Tobacco to burn

Tobacco stocks reportedly held in Zimbabwe and Brazil amounting to up to 300,000 kg are a potential ticking time bomb that could disrupt prices in tobacco producing nations in the 2011/2012 crop season unless production decreases, according to some industry observers.
The news, if true, will not sit well with farmers across the region whose fortunes have only recently turned for the better as prices have, of course, risen sharply over the last three years.

And were prices to go down significantly next year, then the scenario currently being played out in Malawi, where restless farmers, who have seen year-on-year earnings drop by over 50% since the start of the selling season, are being accused of dumping their tobacco across the borders in Tanzania and Mozambique, setting off a chain action that has caused tobacco prices in the region to plummet, may be repeated.

Farmers in India appear to be considering the idea of switching crops more seriously, with some canvassing the Tobacco Board to allow them to sell their licenses. Over 2,000 farmers in Andrha Pradesh have asked for compensation of around US$10,000 per tobacco barn in return for switching to other crops, while tobacco traders are recommending the authorised AP crop be lowered from this year’s 170 million kg to 120 million kg due to difficulties exporting this year’s crop.
The volatility of tobacco prices must be of concern to all in the industry.

As traders struggled to deal with diminishing margins even as prices continued to rise in recent years, a significant drop in tobacco prices could have a devastating effect on the market.
For many years, we have been listening to traders, tobacco board and farmers groups around the world bemoaning the fact that as the cost of inputs and labor continue to rise, the prices manufacturers are prepared to pay for leaf are simply not realistic or sustainable and margins are continuing to be squeezed for all those in the supply side.
These concerns are likely to be brought into stark relief if the current trend of cheap tobacco being dumped onto the market continues to grow.

There are clearly an increasing number farmers in some markets that simply do not want to continue cultivating tobacco if the returns are not sufficient, which in some African producing nations they are already clearly not. As Zimbabwe continues to approach its former levels of productivity and its neighbors struggle to sell what they have at any price, and as Brazil’s crop continues to swell and stocks are mounting up, the sustainability of supply that countries such as India have been seeking to achieve is looking increasingly precarious.
It remains to be seen if manufacturers will step up to the plate and support the prices that farmers need to earn to remain interested in continuing to grow and that traders need to continue in business.

 

Glenn Anthony John
Publisher