Tobacco, or 'green gold' as it is sometimes referred to, accounts for over 60% of Malawi's entire foreign exchange earnings but late in March the government postponed the opening of tobacco sales while it negotiated with buyers on the price to be paid for this year's harvest. However, no agreement could be reached on setting a minimum price for the crop.
The tobacco buyers' trade body, The Tobacco Exporters Association of Malawi (TEAM) was surprised and dismayed by this development, but the country's president, Dr Bingu wa Mutharika, was adamant that a minimum price for tobacco must be set. Apparently in no mood to compromise, Mutharika said that low quality tobacco should fetch a minimum price of $1.10/kg while high quality leaf should be sold at $1.70/kg.
This represented a significant increase over last year's sales when the crop was sold for as little as $0.40/kg with high quality leaf only fetching $0.80/kg, but nevertheless these prices were the highest ever recorded on Malawi's tobacco floors.
Mutharika described tobacco as a strategic crop for Malawi, saying his government would not let others dictate the market and he was ready to be called a dictator to protect local farmers who, he claimed, were being exploited by foreign buyers.
The idea of a minimum price shocked many of the buyers and Mutharika's directive prompted criticism that he was interfering with the principle of a liberalised economy and the law of supply and demand.
TEAM chairman, Charles Graham, when asked to comment on the president's statement said: "Let's wait and see when the market opens."
In clear defiance of the president's wishes, buyers who had unwillingly accepted the minimum prices during the first day of the sales resorted to offering well below the set price the following day. Some farmers complained that the price offered had gone down to $0.70-$0.90/kg. This led authorities to suspend the sales for 10 days.
Prices fluctuated wildly
However, following a meeting with all industry stakeholders including Agriculture Ministry officials, sellers returned to the auction floor seven days later after buyers grudgingly offered them around $1.10/kg for their best leaf. Even so, prices continued to fluctuate widely with most offers being substantially lower than that.
One buyer, who declined to be named, told African Business at the Limbe Auction Floors in the commercial capital Blantyre that most of the leaf being offered...