Tag: Malawi

  • Grower prices up, down

    Grower prices up, down

    Inspecting tobacco in Zimbabwe

    Grower prices for Zimbabwe’s flue-cured tobacco are currently running behind those of last year, according to a Bernama News story relayed by the TMA

    The latest data from Zimbabwe’s Tobacco Industry and Marketing Board (TIMB) indicates that, since the 2017 selling season began on March 15, tobacco growers have sold 161 million kg of leaf for US$470 million at an average price of US$2.92 per kg.

    This compares with the approximately 157 million kg that was sold for US$461 million at an average price of US$2.94 per kg during the comparable period of last year.

    The TIMB public relations and communications manager Isheunesu Moyo said deliveries this year had now declined because the peak-season period was over. The TIMB would shortly announce the closing date for regular sales and a date for mop up sales.

    In February, the Zimbabwe Farmers’ Union said it expected flue-cured tobacco prices to be ‘favorable’ this year.

    The quality of the crop was said to be excellent and so grower prices, which were said by buyers to be based on quality, should be excellent also.

    At that time, growers believed that prices ranging between $4.00 and $5.00 per kg would be favorable.

    Such prices, they said, would allow them to break even and to continue producing flue-cured tobacco next season.

    In 2015 and 2016, the average price paid to Zimbabwe’s flue-cured tobacco growers was about $2.93 per kg.

    The Lilongwe tobacco auction

    Meanwhile, in Malawi, good quality leaf has attracted better prices than those of last year.

    Since the start of sales on April 10, according to a story in the Maravi Post, relayed by the TMA, growers had sold 65.1 million kg of leaf (Burley and flue-cured) for US$125 million, seven percent up in respect of the volume sold during the corresponding period of last year and 38 percent up in respect of the value of those sales.

    The Tobacco Control Commission (TCC) data indicated that the current average price of leaf stands at US$1.91 per kg, up from US$1.47 per kg during the same period of 2016.

    Burley tobacco sales earned US$84.4 million from a volume of 50.1 million kg sold at an average price of $1.68 per kg, while flue-cured tobacco was said to have generated US$36 million, presumably at an average price of US$2.40 per kg.

    The TCC’s acting CEO attributed the increase in earnings to the quality of the leaf.

  • Sales open on good note

    Sales open on good note

    Malawi’s Mzuzu Auction Floors opened on a good note with the highest price paid for flue-cured tobacco reaching US$4.35 per kg and that for Burley reaching US$2.20 per kg, according to a story in The Nyasa Times.

    Opening the floors, the Deputy Minister of Agriculture, Irrigation and Water Development Aggrey Masi said this year’s leaf was of high quality because of good rains, the increased use of certified seed from improved tobacco varieties, and good crop management.

    He said the importance of tobacco to Malawi’s economy could not be over-emphasized because it contributed significantly to the country’s foreign exchange earnings.

    This was the reason why the government still promoted tobacco production. It was a crop of strategic importance that economically empowered farmers.

    Masi said the government was prioritizing key tobacco policy reforms, including the introduction of the Integrated Production System, the review of the Tobacco Act, the new tobacco grower registration system, and investment in value addition.

    According to Masi, tobacco-industry reforms were intended ‘to support the establishment of a transformative framework that will help address systemic bottlenecks in the industry, thereby stimulating increase in productive capacity and enhancing linkages to the market’.

    He assured farmers that the government would continue with the reforms in order to create a win-win situation for buyers and farmers.

    “My expectation is that you should be matching quality with reasonable prices,” Masi said in a statement directed at buyers. “These farmers deserve better prices for them to re-invest in the tobacco enterprise this coming growing season.”

    The chairperson of Tobacco Control Commission Inkosi Ya Makhosi M’mbelwa V said that this year’s selling season had started on a good note because of the government’s control measures. “As a result of controlled production, forces of demand and supply are at play and good prices are coming up; we are hoping for better prices this year,” he was quoted as saying.

