Tuesday, April 17, 2012

Monopolistic and unfair trade practices in Tobacco trade

Tobacco is one of the best cash crop in Andhra Pradesh, Karnataka and some parts of Orissa and more than 200,000 registered growers are cultivating tobacco. Why do farmers prefer  tobacco is.. it's a non perishable, yield  & value  is high per acre and easy to market. India is one of the biggest producer of Flue Cured Virginia (FCV) tobacco which is used for cigarettes all over the world. Tobacco board estimated crop size for this year (2011 and 2012) is 264 millions i.e. Andhra Pradesh  at 162.5 million kgs and Karnataka at 101.3 million kgs. Tobacco contributes a significant amount  to the national economy , the government earned central excise revenue of RS 13,500 crore by selling cigarettes and foreign exchange of RS 4,163 crore from exports of tobacco and tobacco products during 2010-11.

Andhra Pradesh is the biggest producer of the FCV  quality tobacco in India. Despite natural disaster "Thane" in this year, the tobacco yields are better  but the threat is with price decline. The tobacco prices were peak in 2008- 2009 i.e. Rs.115/ kg and the price came down to Rs.90/kg in 2010- 2011 and now the average price is lesser than last year price. Farmers are in misery  and inescapable position to sell their crop with lesser price,  their distress is not only with the fallen price but also with increase of associated costs of plantation to packing. The labor wages have gone up for grading & bundling, and the  barn fuel  ( firewood & char coal) cost also increased. Farmers are not getting remunerative price and the net realization is negative by calculating all these expenses, farmers have no choice to switch to other crop since they don't have proper irrigation facilities. 


Tobacco board is the sole regulator of tobacco crop, it has right to fix the crop size every year and it arranges the convention every year with traders and growers to  discuss  various issues on tobacco trade. The tobacco board auction system is excellent and appreciable but the Board is not strong enough to control the traders.  Ironically, Tobacco board enforce their rules and regulations on miserable  farmers by  imposing penalties on excess production and others, but it never tried to get the better price for farmers by negotiating the traders. Board shows over enthusiasm to protect the traders' interest in the name of foreign exchange and excise revenue. Since GOI signed in treaty  with World Health Organization's  Framework Convention of Tobacco Control (FCTC) , the tobacco board act as a nodal agency to reduce the crop size with its registered growers and it can encourage to alternative crops but it should not suppress the farmers' right to get the better price.

A very few companies are operating the tobacco trade, the major players are ITC ( India Tobacco Company) , GPI ( Godfrey Phillips India) and some others. Traders are bidding very lesser quotes by convincing various deceptive reasons  like International market has excess stocks , don't have enough export orders, price cut due to competition international markets, Non tobacco materials in the tobacco bundles and  tobacco is not properly graded by the farmers. Of course, the traders are misguiding the farmers by all these unjustifiable reasons..... though the global market stocks are huge, the demand for India grown tobacco is high since it's the best for filter cigarettes. Some of the traders are making direct  unauthorized purchases from the  farmers  by offering less price, Tobacco board has failed to curb such illegal purchases since it doesn't have proper vigilance on non auction trading.
 

The tobacco cartel make deals with each other traders and  they fix the market price internally and control the market without offering remunerative price to farmers, especially the trade is under control of two companies i.e. ITC and GPI . ITC is the most powerful conglomerate and market leader in Indian tobacco trading and cigarettes manufacturing,   It has diversified into other industries  such as  hotels, FMCG, Lifestyle stores, paper and commodities to continue  its dominance and market share. Surprisingly, the RTI query has revealed that the government has equity in  tobacco companies, Life Insurance Corporation (LIC) has Rs.3500 crores of investment  in ITC. If the  largest state owned corporation involved in a tobacco company, the company will definitely get the competitive advantage over its competitors and  it receives special treatment for its own initiatives. ITC may influence the government to protect its business interests, it's a complex of involvement.  Tobacco farmers have been protesting  and denouncing the Monopoly Trade Practice of ITC , no action taken by the government so far and moreover the UPA government has banned the FDIs  in tobacco industry  and  this is nothing but protecting the dominance of existing players like ITC, GPI and VST .  Department of industrial policy and promotion (DIPP) has to review the policies once again and they should liberalize the policies to allow FDIs in tobacco industry.

However, The frustrated  farmers have been  demonstrating  their agony and unrest in various forms i.e.  boycotting the auctions and staging the dharnas,  but the traders are not flexible to pay the remunerative price. Government of India and State government need to take necessary steps to help the tobacco farmers in this crisis situation, the required price hike should be  at least 15% over than last year  since the cultivation expenses were gone up  . The Government has to finance the State Trading Corporation of India or any Tobacco growers’ societies to  make purchase the tobacco  with better price and if possible the central government should allot some  bailout fund to the tobacco board which can compensate to the  distressed tobacco growers . I strongly support the FDIs in tobacco trade because the farmers will get fair price among the competition of traders and manufacturers. If the Government doesn’t curb the traders’ deceitful practices, then the tobacco will be UNHOLY crop for farmers.