Sunday, December 6, 2009

Malawi: Agriculture Sector

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Agricultural Sector Business Opportunities in Malawi
• Investments in Cotton Production
• Macadamia Nuts Processing
• Tea Production and Processing
• Arabica Coffee Production and Processing
• Soya Bean Processing
• Sesame Processing
• Cut Flower Production
• Fruit Processing and Canning Plant
• Joint Venture Opportunities
• Related Links
Investments in Cotton Production

Malawi has been a cotton growing country since the colonial era. The cotton sector was vibrant for many years but started to slump in the early 1990’s due to among other reasons, the decline in global prices of the crop and the increasing cost of cultivation, which eroded the profitability of cotton particularly for small and marginal farmers.

In recent years, the Malawi Government incorporated the cotton sector as a key element in its poverty reduction and growth strategy. Emphasis is on building vibrant integrated cotton and textile industry, which besides aiming at accelerated industrial growth, focuses on building a strong raw material base for the country’s production.

Investment opportunities exist in commercial cultivation of cotton through initiatives like contract farming, village adoption, cooperatives and associations etc. These steps are there to improve the production and quality of cotton with the objective of providing raw materials to the textile industry for its preferential markets under AGOA, and the EU among others.
• Spinning, Weaving and Finishing Mill
A large opportunity awaits an investor to establish a second spinning, weaving and knitting plant in the country to meet the demand of garment manufacturing companies operating under Export Processing Zone (EPZ) status. The investor will address the issue of inadequate raw materials, particularly of knitted fabric.

• Cotton Ginning
There are less than 10 gins in Malawi, owned by the state owned Agricultural Development and Marketing Corporation (ADMARC) and other private companies. Together, these gins buy about 80% of the cotton grown in the country and export most of the lint. About 30% used is sold to David Whitehead Ltd., the only spinning and weaving factory in the country. Their demand is around 40 metric tones of cotton per week.

With existing ginneries using only 25 percent of their ginning capacity investors are required to invest in the ginning industry, which should add value to the cotton crop by converting raw cotton, which is otherwise exported at low prices. Investors could also empower local farmers through their associations by subcontracting their ginners.

• Cotton Growing through Contract Farming
Malawi’s annual cotton production has fluctuated between 13,500 and 50,000 metric tones over the last decade. However, with better farming practices and incentives, production levels currently hovering around 800 kg/ha can be increased to 3,000 kg/ha. The aim is to increase the area under cotton cultivation, which should lead to an increase in the yield.

A company would subcontract farmers to produce cotton, providing them with the inputs, technical expertise and guarantee a price for the seed cotton at the end of the season. Agricultural research institutions in the country have developed cotton varieties suitable for different climatic conditions in the country.

Macadamia Nuts Processing

Macadamia is among the most important cash crops in Malawi. The nuts have a variety of uses, ranging from usage in confectionery products, eaten raw or roasted as dessert nuts. They are also used for household oil extraction and cosmetic manufacturing. Macadamia products are exported to both Asian and European markets.

The total area under macadamia cultivation is 2,200 hectares. Production of macadamia nuts is by both smallholder farming and large-scale estates. The cost per hectare in Malawi is very low. So far, macadamia bodies have been established and two processing plants are already operating.

However due to increasing demand for the product, more foreign investment is being sought to boost the production and processing of the nuts into various marketable products. These foreign investments may take the form of post harvest handling and processing facilities for smallholder farmers of Kasungu and Mzuzu and also the development of commercial macadamia estates.

Tea Production and Processing

Tea is the second most important export crop for Malawi and it contributes some 7.9% of total export earnings. Tea is exported to European, Asian and American markets.

Much as tea production has been increasing, the industry has been stagnant for a long period of time. Since tea is a major forex earner, additional investments are necessary through Joint ventures with the Malawian companies in the processing of tea and other by products and also in the actual farming of the crop. New Opportunities also exist in the processing of green tea for East Asian markets.

The tea Association of Malawi coordinates information on the production and processing of tea in Malawi.

Arabica Coffee Production and Processing

Arabica coffee is the fourth most important export crop in Malawi. Exports are made to European markets, Asia markets and American markets. Coffee offers more profits than most other crops.

