A closer look at the tobacco value chain: Policymaking for the wrong reasons?

Wednesday, 16 May 2018 00:00 -     - {{hitsCtrl.values.hits}}

This article is a follow up to the previous one titled ‘Why agricultural value chains fail – Part (IX): Failure to Diversify’. Both articles are focused on a research that explored the farmer perceptions on the proposed tobacco growing ban in the country and what the challenges and recommendations are for income diversifications. 

The research had both qualitative and quantitative components. The previous article was based on qualitative findings. Therefore, this article is based on the household questionnaire administered towards farmers who grow tobacco. Quantitative data collection using farmer household survey questionnaire was focused on Galewela, Polonnaruwa, Mahiyangana, Buttala and Teldeniya areas only. 

Findings of the 

quantitative survey

As mentioned earlier, the quantitative survey was administered only towards the tobacco farmers who are working with the Ceylon Tobacco Company, PLC (CTC). Compared to farmers who work on other tobacco value chains such as tobacco for chewing purposes (mainly grown in Kalpitiya) and tobacco for beedi and cigar, the number of farmers working with CTC is comparatively large. Therefore, information on beedi and cigar farmers was collected only through qualitative instruments. 

The survey collected information from many fronts. However, the objective here is to present a brief snapshot of those findings while trying to search answers for several main research questions. These research questions are: (1) what are the socio-economic characteristics of tobacco growers (including barn owners)?; (2) what are their perceptions on the proposed tobacco ban and their readiness to face it?; (3) what are the possible alternative crops they could grow if they were to stop tobacco?; and (4) what are the essential elements for them to be economically successful in possible alternatives? The research team is more than happy to share the full research report with anyone interested. 

Comparison of infrastructure facilities: 

Pre and post 

In research it is always important to reflect on the socio-demographic characteristics of the respondent party in hand. This section therefore reflects on those characteristics of the households and respondents. The idea is to compare their pre- and post-socioeconomic situations, looking at how things have changed once farmers growing tobacco for CTC entered the tobacco value chain.

More than 70% of these farmers had an education above grade 10 or between grade 10 and advanced level. Only a handful of farmers (three out of 250) had gone on to achieve an educational degree. Farmer families were not big in size and the average family size was four. A majority of these farmers have been a part of the tobacco value chain for more than 10 years, where they have gained economic benefits and uplifted their family’s living standards. 

Most farmers (close to 88%) lived in single storey houses. However, this number was only 35% before they moved in to the tobacco value chain. Interestingly, approximately 49% of people who moved to single storey houses over time were living in unsafe temporary type housing structures such as incomplete brick or mud built houses before that. Therefore, to a great extent, the tobacco value chain has helped them move to permanent type housing over time. 

Meanwhile, 26% of the homes were found to have pipe-borne water either from a constructed well or from an open water source while close to 19% of homes had a protected well built within their land extent. Among households that had pipe-borne water, 11% had pipe-borne water inside the house as well. Surprisingly, none of these homes had pipe-borne water before the respective farmers joined the tobacco value chain. 

A majority (close to 84%) of the households had toilet facilities on the land where the housing structures were located. Only 49% of the households had water seal type sanitation facilities before joining the tobacco value chain, but this has significantly increased up to approximately 97% after joining the tobacco value chain. 

Before joining the tobacco value chain, approximately 78% of the households were using kerosene as their primary source of lighting while the rest were using electricity. Households with electricity have now increased to 98% and only a few houses were found still using kerosene. 

Looking at this data, it is clear that along with the engagement in the tobacco value chain, farmers have been able to shift towards better infrastructure. While these improvements in socio-demographic factors are a result of many factors, as farmers expressed during the FGDs, most of these achievements were because of the tobacco value chain. 

Cost and revenues 

On average, farmers owned around an acre of land along with their housing unit. They also had on average 2.2 acres of upland area (area of land lying above the level where water flows or where flooding occurs). However, only about 33% of farmers held private ownership of uplands. Approximately 68% of farmers own paddy land as well, and the average size of the paddy land is about 2.4 acres. 

The cultivation and leaf curing cost incurred by a Flue Cured Virginia (FCV) farmer who operated a barn was found to be around Rs. 470,000 on average. On the other hand, an Air Cured (AC) farmer would have to bear the cost of Rs. 150,000 as the cost of cultivation. AC farmers in Buttala have their own leaf curing facilities (small shelters built using low cost materials), while FCV farmers in the area have their own barns. FCV farmers in Mahiyangana also have their own barns. 

