Kwacha gains to cost tobacco growers K30bn

The continued kwacha gain is a boon but not for tobacco growers who are estimated to lose a whopping K30 billion [or $69m, at the current exchange rates] this year in exchange rate losses, Business News has established.

This year’s expected loss is on top of another loss last year amounting to K24.4 billion at a mid-June 2013 because of what a renowned farmer, Felix Jumbe, said is a monetary policy that induces appreciation of the kwacha at a time the local unit is to encourage exports of tobacco, tea, sugar and cotton, among other crops.

“Tobacco farmers will again this year lose K30 billion assuming the country has an output of about 200 million kilogrammes (kg) of the leaf selling at an average price of $1.50 per kg,” he said.

Last year, Malawi produced 168m kg of tobacco and, this year, the output is expected to jump by about 25 percent, according to the Tobacco Control Commission (TCC).

Jumbe, an erstwhile president of Farmers Union of Malawi (FUM), in his analysis, said this year’s loss is based on the assumption that the kwacha is induced to appreciate further to K350 to a dollar from the current level of K430, as of yesterday.

This is obviously a loss with double impact because at the time of buying the inputs such as fertiliser and many other imported items, the exchange rate was at K450 to a dollar.

And when the tobacco marketing season opens in mid-March this year, the kwacha will have appreciated even more up to the lean period between October and September when the local unit will start to depreciate again, resulting in farm inputs rising again for the next season.

This scenario is equally applicable to other foreign exchange generating crops such as tea, sugar, coffee and all other agriculture commodities.

The kwacha has been appreciating in the face of donor aid freeze and no export revenue trickling in thanks to Reserve Bank of Malawi’s tight monetary policy which has resulted in the central bank mopping up excess liquidity on the market.

A tobacco grower, Denis Dias, who is also Tobacco Association of Malawi (Tama) vice-president, said a depreciated kwacha could have offered hope to farmers because their earnings in kwacha terms could have been more.

“With the kwacha appreciating, it means more farmers will see their earnings shrinking fast and most of them will struggle to pay back the loans because they borrowed when the kwacha was at its lowest,” he said.

Instead of farmers smiling all the way to the bank this year, Dias said this trend will result in more of them weeping since the leaf is traded in dollars.

The kwacha appreciation has puzzled analysts as to what is causing it because this time around the country should have been experiencing more imports than exports that have an effect on the currency.

But Jumbe said the ultimate beneficiaries of the kwacha appreciation are the banks who he said made a killing when the unit was at its lowest ebb.