JTI Leaf Malawi, a tobacco buying and processing firm, has cautioned government on setting minimum prices for the leaf, arguing that if not handled properly the country could be priced out of the market.
Speaking at a news conference on Tuesday to comment on the just-ended tobacco marketing season, the firm’s managing director Fries Vanneste said the world tobacco demand is declining and the countries growing tobacco are competing for the continued shrinking market.
He said high competition among countries such as Malawi, Zambia and Mozambique means that any slip will give an opportunity to the other.
Said Vanneste: “There is need to be cautious when government is setting up minimum prices because as much as we want to increase prices for the growers we need to be aware that we have neighbours that also grow tobacco and the tobacco buyers may go outside the country to find cheaper tobacco.”
He said JTI Leaf has no problem paying more for tobacco as long as its quality is good.
“At JTI we would like to have a complete different model where we pay high prices for the quality leaf. If the quality is right that is not an issue but we should not impose the price if the quality is not there. If the quality is not good why should we pay the minimum price?”
Over the years, government has been setting minimum buying prices for each grade of tobacco, claiming that it wants to protect tobacco farmers from being exploited.
But the argument has been that despite the buyers offering good prices on the first day of sales, the situation is not particularly the same as the market season progresses.
Tobacco stakeholders say this year’s output is expected to be below the international trade requirement of 171 million kilogrammes (kg) as most of the farmers have been frustrated by poor pricing last year.
This is despite the output at 126 million kg being below the demand of 158 million kg, according to figures from Tobacco Control Commission (TCC).
This year, tobacco earnings dropped to $212 million (K155 billion) from the previous year’s $275 million (K201 billion).
Vanneste also projected that output this year may not be as much this year.
Commenting on the challenges, he said electricity outages remain one of the major obstacle, a situation which prompted the company to come up with innovations aimed at saving energy in its factory.
The project, which started in 2015, has resulted in the company reducing energy consumption by 53 percent.