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TRADE-MALAWI: Turmoil as Tobacco Prices Fluctuate

Pilirani Semu-Banda

LILONGWE, May 15 2008 (IPS) - Malawi’s tobacco industry has been in turmoil after wildly fluctuating prices led protesting farmers to force the closure of the auction floors.

This year’s tobacco sales started on a very high note with prices reaching the phenomenal price of 11 dollars per kg. The high prices did not last, however.

The tobacco auction floors opened in Malawi’s capital city Lilongwe in March with a kilogram of tobacco fetching between six and eleven dollars. This gave hope to farmers who have struggled to make any profit from the trade over the last few years.

Malawi’s cancellation of subsidies for tobacco production a number of years ago has meant that farmers have to cover the full cost of production.

It costs the average tobacco farmer one dollar to produce one kilogram of the crop, according to Malawi’s ministry of agriculture. But for many years, prices moved between 70 and 90 cents per kilogram.

This placed the heavy burden of perpetual debt on farmers as they failed to settle loans to purchase farm inputs. Most farmers cut production and others diversified to different economic activities.

Then the unexpected hike in prices happened. Godwin Ludzu, a farmer from Malawi’s central district of Kasungu, was among the lucky ones who sold up to 30 bales of tobacco at 10 dollars per kilogram on the first day of trading. He was ecstatic about the profits he made.

‘‘The price was very good. I will be able to settle all the loans I incurred in producing the tobacco,’’ said Ludzu. He has been growing tobacco for six years. The auction prices this year are the best he has ever come across.

However, the exceptional prices did not last. On the second day, the flicker of hope died. Prices have since fluctuated, with the value of the leaf dropping to between 2.30 dollars and 60 cents for the same quality crop.

The statutory Tobacco Control Commission’s (TCC) general manager Godfrey Chapola confirmed that prices started off high because of a tobacco shortage on the global market. He said that that some countries which grow tobacco have stopped while others have reduced production levels, causing consumption to be higher than supply.

The fluctuation in prices has affected farmers badly. Champhira Gondwe, a farmer from the northern district of Rumphi, went to the Mzuzu auction floors in the north of Malawi. He could not sell any of his produce because he found that the tobacco prices were set very low.

‘‘They were being pegged at the maximum price of 2.30 dollars. I couldn’t let my hard-earned produce go at such a low price when our counterparts in Lilongwe sold their tobacco at 10 dollars,’’ said Gondwe.

The Mzuzu floors were closed on April 14 after violence broke out between the farmers and the guards at the market. The farmers physically blocked the buyers from continuing with sales. The TCC then suspended the sales.

The farmers were not ready to let go of their demand for higher prices after hearing about the worldwide shortage of tobacco.

Sales of tobacco were suspended on all four auction floors in April but the floors reopened again in the last week of April.

President Bingu wa Mutharika, himself a tobacco farmer, has previously accused buyers of fixing prices but the buying companies – from the U.S. and Switzerland – have denied the allegations.

The southern African country is a major exporter of tobacco, accounting for five percent of the world's total exports and two percent of total production on the planet. In terms of burley tobacco, Malawi produces some 20 percent of the global total, according to the World Bank.

The country derives up to 70 percent of its foreign exchange earnings from agriculture, and the tobacco industry is responsible for 15 percent of the country's gross domestic product (GDP). About two million of the country's 13 million people depend on tobacco and related industries for their livelihood.