‘Tobacco market has progressed well’

The 2019 tobacco marketing season which was opened on April 25 will close on September 18. This year’s market conduct displayed mixed reactions with growers selling their leaf under auction system complaining about lower prices than the leaf on Integrated Production System (IPS) also known as contract arrangement. Our reporter DUMBANI MZALE caught up with Tobacco Commission (TC) chief executive officer KAYISI SADALA to briefly summarise the 2019 tobacco market dynamics:

Q1

Briefly describe the tobacco market conduct since the market opened on April 25 this year.

A1

The market has progressed well as there hasn’t been market disruption as was the case in previous seasons.  Secondly, the prices have been improving from the onset.  The incidences of high rejection during the first week of sales faded off towards week 18. It is impressive despite lower prices compared to 2018.

Q2

From the onset it is clear from the market statistics that prices on contract system are better than on auction. Why is this the case?

A2

The development is a reflection that IPS objectives are being achieved, one of which is competitive prices with auction system. We are aware that since the adoption of contract system or IPS, there have been divergent views on the effectiveness of the system. But as a commission, we believe that the effectiveness of IPS can be assessed based on outturn on the intended objectives.

The Empirical IPS review report actually shows positive indicators, for instance, improved yields from 800 kilogramme [kg] per hectares [ha] to 2 200kg/ha, better prices; marketing efficiencies through shorter selling period; improved quality owing to reduced handling emanating from zero rejection (zero reoffers); as well as improved compliance.

Q3So does this mean Malawi should do away with the auction system and stick to contract system only?

A3

No. Both systems have space in the marketing as not all buyers subscribe to IPS. Malawi shall continue with the two marketing systems going forward.

Q4

You recently hinted that the auction system of selling tobacco will also be subjected to compliant issues just like the contract system. Why is TC taking this path?

A4

Tobacco produced through non-contract should have market access through being compliant. Compliance remains  a demand-driven need by the cigarette manufacturers. In view of this, the commission is advising all tobacco growers that efforts under IPS shall also be applicable under auction system. Basically, we would like to establish where is the tobacco grown, how is it grown and who is growing this tobacco. TC shall now vet all new applicants before issuing a license and the institution shall validate land availability for all new applicants. TC shall also implement Know Your Customer [KYC] for all tobacco growers while also undertaking Global Positioning system [GPS] so that every tobacco grower on TC database is fully known. In compliance with the law, the commission will ensure that all research, extension services and use of chemicals and pesticides are duly complied with.

Q5

There have been complaints in recent times that tobacco buyers are not honouring their contracts with the farmers and leaving the farmers destitute and poor, what is TC’s take on this?

A5

The commission through the New Tobacco Industry Act NO 10 of 2019 is enforcing the provisions one of which is vetting all contracts, but also putting provision of indicative prices as part of the contract. The commission monitors and takes action on various stakeholders. The new Act has punitive penalties and fines for various degrees of non-compliance; the law has also empowered the commission to enforce the law. The law has regulations developed through a consultative process. The new law has comprehensively tackled roles of each stakeholder thereby addressing conflict of interest issues which brought a lot of problems in the industry. Furthermore, the law has addressed issues to do with charges, illegal vending and quota violations among others which are aimed at bringing sanity in the industry. The Commission is therefore ready and geared to implement the new act to the letter for the benefit of the ultimate grower.

Q6

Another thorny issue is the allocation of production quotas. How is the response so far—mindful of the fact that tobacco buyers have indicated that they are willing to buy 154 million kilogrammes of tobacco next season?

A6

There is overwhelming response by most people who want to grow tobacco if what we have seen, so far, if anything to go by. We believe people have been made aware of the new law, which is the new Tobacco Industry Act. It is clear that those that were previously using other people’s licenses to grow tobacco have now seen the need to register and grow tobacco on their own.

There is a lot of enthusiasm to grow the leaf. But what we have done is to ensure that there is compliance, new applications or new registrants are not being allocated the quotas until the vetting exercise has been completed. This will enable the commission to know who exactly is growing the leaf, where they are growing the leaf, and whether they have enough land for the quota allocated.