Tobacco revenue drops by 18%
Revenue from tobacco—Malawi’s main foreign exchange earner—has dropped by 18.1 percent to $275.7 million this year from last year’s $337 million.
The drop in earnings could be attributed to poor prices and high rejection rates, which peaked at as high as 98 percent at one time.
Figures from AHL Group show that this year’s average price was $1.42 per kilogramme (kg) compared to $1.75 per kg last year.
This year sales season was extended to December, exceeding the normal sales closing months of September and October.
The drop in earnings could have serious implications on foreign exchange buffer since tobacco contributes about 60 percent to foreign exchange earnings.
When the market was closed in October last year, 193 million kg of tobacco was sold compared to this year’s 194.6 million kg, according to AHL Group.
Explaining the reduced earnings, AHL Group corporate affairs manager Mark Ndipita said on Tuesday that this year’s prices were on the lower despite more tobacco being sold.
He said.”If you look at the average price, you will see that the average price was $1.75 per kg last year while this year the average price was $1.42 per kg.”
In his comment, Tobacco Association of Malawi (Tama) chief executive officer (CEO) Graham Kunimba described the marketing season as a mixed bag and historical because there has never been a time it has been extended to December.
“This year’s marketing season can be described as a mixed bag. What we saw was that the auction market had huge challenges while the contract market went on well with a few hiccups.
“The extension up to December has also made this year’s market historical because if my memory saves me right, it has never happened.”
However, Kunimba said they are happy that finally all the tobacco that was on the market will be sold through a competitive process.
“What we have seen this year is that buyers were competing for the leaf, but the challenge was that prices continued going down,” he said.
Tobacco Control Commission (TCC) CEO Albert Changaya agreed with Kunimba that the marketing season was one of the longest due to overproduction and that next year, a day will be set aside to allow buyers to purchase all the tobacco currently being regraded.
“We know that it is not possible to purchase all bales because others will need to be regarded; hence, the need to set aside one day in January to do a clearance sale,” he said.
Tama has since commended TCC for organising the clearance sale in January, adding that some tobacco will still have to be regraded for reoffer.
The country this year produced 17.5 million kg of flue-cured tobacco and 2.5 million kg of dark-fired tobacco all of which has already been sold.
The delay in closing of the selling season is expected to affect production of tobacco next year since some farmers will have difficulties to raise enough capital to purchase inputs.
Tobacco contributes and 13 percent to the gross domestic product (GDP).n
