Tobacco pricing process initiated in KP

Tobacco pricing process initiated

THE Pakistan Tobacco Board has started the process for determining cost of production and the price of tobacco for the year 2013.

“The representatives of tobacco growers, dealers and companies had a meeting with the PTB officials last week to discuss issues in pricing for the next tobacco season. Hopefully, the cost of production (CoP) would be acceptable to all stakeholders this year,” an official of the PTB said.

“Tobacco CoP and subsequently its weighted average price — for targeted purchase by companies, and minimum price for surplus tobacco above the target— are determined by a CoP committee with input from representatives of tobacco companies, PTB, Agriculture Policy Institute, and tobacco growers and dealers. After clearance by the PTB members, it is submitted to ministry of commerce, and the federal crop commissioner notifies the new prices,” he added.

Tobacco prices are increased every year as per the law governing the crop. The minimum price was fixed at Rs117/kg last year but growers rejected it. Later a committee headed by the director general of the National Agriculture Research Council Dr Sharif recommended a price of Rs183/kg. The PTB initially resisted this recommendation but finally revised the minimum price to Rs121/kg. Tobacco companies, however, paid up to Rs150, according to the official, and Rs137, according to growers. Private tobacco dealers and middlemen offered a price of Rs150-170/kg.

But growers in Swabi, which accounts for around 38 per cent of Virginia production, and also other areas say recommendations of Dr Sharif committee must be implemented or else they would boycott the crop.

Liaqat Yousafzai, general secretary of Kashtkar Coordination Council (KCD), said the KCD will wait till end of November when wheat sowing starts or seedbeds of tobacco are prepared for subsequent plantation in fields.

“In case the PTB persists with its opposition to implement the Dr Sharif report, we will go for complete boycott of tobacco like we did in 2007. We are distributing affidavits amongst the growers and they are being signed. As an alternative, as cereal crops aren’t economically feasible, growers will either go for opium or for vegetable cultivation,” he added.

Azam Khan, KCD president said the KCD had asked that the interviews must be arranged in government offices, farm services centres or hujrahs of the farmers.“When the CoP interviews are organised at the depots of tobacco companies, the farmers, who are mostly illiterate, get exploited at the hands of companies with the officials conniving with them. They easily get their approval by crowding out growers.

Unfortunately, the process continues in the same way,” he adds.

“When tobacco companies are not ready to allow any role to growers for determining the CoP of cigarette which they produce and farmers buy as customers, why do they participate in the process of tobacco CoP determination?,” he asked.

The role of middlemen has increased considerably in tobacco deals. Legally, tobacco companies cannot purchase tobacco from growers without purchase agreements and the purchase by middlemen, according to Mr Khan, is ‘illegal.’

“Around 10-20 per cent of tobacco purchases is made through middlemen. The private buyers are usually agents of small tobacco companies. The ‘illegal’ purchase deals benefit both farmers and companies. The grower gets good price. This year they sold their tobacco even at Rs180/kg. The companies, through the undocumented deals, evade taxes worth billions of rupees. We have time and again brought this informal trade to the notice of PTB but to no avail. Vis-à-vis private dealers, farmers only benefit when there is surplus production or companies stop purchase,” he added.

Yousafzai lamented that while the companies paid up to Rs180/kg to middlemen in the underhand deals, they were not prepared to increase the price in direct legal deals with growers.

“Middlemen and companies are making huge profits but cause huge tax loss to national exchequer. Obviously when a small company that has authorised quota of, say, 0.35mn kg but buys much more tobacco, it will benefit enormously,” he says.

To a question, he said in 1990 multinationals squeezed the small local companies. “Since then the latter have become the brokers of the MNCs. They are working separately but act as a cartel. They meet regularly every week during the tobacco season and decide together their line of action,” he said.

When asked why farmers don’t prefer to sell tobacco to middlemen when they offer good prices, he said farmers avoided middlemen because of trust deficit.

“If middlemen offer cash payment, farmers will never go to companies but it’s not the case quite often. Vouchers given by middlemen in many cases have bounced back. Hence, farmers prefer for purchase agreements with companies whose voucher is deemed as cash,” he said.

The PTB official said that the federal government, the PTB and the excise department conduct surprise raids on tobacco purchase centres to check ‘illegal’ sale of tobacco and fine the culprits.

“The government has also levied Rs10/kg cess on tobacco dealers to discourage this trend. But this tax cannot be charged from growers,” he added.

The official said after new prices are announced next month, farmers should enter into contracts with tobacco companies before cultivation of tobacco as companies will buy tobacco only from contractual farmers.

About Tahir Ali Khan (Official)
I am an academic, columnist, and a social worker.

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