By Heneage Mitchell

On September 22, 2010, Edgardo Disini Zaragoza was appointed administrator at the National Tobacco Administration (NTA).  Zaragoza’s predecessor, Atty. Carlitos S. Encarnacion, guided the NTA through many years of growth, earning the trust, respect and gratitude of the industry in the process.
“My predecessor is a hard act to follow!” Zaragoza admitted with a chuckle.

But Zaragoza is not without his share of valuable attributes, and he comes to the position well-prepared.
He brings with him a wealth of experience, in the tobacco industry and in administrative excellence.
A tobacco trader from flue-cured Virginia country (Ilocos Sur, northwestern Luzon), Zaragoza is a former mayor with extensive experience in corporate management.  A certified public accountant, Zaragoza graduated with an MBA from the University of the Philippines.
 “As a former leaf trader, one knows how pricing works out,” Zaragoza noted in an exclusive interview with Tobacco Asia. “It is very important that farmers should be given proper prices so that they could earn a good income from their efforts.”

Inputs, financial fluctuations
The volatility of input costs is an important factor in tobacco production as it is with any other crop. To protect tobacco farmers a price mechanism has been established and is maintained by the NTA.
“The domestic tobacco industry is covered by regulatory trading practices such that floor prices guide the trading of tobacco,” Zaragoza told us. “The floor price provides a guaranteed minimum of 25% return on investment. This is a tobacco industry regulatory mechanism implemented by NTA, pursuant to existing laws.  Farmers have adjusted accordingly, because if the cost of production goes up, prices go up correspondingly.”
The NTA’s role in the tobacco industry is not solely confined to establishing floor prices.
It lends assistance to tobacco farmers through teams of extentionists, aptly called tobacco production and regulation officers (or TPROs) because they act as agronomists WHO(that) work with farmers in the fields, teaching and implementing good agricultural practices and technological enhancements and as regulation officers overseeing the trading process to ensure that the leaf produce of the farmers is properly graded, correctly weighed, gets a fair price, is promptly paid and duly documented by the authorized buyers.
In the Philippines, a large part of tobacco sold is contracted, either with  wholesale tobacco dealers and exporters such as Universal Leaf Philippines, Inc. (ULPI), Continental Leaf, and Trans-Manila, Inc., or to manufacturing companies like Philip Morris Fortune Tobacco Corporation (PMFTC) and Associated Anglo-American Company or, to duly licensed trading centers THAT (who) usually buy on behalf of said principal tobacco firms and/or through the trading representatives who work with the farmers throughout the growing season to ensure the crop that is delivered meets or exceeds expectations.
Most trading centers are tied up with one or other of these principal tobacco firms. Traders typically pass tobacco on to the end user, perhaps baling or bundling it, and they don’t usually store it overlong. The system has evolved over long years to work effectively and fairly for all parties involved.
Seeds are provided to the contract growers by wholesale tobacco dealers and disseminated either directly or through trading centers, sometimes directly from the NTA or the farmer himself, perhaps using seeds from last year’s crop.
“There is a continuous production of improved seeds of all types through NTA,” Zaragoza said. “While seeds are made available, however, the NTA research center in Ilocos Norte only provides supplementary assistance to farmers when needed, primarily those outside of the coverage of the tobacco companies, as The tobacco companies that buy the tobacco, such as ULPI and PMFTC, provide the seeds to their farmers so that they can control the quality and types of tobacco grown based on their perceived requirements and needs.
The NTA largely supports and monitors the entire process, but overall it does not regulate to any great extent, other than setting the minimum floor prices, which are established after consultation with buyers and farmers.
“Normally, the actual prices paid to tobacco farmers are much higher than the floor prices,” Zaragoza noted.

Loyalty to tobacco
Tobacco farmers can expect to earn around Php60,000 to Php100,000 per hectare from tobacco cultivation. By comparison, they can expect to earn between Php30,000 to Php50,000 per hectare growing rice.
Crop insurance is available to tobacco farmers, but as it is priced at around 7%, it is not something that many of them avail of to any great extent. However, tobacco farmers’ debts are often condoned in the event of typhoons or other natural disasters destroying the crop, a common practice of buying firms.
Cash and kind lent to farmers at the start of season by traders is paid back incrementally using interest rates agreed on between both parties.
“The buyers are considerate of the farmers’ interests by ensuring that interest rates are not usurious, usually at more or less the same as bank lending rates,” according to Zaragoza.  
The NTA also provides production assistance to qualified farmer-cooperators of its Technology Demonstration/Tobacco Contract Growing System projects, at an interest rate of 1% per month.
“Qualification is based on historical record – the candidate must be an already proven legitimate tobacco farmer, the area under tobacco cultivation is considered, etc.,” Zaragoza explained.
The NTA’s TPROs see to it that the farmers plant based on technology that must be used.
“We monitor the progress of production until the crop is sold to the trading center, Zaragoza said. “We also assist in the marketing, seeing to it that tobacco is graded, weighed and priced properly.”
To ensure transparency, the NTA deploys its TPROs in the trading centers to ensure all parties are dealing fairly with each other.
“We keep monitoring the farmers when they sell their tobacco,” according to Zaragoza. “To a certain extent there are TPROs on hand that assist them when they sell their tobacco. This keeps both sides honest that the grading is conducted according to established criteria and that the price paid is a fair reflection of the value of the crop. So we ensure that the farmer always gets a fair price for the crops he brings to market.”
So tobacco farmers tend to remain loyal to tobacco, enjoying higher returns and an added measure of support from tobacco buyers missing with other crops. There is no great political pressure on them to stop growing tobacco, although there are efforts to persuade tobacco farmers to add other crops such as rice through a program intended to address diversification and food supply issues rather than an out-and-out attack on tobacco production.

