Malawi's Agricultural Sector in Dire Straits

Source from:  Business in Africa (Rivonia) 07/08/2005

Malawi's entire agricultural sector is in dire straits, with disastrous consequences for the etnire economy. Malawi is bracing itself for tough times as the country's chief forex earner, tobacco, has realised below-par revenues for the second year running. Tobacco sales had already started to dwindle last year, and continued their nosedive in 2005, forcing the depreciation of the local currency, the Kwacha - which normally appreciates at this time. A Tobacco Control Commission Report on the tobacco sales currently in progress at the country's three auction floors indicate that revenue from sales of the crop, dubbed 'Malawi Green Gold', has fallen to US$159.3m this year, compared to US$205.6m a year ago - a downward plunge of 22.5%, in spite of selling almost the same amount of tobacco. The report indicates that in terms of prices as at May 19, 37.6m kg of Malawi's biggest seller, burley tobacco, was sold at an average price of US$1.16, a price decline of 15.5% compared to last year. In all, burley tobacco sales realised US$118.3m, compared to US$165.1m last year. The trend continued with all other types of tobacco. "There are no indications that the tobacco prices will change in future," says the TCC report. The tobacco sales this year have been characterised by disruption by farmers, following the low prices being offered by buyers. Despite the intervention of government, the buyers continue to offer peanuts, much to the chagrin of farmers. The dwindling sales of this major export commodity has put huge pressure on Malawi's foreign reserves, forcing the Kwacha to depreciate against major currencies like the United States dollar since March. Cost of living To add insult to injury, the Kwacha's fall has seen oil prices rise steeply - which, in turn, will result in price increases for basic commodities and an escalation in the cost of living in a country where 65% of its people already live below the United Nations threshold of US$1 a day. Malawi's economy is largely based on agriculture, and tobacco contributes 70% of Malawi's foreign exchange earnings. However, a report on the "Living and Working Conditions of Tobacco Tenants and Other Workers" has revealed that this benefit to the nation rides on the back of horrific living conditions experienced by estate tenants. 2004 was a disastrous year for the tobacco industry, with buyers offering very low prices for the leaf due to what they said were quality problems. The problem of non-tobacco related materials (NTRM), especially plastic pieces, featured high. Captains of the tobacco industry say the country risks losing its major tobacco buyers because unscrupulous growers are putting materials such as stones and plastic pieces in their bales. Limbe Leaf Company managing director Charlie Graham told officials who attended an annual field day at Kandiya Research Station in Malawi's capital city of Lilongwe that the country had lost millions of dollars over the last few years because of malpractice. Supply and demand While some commentators have acknowledged that this year's tobacco crop was of good quality, the prices have not reflected the truth on the ground. "What pains us farmers is that while tobacco is grown in Malawi by poor and ill-fed farmers, prices are dictated by buyers from rich countries abroad. I am thinking of stopping growing tobacco because instead of making me rich, it has impoverished me more. "The little I am realising from here, I am to share with my tenants, and the remaining is for the service of bank loans," said farmer Wazili Idi from the lake shore district of Mangochi, one of Malawi's major producing districts. Meanwhile growers have threatened to cut back on production so that supply on the market is reduced to force buyers pay more. "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," some farmers were quoted as saying recently. Cotton vs tobacco As the tobacco industry continue to wobble, sectors of the society, led by Malawi leader Bingu wa Mutharika, have urged farmers to try other crops. Wa Mutharika has often said he would like to make cotton Malawi's chief crop to replace tobacco. But while that can never happen in the foreseeable future, cotton itself is not a crop that is faring well on the local market. The government was forced to close the cotton market to force buyers pay more for the crop. In turn, buyers have accused the government of politicising the price of cotton to score political points. Great Lakes Company, a major cotton buyer, told the press that government was imposing a price of K25 (approximately R1.30) on the buyers without any agreement between the two parties. "As traders, we said we would pay the highest price we could offer, but unfortunately government has been misguided and announced the price without discussing with us. We know they will shoot themselves in the foot politically if they lower the price," Great Lakes Company general manager Corin Jones told the local press. But the government counter-argues that the only bone of contention was whether it should be minimum price or recommended price. As government, it says it is are concerned that even in Mozambique the same companies are buying the cotton at K27.50 per kilogram. Ultimately, nothing seems to be working in the agriculture industry in Malawi. In fact, the industry seems to have collapsed altogether, which is a sure recipe for disaster in this impoverished nation. Enditem