Malawi opened its tobacco auction season on Monday with prices at record highs after the government set minimum prices and registered another international buyer.
The main auction floors, which opened in the capital Lilongwe on Monday, saw farmers sell their crop at between $6 and $11 per kg -- much higher than the minimum price set by the government last month of $2.20.
Tobacco is Malawi's mainstay, accounting for over 70 percent of exports and 15 percent of its gross domestic product, but for the last two years low prices have led to cuts in production.
For many years tobacco prices had hovered around 70-90 U.S. cents per kg, far lower than the $1 the industry says it costs to produce one kg of the golden leaf.
Prices started improving last year with farmers selling their crop between $1.60 and $1.70 per kg for the first time in several years after President Bingu wa Mutharika ordered buyers to offer better prices or leave the country.
Limbe Leaf Tobacco, majority-owned by the Swiss-registered Continental Tobacco Company, and U.S.-based Alliance One Tobacco, were the main active buyers. Last year, the government registered another international buyer, U.S.-based Premiere Leaf, in a bid to get better prices.
Two undisclosed Chinese companies had also been expected to buy the crop this year.
"The competition on the market is working because that is the only reason why we saw good grade tobacco go up to US$11 today for the first time," Tobacco Control Commission General Manager Godfrey Chaponda told Reuters.
President Bingu wa Mutharika, who also farms tobacco, has accused buyers of running a cartel to fix prices but the companies have denied the allegations.
About 2 million of the country's 13 million people depend on tobacco and related industries for their livelihood.
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