Further efforts
Continuing efforts are being made by the NTA to improve and enhance flue-curing methods. “The farmers are also ingenious and always looking for ways to economize to reduce fuel costs,” Zaragoza noted. “Rice hull briquettes are being trialed and initial results indicate this can work and we are hopeful there will be more rice hull fuel used in the current crop.  Even corn cob is being evaluated as a possible fuel for flue curing. The problem with the rice hull is that you have to closely monitor the process, whereas the corn cob can be left unsupervised for around 30 minutes.”
The NTA has also been at the forefront of developing other uses for tobacco, and has come up with a number of effective applications including, among others, virgin pulp for paper, tobacco extract as pesticide for fruit trees and vegetables and using tobacco dust as a non-toxic pesticide to control snails and other predators and as fertilizer and also to promote the growth of algae, a natural food of fish, in fishponds.
These products were developed under the previous administrator and remain a focus of the NTA, an indication of its commitment to ensuring the sustainability of the domestic tobacco crop.

Import, export
As noted, the Philippines produces less than half of its domestic manufacturing requirement. It also exports a sizeable amount of the tobacco it does produce.
Ensuring that all tobacco grown is sold is a priority for the NTA, and accordingly it plays a role in both imports and exports, emphasizing to domestic manufacturers that they should use domestically-produced tobacco in the production of their tobacco products.
“Every export shipment requires a permit from the NTA, which it issues expeditiously, as Philippine law encourages exportations,” clarified Zaragoza. “In the same way, importations require a permit from the NTA, pursuant to existing laws.”
While NTA maybe reasonably tolerant in this respect, it always encourages the use of local tobacco whenever possible in the production of domestically manufactured tobacco products.
“We make sure that all our local projected production is absorbed, so that if there is ever a possible excess then we have to ensure that cigarette manufacturers must absorb local excess,” Zaragoza explained. “So far there has not been the necessity to do this. Over the last several years, what has been grown has been sold, so there has been no need to initiate this response.”

Alternative crops
There is little pressure on tobacco farmers to find alternative crops. To a large extent, market demand dictates what a farmer will grow on his land.
“The farmers are intelligent enough to determine which crop is best for them.” Zaragoza said.“If the tobacco industry does not pay well, then they can shift to other crops. So if for example tomato production is more lucrative, they can always change to that. Some do change, there are decreases in the number of tobacco farmers in some areas, and increases in others; it depends on the farmer’s perception, the availability of credit and demand.”
As the crop can be absorbed by domestic and exports buyers there is no need seen to encourage farmers to change. However, given the overall supply and demand situation, there is a perception that enough tobacco is being grown already.
 “We are not encouraging any new tobacco farmers to enter the market,” Zaragoza clarified. “But it is up to the farmer, the NTA can only tell them they may have a problem selling the crop.”
Accordingly, the NTA plays an important role in advising farmers on expected demand, relying on consultations with exporters and manufacturers.
“We get commitments from buyers as to the actual volume they will take – a purchase commitment, in other words,” said Zaragoza. “In this regard, the NTA has adopted and has accorded due emphasis on market–driven quality tobacco production, addressing both the requirements of our domestic manufacturers and our export markets. We have an active consultation with the principal tobacco firms and the farmers group for the matching of local production with said requirements.
  “Outside of the consultative meetings, we maintain open communication lines with them, encouraging all of them to tell us, through letters, calls or texts, their specific concerns, comments and/or suggestions, not only on quality tobacco production and trading, but on all matters affecting the industry and its stakeholders.  With this process, the NTA can be more responsive and effective, while emphasizing that with all of us working together, we can perform better and achieve more for the industry’s continuing progress, for the benefit of all its stakeholders.”  
Noting the strategic initiatives he has adopted in confronting the herculean task of steering the local tobacco industry as new NTA administrator, Edgardo Disini Zaragoza, a successful tobacco leaf trader, an accomplished politician and a highly competent administrator is well on the path to achieving a similar legacy as his illustrious predecessor during his term in office.