Tobacco pricing and grading in KP

Tobacco grading and pricing

 

By Tahir Ali Khan |

 

http://www.dawn.com/2011/07/25/tobacco-grading-and-pricing.html

 

GROWERS in Khyber Pakhtunkhwa complain of low prices offered by tobacco companies and the unmerited grading of their crop.

 

At present, 200-250kg of barn-cured tobacco of different grades fetches around Rs30,000-35,000 which is much lower than warranted by the escalating cost of production, says a Swabi farmer Abdur Razzaq.

 

Tobacco, as per law, is the only cash crop whose weighted average price (Wap) must increase by a certain ratio each year.

 

“Though prices are supposed to be fixed in ‘consultation’ with farmers taking into account the cost of production and other factors, tobacco companies use their clout to fix prices of their own choice. They usually try to buy double the quantity of their annual purchase targets at the lowest possible price,” he said.

 

This season, as per assessment of tobacco growers, the average cost of production stood at Rs167 per kg. “The Wap should have been fixed at Rs200 per kg to benefit the growers, but buyers are offering between Rs125-78 per kg for different grades of recommended varieties and Rs104-95 per kg for non-recommended varieties. This shows how unrealistic is the price fixed by the Pakistan Tobacco Board (PTB). The shrinking profit margin has particularly hit the small farmers,” he said.

 

Last year the companies had purchased tobacco from growers at Rs103-105 per kg against the Wap of Rs98 fixed by the PTB.

 

“Tobacco companies earn huge profit as, according to an estimate, they prepare over 1,000 cigarettes per kg of tobacco. The influential firms are working as a cartel to increase their margins. But farmers are suffering for lack of cooperation and ignorance,” he said.

 

Had the companies not agreed to purchase the harvested non-recommended tobacco variety, called Swati locally, at the average support price of Rs104.30 per kg for the year, around 40 million kg of this variety would have no buyers and that would have exposed around 80 per cent farmers –that grow Swati in Mardan, Swabi and Charsadda – to huge financial losses. But thanks to the farmers’ efforts that the appalling scenario has been averted,” he said.

 

Asfandyar Khan, another farmer says “Farmers have greatly benefited from Swati variety as it has increased their output by about 50 per cent, saved them from the problem of grading as almost all of its leaves are of No.1 quality.”

 

Until recently, these companies were urging farmers to grow the Swati variety and why private buyers are taking it” he asked.

 

He said farmers were also unhappy over the deliberate and unfair down-grading of their tobacco. “The companies sort out the best leaves and reject the rest which is eventually purchased by private buyers. The importance of grading can be judged from the fact that for the top eight grades of recommended tobacco varieties, the average maximum and minimum prices per kg in descending order are between Rs125 and Rs107, Rs123-105, Rs119-103, Rs115-101, Rs105-94, Rs100-92, Rs90-83 and Rs82-78,” Asfandyar said.

 

As per the law (MLO No.487) and their written agreements with farmers, tobacco companies are to be fined if they fail to purchase the entire tobacco crop from growers but they often delay procurement or abruptly end purchasing the commodity.

 

“They ask us to bring our produce but they buy a little of it of their choice and close the depot. This is done precisely to make growers

run from pillar to post to sell their ‘sub-standard’ tobacco on low prices to private buyers who seem to be the agents of these companies,” he added.

 

Tobacco companies and the PTB each year warn farmers not to cultivate the non-recommended varieties as these won’t be purchased by them, but only 10-20 per cent farmers cultivate the recommended high-yielding varieties of Speight G28, K399, RGH4 and TM 2008 and the other 80 per cent go for the Swati variety. This could either be due to their ignorance or the urge for better profit on part of the farmers.

 

Tobacco employs over three million persons directly or indirectly, contributes billions to national exchequer in taxes and saves billions likely to be spent on imports of cigarettes besides earning millions of dollars in exports.

 

KP produces between 65-85 million kg of tobacco but the output can be enhanced to 300 m/kg per year. With a possible production of 300 million kg, Khyber Pukhtoonkwa can earn $537mn annually from tobacco export. But the potential has yet to be realised. “KP grows about 98 per cent of Virginia tobacco but its membership in the PTB is equal to that of Punjab. It should be given representation proportionate to its output,” he added.

 

Following is the text of the article I had sent to Dawn.

Low tobacco prices and grading and purchasing problems

By Tahir Ali Khan

Tobacco farmers in Khyber Pakhtunkhwa are disappointed over low tobacco prices offered by tobacco companies as well as what they call unmerited grading of their tobacco crop.

