Every year, the tobacco market offers an indication of what the economic trajectory will be in the next financial year. The 2016 tobacco selling season has not started on a good note. This is indeed very scary for the country. The newspapers are now awash with stories of low prices, increased rejection rates and tobacco farmers’ complaints and frustrations. Price differences between the contract farmers and the other farmers. This cannot be good news at all. To elaborate on the issue take for example the 2015 season.
Total tobacco sales in 2015 amounted to 192.7 million kilogrammes, which was 0.4 percent higher than the amount sold in 2014, however, the prices last year were much lower than 2014. In 2014 on average the buyers paid US$1.88 per kilogramme while in 2015 they paid US$1.75 per kilogramme. The buyers would want us to believe that the quality of our tobacco is declining and hence the declining average prices. They blame the farmers every year and also want us to believe that it is due to oversupply on the international front as well as declining demand due to reduced cigarette consumption. Unfortunately even our Reserve Bank accepts this narrative without interrogating it in their financial and economic reports.
This is a fallacy since the evidence does not support the price reality. According to website of the Tobacco Manufacturers’ Association of the United Kingdom the recommended retail price of cigarettes in the most popular category has been increasing since 1990. In fact the average price of a typical 20 cigarette pack increased by 11.3 percent from £8.23 per 20 cigarettes pack to £9.16.
This means that even if we keep on increasing the volume of tobacco the country sells, the proceeds from such tobacco are actually decreasing while the prices of cigarettes keep on increasing. The official figures from the Reserve Bank of Malawi indicate that despite a 0.4 percent increase in tobacco volume sold in 2015 over the 2014 this ironically resulted in a 6.7 percent decrease in value of sales. This poses a serious challenge for the country’s agriculture but also the country’s economy.
If the situation was only restricted to tobacco that should have been acceptable in a way, unfortunately the problem is within the entire agricultural sector. In fact the agricultural sector contract by 2.3 percent in 2015 following a 5.0 percent reduction in crop production compared to 2014. The reasons for that drop included the adverse weather conditions which included late onset of rains, floods that affected some parts of the country and the dry spells experienced in some areas of the country. By all accounts the expected production in 2016 will be the same if not lower than that of 2015 since the reasons for the contraction in 2015 also manifested themselves in the 2015/16 agriculture.
So the economic performance in 2016 will depend on the performance of the agricultural sector where the majority of Malawians earn a living producing food, raw materials, and exports for the economy. The situation does not look good at all. An underlying medium-to long-term increase in demand for agricultural and other products is being fuelled by rapid population growth and growing regional market integration, with Malawi’s rural areas attracting expanding cross-border food purchases, especially from Tanzania, Zambia and Mozambique.
However, on the supply side, in addition to the impact of the drought, the country’s agricultural potential is hampered by longer-term pressures from low yields, crop diseases, poor road and electricity access, inadequate finance, storage, fertiliser use, research, and irrigation. These are compounded by environmental degradation; soil erosion, deforestation, overfishing, and depletion of wetlands.
Currently, the policy is not only concerned with allowing people to business without restrictions but also encouraging free trade both internally and externally. There seems to be no drive to push industrialization that could allow us manufacture and export cigarettes rather than tobacco leaf. As a result, short-term trade in imports is encouraged at the expense of long-term agricultural and industrial development; enslaving the country to become a perpetual importer of manufactured goods while exporting raw primary commodities like tobacco whose prices are decreasing every year.
The policy response to these deep-seated problems should therefore embrace longer-term agricultural demand and supply-side issues, if a durable solution is to emerge. In particular, Malawi’s endeavour to reach middle-income-country status needs to focus initially on a comprehensive agricultural transformation before eventually shifting to industrialisation.
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