The study found that farmers in Galewela, Anuradhapura and Polonnaruwa do not own barns and they worked for a barn owner. On average a farmer would sell 11,200 kilograms of mature leaves to the barn owner at an average price of Rs. 26 per kilo, giving them an average income of around Rs. 288,400 per season. Barn owners who dry tobacco leaves sell an average of 4,250 kilograms to CTC each season. They produce several grades of leaves and there are different prices attached to each grade. However, on average they receive about Rs. 384 per kilogram. Therefore, on average their income is around Rs. 1,762,200 per season. 

There are variations of this based on the areas they work. For example, barn owners in Galewela and Anuradhapura who sell dried leaves to CTC earns on average Rs. 4,316,147 and in Buttala this is around Rs. 237,840 (The wide gap is due to the fact that Galewela and Anuradhapura consists of large-scale barn owners compared to small-time barn owners in Buttala). These reflect very high profits once aligned with the cost information discussed above. 

Why tobacco?

Almost 25% of farmers have been growing tobacco for more than 20 years while approximately 78% of farmers have been in the tobacco value chain for more than five years. These farmers have been here for quite some time and there must be valid reasons for them to do so. Approximately 90% of farmers said they engage in the tobacco value chain as “tobacco gives them more profits than any other crop”.

CTC, as mentioned several times before, works on an out-grower model. A prominent feature of the out-grower model is the guaranteed price. This was justified in the survey as well where approximately 91% of farmers stated that they work with CTC since this was a model which paid guaranteed prices. Therefore, it was clear that farmers came into the tobacco value chain since it had an out-grower model with a guaranteed price and a buy-back system after providing all the inputs. At the same time, comparatively, tobacco was able to give farmers a higher return on investment. In addition, farmers also mentioned other factors such as the continuous support and facilitation they received from CTC’s “leaf officers”. 

There are several issues with respect to tobacco cultivation at the moment. The major issue is the lack of water, which was highlighted by 55% of the farmers. At the same time approximately 30% of the farmers talked of the fact that plants are affected by diseases. Interestingly, only 0.8% said that the soil became less productive after tobacco cultivation. While this can be an argument against the claim that tobacco caused soil degradation, it is only a claim by the farmers and has to be further clarified with proper soil testing. 

Life after tobacco

An important question the research team asked tobacco farmers was what they would do if tobacco cultivation was banned in 2020. Around 47% said that they did not have any other option. However around 32% said they would start paddy cultivation, which they have been doing for the “Maha” season. Only 14% of farmers said that they would diversify into other cash crops.

Based on research, it is quite clear that paddy would not give them as much revenue as tobacco does. However, there can be other cash crops, which could deliver similar revenues. Hence the next important question is to identify what farmers have in mind in terms of other cash crops to diversify. 

Vegetables and fruits are two main options preferred by these farmers in terms of diversification (approximately 43%) while soya also seems to be an attractive option for some (approximately 15%). Other crops of interest (approximately 24% of respondents) are pepper, sugar cane and cashew. What is important here is the fact that they have several crops in mind. However, what is evident through the focus group discussions was that they are not quite sure how these crops would function in the long run. Therefore, it is important that research is done to see what works better for them.

The farmers engaged in tobacco cultivation are used to a dedicated value chain with an out-grower model. Therefore, during the FGDs it was clear that, if they were to move to another cash crop they would expect certain conditions, for example receiving a guaranteed price. Therefore, this was further explored during the household questionnaire. 

It is clear that farmers desire a crop with high returns like tobacco (approximately 80%) and a buyer with an out-grower model (approximately 88%). A crop that is suitable for the soil and climatic conditions is also important (nearly 63%) and water issues needs to be addressed as well (as mentioned by 75% of farmers). Farmers demand awareness on other crops that suits them (nearly 53% farmers mentioned this) and approximately 68% farmers believed they need financial support from the Government if they were to move to another cash crop. 

The most popular answer to the question “what should the Government do rather than banning tobacco cultivation?” is that the Government should increase the tax on cigarettes (approximately 74%). Farmers mentioned during FGDs that if the demand for cigarette went down because of reduced consumption, then they were willing to move to other crops – in other words they were willing to respond to market forces. 

What they believe was that once they reduce cultivation adhering to the Government vision, the Government would cater to the demand for cigarettes by importation (this is not the market demand and supply, rather this is the Government intervention). Their concern is in fact becoming a reality with the 2018 Budget proposal to issue cigarette importation permits. 

Financial packages for them to exit the value chain, financial packages for other indirect employment, involvement of the Agriculture Department in diversifying to cash crops, more research and experiments by the Government are some of the things that farmers saw as essentials from the Government in order for them to exit from the tobacco value chain. 

