Malawi Leaf Company Burley. Credit: malawileaf.com
Imagine a country whose economy is so dedicated to one single agricultural crop – in this case tobacco – that it actually accounts for roughly 15% of GDP and 60% of foreign exchange earnings. Welcome to Malawi, that small, peaceful African nation straddling the west bank of the freshwater body after which it has named itself, Lake Malawi, and one of the world’s foremost producers of burley.
Enter Malawi Leaf Company Limited, one of the largest independent tobacco merchants in the country. “Malawi burley is very unique and different from [that of] other producer regions,” the company’s leaf manager, Moses Kamanga, told Tobacco Asia. This, he explained, was because of Malawi’s variety of climate patterns on the one hand, and the country’s vast experience in cultivating and developing the crop across generations of farmers. With seeds being researched and bled locally, Malawi burley today comes in nicotine levels ranging from 1.2% to 4%, depending on the growing area.
It’s not only burley that makes Malawi go round
However, the nation also produces smaller amounts of other tobacco crops, though burley made up 83.38% of total output in 2020, according to statistical data provided by Malawi’s 100% state-owned auctioneer, Auction Holdings Limited (AHL). Other tobacco varieties handled by AHL in that year were FCV (14.4% of total auction turnover), 2.2% Western Malawi (a DFC variety), and 0.02% DAC. Unlike other merchants in the country who almost exclusively focus on burley, Malawi Leaf in 2020 had a turnover of almost equal amounts of burley (45%) and FCV (46%), traded as strips, stems, and scrap. The remaining 9% consisted of DAC in the form of whole leaf, hand strips, butted loose leaf, loose leaf, strips, stems, and scrap.
Malawi Leaf in the current 2020/2021 season expects to obtain 60% of its merchandise through contract marketing. An additional 30% are contributed by the firm’s own contract farmers, while only 10% are going to be acquired through auctions. “We currently have 800 smallholder farms under contract, each of them cultivating about 2 hectares on average, which brings the total acreage at our disposal to around 1,600 hectares,” disclosed Malawi Leaf’s agronomy manager, Davie Lockie. “And there are an additional 10 large-scale growers who plant an average of 80 hectares on our behalf, for a total of 800 hectares,” he said.
Facilitating bank loans
Although the company does not supply its contract growers with machinery, fertilizer, crop protection agents (CPAs), seeds, or other materials, it helps facilitate bank loans, acting as a guarantor, according to Lockie. “In case of borrowing, Malawi Leaf in liaison establishes a stop order over tobacco proceeds to warrant first ownership of those proceeds to the lending bank,” Lockie elaborated. However, the firm does accord technical backup and advice on agronomy and marketing matters to its farmers, “starting from the nursery stage all the way through to the point where ready produce is bought or sold at auction floors.”
As elsewhere in the tobacco-growing sector, Malawian farmers are responsible for curing their own crops before handing the produce over to their respective contractor. ”We then consign the merchandise for further processing to our partner, Limbe Leaf Tobacco Company Limited,” explained leaf sales manager, Ian Nakoma, to Tobacco Asia. He also disclosed that Malawi Leaf does not maintain its own warehousing facilities. Instead, warehouse space is rented from several operators around the Kanengo industrial area in the Malawian capital of Lilongwe. “We however do have company staff positioned in these warehouses to manage our stocks,” Nakoma pointed out.
A particular interest in eastern Europe and Southeast Asia
For export shipping, the company normally uses the port of Beira in neighboring Mozambique. “But on a few occasions we have also shipped through the port of Durban in South Africa, depending on customer request,” he said, adding that merchandise exclusively reaches port facilities by road transport. Customs and export documentations are all handled by Malawi Leaf’s shipping department in close collaboration with the respective customers and freight forwarders. “Most of our consignments are shipped on F.O.B basis, with a few exceptions where customers prefer C.I.F.,” Nakoma said.
Around 95% of Malawi Leaf’s volume turnover across all tobacco types has been exported in 2020, with only 5% being delivered to domestic companies. ”We have developed a particular interest in eastern Europe as well as Southeast Asia,” explained Nakoma. “These markets have over the years experienced an increase in volume of tobacco consumed. And that, coupled with the restrictions set in the otherwise traditional destinations for Malawi burley, such as western Europe and the United States, has made these markets more appealing for us.”
No escape from Covid-19
However, just like all the other important grower countries around the world, Malawi likewise has not escaped the severe ramifications brought on by the coronavirus pandemic. “Covi-19 has posed a lot of challenges for Malawi Leaf and the country’s entire tobacco industry at large,” admitted Nakoma. “Lockdowns implemented in a good number of countries [in 2020] meant that we have been unable to ship out tobacco that had already been ordered. This effectively reduced our net exports that year and, to make matters worse, created uncertainty for the coming season’s crop,” he added, saying that one specific challenge for the company was that it has registered “a slight reduction in order inquiries for the upcoming season”.
Yet, Covid-19 has not been the only culprit wreaking havoc on the small African nation’s all-important tobacco sector. Unusually wet weather conditions in 2020 were responsible for Malawi’s foreign exchange earnings from tobacco sales to fall by nearly one third compared with 2019, according to an AHL report. This decline caused AHL a 26.4% slump in revenues, which declined to US$174.5 million in 2020 compared to the previous year’s US$237 million.