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Pakistan tobacco industry rides out floods.

Pakistan's tobacco industry was hit hard by the huge monsoon floods this summer, but it could have been much worse if the floods had come earlier. Much of the tobacco crop had been picked in time. But the floods still caused major disruption of supply chains. Looking ahead, the Pakistan sector is confident of robust sales.

PAKISTAN'S tobacco industry and government officials are insisting that the floods this summer did not cause any real damage to the tobacco sector, but leaf growers continue to complain that they suffered losses and are still waiting to be compensated.

The unprecedented floods first hit the Khyber Pakhtunkhwa province in northwestern Pakistan, where most of the tobacco crop is cultivated, and then moved south to Punjab, Balochistan and Sindh provinces inundating more than 700,000 hectares of farmland. Tobacco is grown on more than 81,000 acres of land in Pakistan--in Khyber Pakhtunkhwa, Punjab, Sindh, and Balochistan provinces.

The Pakistan Tobacco Board, a state-managed body that promotes tobacco cultivation and regulates prices in consultation with farmers and cigarette manufacturers, however gave an upbeat report about this year's crop. Its chairman Sahibzada Khalid Jan said the record monsoon rains in July and the subsequent floods did not seriously damage the tobacco crop as most had been harvested by then. "God Almighty was kind to the farmers in the badly hit Charsadda and Nowshera districts and rest of the tobacco-growing areas as they had already plucked the crop and were storing the flue-cured Virginia tobacco in their barns. Only three to four million kilograms of tobacco was damaged when the plants drowned in excess water," he explained.

"Last year, Pakistan produced more than 75 million kilograms of tobacco. This year again we have a surplus crop exceeding 80 million kilos," he added.

Noman Bashir, another Pakistan Tobacco Board official, pointed out that some of the crop grown on land near the banks of the flooded rivers in Khyber Pakhtunkhwa was damaged. "But in the real sense there has been no effect of the floods on tobacco crop. We had estimated 15 million kilograms excess produce this year compared to 2009. Even after taking into account the damaged crop, Pakistan managed to have a surplus produce," he said. Looking ahead, Bashir said an increase in tobacco cultivation was being forecast in 2011 due to favourable prices. "To enable farmers to plan cultivation, the Pakistan Tobacco Board recently announced PKR104.30 (EUR 0.92) per kilogram as the minimum support price for the next year's crop. This means a 13.3 per cent increase compared to the tobacco price the previous year," he added.

The government fixes a minimum support price for tobacco annually to protect growers and the manufacturing industry. However, the price fixed for the 2011 crop has been criticised both by politicians and growers' representatives.

Abdul Akbar Khan, a senior member of the provincial assembly in Khyber Pakhtunkhwa belonging to the ruling Pakistan People's Party (PPP), alleged that the farmers were not taken into confidence while fixing the price at which the cigarette manufacturers would be purchasing tobacco from the growers. Arguing that the price was low and against farmers' interests, he moved an adjournment motion in the provincial legislature and forced the agriculture minister Arbab Ayub Jan to revisit the issue.

Representatives of tobacco farmers also complained about inadequate price protection and the government's failure to compensate them for flood damage caused to standing and stored crops.

Ikramullah Khan, president of the Tobacco Growers Association, argued that the crop suffered more damage due to the floods than that estimated by the government, with standing water following the inundation causing more damage. "Tobacco is one of our major cash crops, but farmers get very little in return. The government gets the lion's share through taxes and the tobacco firms also make a tidy profit," he stressed. He felt the tobacco price floor should not fall below PKR 150 (EUR 1.32) per kilogram, because of rising input costs such as fertilizer. "Pakistan has the capacity to produce 300 million kilograms of tobacco in its Khyber Pakhtunkhwa province alone if the farmers were given better prices and soft loans and provided farm inputs at subsidized rates," he argued.

Niamat Shah Roghani, vice-president of the Farmers Association in Khyber Pakhtunkhwa, lamented that muddied government policy often resulted in fluctuating tobacco prices. "One year there is plenty of produce and the next year there are shortages. Unattractive purchase prices often forces farmers to grow less tobacco," he said.

Another farmers' representative, Akbar Khan, claimed tobacco growers suffered losses of PKR 4.4 billion (EUR 38 million) when floods damaged about one million kilograms of the crop in the province's Charsadda district alone.

