Malawi Tobacco Industry and the Environment

TED Case Studies

Case Mnemonic: MALTOBAC

Case Number: 252

• IDENTIFICATION
• LEGAL CLUSTERS
• GEOGRAPHIC CLUSTERS
• TRADE CLUSTERS
• ENVIRONMENT CLUSTERS
• OTHER FACTORS

I. Identification

1. The Issue

2. Description

Figure 1. Map of Malawi

The future of Malawi's forests are in jeopardy. The diminishing forests in this small African nation will not be able to withstand current pressure from the tobacco industry and population growth for much longer. If forest loss continues, there will be many negative environmental and social costs. The productive capacity of the land, in addition to the well being of the people, depends on the protection of Malawi's forests. It is ironic that tobacco, a crop that was once seen as Malawi's key for development, may in fact lead this African nation to its demise.

This case study will look at many of the economic and political conditions which have lead this nation to its dependence on tobacco. It will further explore some of the economic, environmental and development implications tobacco production has had on Malawi. Malawi's vulnerability as a tobacco exporter, both environmentally and economically, will also be discussed. And of course, the link between tobacco production and deforestation will be examined in this case study.

Malawi, often referred to as 'The Warm Heart of Africa,' lies in the Eastern portion of Central Africa along the Great Rift Valley. Unfortunately, this nation, home to nearly 10 million people, has failed to secure its position on the path toward development and faces a very uncertain future. Malawi is confronted with many problems. It is considered one of the world's poorest nations, its economy remains weak, its external debt is 2.3 billion, AIDS is ravaging the population, and the average life expectancy is a mere 36.6 years. As if this were not enough, Malawi's environment, the backbone of the economy and the social structure, is also in danger. Deforestation is considered the biggest environmental problem facing Malawi (CIA web page). One of the causes of deforestation in Malawi is the production of tobacco leafs for export.

Figure 2. View from Zomba Plateau, Malawi

Malawi's economy is heavily entrenched in the agriculture sector - especially tobacco. Tobacco alone accounts for nearly 80% of Malawi's export earnings (Hobbs, 1998). Other agriculture products, namely tea and sugar, constitute nearly 20% of the nation's exports. This issue of exports is critical to a country in need of foreign currency to pay its external debt. Malawi's international debt was was $2.27 billion in 1997 and is expected to rise to $2.42 by the end of 1999 (Corssboars Monitor, 1997).

Forty-five percent of the country's GDP comes from agriculture. This figure would be considerably higher if it included the extensive subsistence agricultural production in Malawi. Roughly 90 percent of the population lives in rural areas, most of whom are involved in subsistence agriculture. The tobacco industry dominates the agricultural sector and is the nation's second largest employer after the government. Tea and sugar are also important crops for Malawi.

Tobacco and Deforestation

Figure 3. Tobacco bales

The correlation between tobacco and deforestation has received little attention to date. This is largely because few countries produce enough tobacco for the environmental ramifications to pose a significant threat. For all countries which export tobacco - except for two - one of which is Malawi (the other is Zimbabwe), export earnings for tobacco constitute less than 2.2% of their foreign exchange earnings. As noted earlier, tobacco constitutes nearly 80% of Malawi's export earnings. While some countries may be able to ignore the potential threat of the tobacco industry on deforestation, Malawi can not. Over 4% of Malawi's land is dedicated to producing tobacco, a much larger percentage than other tobacco producing nations (Panos, 1999). For Malawi, a small nation with limited natural resources, the forests represent one of the few assets the nation has.

The primary way in which tobacco contributes to deforestation is through the curing of the tobacco leaf, a process that requires the burning of fuel wood. It is difficult to assess exactly how much wood is need for curing tobacco, but some argue that it takes as much as three hectares of trees to cure one hectare of tobacco in some countries (Madeley, 1993). In Malawi, it has been estimated that tobacco growers account for as much as 25% of household wood consumption (Tobin, 1998). By the early 1990s, the Malawi government acknowledged that it had one of the highest rates of deforestation in the world (Tobin, 1998). However, the government has not identified tobacco as a primary cause of deforestation. Tobacco production can also aggravate deforestation through the need for wood to construct curing huts, structures that need to be replaced every one to two years. And of course the need to clear land for cultivation also contributes to forest degradation.

