Despite a good start, the tobacco industry is facing challenges that may impact the performance of the cash crop in 2021, Nico Asset Managers have said.
In its May 2021 Monthly Economic Report published on Monday, the investment advisory firm observed that the industry is faced with pressures of international regulations on traceability of tobacco to prevent forced labour and child labour.
Reads the report in part: “This has made it difficult to sell the tobacco that is not compliant to the regulations, causing buyers to become more cautious on buying the leaf from non-contracted growers.”
In May 2021, US Customs and Border Protection modified an import ban on tobacco from Malawi over forced labour.
The firm also noted that the move further modified a 2019 Withhold Release Order that prohibited the importation of all tobacco products from Malawi.
Furthermore, the US Food and Drug Administration (FDA) is contemplating a ban on mint-flavoured cigarettes.
Reads the report: “Menthol is blended with burley and flue-cured tobacco, which Malawi heavily relies on for tobacco exports.
“This move by the FDA could negatively impact global demand and affect Malawi’s export earnings from the crop. The ban is also being considered by other countries like the UK, Brazil, Ethiopia and the EU.”
Meanwhile, tobacco prices have remained higher in 2021 compared to 2020 as the current demand for tobacco is estimated at 132.3 million kilogrammes (kg), higher than the estimated crop output of 124.3 million kg.
AHL Group figures show that during Week Eight of tobacco sales, Malawi generated $97.76 million (K77 billion) from the sale of 59.4 million (kg) of tobacco at an average price of $1.64 (K1 295)per kg.
National Statistical Office figures show that in the past decade, earnings from tobacco declined by 45 percent from $433 million (K342 billion) in 2009 to $237 million (K187 billion) in 2019. In 2020 Malawi earned a $165 million (K130 billion).
Again, falling earnings from tobacco, which accounts for about 50 percent of Malawi’s total foreign currency earnings and roughly 15 percent of gross domestic product (GDP), means bad news to the foreign exchange cover.
Tobacco Association of Malawi Farmers Trust chief executive officer Nixon Lita told Business Review that the organisation is lobbying government to bring in some legislation that will ban bad farm-labour practices.
He said that “more growers are now becoming compliant and their tobacco is certified fit by LimbeLeaf, AllianceOne and Premium.”
In May, President Lazarus Chakwera urged tobacco farmers and industry stakeholders to accept the harsh reality that the tobacco industry is dying and start preparing for life without tobacco.