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Tobacco jigsaw puzzle

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Despite talk prior to the start of this year’s tobacco marketing season that farmers would get better prices for their crop owing to low production against demand, the reality on the ground is a different story.

An official analysis done by AHL Group is showing that the cumulative average price for the green gold after four weeks and two days of trading was $1.71 per kilogramme in 2017 against $1.53 over the same period this year.

In 2017, cumulative average prices in week one, two, three and four were $1.35, $1.61, $1.70 and $1.72 per kilogramme, respectively. This is better compared to $1.30, $1.42, $1.48 and $1.52 over the same period this year.

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There are also price disparities regarding the average prices for the two tobacco marketing systems; auction and contract. For instance, auction burley average cumulative price as of May 8 was $1.20 per kilogramme against contract burley cumulative average price of $1.49 while auction flue cumulative average price was $1.50 per kilogramme against contract flue cured tobacco price of $2.60.

Tobacco growers were expecting the leaf to fetch good prices at the auction floors due to low supply after many areas were hit by pro-longed dry spells that affected production.

According to estimates from the Tobacco Control Commission, this year’s tobacco production was 149 million kilogrammes against a market demand of 171 million kilogrammes.

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But, despite the price disparity, volumes of the leaf sold over the period of interest are higher as compared to the same period last year, leading to higher earnings.

As of Tuesday this week, the country sold 33.2 million kilogrammes to realise $51 million at an average price of $1.53 per kilogramme. Over the same period in 2017, 16.3 million kilogrammes of the green gold were sold at an average price of $1.71 to rake in $28 million in foreign currency for the country’s coffers.

AHL Group Communications Manager, Mark Ndipita, indicated that the good fortune is largely because there have been no sale stoppages and also that volumes sold are higher this year than was the case in the prior period.

In 2017, a total of 106.5 million kilogrammes of all tobacco types were sold for $212.4 million compared with 195.1 million kilogrammes that fetched $276.4 million in 2016, an earlier report for AHL reported.

Tobacco Association of Malawi attributed the fall in volumes and revenue to restrictions by authorities, who prefer higher quality leaf to address the problem of increased cases of rejection at the markets. The average rejection rate was 10 percent in 2017.

High rejection rates and low prices have dogged the tobacco industry in Malawi, resulting in frequent disruptions at the auction as smallholder growers argue with buyers and regulators.

Tobacco accounts f o r 48 percent of total foreign currency receipts and much of the population is dependent on tobacco and related industries.

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