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Tobacco growers said this week they will cut tobacco production next season to reduce supply on the market and boost demand in a bid to force prices up.
Random interviews with farmers at Limbe Auction Floors on Tuesday and Wednesday indicated that small scale farmers would rather produce low volumes at reduced costs but earn higher returns.
“The cost of production is very high yet buyers do not seem to care. I would rather cut on volumes and concentrate on quality. That way I hope to get more per kilogramme,” said a grower from Ngwelele agricultural Extension Planning Area in Zomba as fellow farmers around him nodded in agreement.
Tobacco Association of Malawi (Tama) president Albert Kamulaga on Tuesday said despite high level talks with buyers and government a couple of weeks ago, prices at the floors remain low.
Kamulaga shared the Zomba grower’s views.
“If we want to get good prices, we must reduce production and improve on quality, otherwise we will keep toiling but getting poor returns,” the said.
This year’s tobacco production is estimated at 155.5 million kilogramme—about 14 percent lower than last year—according to official figures.
Although buyers are still purchasing the leaf, both Tama and Tobacco Control Commission say buyers still have stocks from last year in their warehouses which they have not shipped. This could explain the cautious buying and the resultant low prices.
At the Limbe floors on Tuesday, Malawi’s top foreign exchange earner was fetching between US$0.80 (K90.40) and US$1.10 (K124.30) using the officially pegged exchange rate of K113 to a dollar.
“News of low tobacco prices at the auction floors has so far been discouraging. Indications are that not much improvement will be forthcoming,” said National Bank of Malawi (NBM) in its April economic newsletter released last week.
Added NBM: “As if low production and prices are not enough, the situation has been worsened by the non-responsiveness of the official exchange rate being used at the auction floors for tobacco purchases on a daily basis.”
The bank said significant market pressures, including the parallel market, suggest that the Malawi kwacha is now due for another sharp rise.
NBM said speculation of the impending fall in the kwacha’s value is creating an impasse between buyers and sellers in the market which has resulted in continuing shortages.
The local currency has continued to nose dive even during tobacco sales, which wire in nearly 60 percent of the country’s total foreign exchange earnings.
Towards March end, the kwacha tore through the Reserve Bank of Malawi official ceiling to trade at around K113 and has since plummeted to about K116 to the US dollar this week after a critical shortage. On the black market, the kwacha is trading between K125 and K130 to the green buck.
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