Downcast and depressed by proceedings at the auction floors, a troop of tobacco farmers hopelessly return home after frustrating proceedings on an opening day.
Their long-day-wait at Mzuzu auction floors has been nothing but a disappointment courtesy of perennial disagreements over prices between buyers and growers.
Growers cannot accept their hard-grown leaf can go as low as 90 cents per kilogram for the low-grade tobacco.
“I’m not happy with this year’s tobacco selling season, and contract buying is not helping matters. The prices are lowered more than we anticipated and on top of that we have to repay the loans we obtained before the season,” said Joseph Jere, one of the farmers from Mzimba.
“I think the right way is to let the buyers compete on auction.”
Such had been the trend this year in Malawi; no wonder earnings dropped by 30% from $337 million last year to $237 million in 2019. But this hasn’t just been the case for 2019, as data shows this is not a one-season issue. Tobacco revenue has been on the decline from 2011, falling $200 million to the current season’s levels.
But this story is not just about data, but about the farmers who are mostly smallholder growers, and who have been earning little from their efforts. This raises questions about how honest and viable this is, given that it always seems to offer low prices.
And Felix Thole, Chief Executive Officer for Tobacco Association of Malawi, admits tobacco growers have been the biggest losers in this year’s tobacco selling season.
“We also had a problem with the prices, more so on the tobacco that is sold under the auction system, the prices were not so good and there were high rejection rates.
“Prices are lower than the previous season. We would be ending at $1.43 compared to last season which was $1.57. Yes, to a large extent we are feeling that the farmer has been negatively affected overall,” Thole said.
On the other hand, while he partly agrees, Kayisi Msadala, the chief executive officer of the Tobacco Commission also blames poor pricing on the standard of tobacco leaves supplied at auction.
“In terms of the volumes that we have gone through, indeed they have been a bit lower compared to last year. In terms of volume, we are down by about 18%. In terms of money realized, we are down by about 30%, and in terms of average price we are down by about 14%.”
“The prices were also affected by the quality itself. When we opened the market, the tobacco that was being brought at the market was generally of poor quality, under condition and mixtures,” Msadala said.
Besides, there is another more secretive aspect – and that’s market politics.
Some big-name companies collude behind the scenes to buy the Malawi leaf below its market value according to a report by the United Nations Conference on Trade and Development.
In part, the report says, “There is a tacit or explicit collusion by the major buyers of tobacco in the market-leading to low prices, and, the fact that the major buyers are also exporters, the membership of buyers to the Tobacco Exporters Association provides opportunities for buyers to agree on market sharing and price ceilings.”
The report paints a more damning picture, as it faults mergers and acquisition of companies as killing the level of competition on the domestic market because some stakeholders being bought are interested parties.
“For instance, the growers’ association, TAMA has a shareholding in one of the buying companies, Premium TAMA and it becomes difficult to balance the profit motive and the returns to their members,” the report said.
Such undertakings have created loopholes for malpractices such as suspicious invoicing. The Reserve Bank of Malawi has now begun investigations into the suspicious transactions of one company.
A joint report on incidents of transfer pricing and illegal externalization of foreign currency by the bank and Financial Intelligence Authority mentions Africa Leaf as one of the companies under a probe for illicit transfer pricing activities.
Coincidentally; Africa Leaf was one of the tobacco buyers until it was bought by Japan Tobacco International.
Both Thole and Msadala have expressed ignorance on reports of illicit dealings or information about these ongoing investigations into Africa Leaf.
“We were not communicated of that particular scenario that the reserve bank was investigating that so it will not be right for me to comment on that,” said Thole.
However, Atuweni Agbormoje – head of the Financial Intelligence Authority (FIA) confirmed the probe is taking place saying the matter is now already under prosecution by the Reserve Bank.
Reserve Bank governor Dr. Dalitso Kabambe confirmed that the prosecutions of African Leaf and other companies suspected of transfer pricing involving millions of dollars are in progress.
“The cases are at different levels. Some have already gone through the courts, and that there are people that have already been prosecuted and other cases are still pending in the courts. What we now have is joint intelligence sharing, where we have now the MRA working with us, anti-corruption bureau, we now have the FIA, so all of us are working on these cases,” said Kabambe.
“There are a lot of cases that have already been successfully concluded.”
And growing incidents of tax evasion through transfer pricing are also paralyzing revenue collection according to Steve Kapoloma, head of corporate affairs at the Malawi Revenue Authority, which he blames on the secretive nature of the flows.
An agricultural researcher – Associate Professor Donald Makoka from Lilongwe University of Agriculture and Natural Resources said farmers have always been the victims of complex dealings in the tobacco sector resulting in low prices emanating from non-market related forces.
“It’s very complicated, you know that the tobacco industry is very powerful. It is powerful in the sense that it has a lot of money so the main players, all these big leaf companies they can do whatever they want to anyone. So, if they feel like TAMA is giving them a lot of pressure, they know how to silence them financially.”
Makoka said the tobacco industry is set up in such a way that it means Malawi will “continue to see farmers being exploited by these other players who can and do use illicit trade and flow of foreign exchange.
Because Malawi depends on tobacco for her main export and, in turn, as main financier to the national budget, finance minister Joseph Mwananvekha said it is time law enforcers started collaborating to arrest the perpetrators and prevent the country from losing money, which is said to be about 500 billion kwacha ($685 million) annually, using illicit financial dealings such as transfer-pricing, forex-externalization, and tax evasion.
This story was produced by [MIJ FM Radio]. It was written as part of Wealth of Nations, a media skills development program run by the Thomson Reuters Foundation in collaboration with the Institute for the Advancement of Journalism. More information HERE. The content is the sole responsibility of the author and the publisher.
