PROPOSED INTEGRATED PRODUCTION SYSTEM MODEL FOR MALAWI

1. PROPOSED INTEGRATED PRODUCTION SYSTEM MODEL FOR MALAWI

2. INTRODUCTION • Tobacco has a prominent economic and political profile in Malawi: • strategic importance in job creation; • unparalleled influence on foreign currency inflows. • Challenges: • Fluctuations in leaf pricing; • declining global demand due to emerging strict global regulatory regimes; • global oversupply; • strong regional competition; • need to improve yields and quality of leaf.

3. INTEGRATED PRODUCTION SYSTEM • Government has adopted IPS (80% vs. 20) as a system in which all stakeholders (buyers, growers, cigarette manufacturers, extension service providers, research institutions, regulators, input providers, market operators, policy makers, financial institutions and others) promote production together to achieve improved efficiencies, accountability, compliance and social responsibility.

4. SALIENT FEATURES OF THE MODEL • Crop planning; • Use of Certified Seed of Approved Varieties: • Emphasis on locally produced; • Imported through ARET; • Preferred by tobacco customers. • Technology Development and Verification; • Harmonization of messages: • availability of several extension service providers; • Coordination by ARET- committee

5. SALIENT FEATURES OF THE MODEL (cont.) • Training of Staff and Farmers •  Use of Recommended and Approved Pesticides and Fertilizers • Zoning of Areas • Cost review and price negotiations

6. SALIENT FEATURES OF THE MODEL (cont.) • Protection and Conservation of Soil • Guaranteed purchase of the entire contracted crop • Social Responsibility

7. IMPLEMENTATION ARRANGEMENT TOBACCO PROCESSING FACTORY SELLING FLOOR BALING CENTRE/SATELITE DEPOT CLUB SMALLHOLDER FARMER SMALLHOLDER FARMER SMALLHOLDER FARMER ESTATE FARMER ESTATE FARMER

8. STEPS TO BE FOLLOWED • Volume determination a)Burley, NDDF, SDF • Indicative volume in early January; • Reviewed indicative volume in early April; • Final indicative volume in early June; and • Confirmation of contracted volumes in September. b) FLUE • Final indicative volume in early April; and • Confirmation of contracted volumes in September. TCC will be issuing licences to buyers before the end of June based on final indicative volumes and confirm areas of operation for each buyer.

9. STEPS TO BE FOLLOWED • Registration of growers • TCC will register each grower or club at the beginning of each growing season based on such grower having a valid contract; • Registration of growers will start on 1st July every year.

10. STEPS TO BE FOLLOWED • Contracts • Contracts will be concluded between buyer and growers through associations; • Contracts will be legally enforceable by the parties; and • Contracts should include at least the following:   • Agreed volumes in kilograms; • Agreed prices per grade; • A commitment by the grower to sell entire crop to the contracted buyer at agreed value within a +-10% crop size; • A commitment by the buyer to purchase entire crop of the farmer within +-10% crop size;

11. STEPS TO BE FOLLOWED (contracts cont.) • Grower compliance in producing tobacco using Good Agricultural Practices (GAP); • Any oversupply by grower to be sold on auction; • Provision of procedures for resolving disputes under the contract; • Contracts will be for one season; and • Standard contracts to be used

12. STEPS TO BE FOLLOWED • Determination of price • Negotiations to be done with associations using both grower and ARET CoPs; • Agreed prices submitted to Government for approval; an • If not satisfactory may be referred back for reconsideration.

13. STEPS TO BE FOLLOWED • Input supply • Certified seed; • Fertilizers; • Crop protection agents; and • Curing materials. • May  be fully facilitated, semi facilitated or non facilitated; • Farmers may obtain the inputs either directly from the buyer or through a local distributor as per an agreed growing schedule; • Transparency- proper records kept by both buyer and farmer showing detailed break down of package and costs

14. STEPS TO BE FOLLOWED • Extension and other support services • Strongcollaboration among various players and ARET to coordinate; • Emphasis on: • sharing of best growing practices; • Provision of schedule of growing activity; • Conducting on farm demonstrations; • Holding field days; and • Provision of publications/educational materials.

15. STEPS TO BE FOLLOWED • Baling centers/satellite depots • Minimum of 2 clubs; • Temporary sheds constructed by farmers; • Buyer facilitated centers; • Use of existing facilities such as ADMARC sheds, associations’ depots, etc. • Farmers responsible for the security of the tobacco.

16. STEPS TO BE FOLLOWED • Sales Floors • Sale of the tobacco will only be done at a licensed tobacco selling floor operated by a licensed service provider; • Four selling floors: Mzuzu, Chinkhoma, Lilongwe and Limbe operated by AHL; • Additional selling floors may be created ; • All the selling floors to be administered by AHL; and • selling interaction will be between the buyer and grower or their representatives.

17. STEPS TO BE FOLLOWED • Tobacco transportation • Farmer transports from homestead to baling centre; • Some farmers may transport to selling floor and buyer to refund transport expenses at an agreed rate; • Buyer from baling centre to selling floor and then to the factory; and • No tobacco should be transported from baling centre to factory.

18. STEPS TO BE FOLLOWED • Classification of tobacco • Done by TCC but is subject to review especially that TCC is also an arbitrator. • Statutory fees, other fees and sales proceeds • Withholding tax to government; • ARET levy; • Tobacco sales service levy; • Tobacco Control Commission Levies; • Association levy.

19. ROLES AND RESPONSIBILITIES OF OTHER STAKEHOLDERS • TCC to maintain its full mandate and gain new ones such as oversight on price negotiations; • AHL’s experience accumulated over the years in the management of tobacco markets should be used and nurtured for the good of the economy; • AHL will manage all selling floors including those created by buyers; • ARET will maintain full mandate plus coordinating message harmonization as well as training of staff and farmers; • Tobacco grower associations will be involved in price negotiations, farmer mobilization and other extension activities deemed necessary

20. CONCLUSION • The role of each stakeholder, including buyers, is expected to evolve over time. • Implementation arrangement will be subjected to a review process every year until when stability is achieved and maintained,