Yet, there is no consensus regarding the impact of the tobacco industry on deforestation on Malawi. Some assert that tobacco production in Malawi has a direct negative impact on the forest resources in this African country (Madeley,1993). In contrast, there are those who argue that there is no basis for such claims. It is worth noting that those who fall into this later category are the ones who stand to gain the most from continued tobacco production in Malawi. In fact, the Tobacco Association of Malawi states not only that tobacco production poses no threat to forest resources, but they further state that their reforestation programs are actually resulting in a net increase on forest resources.

Malawi in the Global Tobacco Market

Although tobacco is a huge part of Malawi's economy and social structure, Malawi's role in international tobacco markets as a whole, is a limited one, due to the relative small size of this nation. This is clearly indicated in the table below.

Table 1. Global Tobacco Exports

Country	Total Export Earnings	Earnings From Tobacco	Tobacco Earnings as a % of Total Earnings
Argentina	12,235	143	1.2
Brazil	35,965	804	2.2
Malawi	383	293	76.5
Zimbabwe	1,235	450	36.4
Turkey	14,715	309	2.1
India	19,795	163	0.8
Indonesia	33,815	81	0.4
Thailand	32,473	142	0.4
China	84,940	141	0.17

Source: Panos

Malawi has a large share of the global burley tobacco market. Burley tobacco is a high-quality tobacco that has a high nicotine content and is considered to have superior flavor to many other types of tobacco. The climate and soil of Malawi are particularly well suited to burley production. Malawi's tobacco crops constitute nearly 20% of the world's burley tobacco production. Burley, because of its high quality, sells for a higher price than most other types of tobacco. It was believed, and still is by some, that tobacco in general, and especially burley, will assist in the development of Malawi by allowing poor rural farmers to produce and sell a relatively high value crop.

Tobacco prices on the international market have declined by 50% in real terms over the past 10 years. Industrialized nations, the main market for Malawi's tobacco, have been experiencing a consistent decrease in tobacco consumption with the increased awareness of the negative health effects of tobacco. This drop in demand causes a decline in market prices, and thus lowering the earnings Malawi is able to gain for its crops. This has had a devastating effect on the nation's ability to earn foreign currency. The has been compounded by the recent devaluation of the currency. Not only have market prices gone down, but the costs of inputs, such as fertilizers and pesticides, have gone up during the same period (Panos, 1999). As a result of the falling prices and the rising input costs, tobacco is a dubious crop for Southern farmers.

Nearly all of the tobacco produced in Malawi is exported. Most of these tobacco exports are purchased by industrialized nations, namely the US and European countries. Less than 2% of the tobacco produced in Malawi is used for domestic consumption.

Deforestation, Environment and Social Impacts

Figure 4. View from Mt. Mulange

Because of deforestation and declining tobacco markets, tobacco is an unsustainable means of promoting development for Malawi. Although trees are a renewable resource, without a concerted and aggressive effort toward aforestation, Malawi's forest resources will be depleted, leaving not just the tobacco producers, but the country as a whole, without essential fuel.

Deforestation is not the only negative environmental ramification of tobacco production. Deforestation in turn causes soil erosion due the loss of vegetation cover. Further, tobacco as a crop depletes the soil of important nutrients including nitrogen, phosphorus and potassium (Panos, 1999). All of this in turn decreases necessary habitats and threatens biodiversity.

At the social level, deforestation and reduction in soil productivity means increased hardship for those in the rural areas as more and more time, energy, and inputs will be needed to do everything from cooking, growing food, and constructing buildings. Women and children absorb most of this burden.

Tobacco, Development and Government Policies

With all these negative issues associated with Malawi's tobacco production, why does this nation continue to rely so heavily on this crop? As discussed earlier, Malawi has huge international debt (most of which was acquired through Structural Adjustment Loans). World Bank and other international donors have encouraged tobacco as an export crop in Malawi both indirectly and directly through projects aimed at tobacco as an export crop (Tobin, 1998). As a result of these and other international loans, Malawi is in serious debt and needs of foreign currency. In order to pay-off these loans, Malawi needs to earn foreign currency through the export of goods and/or services. The government sees tobacco production as the most effective means of achieving this objective. In addition to seeing tocacco as a means of earning foreign currency, the government of Malawi sees tobacco as a way of promoting development. The government of Malawi has billed the production of tobacco as a vehicle for development in the rural areas of the nation. The administration has encouraged the production of tobacco as a cash crop for export and continues to do so (although less now than it has in the past). Subsidies and tax brakes have been the main incentives used by government to encourage the tobacco industry. The idea is to promote a high-value crop in the rural areas, allowing the farmers to earn a good return and thus begin the path toward development. Unfortunately, the development of Malawi has not gone accordingly to plan.