  • Same sad story in Malawi

    Malawi photo
    Photo by ludger.heide

    An economist has said that Malawi needs to look beyond tobacco following the country’s leaf market having once again opened to low prices, according to a story on Malawi24.com.

    The highest price paid on the opening day of this year’s tobacco selling season, which started last week, was US$1.50 per kg.

    Some farmers sold their tobacco for as little as US$0.80 per kg.

    Economist Joshua Mbewe said the way the tobacco selling season had started was a clear indication that the crop was no longer the green gold Malawi should be relying on.

    “Gone are [the] days when tobacco could be taken as our main forex earner and hub of the economy,” Mbewe said in an interview with Malawi24.com.

    He further said the low tobacco prices would affect the 2017/2018 national budget since it would be difficult to realize the much-needed forex.

    “We will have difficulties to service both external and internal debts and the economy will continue to limp and stagger,” he added.

    Mbewe said the time had come for people to diversify and begin growing other cash crops that might boost the economy.

    In opening the 2017 tobacco selling season in Lilongwe, President Peter Mutharika told farmers to venture into other businesses, saying the global campaign against tobacco would continue to affect Malawi.

  • Fighting Its Corner

    Fighting Its Corner

    Photos: Taco Tuinstra

    Nyasa Manufacturing carves out a niche for itself in the competitive Malawi market.

    Like their counterparts elsewhere, Africa’s cigarette markets are dominated by multinationals. Occasionally, however, a homegrown player manages to carve out a niche, using local knowledge to counter global resources.

    Nearly a decade ago, several Malawi flue-cured tobacco farmers ventured into cigarette manufacturing. Confounding the naysayers, they have held their own against deep-pocketed rivals, capturing a share of the country’s—admittedly tiny—cigarette market.

    “We were driving pickup trucks, and the leaf buyers were driving Land Rovers,” quips Konrad Buckle about the group’s decision to move up the value chain.

    “Today, we are still driving pickups,” he chuckles.

    That is not entirely true—Buckle, too, now owns a late-model Land Rover—but his joke hints at the challenges of establishing a cigarette company in a country with frequent power failures, a crumbling infrastructure and rock-bottom disposable incomes, not to mention a formidable incumbent.

    The newly created enterprise, Nyasa Manufacturing Co. (NMC), set up shop in Blantyre, Malawi’s commercial capital. In 2009, Buckle spent three months in Indonesia, learning to operate the equipment that the company had purchased for its factory. NMC developed six brands, and soon it was producing cigarettes “out of its rear.”

    But making cigarettes proved to be easier than selling them.

    “We quickly learned about the importance of brand loyalty and price positioning,” says Buckle. With a gross national per capita income of only $340, according to World Bank figures, Malawi is said to be the world’s poorest country outside of a war zone. Cigarettes are considered a luxury, and the typical smoker can afford to buy only one stick at a time. Not only must cigarettes be priced extremely competitively in such an environment, but newcomers must also lure smokers away from multinational brands that have been around for ages.

    The company struggled, and in 2012 it nearly went bankrupt. But Buckle and his partners persisted. Applying the lessons learned, they slowly but surely put NMC on the map.

    Playing on its home turf worked to the NMC’s advantage.

    Playing on its home turf worked to the company’s advantage. According to Buckle, importers tend to sell their cigarettes through supermarkets, which are located primarily in urban areas. The vast majority of Malawians, however, live in rural areas. So NMC invested in a fleet of cars and motorcycles, along with “a never-ending supply of replacement parts” to guarantee mobility on Malawi’s bumpy roads. “We sent our people into the countryside to ensure our products would be available everywhere, all the time,” says Buckle.

    NMC also took notice of the particularities of Malawi’s economy, which is based on subsistence farming. “From January to March, spending grinds to a halt as farmers plant their crops,” says Buckle. “Until harvest time, they have many expenses but zero disposable income. You must consider that cycle in your cash flow projections.”

    To further increase brand awareness, in 2016 the company bought the Nyasa Big Bullets, a Malawi football team with 8 million supporters. The move made NMC a household name overnight, even though the firm has been careful to avoid tobacco references in its sponsorship materials. Buying the team also brought on board a highly motivated sales force. “Ninety percent of vendors on the street are Big Bullet fans,” explains Buckle.

