Malawi: Premium Burley to the World

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Geographically relatively obscure, the African country of Malawi nevertheless has a global reputation for producing the finest burley leaf outside the US. TOBACCO ASIA talks to some of the main players.

By Thomas Schmid

Hugging the western shore of Lake Malawi, the small southeast African nation of Malawi is today known as the largest supplier of quality burley leaf in the world. Tobacco cultivation in the landlocked country then known as Nyasaland began as early as 1893 when the British colonial administration started producing flue-cured Virginia (FCV). In the following decades the burgeoning tobacco industry was subsequently expanded to also include dark fire-cured (DFC) and, finally, burley.

While Malawi presently still produces smaller amounts of excellent Virginia tobacco, burley has become the main crop. Overall, tobacco is of tremendous economic importance for the small nation, currently making up roughly 55% of total exports and earning the country 60% of its foreign revenues. In global terms, Malawian tobacco accounts for an astonishing 6.6% of all tobacco exports worldwide, ranking the country as the seventh largest supplier of tobacco leaf.

While vast tobacco estates located on the central plateaus predominantly produce FCV, burley cultivation is the almost exclusive domain of tens of thousands of smallholder farms and so-called “clubs” scattered around the country, the latter being administrative units averaging four grower members each, who own their individual land plots but may help each other out in their fields and share equipment.

It is estimated that up to 10% of Malawi’s population of about 16 million is either directly or indirectly involved in the tobacco industry, from farming to final processing and shipping. While much of Malawi’s crop is purchased by big multinational corporations like Alliance One and Universal Tobacco, a slew of other tobacco merchant companies are also active in the country. 

Premium Tama Tobacco Malawi

A member of the Premium Tobacco Group, Premium Tama Tobacco Limited (PTTL) was established in 2007 and is headquartered in the capital city of Lilongwe. In 2016, PTTL purchased roughly 15% of Malawi’s total burley crop, as well as 3.2% of FCV and 33% of DFC (see table 1), its main competitors being Alliance One and Limbe Leaf, the local associate company of Universal Tobacco. According to leaf and sales manager Michael Maloney, PTTL ships its merchandise to all corners of the world, where it is used in practically all consumable tobacco products imaginable: cigarettes, shisha tobacco, RYO tobacco, cigars, even snus.

Maloney said Malawian burley was imparting “a particular character that makes it unique from other burleys globally, and it is considered a premium type of burley.”

Meanwhile, the country’s FCV is recognized as a filler to semi flavor and compares favorably with produce from other filler producers like Tanzania and India, according to PTTL’s director, Robin Kilner.

Regarding Malawi DFC, he added that although it normally compared favorably with DFC from other producing areas, its quality had declined in recent years. “But contracting companies have started taking measures to revive the crop,” Kilner asserted.

The company sources an estimated 90% of its tobacco through contract sales and the remaining balance through the auction system. “The reason [we] pursue contract volumes is to maintain the integrity of the product and to better support the farmers,” explained Kilner. The merchandise is supplied to a broad spectrum of customers worldwide.

“We also export to various countries in Asia and these are just as important to us as all other markets,” Maloney said. “In fact, we are always looking for additional markets.”

Crop fluctuations and price declines

But, Maloney also admitted that “uncertain and wildly fluctuating crop production sizes have resulted in instability for everyone in the supply chain, which in turn has caused some customers to adopt a cautious approach in placing orders,” Of course, this consequently has also impacted prices, which have plummeted in recent years. Nevertheless, contracting farmers and a new farmer management system (FMS) administered by Malawi’s Tobacco Control Commission (TCC) have both helped to somewhat mitigate that situation, particularly for smallholders. It is estimated that between 150,000 and 200,000 people nationwide farm tobacco, but nobody is really sure about that. However, according to Maloney, it is hoped that the newly implemented FMS will eventually confirm this number and also report other crucial market data more accurately.

Yet there can be little doubt that Malawi’s tobacco industry faces numerous challenges that reach far beyond unstable crop yields and low prices. Among scores of others, farmer poverty, insufficient farmer training, miniscule net income, rapid population growth, environmental damage, changing weather patterns, food insecurity, and limited water resources are all part of a larger equation. Tobacco companies are certainly doing their part to address many of these issues through contracting and direct support, often providing services that should be the responsibilities of others.

Sustainability promotion through IPS

Like most tobacco merchants, PTTL is dedicated to tackling these numerous challenges. “Our fully staffed agronomy department implements IPS to support our contract farmers with all inputs for tobacco production, food security, social programs and training,” Maloney said. This also includes environmental protection, revitalization and rehabilitation.

Malawi has been heavily deforested over many years, and it is no big secret that at least some of the environmental damage (PTTL puts the figure at about 10%) was caused due to tobacco farming and leaf processing. While certain quantities of forest-harvested fire wood are still used in curing, “the tobacco industry is very much at the forefront of trying to help rehabilitate Malawi from an environmental perspective.” insisted Kilner. For example, wood lots from other sources are supplied to tobacco farming communities. And in recent times, companies, including PTTL, have also become more involved in food, water security, and community services.