A manager at the Pakistan Tobacco Company, a subsidiary of British American Tobacco (BAT) which along with Lakson Tobacco Company (owned by the Philip Morris International) control around 78 per cent of the market in Pakistan, backed the tobacco board's lime, saying only 15 per cent of the crop was impacted by the floods, as the remaining 85 per cent had been harvested, cured and sold by the end of July. However, requesting anonymity, he added there had been an impact. Flooding reduced leaf quality in certain places and cut yields for manufacturers. Also crop distribution was slowed by the widespread disruption caused by the floods. And storage barns also suffered partial damage. He added that some leaf depots used for storing processed tobacco leaves were damaged as floodwaters drowned the tobacco bales. "The havoc caused by floods to transportation infrastructure across Pakistan also disrupted the manufacturers' stocks distribution process. This was followed by widespread economic disruption and dislocation leading to lower sales. It was the major reason for the total industry volumes to go down more than 15 per cent compared to the same period last year and would have negative impact on government revenues," he said.

This is all a pity, given Pakistan's Ministry of Food and Agriculture had calculated tobacco was cultivated on 28,000 hectares this year, showing an increase of 4,000 hectares compared to the previous year. The ministry had estimated production of flue-cured Virginia would be 84 million kilograms, against demand of 70 million. The production of other types of tobacco including dark air-cured, white patta (sun-cured rustica) and burley was estimated at 2.385 million kgs, 3.665 million kgs and 0.1 million kgs, respectively. Final production figures are still not available, but government officials are convinced that production will more than meet domestic demand. This is important. During 2008-2009, PKR 978.14 million (EUR 8.6 million) in foreign exchange was earned through exporting tobacco products. Tobacco is one of the few crops in Pakistan that has yield per hectare comparable to international standards. Less than 60 per cent of the tobacco leaf produced in the country is used to manufacture duty paid cigarettes. The remaining is used to produce non-duty paid cigarettes and unregulated products such as bidi, naswar (snuff) and hookah tobacco.

The tobacco industry contributes nearly PKR 50 billion (AUR 442 million) to the public exchequer through excise duty, sales tax, special tobacco development levies and other taxes. However, industry sources said that nearly one out of five cigarettes sold in Pakistan are manufactured or smuggled without paying the appropriate taxes resulting in an estimated annual loss of PKR 8.5 billion (EUR 75 million) to the government. A study commissioned by Pakistan Tobacco Company in August 2010 showed that out of the total cigarette market of over 80 billion sticks, 65 billion sticks amounting to 81.5 per cent were legitimately sold after paying taxes and duties to the government and the remaining were illicit sales. Despite government measures, business in counterfeit and smuggled cigarettes controls nearly 18 per cent of market share.

Almost 350,000 people, directly and indirectly, work in the tobacco industry including farming, manufacturing, distribution and retailing. They generate a total annual income of PKR 30 billion (EUR 265 million), which is a source of livelihood for 1.2 million people.

The floods certainly caused problems. BAT sources six per cent of its cigarette volumes from Pakistan, predicted decline in shipment supply due to disruptions caused by Pakistani floods. However, the disruptions were largely temporary and Pakistan sales are expected to remain strong, with a growing population and young smokers seeing the habit as a symbol of style and status. A recent report pointed to evidence of more females smoking in Pakistan: a 2009 Global Youth Tobacco Survey found that the ratio of young male smokers to females had narrowed to two to one from four to one at the start of the century. The year 2009 saw a slight fall in legal sales of cigarettes in Pakistan due to increased taxation and pressure from anti-smoking campaigners, but the tobacco industry remains confident of growth.

The sector, particularly the Pakistan Tobacco Company and Lakson Tobacco Company, certainly improved its image after the floods, through undertaking flood relief work. Tobacco companies also increased preparatory work with growers to boost the 2011 tobacco crop.

* Tobacco sector loses leaf to major summer floods.

* Losses limited by northern location of leaf fields and early harvesting.

* Major supply disruption to manufacturers caused anyway.

* Manufacturers predict healthy future Pakistan sales.
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Author:Yusufzai, Rahimullah
Publication:International News Services.com
Date:Dec 1, 2010
Words:1546
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