Today, Wednesday 13th April 2016, the tobacco auction floors in Lilongwe, Malawi, have been opened for this year’s tobacco marketing season. Up to 190,000 tonnes of leaf tobacco are to be sold in the coming months.
In Malawi, tobacco is the plant of the powerful – from colonial times until today. The politcal elite owns big tobacco plantations, multinational corporations dominate the tobacco sector. Smallholder farmers and landless tenants produce the leaf tobacco.
The export hit
Malawi earns about 50% of its export revenues from tobacco sale and thus is very much dependant on this cash crop. More than 4/5 of it is Burley tobacco. These figures lead to Malawi being the biggest exporter of Burley tobacco in the world.
Tobacco in Malawi is traded in auctions as well as through direct contracts. One specifically Malawian feature is the tenancy system, in which landless tenants conclude oral agreements with land owners. From our study on tobacco production in Africa:
Tenants are allocated on a piece of land where they are supposed to grow tobacco. Additionally, they receive pesticides, fertilizers, seeds and tools for growing tobacco from the plantation owner on credit. […] In return they are obliged to sell their whole tobacco harvest to the plantation owner. At that time, the cost of the inputs […] are deducted from the tobacco revenues. Usually, near to nothing is left over from the revenues.
About one third of Burley tobacco is grown by these tenants and is sold by the land owners to multinational leaf tobacco corporations through the auction system.
The other two thirds of the export hit Burley are grown by smallholder farmers who themselves sell their tobacco to multinational (leaf) tobacco companies via direct contracts or auctions.
Power at the auction floors
Auction – this term is perceived as a fair public sale between different buyers. The three main buyers of Malawian tobacco are multinational companies: the leaf tobacco merchants Universal Corporation and Alliance One as well as the cigarette manufacturer Japan Tobacco International.
Since years, Universal, Alliance One and other buyers are suspected of collusion and illegal price fixing at the auctions. Despite some efforts of the Malawian government in the years between 2009 and 2012 to take action against it, the strong dependency from tobacco exports hinders the Malawian government to effectively step up against these corporations’ practices.
Changing the system
Currently, the tobacco sector undergoes some changes, not least effected by economic crises and increasing tobacco control policies.
Apart from the collusion allegations, there is a strong criticism of the tenancy system since more than 20 years. In the past five to six years, Malawian organisations in cooperation with us have been demanding for a legal regulation of tenancy labour. But the draft Tenancy Labour Bill has been quietly withdrawn by the government in summer 2013.
A few years ago, the system change to the integrated production system IPS started and, in January 2016, the Malawian Minister of Justice Mussa introduced a bill to abolish the tenancy system altogether.
But direct contracts through the IPS are not plainly a good deal for tobacco farmers as the first experiences also in Malawi show. The Malawian scientist Donald Makoka collected data in the season of 2013/14 and reported:
A minimum of 10 individual farmers set up a club. The contracts are between the leaf company and the club. […] Tobacco seed is provided as a loan to the IPS farmers. Pesticides are also part of the package. […] Farmers are also given seedlings on loan to address the problem of deforestation associated with tobacco farming. […]
The contract farmers are not aware of the cost of the inputs. If one individual within the club is unable to repay the loan, the leaf company deducts from the proceeds of the remaining 9 farmers. If the whole club has not been able to repay the loan, the farmers are given a new loan to enable the leaf company to recover its money. In the end the farmers are trapped. […]
The aim of the industry is to get rid of the tobacco auctions. There are some good reasons for it: The power inequality between farmers and (leaf) tobacco companies furthers the absolute control of the whole growing, curing and selling cycle. The grading of tobacco leaf by state inspectors could be circumvented by the IPS in the future. Finally, the adhesion contracts in the IPS further a continuous flow of quality tobacco to the storages of the companies.
Sunflowers as a resort?
According to Makoka’s research, more than 40% of the farmers consider giving up tobacco growing. Their main interest is the economic success of an alternative crop. Therefore, it is very important to to develop the markets for alternative crops. Even the Malawian government aims at diversifying. Finance Minister Gondwe recently demanded to promote legumes production as alternative to tobacco. And President Mutharika emphasised it today again in his opening speech at the auction floors of Lilongwe.
The German Society for International Cooperation (GIZ) started to set up a green innovation center in Malawi last year. The center cooperating with the Agricultural Research and Extension Trust (ARET) and other institutions aims to train students as advisors to support tobacco farmers in diversifying into sunflowers, soya, groundnuts and cassava. We appreciate this step in the right direction.
Nevertheless, we strongly recommend a close monitoring of the project. Last year, we already pointed out, that there is a conflict of interest, because the center is linked to the Mwimba College of ARET. So far, this college has been used to improve tobacco cultivation, exclusively to teach tobacco growing and ARET is closely related to the tobacco industry. Therefore, transparency is of utmost importance to publicly show, that funds from the German government’s initiative One World, No Hunger are not used to improve tobacco cultivation, but de facto exclusively to further diversification from tobacco.
Further reading:
Laura Graen (2012): Opening Malawi’s tobacco black box.
Laura Graen (2014): Tabakproduktion in Afrika. Knebelverträge im Trend. [German only]
Laura Graen (2015): Doppelte Last. Tabak im Globalen Süden. [German only]
The main interest of tobacco farmers is the economic success of an alternative crop. Thus it is very important to to develop the markets for alternative crops.