To compound an already bad situation, the local currency (the kwacha) witnessed a 40% devaluation in August of 1998. The Reserve Bank of Malawi attributed the devaluation of the kwacha to be, in large part, due to the low tobacco prices on the auction floors (Hobbs, 1998). The government has retaliated by blaming the economic slump on the local industrial sector for not broadening the nation's foreign exchange earning capacity through production of more goods for export (Hobbs, 1998).

The export orientation of the economy, the huge debt, the devaluation of the kwacha, and the slipping global tobacco markets paints a very bleak picture for Malawi.

Dilemmas

Any developing country, including Malawi, which is heavily dependent on a single export places its self in a vulnerable economic position. The decline of the tobacco markets and its impact on Malawi illustrates this point. And although the government seems aware of this, there is little being done to change it.

Malawi must decide if it should focus on the current need to gain foreign currency, ignoring the possible environmental implication, or if it should be more forward looking and plan a more sustainable development approach, even if that means less money in the short-run. If current trends continue, deforestation will reach the point where the decreasing tree resources will impede not only tobacco production but will also interfere with such essential needs as fuel for cooking and timber for construction. For development to succeed, it must be forward looking.

Malawi is also a nation suffering from severe poverty and malnutrition. There is an ethical issue of devoting so much prime agricultural land for tobacco exports while many people in this nation are hungry. How can a nation justify supporting tobacco crops while ignoring the needs of its people? Malawi must make some important decisions regarding its development if it is to have any chance of succeeding.

3. Related Cases

The following are some related case studies that might prove interesting for further investigation into the issue of trade and the environment.

Agriculture

KENYATEA Case (Kenya Tea Trade and Environment)

OTOMI Case (Otomi Mexicans and Environment in History)

RUBBER Case (Rubber Trade and Amazon)

SHADECOF Case (Shade Coffee in Costa Rica)

ZIMTOBAC Case (Zimbabwe Tobacco and the Environment)

COCOA Case (Cote D'Ivoire Cocoa Trade and the Environment)

Deforestation

AFRICA Case (West Africa Deforestation)

CHARCOAL Case (Charcoal and Deforestation in the Democratic Republic of Congo)

COFFEE Case (Costa Rican Coffee Exports)

GHANA Case (Ghana Deforestation and Trade)

INDONES Case (Indonesia Wood Subsidies)

MADAGAS Case (Deforestation in Madagascar)

4. Draft Author:

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II. Legal Clusters

5. Discourse and Status:

6. Forum and Scope:

7. Decision Breadth:

8. Legal Standing:

The tobacco industry has been the leading economic sector in Malawi since independence. The assumption has been that tobacco exports would lead to economic growth for Malawi and that this, in turn, would promote development. For many years, with the support of international donors such as USAID and the World Bank, the Government of Malawi has encouraged and provided incentives for the production and export of tobacco. Unfortunately, tobacco has not proved to be the ticket to development for Malawi. The UNDP's the Human Development Indicator, an index that considers GDP, literacy and life expediency, ranks Malawi as 161st in terms of human development (this statistic is out of 175 countries).

Although the ultimate decision of how Malawi should attempt to promote its own development is up to this African nation, international lending institutions play a role in the process. In the late 1970s and early 1980s, USAID and the World Bank actively encouraged Malawi to promote the export of tobacco. The argument was that this would promote development and allow the country to finance its adjustment loans.

It is possible that a total withdrawal of Malawi in the international burley tobacco trade might raise the price of this good (as Malawi produces between 15-29% of the worlds burley tobacco). However, it is extremely unlikely, nor would it be wise, for Malawi to cease all burley production. Malawi's involvement in the tobacco export industry has a huge impact on Malawians, and little influence outside of the country.

