Domestic cigarette manufacturers led by ITC Limited have come to the rescue of tobacco farmers in Andhra Pradesh during the current year by procuring more quantity of flue cured tobacco (FCT) than what they needed so as to stabilize the falling prices.
Around 50,000 tobacco farmers in the state are stated to have been benefitted by the supporting role played by ITC, Godfrey Phillips India (GPI) and VST.
The FCT farming community had been affected by untimely rains during the 2011 crop season leading to lower productivity. The yield per acre decreased to 1,200 kg from a normal of 1,800 kg on account of damage to the crop.
Consequently, the production of FCT, which is used as a filler in Chesterfield cigarettes, stood at 170 million kg this year, nearly 35 million kg lower than last year.
On the other hand, global FCT prices declined steeply as supplies exceeded demand owing to a huge increase in crop volumes in Brazil and Zimbabwe. As 70 per cent of the FCT produced in the state is exported, there has been a poor response to the tobacco auctions that started from February 26.
The agitating farming community had stopped the auctions several times as there was poor participation from exporters and fall in the market prices. This led to lower sales.
Tobacco Board chairman, Kamalavardhan Rao, told Business Standard that he had written letters to the ITC chairman and heads of GPI and VST requesting their help in tiding over the crisis. “All along you are buying cigarettes for yourselves. This time you buy for the sake of farmers,” the letters stated.
“So far, we have purchased around 10 million kg more than our average annual purchase of 90 million kg a year,” ITC’s Indian Leaf Tobacco Development Division (ILTD) chief executive, Sanjiv Rangrass, said.
He said ITC had spent about Rs 100 crore more on purchase of tobacco this year than its average procurement expenditure of about Rs 900 crore. The company was continuing its purchases in the tobacco auctions that would last till the end of September.
According to Rangrass, ITC has worked closely with the Tobacco Board, Indian Tobacco Association and the state government in the past one month to ease the situation. In the process, it has procured 76 per cent of the total quantity of tobacco auctioned so far as against a share of 58 per cent in the same period last year. GPI and VST have also increased their market share from 6 and 2 per cent respectively in the last year (up to June 30) to 11 and 3 per cent now.
The Tobacco board chief said the state government had also come to the farmers’ rescue by releasing, for the first time, Rs 20 crore to the Guntur District Tobacco Growers and Curers Cooperative Marketing Society Limited whose market intervention helped in sustaining prices.
Now, the prices are stated to have been stabilised and ruling at Rs 101.83 per kg as against an average price of Rs 93.67 a kg last year. “We don’t foresee any problem on the price front hereafter,” Rao said.