    While the sponsorship of a sports team by a tobacco company raised eyebrows, the international governing body of football, FIFA, acknowledged that, in Malawi, there are few alternative sources of funding.

    The government has been encouraging entrepreneurs to move up the value chain beyond leaf exports.

    Of course, NMC’s competitors didn’t sit by idly as the newcomer encroached on their turf. To slow the company’s momentum, they temporarily dropped their prices—but NMC was ready for that scenario. “We bought all the discounted stock we could get our hands on,” grins Buckle. “When they eventually raised their prices again, we sold those cigarettes and doubled our money!”

    Business grew steadily, and the Blantyre factory now runs two shifts per day, seven days a week. While statistics are hard to come by—Malawi’s puny market isn’t tracked by market intelligence firms such as Euromonitor—observers estimate domestic volume at 1 billion sticks. “Twenty-five percent of that is smuggled from neighboring countries,” estimates Buckle. “Of the remaining 750 million sticks, we have 50 percent.”

    Buckle attributes the company’s success to a combination of determination and street smarts. And the advantage of being local, he stresses, cannot be exaggerated.

    Even though he was born and raised in South Africa, Buckle has lived in Malawi for more than 30 years. “This is my home,” he says. His business partners, Dimitri Kalaitzis and Demokritos Kalaitzis, are fourth-generation members of Malawi’s small Greek community. “They understand the environment and the politics,” says Buckle.

    As if to underscore the extent of his integration into the local community, Buckle was recently invited to join Malawi’s Ngoni people. In an elaborate ceremony overseen by the chief, Inkosi ya Makosi M’mbelwa V, he became an official member of the tribe. “Two leopards died because of me,” he says, with a mixture of pride and regret, referring to the traditional attire worn during the ceremony. Being part of a prominent tribe earns a degree of respect in Malawi and opens doors that might remain closed to outsiders.

    We bought all our competitor’s discounted stock we could get our hands on. When they eventually raised their prices again, we sold those cigarettes and doubled our money!

    Konrad Buckle, Nyasa Manufacturing Co.

    The company’s local roots also earned it the support of Malawi’s government, which has been eager to capture a greater share of the tobacco value chain. Leaf tobacco accounts for a whopping 60 percent of the country’s export income, but the government wants Malawi to do more than export raw materials. For years, it has been encouraging investors start manufacturing cigarettes in Malawi but with little success. A plan, announced by Eastern Co. of Egypt in 2014, to build a cigarette factory in Lilongwe appears to have been quietly abandoned.

    To encourage the new venture, the government granted NMC tax breaks and other benefits. NMC and its sister company Nyasa Distributing Co. now employ 200 people—a big deal in a country of peasant farmers, where only a handful of people hold formal jobs. And the benefits stretch further than the immediate positions created. According to Buckle, each employee supports an average of six people.

    NMC intends to support Malawi’s economy going forward as well. Whenever possible, the company sources its materials locally, starting with tobacco. “Critics said it wouldn’t be possible to produce cigarettes using only local leaf,” says Buckle. “But Malawi has everything we need: burley, flue-cured and dark fire-cured.” Due to Malawi’s small industrial base, some imports are unavoidable. Cigarette paper, foil and wrap are purchased abroad, while cut rag is created in Zimbabwe, using Malawi leaf. The company has ordered a filter making machine and expects to start producing its own filters in September.

    Plenty of challenges remain, but Buckle is optimistic about the future. The trials of starting cigarette production in Malawi, he notes, have taught the partners good business sense. “You must operate as lean as possible so that you will be covered also in bad times,” he says.

    “As a small player, we must box cleverly.”

    Taco Tuinstra is Tobacco Reporter’s editorial director.Based in Raleigh, North Carolina, USA, he coordinates the work of staff writers and contributors.On his watch, Tobacco Reporter has won several awards for editorial excellence.Since joining the magazine in 1997, Taco has visited more than 75 countries to meet industry representatives in their markets and to report tobacco news firsthand.

