Malawi hopes for higher tobacco prices

The famine-stricken economy needs higher tobacco prices

This year's tobacco auctions have begun in Malawi, one of Africa's main producers of tobacco leaf, with producers hoping for a better return.

Amid rising global prices, and with supply tight on the Malawian market, tobacco producers want to see an improvement on last year's average of $1.09 per kilogramme.

The southern African country is currently threatened by famine, and farmers have previously rioted over the poor prices their tobacco has fetched at auction.

But now there are hopes that instability in Zimbabwe, Africa's main tobacco producer, could allow Malawi to grab a larger share of the global market.

Small, but important

On paper, Malawi is only a modest-sized producer, accounting for some 140,000 tonnes of the world's 5.7 million tonnes in annual tobacco output.

But it has carved out a powerful role in the export market, and counts almost all the world's main tobacco traders and cigarette manufacturers as customers.

Tobacco earns Malawi some $165m a year, accounting for more than two-thirds of its annual foreign exchange takings.

This year, the Malawian tobacco industry predicts production of some 141,000 tonnes, compared with potential demand of 170,000 tonnes - something that should lead to higher prices.

Not all plain sailing

But the industry has significant problems.

It has become the focus of persistent criticism for its record on employing child labour - an abuse that producers say has now largely been stamped out.

Foreign lenders and donors have also been wary of committing aid to the industry, because of tobacco's dubious ethical reputation in Western countries.

Lack of serious investment has left the bulk of production in the hands of small farmers, and the country's only world-class cigarette factory closed down two years ago.

Concerns over the quality of much Malawian leaf - resulting from reduced use of chemical pesticides - have led big tobacco buyers to scale back the prices they will pay on the Lilongwe market.

No help from Harare

Now, Malawian producers hope that Zimbabwe's turmoil will act in their favour.

Zimbabwe produces roughly 200,000 tonnes a year, and is expected to become less important as an exporter if unrest continues.

But according to Peter Burr, senior analyst at the US Department of Agriculture, "there hasn't been a noticeable drop in output yet, despite what everyone says."

In any case, Mr Burr points out, Zimbabwe produces flue-cured tobacco, while Malawi produces burley, the other main variety.

Any Zimbabwean collapse would benefit flue-cured producers such as Brazil and the US more than Malawi, Mr Burr says.