At present rate of tobacco, an average barn comprising around 200-250kg of different grades of tobacco fetches the farmers only around Rs30-35 thousand which is much less than warranted on the back of escalated cost of production, Abdur Razzaq, a farmer from Swabi, said.

He said per kilogram cost of production for tobacco this season stood at Rs167 as per their assessment. “The Wap should have been fixed Rs200 per kg to benefit the growers, but companies are offering farmers between Rs125-78 per kg for different grades of recommended varieties and between Rs104- 95 per kg for non-recommended ones. The shrinking of profit margin has particularly hit the small farmers.” he added.

Tobacco, as per law, is the only cash crop whose weighted average price (Wap) must increase by a certain ratio each year but farmers have been traditionally denied good returns for their crop.

“Though theoretically tobacco prices are fixed in ‘consultation’ with farmers after different surveys and taking into account the cost of production and other factors, tobacco companies using their clout and unity are managing prices of their own choice and benefit. The companies usually purchase double the quantity of their annual purchase targets but at much lesser price than due,’ he said.

“Tobacco companies earn huge profit as according to an estimate they prepare over 1000 cigarettes from one kilogram of tobacco. They are united and can manipulate prices that suit them but farmers are suffering for disunity and ignorance in their ranks,” he added.

“That tobacco companies are offering up to Rs125 against the WAP of Rs104 speaks volumes of how unrealistic the price fixed by the Pakistan tobacco board (Ptb) is. Last year they had purchased tobacco from growers at Rs103-Rs105 per kilogram against the Wap of Rs98 fixed by the Ptb,” he said.

According to him, had the tobacco companies not finally agreed to purchase the harvested non-recommended tobacco variety, called Swati, at the average support price of Rs104.30 per kg for the year, around 40mn kg of this variety would have no buyers and that would have deprived around 80 per cent farmers –that grow Swati in Mardan, Swabi and Charsadda- of billions of rupees but thanks to the struggle by farmers, that nightmare has been averted. But the price offered for the variety is still insufficient,” he said.

Asfandyar Khan, another farmer, seconded his thoughts. “Farmers have greatly benefited from Swati in that it has increased their output by about 50 per cent, saved them from the problem of grading as almost all of its leaves are of N0.1 quality, made curing facile and brought almost to nil the wastage of leaves during curing, thus increasing their incomes. It is astonishing the companies first refuse to buy and then fixed a meagre price for Swati as until very recently, it were these companies that had urged farmers to grow the variety. If it has bad quality and taste, then why the private buyers are offering up to Rs128 per kg for it and asking the growers to bring as much as they can,” he said.

He said farmers were also unhappy over the deliberate and unfair down-grading of their tobacco. “The companies sort out the best leaves and reject the rest which is eventually purchased by the private buyers. The importance of grading can be judged from the fact that for the top eight grades of recommended tobacco varieties the average maximum and minimum prices per kg in descending order are between Rs125 to Rs107, Rs123-105, Rs119-Rs103, Rs115-101, Rs105-94, Rs100-92, Rs90-83 and Rs82-78. For Swati the maximum and minimum prices offered by companies is Rs104 and Rs95 while private buyers offer as much as Rs125 to Rs128 for this kind of tobacco,”

Asfandyar said as per the law (MLO No.487) and their written agreements with farmers, tobacco companies are to be fined if they failed to purchase the entire tobacco crop from growers but they often delay procurement or abruptly end purchase of the commodity.

According to another farmer who wished anonymity, ‘the companies request us to bring our tobacco produce but when we go there, they buy a little quantity of their choice and then close the depot. This is done precisely to make growers run from pillar to sell their ‘sub-standard’ tobacco on low prices to private buyers who seem to be the agents of these companies.”

Tobacco companies and PTB each year warn farmers not to cultivate the non-recommended tobacco types as these won’t be bought but only about 10-20 per cent farmers cultivate the recommended varieties of Speight G28, K399, RGH4 and TM 2008 and the other 80 per cent go for the Swati variety. What could the farmers be expected to do if the latter has great profit for them.

Importance of tobacco cannot be denied as it employs over three million persons directly or indirectly, contributes dozens of billions to national exchequer in different taxes and saves billions likely to be spent on imports of cigarettes besides earning millions in exports.

KP produces between 65-85 million-kg though it can produce up to 300 m/kg per year. With a possible production of 300 million kg, Khyber Pukhtoonkwa can earn $537mn or Rs45bn annually from the export of tobacco, but the potential has not been realised. India`s exported the country`s surplus yield to 80 countries and earned Rs130 billion annually.

 

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About Tahir Ali Khan
I am an academic, freelance columnist, writer and a social worker.

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