India: Tobacco Prices Likely to Surge on Shrinking Acreage

Source from:  The Economic Times  01/06/2013

A decreasing acreage coupled with negligible carryover stock might firm up tobacco prices.

Processors and middlemen are awaiting the new crop to be harvest by March-April. However, a gutka ban by major states has not impacted the demand for tobacco adversely. Sown on over 50,000 hectare in Gujarat, the tobacco is used for chewing, sniffing and beedi production. ”We anticipate tobacco production to fall 30% owing to a weak monsoon. This will ensure prices remain firm,” said Bhikhubhai Patel, president of Gujarat Tobacco Merchant Association. Currently, low quality tobacco used in zarda, gutaka and sniffing products was quoted at Rs 35-45 a kg while tobacco for beedi manufacturing and export was at Rs 50-70 a kg. ”The prices have increased 15% compared to the corresponding period of 2011,” said Bhikhubhai.

He added that with the ban on gutka, demand for zarda, which has a higher content of tobacco, has increased exponentially. ”Usually, we have a carryover stock of 10-12 lakh maund of 20 kg each. But this year, there is negligible stock with even farmers not holding any produce,” said Bhikhubai who trades in Anand district of Gujarat.

The 180-day crop is largely cultivated in Anand, Kheda, Vadodara and Mehsana districts of Gujarat. Farmers anticipate prices to be in the range of Rs 50-80 a kg by March 2013 when the harvesting begins. Pankaj Patel has sown tobacco on 25 bigha land in Saeedpur village in Borsad town. He said that by February he will have an idea about the yield and prices. ”The crop is less by 25% to 30% and at least I should get Rs 50 a kg,” he said.

But exporters are concerned about the low prices quoted by the Bangladesh and Pakistan players in the Middle East, Europe and US markets.

”High prices of tobacco are making us uncompetitive in the global market,” said a leading exporter from Gujarat who annually exports 25,000 tonne. He added that instead of buying bulk, the importers are buying in tranches as per their needs. However, some feel that if the yield increases, the hike in prices will not be too high. ”There has been no major pest attack due to late planting and current cold weather. This will definitely increase production,” said AD Patel, head of tobacco department, Anand Agriculture University. Enditem