Malawi tobacco revenue to drop 17%

Total earnings from tobacco, for Malawi’s number one foreign exchange earner, are expected to register a 17 percent dip with total revenue seen at $392.7 million (K54.97 billion) this year despite a 15 percent production jump.

The Reserve Bank of Malawi (RBM) says the drop in tobacco revenue will further compound Malawi’s foreign exchange position, especially as the country heads towards the start of the agriculture season when imports of fertiliser and other inputs require forex to finance the transactions.

Malawi’s green gold, tobacco, continues to attract less attractive prices on the auction floors, mainly due to weak demand for the commodity, a development analysts have attributed to the global financial crisis which has left many established economies bed ridden.

As of August 14, burley tobacco averaged $1.72 per kg with flue cured going at an average price of $2.91 and Northern Dark Fired fetched $2.10 per kg.

In its minutes of the 77th Monetary Policy Committee (MPC) meeting held on July 31, RBM noted that despite the final round estimates from the Tobacco Control Commission (TCC) for the 2008/09 season showing increased production at 224.3 million kilogrammes compared to 194.9 million kilogrammes produced last year, less revenue would be realised.

"As a result, the country’s tobacco foreign exchange earnings are projected at US$392.7 million in 2009 compared to US$472.4 million earned in 2008," reads the minutes.

Malawi’s demand for forex usually picks up in the run-up to the growing season due to increased demand of imported farm inputs such as fertiliser and seeds.

As at July 10, 2009 total tobacco sales amounted to 121.9 million kilogrammes at an average price of $1.75 per kg compared to 120.3 million kg sold in a similar period of 2008 which attracted an average price of $2.39/kg.

Despite the lower cumulative average price, the average price has significantly improved from a low of $1.22/kg in March 2009. Tobacco proceeds totalled $213.4 million as at July 10, 2009, representing a 25.7 percent decrease on $287.4 million realised in the same period in 2008.

Malawi, currently undergoing a foreign exchange squeeze, heavily relies on tobacco earnings to boost its reserves. Deteriorating tobacco prices have plunged the country into deep trouble with production almost coming to a halt as producers spend days and even months queuing for the scarce US Dollars.

Gross official reserves were recorded at $133.3 million or 1.03 months of imports at the end of June 2009 up from $ 108.9 million or 0.84 months of imports reported on May 29, 2009.

According to RBM, the increase emanated from proceeds of tobacco sales and balance of payment loans and donor support.

Similarly, private sector reserves during the same period rose to $175.7 million or 1.36 months of imports up from $135.5 million or 1.05 months of import.

The situation, however, deteriorated by July 17, 2009 as the official reserves declined to $109.9 million or 0.85 months of import following sales to authorised dealer banks and the Petroleum Importers Limited. Private sector reserves also declined by 17.9 percent to $144.3 million or 1.12 months of import.