  • Malawi confidence wobbles

    wobble photo
    Photo by joshtabti

    Malawi’s President Peter Mutharika has warned people involved in smuggling leaf tobacco out of the country that they will be punished with an ‘iron hand’, according to a Malawi24.com story.

    Mutharika issued his threat yesterday during the official opening of the 2017 tobacco marketing season at the Lilongwe Auction Floors.

    He said he had instructed police and the army to man the borders so that no tobacco was smuggled out of the country.

    Mutharika’s threat seemed like a bad omen for the marketing season, coming as it did immediately after the Tobacco Control Commission (TCC) had said it expected this year’s tobacco prices to be higher than last year’s because this year’s tobacco was of good quality and because there was high demand and low supply.

    Last year, with prices down by more 20 percent and buyers refusing to purchase a considerable quantity of their tobacco, growers pleaded with the government to allow them to take it out of the country so as to find people who would buy it.

    It seems that Mutharika is concerned that despite what the TCC believes, the market will again be slow and that growers will be tempted to try to ‘export’ their tobacco.

    Mutharika asked buyers to offer good prices and not to discriminate against non-contract farmers.

    And he urged growers to ensure that they offered good quality tobacco and to use dialogue whenever there were misunderstandings.

    The call for good quality is something of a red herring. What might raise prices this year is the apparent shortage in the crop.

  • A new year, another promise

    A new year, another promise

    Malawi’s Tobacco Control Commission (TCC) says it expects this year’s grower tobacco prices to be higher than last year’s since supply is limited, according to a Malawi24.com story.

    Acting chief executive officer David Luka said the TCC was expecting a better season this year.

    He said that the tobacco had looked good in the fields, and that demand was high while supply was low.

    According to estimates made two weeks ago, the all-types crop was about 125 million kg whereas the ‘initial’ trade requirements were for 152 million kg. So there was a shortfall of 27 million kg.

    This year’s tobacco marketing season was due to open today, starting with the Lilongwe Auction floors.

    Luka advised farmers to take their tobacco to the market in a well-presented manner so that they would receive premium prices.

    “For the buyers, again it’s a plea that they should pay the prices that the quality demands…,” he said.

    That plea is unlikely to be heard if last season is anything to go by.

    On April 14 last year, under a heading of Farmers promised ‘decent incomes’, this magazine, relying on local reports, said that after 125 years of producing leaf tobacco for export, Malawi’s farmers were being promised that in 2016 they would earn decent incomes from their labor. But would buyers walk the talk?, the story asked.

    The answer was no. Within days, under a heading Low prices make lives ‘unbearable’, it was reported that despite 2016’s having been heralded as the year when tobacco farmers in Malawi would earn decent incomes, the opening day of sales was marked by low prices; or business as usual.

    And within a few more days, under the heading, Malawi tobacco prices ‘pathetic’, it was reported that calls were being made from some quarters for the current, ‘pathetic’ tobacco prices in Malawi to be propped up by a kwacha devaluation.

    By the middle of May last year, again using a Malawi24.com story, it was reported that some tobacco growers in Malawi were puzzled because, having been told to improve the quality of their leaf to attract higher prices, they were in 2016 receiving lower prices for higher quality tobacco.

    By August it was reported that tobacco farmers were in ‘misery’, and by September they were demanding change. They were being paid poor prices for a product that would eventually be sold for huge profits, enriching tobacco company executives and shareholders.

    In 2016, with one week of sales still to go, Malawi’s tobacco had sold at an average of about US$1.36 per kg, down by nearly 23 percent on the average of 2015, US$1.76.

  • New factory proposed

    factory photoSouth Africa based Malawian businessman, Simbi Phiri, has unveiled plans to invest more than $15 million in building a cigarette manufacturing plant in Malawi, according to a story in The Nyasa Times.

    The plant is scheduled to become operational by 2018.

    Construction of the factory is reportedly among key investment drives Simbi’s South Africa based consortium, Khato Civils, intends to establish as part of its strategy of broadening its footprint into Malawi.

