Conduct of agents in the Northern Malawi tobacco market channel

Abstract

This study is based on the Industrial Organisation (10) theory to analyse the behaviour of farmers and firms and the economic performance and how it changes over time. This model posits that there are basic conditions that determine the market structure, which in turn determines the conduct of farmers and organisations involved in the tobacco industry. There are over 10 000 growers and 200 intermediate tobacco buyers, who are structurally organised so as to not compete against each other. Both the growers and the intermediate buyers must eventually sell all their tobacco at the Mzuzu auction floor to four tobacco dealers who collude in price determination. These tobacco dealers in turn supply processed tobacco to four cigarette manufacturers, who appear to have significant power in influencing prices at the auction floors at prices dictated by the manufacturers. This behaviour of the tobacco dealers confirms the existence of an oligopsonistic market at the dealer stage of the channel.