Bank Says Minimum Price Bad for Tobacco Trade

Source from:  by Frank Phiri, 06 June 2006 - 07:18:14  06/07/2006

Earnings and volumes from this year's tobacco sales have fallen by half over last year due to President Bingu wa Mutharika's directive to fix the minimum price, the Standard Bank Group has said. The bank-Africa's largest banking unit by assets-says in a market report on Malawi that volume and earnings fell by 30 percent and 12 percent respectively, while the average price declined 14 percent compared to an increase of 25 percent in 2005. "Sales are slow because of the minimum price issue which has forced some buyers to avoid the tobacco of lower quality than the minimum price," reads the bank's report, in part. Standard Bank says statistics for the first seven weeks of sales show dismal performance of the country's green gold at the auction floors. It says that by March this year, 20.6 million kilogrammes yielded US$47 million at an average price of US$2.28 per kilogramme. During the same period last year, 31.6 million kilogrammes was sold at US$63.1 million at an average price of US$1.99/kg, it says. The bank says this year's average price of 90 US cents/kg is 14 percent lower than that in the earlier season. "Volumes and earnings for the export crop during this period in the current season are less than half those of the same period in 2005," it says. The current trend at the auction floors represents a kick in the teeth for the President's policy of fixing the minimum price at US$1.17 per kilogramme at the auction floors. Mutharika fixed the minimum price when he opened this year's tobacco marketing season in Lilongwe and said it aims to protect farmers from what he described as years of exploitation by buyers. But in response, buyers described the measure as not in line with economic liberalisation and were joined by economic activists who also echoed similar concerns. Price wrangles between farmers and buyers have prompted government to suspend the sales for at least three times, but a solution to the crisis looks far-fetched. Tobacco accounts for more than 60 percent of the country's total foreign currency proceeds and cushions the kwacha from depreciation. In retrospect, however, the local currency has been depreciating since the tobacco markets opened in March from K135 to K140 to the green back. Apart from tobacco, government has also made it clear that it will be fixing minimum prices for other commodities like cotton. Enditem