    Simbi was quoted as saying that a study was underway to establish the viability of building a cigarette factory in Mchinji, and that the results of the study were expected in the next six months.

    Currently, Malawi has one cigarette company, the Nyasa Manufacturing Company, which operates in line with the government’s vision of adding value to Malawi’s leaf tobacco.

    But the sole cigarette manufacturer is said to be producing ‘minimal’ quantities.

  • $14 a year in tobacco wages

    Malawi photo
    Photo by neiljs

    The Tobacco Association of Malawi (Tama) has expressed concern over a government decision to ban ‘farming tenancy’ in the country, according to a story in The Nyasa Times.

    Felix Thole, head of marketing and business development at Tama, said the ban could have negative implications.

    “This can be very costly,” he was quoted as saying. “This means some tenants have to be taken back to their original home.

    “Others would not even remember or want to go back to their original homes and would want to be resettled elsewhere.”

    Thole suggested that instead of dismantling the whole system, improvements could be made to it.

    However; it might be too late for that. The government has dubbed farming tenancy as modern slavery.

    Under the system, farm owners get people, usually families, to work for them for food only, with payments being made once a year after the crop, be it tobacco or maize, has been sold.

    Tenants complain they get as little as K10,000 after a year’s work – that’s just under $14.00.

  • Buyers in Malawi told to ‘stop growing tobacco’

    AHL Group of Companies, Malawi’s sole tobacco and other commodities dealing company, has asked the Ministry of Agriculture and Food Security to consider reversing its decision to allow tobacco multinationals to grow tobacco, according to Malawi24. AHL Group says the policy is hurting ordinary tobacco farmers.

    AHL Group’s general manager, Moses Yakobe, has urged the government to bar tobacco multinationals from owning big farms and growing tobacco.

    “The question is, what will smallholder farmers do if the business of growing tobacco is also being done by these companies?” Yakobe asked during the official launch of 2015 field meetings and the best burley club award presentation ceremony in Lilongwe.

    Speaking during the same function, Kapichila Banda, president of the Farmers Union of Malawi, concurred with Yakobe, pointing out that farmers are not currently making profits because the demand is being swallowed by the multinational tobacco companies who grow tobacco in large quantities.

    “This is very dangerous to our smallholder farmers,” said Banda.

    At the function, AHL Group, which has been buying tobacco for the past 80 years, awarded K500,000 to Kanthunkako Burley Club, the winner of the 2015 club of the year competition.

    Subsidiary companies under AHL Group include Agriculture Trading Company, Malawi Leaf Company and Tobacco Investment, among others.

  • Egypt to construct tobacco-processing factories 

    The Egyptian government plans to construct two tobacco-processing factories in Malawi to support the country’s tobacco industry, according to the Malawi News Agency.

    The Egyptian Ambassador to Malawi, Maher El-Adawy, said the construction of these factories will help spur economic growth because the crop is regarded as the country’s main forex earner.

    “We have always been in a good relationship with Malawi, and we are happy to support it, especially in the tobacco industry because we know that tobacco is the main forex earner, and by doing so we will help the country’s economy to grow,” El-Adawy said.

    El-Adawy also indicated that construction of the two factories will not only spark economic growth, but also aid in job creation.

    “We believe the construction of the two factories will also create employment for some quarters of the Malawian society thereby helping them to improve their lives,” he said.

    According to the World Bank, 90 percent of Malawi’s tobacco is exported to other countries for processing due to the country’s currently limited tobacco-processing capabilities.

    “Much of our tobacco is exported for processing because we do not have the capacity to do so,” said Malawi’s minister of information, tourism and culture, Kondwani Nankhumwa. “So by having these two tobacco processing factories, Malawi will start processing the tobacco on its own and sell the products on our own for a profit.”

    One factory will be built in Lilongwe; the location for the second factory is still being decided by the government. Construction of both factories is expected to begin soon, according to El-Adawy.

    Malawi is one of the top 10 producers of tobacco in the world, with the crop accounting for the majority of the country’s agricultural export earnings.