Coffee production favours the highland areas of Misuku Hills, Phoka hills, Viphya north, Nkhata bay highlands and Southeast Mzimba. Other areas include Dedza, Ntchisi, Chiradzulu and Mulanje. In order to boost production, the government has privatized the Small holder Coffee Trust, which empowers smallholder farmers to control coffee production.

Opportunities for investment exist in form of joint ventures in production and processing of coffee into marketable products.

Soya Bean Processing

Soya bean is a very important and versatile grain legume and it can be put to many uses namely soya milk and meat, poultry feeds among others as it has high protein content. Demand for soya beans is high both domestically and internationally.

Production for the past ten years has averaged 29,496 metric tones. However, the government is encouraging increased growth, production and utilization of soya beans. As such, investment opportunities exist in the processing of Soya beans into soya milk, soya oil and other secondary products.

Sesame Processing

Sesame, locally known as Chitowe, is used in Malawi both for consumption purposes and as a cash medium in some rural areas. It is used in confectionery products, for seasoning side dishes, soap making and cooking (from sesame oil).

The crop grows along the lakeshore, in the Shire valley and on the warm plateau areas of Lilongwe, Mzimba, Rumphi and Chitipa. Estimated annual production has averaged 205 metric tones in the past ten years. However, the government is encouraging increases in production of sesame.

Hence opportunities exist in both production and processing of sesame oil into marketable products.

Cut Flower Production

An investment opportunity exists in the production of cut flowers exclusively for the export market in Europe. There are already some firms that are successfully exporting to Europe and additional investment in this sector will create economies of scale and hence make Malawi’s cut flower industry more competitive on the international market. Malawi has a favourable climate and weather for the production of cut flowers.

Since flowers do not do well in cold seasons in Europe, Malawi has an advantage over producers in Europe during the festive cold seasons of November-February in Europe. Investments are likely to yield high returns and an initial investment capital might be no more than US$ 2.0 million. Sufficient labour is readily available for such a project within the city of Lilongwe and surrounding districts where cut flowers can be directly exported by air to Europe.

Fruit Processing and Canning Plant

Malawi currently has no processing plant using local fresh fruit. Malawi has a favourable climate for the production of a wide range of fruits that include pineapples, tangerines and mangoes. About 50% of these crops are left to drop and waste. Prices are attractive compared to national products in Malawi and some can be exported to Zimbabwe and South Africa. The products can also be exported to the regional markets.

An investment opportunity exists to set up a fruit juice processing plant in the southern region of Malawi. The estimated project cost is US$ 5.0 million and the expected return on investment is 33%.

Joint Venture Opportunities
• Fish and Crocodile Farming At Kasinthula
Lake Malawi is the main source of fish for domestic demand. However, output has rapidly declined over the years due to over-fishing. Malawi tilapia is high demand both locally and in Zimbabwe and South Africa. To exploit this market opportunity, the Malawi development corporation, a government investment arm, embarked on an aquaculture project in the Southern part of Malawi. The corporation is therefore looking for technical parties in the fish-farming project. The project is community based and initial project cost is US$ 3.4 million.

The project envisages the produce of 1,200 tons of fish per year. Apart from domestic consumption, fish will be exported to neighbouring countries and the European Union where there is a strong market for such produce.

• Soya Bean Oil-Extraction
Malawi produces more than 35,000 metric tons of soya beans per year. Most of the soya bean is exported raw and little is processed for food domestically. Malawi’s soil is very conducive to soya bean cultivation and farm gate prices are internationally competitive. Malawian farmers would overwhelmingly respond to increased demand for soya.

Malawi imports crude oil for refining into cooking oil. An opportunity therefore exists in investment in soya bean oil extraction and tofu making. There is high demand for cooking oil both locally as well as in the SADC/COMESA region.

Related links:
• Business Opportunities in Malawi
• Highlights of Malawi Export Products
• Selected Business Facts
• Taxation
• Investment Process
• Procedures and Fees for Various Applications
o Company Registration
o Business Incorporation
o Residence Permit and Employment Permit
o Land
o Investment Incentives
• Useful Contact Addresses

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