Ever since I started following with keen interest sales at the tobacco auction floors several years ago, I have always felt sorry for the poor farmers who have mostly been exploited by the influential stakeholders in the industry in one way or another.
Tobacco prices are quoted in dollars. However, almost year in and year out, the farmers have been taking home less than what they could have earned if they had sold the same “dollars” at commercial banks.
For example, last May, tobacco farmers in the Central Region petitioned the Tobacco Control Commission (TCC) and Auction Holdings Limited (AHL) expressing their discontent over the ruling exchange rates at the floors. That time, the dollar was trading at K170 in commercial banks yet the farmers were being paid at an equivalent of K164.32 to the dollar. In some cases, the difference between the auction floors dollar rate and that in commercial banks was more than K6.
It was therefore refreshing to hear, during the official opening of the 2013 Tobacco Marketing Season, President Joyce Banda’s directive that growers be paid their tobacco proceeds using exchange rates from commercial banks and not those determined by the Reserve Bank of Malawi which, sad to say, were on the lower side and ended up giving farmers a raw deal.
With commercial banks displaying exchange rates boards right on the trading floor at the auction floors, growers stand to benefit through better rates.
This year’s demand from buyers is 160 million kilogrammes (kg), but our farmers have only produced about 150 million kg. The production is higher than the 79 million kg produced in 2012, but still below the buyers’ demand. If market forces of supply and demand are to come into play, the expectation is that buyers will “scramble” for the leaf, thereby resulting in better or higher prices offered to growers.
Sadly, though, such a desirable outcome does not come about automatically. There are also issues of quality at play. For example, for several years, some farmers (or intermediaries masquerading as farmers) have been stuffing their bales with non-tobacco related-materials to cheat on the actual weight whereas some have been taking for sale, dump or poorly graded leaf as well. The end result has been high rate of rejection or, where some compromise has been reached, low prices.
Here, the ball is in the court of growers associations to ensure that their members exceed the minimum required standards for caring and preparing their tobacco for sale if they are to get better prices.
By the way, where are the new tobacco buyers we were told in January 2010 that they were on their way to enhance competition? I recall TCC telling the nation then that the new tobacco buyers were set to enter the local market.
I do not smoke neither does the President who opened the marketing season on Monday. But, we all tend to bother about tobacco because it is a strategic crop for our economy. Tobacco remains our principal export crop, accounting for 60 percent of foreign currency earnings.
Tobacco money pays most of our bills, especially for imports.
Prices aside, I still believe Malawi can earn much more from tobacco by venturing into full-scale cigarette manufacturing as it was done by the British American Tobacco (BAT) in the complex along Masauko Chipembere Highway opposite the Polytechnic. I know Nyasa Manufacturing Company is already making some cigarettes locally, but we can still do more.
Let the marketing season begin and, hopefully, improve the country’s import cover as well as stabilising the kwacha.