Tobacco Support Price: A Sign of Hope or A Disappointment?

Source from:  Recorder 12/19/2011

Tobacco growers breathed a sigh of relief as they returned to their crops after the much-awaited announcement of tobacco support price. Sentiments of hesitation and uncertainty about the returns raced amongst growers, which hampered the finalising of tobacco contracts between farmers and the companies. The announcement is expected every year towards the end of October.

However, CY11 saw a delay of over a month as the authorities were striving hard to reach a price with the consensus of all stakeholders - the farmers, tobacco exporting and manufacturing companies, and the Pakistan Tobacco Board (PTB). The minimum support price of Rs117/kg Virginia tobacco which is the most commonly produced type of tobacco in Khyber Pakhtoonkhwa, saw an increase of about 13 percent compared to last year. It is meant to provide relief primarily to the farmers against the low side fluctuations in price. But is this price enough? Firstly, the announcement had a disappointing effect to some extent as the prices were below the expected Rs200-250 per kg. Though the support price this year is higher than last year, and has registered a growth of 13 percent, the increase is insufficient to absorb the rising cost of raw material, inputs and technology. A second damper to the positive effects of tobacco support price is the strong advice of PTB to the farmers to cultivate only the recommended variety. Khyber Pakhtoonkhwa accounts for 98.9 percent of total tobacco crop production in Pakistan and 80 percent of the yield is of non-recommended variety (NRV). PTB has also urged the growers to not cultivate any crop without entering into a contract with the tobacco exporting and manufacturing company. This is primarily to create a balance between supply and demand. This is one issue that the industry has been facing as farmers do not enter into contracts with the companies and produce excess supply leading to depressed prices. In order to induce farmers to grow the recommended hybrid variety amid the rising cost of raw materials and input, prices heftier that these would be much appreciated. While the market waits to see the real effects of the new support price, it seems that a higher price is the only way to stop the farmers from producing NRV as companies continue to enter into sales contract with the farmers. Enditem