In Malawi, Tobacco prices have been sliding on the auction floors for the past 15 years. Poor smallholder farmers in Malawi have remained poor because they are cheated by international cartel buyers that collude with government to buy tobacco at exploitative prices and sell the same tobacco for high profit. In a liberalized economy, prices cannot necessarily be fixed. However, the prices paid to Malawian farmers are nowhere near the cost of production. The low prices offered to smallholder farmers negatively affect their incentives to produce tobacco in subsequent years hence also affecting their livelihoods.
Despite smallholder farmers working very hard and producing high quality crop, the revenues they realize remain relatively low. Their products are mostly bought at very low price despite the many factors involved including high costs of production, good quality tobacco, rising levels of inflation among others. This is because the prices of the goods and services are not determined by the market forces of demand and supply. Instead the government dictates the price floors of the agricultural products.
The study has shown that government price controls have a very high negative impact on small holder tobacco farmers net income in Malawi. Therefore, it can be concluded that the main factors that contribute to negative net revenue of tobacco farmers in Malawi, according to the analysis done in this paper, are trade powers and production costs. This means trade powers through price controls are a major factor lowering revenue of tobacco farmers.
Following the study, CFME therefore suggests the following recommendations. First of all, the government should stop putting price floors on tobacco prices and simply allow market forces to operate freely to increase gross income and hence net revenues. Secondly, farmers should reduce production of tobacco to increase its demand and focus on other cash crops. This is so because the impact of government and tobacco buying companies trades powers is well established that it cannot change in an overnight so tobacco farmers are more likely to make a lot of losses. We also suggest that the government to allow farmers to sell tobacco directly to neighboring countries and external buyers. This will give the farmers a platform to negotiate their own prices independent from government.