The Uruguay Round and Malawi's Tobacco

The World Health Organization's (WHO's) Agreement on Agriculture on the Uruguay Rounds applies to the case of tobacco in Malawi. One of the principles of these negotiations on agriculture is to reduce government interventions, such as the use of subsidies and quotas, which create distorted markets. In the case of Malawi, the government has provided subsidies and the removal of export taxes in order to stimulate the export of tobacco. One of the primary rational for this agrucural negotiation is that government intervention interferes with fair competition through distorting the markets. It is argues that this will provide fairer markets for farmers.

Malawi's government interest in promoting tobacco exports is in large part due to its considerable international financial obligations. The government is required to earn foreign currency to pay off its debt which is why it provides incentives for the production and export of tobacco. This is an important issue to address when an entity, such as the WTO, sets a mandate that restricts government involvement. It may make sense to also ask the question 'why' is the government is prescribing these policies? Placing restriction on subsidies and quotas only addresses the symptoms - it does not delve into the cause of the problem.

These agricultural policies are to be implemented by 2001 (developing countries have until 2005). In the case of Malawi, it is likely that during this time, it will try to promote non-tobacco agriculture. Or is it? Logic would suggest that a country that is almost entirely dependent on a single export crop, especially a crop that appears to be on the decline due to international anti-smoking movement, would seek to diversify its agriculture. Especially in a country that is devoting most of its productive land to non-food exports while malnutrition remains a major problem. But the debt problem looms overhead - influencing government policies. Time will tell how the Malawi government address this serious predicament.

III. Geographic Clusters

9. Geographic Locations

a. Geographic Domain: Africa

b. Geographic Site: Southern Africa

c. Geographic Impact: Malawi

10. Sub-National Factors:

11. Type of Habitat:

Malawi is a nation in Eastern Central Africa that lies along the Great Rift Valley. Lake Malawi extens along the eastern portion of this nation at the base of the valley. Much of Malawi is high plateau land, which ranges from 2,500-4,500ft in elevation. The climate in this portion of the country is moderate. The climate in the lower valley areas is hot. The rainy season lasts from October to April. The soil and climate of Malawi is well suited for the production of tobacco.

IV. Trade Clusters

12. Type of Measure:

13. Direct v. Indirect Impacts:

14. Relation of Trade Measure to Environmental Impact

a. Directly Related to Product: Yes (Tobacco)

b. Indirectly Related to Product: Yes (Cured tobacco)

c. Not Related to Product: No

d. Related to Process: Yes (Deforestation)

15. Trade Product Identification:

16. Economic Data

17. Impact of Trade Restriction:

18. Industry Sector:

19. Exporters and Importers:

V. Environment Clusters

20. Environmental Problem Type:

Malawi is estimated to be losing 3 percent of its forests every year. This is considered to be one of the fastest rates of deforestation in the world today (Tobin, 1998). Wood is needed for curing tobacco as well as for building 'curing huts' (structures that need to be replaced every couple years). There are some efforts by the Tobacco Association of Malawi to replant trees as part of their aforestation program. There is, however, little evidence that these efforts are effective, if they are carried-out at all.

There is fierce debate regarding the cause/effect relationship of tobacco production in Malawi and deforestation. Not surprisingly, it is the environmental and sustainable developers who argue that tobacco production is depleting the forest resources. On the other hand is the Malawi Tobacco Association and the large plantation owners who argue that through replanting program, they are actually improving the forest resources. Meanwhile, the government fails to see that tobacco production can cause environmental destruction, and thus continues to see the need for tobacco as a means of earning foreign currency.

21. Name, Type, and Diversity of Species

22. Resource Impact and Effect:

Medium and Product

23. Urgency and Lifetime:

Considering the increasing rate of deforestation, the high population growth rate and continued poverty in this African nation, it is important the Malawi recognize and begin to tackle this important environmental problem (Tobin, 1998). Should Malawi fail to adequately respond to the threat of deforestation, it may soon find itself without the resources it needs. Resources important not only to processing tobacco, but also essential for such basic needs as cooking and building homes.

There is no set lifetime for a forest. It can last indefinitely or it can be gone tomorrow - depending on how it is used. Or misused.

24. Substitutes:

Conservation

VI. Other Factors

http://www.info.usaid.gov/ pubs/cp98/afr/countries/mw.htm

http: //www.corpwatch.org/feature/tobacco/panos.html#Tobacco growing

http://www.odci.gov/cia/publications/factbook/country-frame.html

http://www.oneworld.org/panos/

http://www.tobaccoleaf. org/papers/infot11.htm