Malawi's Tobacco Price Fixing Burns Trade

Source from:  BiA Online Posted Thu, 30 Mar 2006 MALAWI Blantyre 03/31/2006

The Malawian government's insistence of providing a minimum price for tobacco has left sellers at Malawi's main auction house without buyers since Monday. On Wednesday, potential tobacco buyers at Lilongwe Auction Floors rejected the minimum prices for low quality ($1.10) and high quality tobacco ($1.70). The president has received stiff opposition from international tobacco groups saying that price controls go against free market best practice. The President, however, claimed that given the national importance of tobacco, tea and cotton, price controls became necessary to protect the industies from exploitation. General manager of the Tobacco Control Commission Godfrey Chapola confirmed that the market had been closed because buyers were not interested in paying higher prices. He added "government made a decision on prices (and) it will be government that will make a decision as to what happens." The government introduced price fixing after farmers complained that they were receiving less money for the tobacco leaf every year and were struggling to survive. In many ways, the government was reacting much the same way that governments in charge of industrialised countries would react except that in first world countries it is called a 'subsidy'. Tobacco is central to Malawi's economy. The leaf currently brings in 70 percent of forex earnings, accounts for 30 percent of GDP, and provides direct and indirect employment for 70 percent of the population. Given that it also provides 25 percent of the government's tax purse, perhaps introducing a subsidy would have been wise, however, possibly less affordable. Enditem