Peeping at Malawi's tobacco industry with an anti-trust lens : are there thieves at the dinner table?

• Author: Mike Chinoko
• Date: 01 January 2013
• Pages: 35-55
• Published date: 01 January 2013
• DOI: 10.10520/EJC161850

PEEPING AT MALAWI’S TOBACCO

INDUSTRY WITH AN ANTI-TRUST LENS: ARE

THERE THIEVES AT THE DINNER TABLE?

Mike Chinoko*

ABSTRACT

This article critically analyses the structure and conduct of business in the tobacco

industry in Malawi from a competition law point of view. The tobacco industry

in Malawi is an old one dating back to colonial days, but until fairly recently,

Malawi had no law regulating competition and fair trading. Hence the fight

against anti-competitive practices in the industry did not have the full backing of

the law. In light of the now operational Competition and Fair Trading Act as well

as the international jurisprudence on the subject, this article focuses on one aspect

of competition law called cartels and analyses whether traits of cartel behaviour

are prevalent in the tobacco industry in Malawi. It is hoped that the points that

are raised in this article will spur the Competition Commission into action to look

into anti-competitive practices in the industry, more especially the cartels.

I INTRODUCTION

Malawi is a commonwealth jurisdiction located in Southern Africa. It

has a very small economy and is classified as a least developed country on the

global economic index. Although the country is relatively endowed with

mineral resources, agriculture has been the main driving force of its econ-

omy with tobacco as its main cash crop. The country is one of the world’s

leading exporters of barley tobacco and it is said that tobacco accounts for

60% of Malawi’s exports, 13% of its GDP and 23% of its total tax base.1The

industry is structured in such a way that there is a regulator called the

PEEPING AT MALAWI’S TOBACCO INDUSTRY 35

LLB Hons (Malawi); LLM in International Trade and Investment Law (Pretoria); LLM in Inter-

national Business and Economic Law (Georgetown); Assistant Chief Law Reform Officer, Malawi

Law Commission.

*

1 S Jaffee ‘Malawi’s Tobacco Sector: Standing on one strong leg is better than on none’ (2003)

World Bank: Africa Region Working Paper Series No 55.

Tobacco Control Commission; a single entity which runs auction sales for

tobacco called Auction Holdings Limited; and about six tobacco companies

that buy the leaf from farmers on the Auction Floors, process it and export it

to outside markets. Given its undoubted economic importance to Malawi,

the tobacco industry is indeed a sector that should be nurtured and pro-

moted to foster economic development.Yet,overtheyearsthegovernment

seems to have played a blind eye to anti-trust issues in the industry and

treated them as innocuous when they should have taken centre stage to stim-

ulate vibrant and progressive competition in the industry. There is no

denying the fact that competition policy reforms allow markets to work

more efficiently for the benefit of consumers and drive sustainable economic

growth.Thisisthemainobjectiveofany competition regime. It is said that

greater market competition matters for achieving greater innovation, pro-

ductivity and economic growth2and that policies that help open markets and

remove anti-competitive regulations can promote competition, resulting in

lowerpricesandbetterdealsforconsumersandfirms.

3However, in the case

of Malawi, traits of anti-competitive behaviour in the tobacco industry can

be seen from afar and this was worsened by the fact that Malawi did not have

anti-trust legislation until 1998 when the Competition and Fair Trading Act4

was enacted. Apart from prohibiting certain anti-competitive behaviour, it

established the Competition and Fair Trading Commission.5However, the

Commission only became fully operational a few years ago.

This article is therefore an attempt to critically examine the existing

market structure in the tobacco industry in the light of the new law on com-

petition and also the existing literature on anti-trust issues. As will later be

argued, the structure of the industry is kind of the opposite of the traditional

competition triangle where, instead of having consumer detriment in the

form of high prices, it is actually the buyers who seemingly engage in

anti-competitive behaviour that harms producers and tend to lower prices of

tobacco. This immediately begs the question whether this is a competition

law issue and whether the law should extend its reach to tackle this problem

which has manifested itself in the not-so-traditional way. This discussion

should be relevant to other sectors of the Malawi economy with similar

problems such as the tea or cotton industry. In this context, this article looks

36 (2013) MLJ VOLUME 7

2 M Kitzmuller & MM Licetti ‘View Point: Public policy for private sector’ (2012) Note Number

331, the World Bank Group.

3Asabove.

4 Cap 49:09 of the Laws of Malawi.

5 Section 4 of the Competition and Fair Trading Act.