Tobacco farmers not only get much better returns as compared to other crops but are also protected by the local laws and regulations pertaining to Tobacco Farming in order to safeguard tobacco farmers. Whereas sugar cane, rice and other commodities are neither as lucrative as tobacco nor provides the basic protection for the farmers.
Experts told Business Recorder here on Saturday that farmers of other commodities like sugarcane are getting subsidies directly from the government but not by manufacturers. However, tobacco manufacturers are only facilitating farmers in terms of capacity building, providing seeds and fertilisers as well as advice on planting, growing, harvesting and drying.
Experts explained that the Tobacco Farming was a source of employment for nearly 75,000 farmers in Pakistan whereas Pakistan Tobacco Board (PTB) had the mandate to regulate the production and marketing of that crop. Fair trade and welfare of the farming community is therefore critical to a sustainable supply. Multinational companies have a long history of being compliant with the regulations that govern the process of tobacco buying.
Pakistan Tobacco Board has put in place five key mechanisms for protecting the farmers' welfare like annual demand forecasting, minimum support price, no price decrease, mandatory purchase of surplus crop by manufacturers and timely farmer payments.
This five-step regulatory system aims at protecting the interests of growers, regulating dealers, stabilizing price fluctuations, and ensuring availability of quantity and quality of crop required by the cigarette manufacturers. All aspects of the supply chain are regulated to ensure that the system is free from exploitation.
The tobacco buying cycle begins with the process of annual demand forecasting. Rule 3 of Tobacco Marketing Control Rules, 1993 issued under Martial Law Order 487 of 1985, binds all cigarette manufacturers to indicate by 21st day of October of each year their requirements of crop for the next year. This date is as per the law as it falls before farmers commence cultivation of tobacco crop. Before farmers decide to start cultivating tobacco crop in winter, they are made fully aware of crop requirement for the next year. Regulations also obligate cigarette manufacturers to purchase all these indicated quantities irrespective of any changed circumstances when purchasing starts in the summer of next year.
The tax-evading outfits rarely participate in the exercise diligently so as to avoid records of demand that could later be traced back for tax collection purposes. It is key to note here that as per the PTB bulletin, 18 companies bought tobacco, however, as per research estimates by Nielsen, more than 45 companies are manufacturing cigarettes in the country.
Secondly, under Section 8 of PTB Ordinance 1968, a Minimum Support Price for tobacco crop is fixed annually by the government. This price is usually announced in November before farmers start cultivation of tobacco crop. This price announcement helps farmers to choose whether to grow tobacco crop or not, as they can easily calculate their expected return on investment from the price determined. This gives a guarantee to farmers that even in case of surplus situation the prices will not fall below the fixed floor price. According to a research by Nielsen, in reality tobacco farmers are always paid a price that is higher than this fixed Minimum Support Price by the legitimate, tax-paying industry.
Thirdly, a unique protection that is available only to tobacco farmers, Clause 4 of Martial Law Order 487 of 1985 provides that 'the weighted average price of tobacco, for the crop of any year to be paid by the tobacco company to the tobacco company growers shall not be lower than the weighted average price paid to them for the crop of the immediately preceding year.'
Fourth, cigarette manufacturers are required to buy even the surplus crop, over and above their requirements indicated to PTB the previous year. Rule No 8 of Tobacco Marketing Control Rules, 1993 issued under Martial Law Order 487 of 1985, states that 'no tobacco company or tobacco dealer shall close its purchase depots or business premises till such time it has purchased its full targeted demand of various types of tobacco. In case of surplus production, the additional quantity of particular type of tobacco may be allocated by the Board to the individual tobacco companies /dealers proportionate to their purchase target.'
Finally tobacco farmers get prompt payments for their crop because of the efficient purchasing system in place. Contrary to this, unfortunately complaints of late payments to the growers of other crops are considered routine. Tobacco farmers get their payments within 7 to 30 days of sale. During 2013 alone, within a short period of 8 to 10 weeks, tobacco industry contributed approximately Rs 15 billion to national economy through its purchase of tobacco crop from thousands of farmers. As these payments to farmers are made through formal banking system, unlike with local tax evading outfits, this also contributes to the development of banking sector in the relevant areas.
However, the situation is entirely different for the rice, sugarcane growers as compared to tobacco farmers. The examples of other commodities like sugar revealed that the federal government remained more sympathetic towards the cane growers, while offering billions of rupees in subsidy to the millers, by linking the export of sugar with payment of outstanding dues to the farmers. The government's concessions towards sugar manufacturers is evident from the fact that the Economic Coordination Committee (ECC) of the Cabinet gave permission for sugar export in November 2012, and then in its meeting on March 6, 2013 approved an inland freight subsidy of Rs 2.1 billion at the rate of Rs 1.75/kg on 1.2m tonnes and Re1/kg on 0.5m tonnes on grounds that the 'prices in the international market were on decline' and that there were 'abundant sugar stocks' in the country. Similarly, on December 7, 2015, the ECC allowed 500,000 tonnes of sugar for export with Rs 13/kg subsidy, amounting to Rs 6.5bn, because of 'falling prices' in the international market and that production at home is expected to be in surplus in the wake of a bumper sugarcane crop.
Recently, National Assembly's Standing Committee on Industries strongly opposed the subsidies and benefits to sugar millers only and not to the farmers. In case of rice, farmers have requested the government to provide free seeds, free pesticides, free electricity, free water, free dryers and other equipment to help them decrease cost of production.
From 1st July 2016, the government has decided that the price of urea is further reduced to Rs 1400 per bag. In this instance, just as in the past, the federal and provincial governments will pay the cost of the subsidy, which will be Rs 36 billion, in equal shares. Here the factory owners are benefiting the farmers but the government is playing its role to facilitate the farmer's community.
Research, based on a sample of hundreds of farmers from all over the country reveals that the price of tobacco grew by 110 percent between 2008 and 2013 alone. This is primarily why 80 percent of the interviewed farmers said that tobacco growing is more profitable as compared to other crops because it fulfils their financial requirements better if grown instead of other crops. Tobacco profitability coupled with the fact that tobacco farmers are regularly trained by the leaf technicians of the legitimate tax playing industry makes it the obvious choice of crop, they added.
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