Tobacco Association of Malawi

Much of Malawi’s tobacco crop is handled through various growers’ associations. The largest by far is the Tobacco Association of Malawi (TAMA), which also is a shareholder in PTTL although the two organizations operate completely independent from one another. Originally established in 1929 during the British colonial era as Nyasaland Tobacco Association, it was the country’s sole tobacco growers’ body until 2004 - and membership was compulsory. Then industry reforms and market liberation permitted the founding of further associations.

Although TAMA membership is voluntary today, the association still boasts a membership base of around 15,000 farming units, accounting for a little less than half of all smallholder farms in the country. That figure includes members of 49 TAMA-established growers’ cooperatives, each comprising an average of 50 individuals. Since the industry reform, TAMA’s primarily competes against a slew of associations established post-2004, such as Phindu, Farm Produce, and NASFAM, just to mention a few. And in terms of its Hessian Scheme and Tobacco Re-Handling, TAMA’s main competitor is the Auction Holdings Group, a local outfit providing tobacco marketing services - and of which TAMA, ironically, is part owner.

Malawi: Premium Burley to the World

Courtesy of Tobacco Association of Malawi

Malawi: Premium Burley to the World

Workers inside a TAMA re-handling center in Mchezi Township, Lilongwe.

Great burley quality for a penny

TAMA claims to presently handle roughly 50% of Malawi’s total annual tobacco crop at an approximate ratio of about 88:10:2 for burley, FCV, and DFC, respectively. In concrete terms that translated to around 80 million kgs (mkg) of burley, 12mkg of FCV, and 1.5mkg of DFC for the crop year 2016. TAMA’s head of marketing and business development, Felix Thole, said that Malawi was renowned worldwide for its high-quality, fluffy burley leaf, the dominating quality grades being grades 2 and 3. The country’s FCV qualities, meanwhile, were comparable to those of Zimbabwe, he added. But while total crop volume across all types in 2016 was up by 1% compared to 2015, overall value declined by 18%, largely because of a considerable price deterioration for burley - and despite price gains for FCV (for TAMA’s 2016 burley buying prices, see table 2).

The association’s current key export markets are (in random order) Japan, Egypt, China, Brazil, Canada, US, Germany, Italy, India, South Africa, Russia, Ukraine, Hong Kong, and the UK. Particularly the Asian markets, but also Russia, have recently become increasingly important for TAMA, because, as Thole explained, “we need steady orders especially for burley, as burley demand is shrinking in the American brands.” He added that his association would like to further expand and strengthen business ties with Asian countries because the region’s consumer markets are seen as having excellent growth potential.

Production surpluses trigger quota system

Diminishing burley demand of course lead to increasing crop surpluses; in plain words: Malawi’s farmers produce more than the market can absorb. To mitigate this problem and shore up prices as much as possible, the government’s Tobacco Control Commission (TCC) has started to implement a quota system to regulate how much burley each farmer is to produce each year, whereby the total quota must reflect existing demand. But when these quotas are set too low, it on the other hand creates the real threat that farmers might see their already extremely small net earnings melt away. “That’s why TAMA establishes partnerships with local tobacco merchants, asking them to increase their order volumes and – hopefully – also pass on the request to their international market associates,” Thole explained.

Massive issues to be tackled still

Yet another challenge that TAMA has observed is Malawi’s market centralization. “It forces growers to transport their produce long distances to reach the next market, thereby increasing their overhead cost.” Add that to Malawi’s landlocked location without direct access to the sea and it drives production cost higher still. “We need improved production technologies to minimize expenses, not only at farm level but also in terms of logistics,” Thole said. High borrowing interest rates cause additional headaches, particularly for cash-strapped smallholders. That is why an agricultural bank is sorely needed too, according to Thole. So far, Malawi has none.

But even in the face of this massive onslaught of issues, TAMA is trying its best to support its member base. The association heavily supports IPS, is very much involved in grower education and also encourages the formation of more grower cooperatives around the country. As part of its sustainability program, TAMA safeguards growers’ health, implements measures to protect and rehabilitate the environment. The program also ensures that growers’ children – as the next generation of farmers - are attending school and, in Thole’s words, “are not not involved in any harmful activities on the farm.” 

Malawi in Figures

• Total landmass of 118,484 km2 (of which 20.4% are water surface, mostly made up of Malawi’s portion of Lake Malawi)

• GDP of $21.843 billion (2016 est.), or $1,172 per capita

• 13% of national GDP is generated from tobacco

• As of 2010, Malawi has been the world’s largest burley leaf producer

• Total population of about 16 million (2016 est.)

• Up to 85% of populace live in rural areas

• Approximately 1.5 million people are directly or indirectly engaged in the various tobacco industry areas

• Around 150,000 to 200,000 people plus their dependents are actively involved in tobacco farming, mostly as smallholders

• An estimated 35,000 individual smallholder tobacco farms as well as “clubs” dot the countryside

• The average smallholder farm’s plot size for tobacco growing is 10,000 m2 (1 hectare)

• About 98% of all tobacco is exported

• Tobacco exports provide 60% of foreign exchange earnings

• The tobacco industry generates 25% of the government’s tax income