Yearning for the best from tobacco market

Forty-year-old Victor Fiwa of Mittawa Village under Mbulumbuzi Extension Planning Area (EPA) serves as the most perfect example of a desperate farmer seeking to get the best from his sweat from tobacco.
He was convinced that if he stopped selling his tobacco under the traditional auction system and started doing so under the contract system, also known as Integrated Production System (IPS), he would chalk the best from what he produced in the field. It was not to be and he went back to the auction system.
“I discovered that unlike under the auction system where prices rise as buying companies try to outbid each other, prices under the contract system are fixed and, regardless of the quality of your tobacco, you do not get anything more than what is put on offer,” says Fiwa.

“Besides, I noticed that what they promised to give me if I jumped between the systems was not forthcoming. I was promised better prices, but I did not get them. I was promised loans, but I did not get the loans. So, I just decided to return to the auction system because I wanted what I produce from my investment to sell at a higher price.”
Fiwa brags that for the period he has been a tobacco farmer, selling his produce mainly under the auction system he has seen progress in his livelihood.
He says he has built a house and servants’ quarters, bought three bicycles which currently operate as taxis between the Nasawa turnoff on the Blantyre-Zomba Road and Nasawa Technical College and bought some livestock he is rearing and later selling.
Fiwa says he has also progressed in tobacco farming generally, adding that in a year when most people did not harvest enough maize, putting a documented 2.8 million people at risk of hunger, he harvested 106 bags of the staple grain.
But he notes that from the tobacco perspective, current trends on the market threaten the progress he and other farmers have made or are yearning for.
According to the AHL Group, the official tobacco auctioneer, the 2015 tobacco marketing season has been challenging and long due to high rejection rates and low prices, resulting in sales proceeds shrinking from $361.6 million in 2014 to $333.6 million this year, representing an eight percent drop.
A change in a sales policy agreed by government for the 2015 marketing season also means the farmers’ earnings dwarfed or several of them had their commodity returned from the market.
AHL Group says the agreed policy was to sell 70 percent of the tobacco under the contract system and 30 percent under the auction system.
However, at the end of the 2015 marketing season, it turned out that 83 percent of the tobacco was sold under the contract system and a paltry 17 percent sold under the auction system.
“When such things happen, it is us the farmers who suffer the most,” says Allan Pearson, a tobacco farmer from Milepa in Chiradzulu.
“I am seeing this for the first time since I started growing tobacco in 2002. The contract system has some advantages to the farmer. One does not have a lot of problems offloading the tobacco at the market and the prices are fixed.
“But what we saw this selling season means this system is not for the benefit of the farmer. Our friends saw their high-quality tobacco returned or downgraded so that the buyers get it for the cheap. You would find contract buyers settling for very low-quality tobacco because they knew they would pay less for that.”
The farmer’s inability to negotiate for better prices under the contract system, ending up taking anything offered, is another thorny issue the system has exposed.
Pearson says under the auction system, a farmer would withdraw their tobacco from the floors and consider selling it another day if they are unhappy with the prices offered.
In its tobacco sales report, the AHL Group confirms that most buyers were craving for inferior tobacco grades which include cutters and lugs. This helped spring high rejection rates which the company says averaged 30 percent for the selling season and swung to 92 percent on some days.
“Although they registered to sell their tobacco on contract system, some farmers saw their names removed at the last minute and those that were not lucky to sell their tobacco under the auction system brought it back or sold it to the vendors on the cheap,” adds Pearson.
In its sales report, the AHL Group identifies “removal of some growers from [the] contract despite not exhausting the contracted volumes” as one of the challenges this year’s marketing season faced.
AHL Group corporate affairs manager Mark Ndipita says the group’s statistics show that at the end of the marketing season, 2 432 burley tobacco farmers and 359 flue-cured tobacco growers were removed from the contract system and had no option but to sell their commodity under the auction system. Four dark-fired tobacco farmers were also removed.
The other challenges were high rejection rates on both auction burley and flue-cured sales; low prices on contract flue-cured sales, resulting in sale stoppages; low auction burley being delivered and sold; downgrading of tobacco to facilitate a sale; selective treatment of contracted farmers in terms of offloading, selling and pricing of sponsored and non-sponsored growers and corruption through associations that recruit farmers on behalf of buying companies.
“Tobacco prices are supposed to be dictated by its grade and not otherwise. But what we have seen happening under the contract selling system is something that has left us baffled,” says Thomson Junta, also from Milepa in Chiradzulu.
“If this is the trend, surely, we will not be benefitting from our investment in producing the commodity and tobacco being the backbone of the country’s economy, the trend will also affect the country’s economy,” he adds.
Ndipita says, partly, the situation went this way for the contract farmers because some buying companies might have wanted to prioritise the sale of tobacco they grow through contracted farmers, adding that some of them have farms in the country.
He says: “There is need to improve the contracts the farmers sign with buyers so that they are binding. The contracts signed by growers do not stipulate that the farmers might be abandoned despite not exhausting the contracted volumes, but that scenario happened.”
“It would also have been better if we consider and evaluate a change in policy so that we leave the business of growing tobacco in the hands of farmers only so that buyers can only concentrate on the buying side.
He says there is also a great need to consider giving a chance to those farmers that have been funded by buyers to continue selling through contract but all non-funded growers should be allowed to sell through auction. n