Revitalizing Malawi’s Economy: Harnessing the Power of Competitive Pricing
Key Business Points
- Tobacco growers are calling for a review of the cost of production formula to account for climate change-related uncertainties, which are increasing production costs and affecting profits.
- Buyers have projected a preliminary demand of 170 million kg of tobacco for the forthcoming season, while the Tobacco Commission has licensed 242.5 million kg, highlighting the need for accurate production estimates.
- Extension services from buying companies are crucial to support farmers, particularly in contract-farming, to ensure a successful harvest and meet the demand for tobacco.
The tobacco industry in Malawi is facing challenges due to climate change, which is affecting production costs and profits. Tobacco growers, through the Tama Farmers Trust, are urging the Ministry of Agriculture to review the cost of production formula to account for the extra costs incurred due to climate change-related disasters such as droughts and floods. These extra costs, which average $0.40 (K700.40) per kg, are not currently considered when determining minimum prices, and are undermining farmers’ profits.
The Tobacco Commission has licensed 242.5 million kg of tobacco for the forthcoming season, but buyers have projected a preliminary demand of 170 million kg. This discrepancy highlights the need for accurate production estimates to ensure that farmers are not left with unsold tobacco. The Tama Farmers Trust President, Abiel Kalima Banda, emphasized the importance of reviewing the production costs, saying that farmers are incurring extra costs due to climate change factors, which are not being considered when determining minimum prices.
The buying companies, which control 80 percent of the country’s tobacco production through contract-farming, have a crucial role to play in supporting farmers. Kalima Banda commended the efforts of the buying companies, but emphasized the need for more extension services during the growing season. JTI Malawi director of corporate affairs and communications, Limbani Kakhome, also stressed the need for the industry to set up minimum requirements for extension services.
The tobacco industry is a significant contributor to Malawi’s economy, with the 2022/23 season generating $542.3 million (K949.5 billion) in revenue. However, the industry has faced challenges in recent years, with production failing to meet demand since 2020. The Tobacco Commission has licensed farmers to grow varying amounts of tobacco in recent seasons, but the output has consistently fallen short of the demand. For example, in the 2023/24 season, the regulator licensed farmers to grow 265.9 million kg, but farmers produced only 133 million kg, which was below the 190 million kg demand.
As the tobacco industry looks to the future, it is essential that zinthu zitatu za msika (market factors) are considered, including the impact of climate change on production costs and the need for accurate production estimates. By addressing these challenges, the industry can work towards kuzipatula kwa ubwino (improving productivity) and increasing profits for farmers. The Tobacco Commission and buying companies must work together to support farmers and ensure a successful harvest, which will ultimately benefit the entire industry and the Malawian economy.
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