they got from commercial banks through the Integrated Production System (IPS) or contract farming arrangement with their respective tobacco buying companies due to a strong Kwacha, among other factors.

In 2014, the local currency——which is dictated by the liberalised exchange rate regime since May 2012——showed some signs of stability at the beginning of the year and appreciated against the United State Dollar (US dollar) in some instance before massively losing value against the dollar and other major currencies towards the end of the year, especially between September and November.

Authorities blamed such a sharp fall of the currency on panic buying of dollars on the market and a severe imbalance between what the economy generates in terms of foreign currency and the demand for such dollars.

The exchange rate puzzle emerged as one of the major challenges facing tobacco growers in the country during the entire two-day tour that Chiyembekeza and other government officials undertook during the week in Salima and Kasungu districts.

However, reacting to the exchange concerns by tobacco growers, the minister admitted that for some time, there has been a problem with Kwacha exchange rate with respect to tobacco farming.

“Yes, there has been a problem with our exchange rate. Normally when farmers are selling their tobacco, the Kwacha is very low. But when it is time for the farmers to pay back their loans, we see the Kwacha depreciating,” said the minister.

Chiyembekeza added: “This is an issue which needs to be looked at by government and I think probably the Minister of Finance and I have to sit down to discuss how best we can assist the farmers.”

He said the problem is that tobacco prices are quoted in dollars and that when it comes to payment, that payment is done in Malawi Kwacha “and once the Kwacha is low, growers do not benefit much from tobacco.”

Earlier, Malawi’s oldest and biggest tobacco grower body, the Tobacco Association of Malawi (Tama) also regretted the timing of the current depreciation of the Kwacha against the US dollar, saying such a situation should have happened when the tobacco market was in progress.

“If the depreciation happens when we are selling out tobacco, we will not complain. But why do they [monetary authorities] always wait until the selling season ends? I know they will always say it is because of market forces and what have you. But we are not happy as tobacco farmers,” complained Tama chief executive officer Graham Kunimba in an exclusive interview in Lilongwe.

Speaking separately, Tobacco Control Commission (TCC) Chief Executive Officer Bruce Munthali said the commission also corroborates the concerns raised by the tobacco growers and said TCC had already channelled the concern to their line ministry, Ministry of Agriculture, Irrigation and Water Development as well as to the Reserve Bank of Malawi (RBM).

Munthali said TCC would have loved if authorities were controlling the movement of the Kwacha, especially during the tobacco marketing season.

“In the 1970s and 80s the Kwacha was even devalued just before the tobacco market opened to ensure that growers see increased earnings in Kwacha terms. So it’s an issue that we as a regulator can do on our own,” said Munthali.