Malawi Defies the Anti-Smoking Lobby

Source from:  African Business 06/29/2016

Most of these growers have laboured hard in the nurseries and tobacco fields for seven months. In some areas incessant rainfall has caused floods while in others prolonged drought has heavily affected production. However, for most farmers this disaster appeared to be a blessing in disguise, as they felt the low supply of the commodity would trigger high prices on the market.

"I have brought in 20 bales, each weighing 100kgs and if each kg is sold at minimum of $1.50 per kg, it means I will get more than $3000," says one of the farmers, James Mkandawire.

But the reality is very different. When the trading floors open, instead of being hounded by enthusiastic consumers, growers are instead met with the intimidating faces of buyers looking for a cheap deal.

Contrary to the farmers' minimum expected price of $1.50 per kilo, the buyers offer $0.80 for the highest grade and $0.40 for the lowest. They reject 60% of the bales as being of poor quality.

One farmer from the corner of the floor shouts, "Colleagues: No! Let's protest against this ill-treatment of dictating low prices on our tobacco." The message provokes other farmers, who later gang up and demand suspension of sales.

Malawi began to focus on tobacco farming after independence in 1964 as a way of increasing its foreign exchange earnings through exports, and the crop has attracted many farmers in recent years as it yields more cash than some others such as cotton.

Currently, Malawi is among the world's top 10 tobacco producers. The crop provides income for at least 350,000 farmers and 70,000 hired labourers, as well as employment for about 10,000 in leaf processing factories.

Falling prices

However, tobacco prices have been falling since 2010. This has had a heavy impact on a country where tobacco accounts for 70% of total exports. Huge volumes of tobacco began to rot in farmers' homes due to lack of a market, and the country has seen a massive decline in foreign exchange earnings. Malawi's government is worried that the poor prices will result in most farmers shunning tobacco production, which could result in a meltdown of the country's economy.

“The 2012–2014 season was the happiest for most of us since the buyers could buy the highest grade at $3 per kg and the lowest at $1.20,” says one farmer, Mercy Chipeta, whose 40 bales have been rejected by buyers this season. As another farmer, Christopher Msowoya, points out: “I realised $1,618 from 12 bales in 2014 but as of today, I have sold nine bales and got $588, which is a big loss.”

Zimbabwe has not been spared from the falling tobacco prices and at some auction floors investors are buying lowest grade tobacco at around $0.50 per kilo. Farmers have been accusing them of hoarding the crop for resale at highest prices, according to Zimbabwe's Tobacco Industry and Marketing Board (TIMB).

Both the Malawi and Zimbabwe governments have strongly warned buyers against exploiting farmers by offering them low prices for the commodity. In 2011, Malawi's late President Bingu wa Mutharika accused tobacco buyers of sabotaging the economy and deported some of them for exploiting farmers.

But investors blame the high taxes imposed on them by African governments and the low prices of the commodity on the world market.

"We are charged heavy taxes for licences to buy tobacco in Malawi, Zimbabwe and Tanzania, and spend a lot to export the tobacco leaf. Hence we buy at low prices so that we equally get profit by the end of the day," says the chief executive of a Chinese company.

Pressures against tobacco

Another problem for Malawi's tobacco exports is the global pressure from anti-smoking groups, spearheaded by the World Health Organisation's Framework Convention on Tobacco Control.  

Impelled by fears over the health risk of smoking, the parliaments of Ireland, France and the UK have recently passed laws requiring that tobacco products be sold in plain packaging.

In 2015, as the French law was debated in parliament, the Tobacco Association of Malawi (TAMA) pleaded with France to reconsider its proposal, saying it would affect the economic sustainability of Malawi's major export crop.

"Plain packaging will devalue the product. Manufacturers of tobacco products will lose interest in supplying a product which has less brand value. This will inevitably lead to the use of cheaper tobacco and drive down the price of leaf tobacco," said TAMA chief executive officer Graham Kunimba.

He also stressed the importance of the crop for the economy: "It represents an income of over $360m and accounts for 14% of Malawi's GDP."

Zimbabwe's  economy is also highly dependent on tobacco earnings. According to Isheunesu Moyo, public relations and communications manager at TIMB, Zimbabwe earned $208m from the sale of 32m kilos of cured tobacco in the first two months of 2016. Tanzania is reported to be earning $252.6m annually from tobacco exports.

Meanwhile, Malawi's President Peter Mutharika has vowed that his country will never bow to the anti-smoking lobby. Instead, he says his government is promoting value addition to increase export earnings from the commodity through manufacturing of cigarettes, pipe tobacco, snuff, cigars and cigarillos.

"We are engaging different companies to explore and widen tobacco exports to the US and other destinations globally," said Mutharika during the opening of this year's tobacco sales in the capital city of Lilongwe.

"This had and will still continue to have negative effects on demand for tobacco worldwide and may therefore seriously affect Malawi's foreign exchange earnings and the livelihood of our tobacco farmers. But we are all aware that Malawi cannot stop overnight growing tobacco. We will continue growing tobacco based on trade requirements until when there is no demand."

The country has since licensed three new firms including China's Sino-Ma, which has already invested $30m to purchase tobacco and set up a plant for processing smokeless cigarettes.

However, President Mutharika's stand is different from that of his finance minister, Dr Goodall Gondwe, who is advising tobacco growers across Africa to diversify into legumes production to realise more profits from farming.

"There is high demand for legumes on the world market and there is stable market for it. Tobacco has failed us and legumes production is the way to go if we are to improve our socio-economic standards as farmers and at the same time improve our country's economy," he told African Business in Lilongwe. Enditem