Farmers also (approximately 79%) noted that the reduction of the tobacco cultivation should be gradual. They also expressed the fact that a committed and responsible authority should be in place to create awareness and help and guide them on to other income sources if the tobacco cultivation ban is to be implemented. 

Conclusions and 

way forward

It is obvious that tobacco farming has benefited farmers in many ways. There are however competing arguments that negative externalities of tobacco farming outweigh these benefits. While studies have taken sides, and defended their arguments as to why tobacco farming is good or bad, it is not possible to find a study that transparently evaluates benefits and costs of tobacco farming. Scarcity of such studies shows the difficulty in doing so. 

Many countries have looked at the possibility of diversification for tobacco farmers. While Sri Lanka is interested in a total ban, many things can be learnt from other countries as well. The objective of this research as mentioned earlier is to understand how farmers perceive the proposed tobacco growing ban and what they perceive as options and how they perceive as the way that the government should handle this. Hence this study is based on perceptions on a proposed policy decision.

The decision to ban tobacco growing has been in the discussion for some time. However, it was never taken seriously, at least by the farmers involved. Through this research it is clear that they still work on the same premises. This is clearly evident thorough the discussion this research had with farmers from Kalpitiya who grow tobacco for chewing purposes. Though there is a gazette notification in place prohibiting the sale of smokeless tobacco products, farmers still cultivate tobacco and traders continue to sell them openly. Hence there is a clear communication mismatch. Growing tobacco for cigarettes holds the same characteristics as the ban has not been imposed yet. Farmers still grow tobacco because they are allowed to by law and have not clearly thought about what they would do if the ban comes into effect by 2020. 

With CTC, tobacco farmers have a long-term relationship. Therefore, they are comfortable with the working arrangements and they do not necessarily have any complaints against them. Over time this value chain has helped farmers to achieve family wellbeing and move out of poverty. This out-grower model with CTC has helped these farmers gain higher economic benefits. However, little has been communicated to them as well on what would happen to them by 2020. This information has not gone to them through the Government or via CTC adequately. They claim that all what they have heard is through various media reports. 

They rely on CTC on this as farmers mentioned that they trust information on a possible cultivation ban only if it comes through CTC, because they have experienced operational difficulties, received insufficient guidance from Government officials and do not have an adequate support system through any relevant Government authorities. Therefore, most farmers interviewed said they wanted CTC to let them know what would happen to them by 2020, since they do not trust the political decisions and what ministers say in the media. This communication gap must be filled for these farmers; otherwise they will not seriously think about a diversification process.

While farmers are aware of the other crops and animal husbandry approaches that they can diversify into, they are sure that they will not get enough income out of them to be at the same level they were with tobacco. This has to be shown to them, therefore comes the importance of research and development. Research has to take in to account the soil and climatic conditions, crop varieties, marketing infrastructures and financial support. There is no point of suggesting them a crop or a livelihood if farmers do not have the skills or investments it needs. Therefore, coaching is important. 

Most farmers felt that 2020 is too soon. Maybe they are correct. A larger and favourable value chain is hard to diversify and takes time. Therefore, the Government should take it gradually. They could come up with a plan that removes the least affected farmers first and then gradually introduce alternative income sources to everyone.

The most unclear point is on the leadership in this transitional process. Who should help and guide farmers into alternative income sources is the most important question. At the moment it is clear that there is a tug of war between the Government and CTC and farmers are not clear where to go in search for options and answers. Government might feel that it is CTC’s responsibility to take care of the farmers in their value chain. CTC might be in the view that Government should be leading the transitions since it is the one trying to eliminate farmers from the value chain. 

What both parties should understand is that we are talking about livelihoods of more than 300,000 and this should not be taken lightly. It might be the case where a Public-Private Partnership should be in place to handle the transition process. 

The SADP ULTRA model introduced by CTC is an ideal solution for farmers to practice and see the viability. However, it is important to identify the responsible authorities and process of taking this forward with a large number of tobacco farmers in the country. 

It is not possible to ask farmers simply to cultivate vegetables. First this might disrupt the existing vegetable market with excessive supply and lower prices. Then farmers will be in trouble if they were to ask to cultivate and find the markets by themselves. Fruit and vegetable farmers are already in chaos situations in trying to find markets. Therefore, most tobacco farmers said they need an out-grower model with guaranteed prices if they were to move to other cash crops. 

There are many opportunities in the fruit and vegetable export markets, this can be either organic, or can be under Good Agricultural Practices (GAP). However, the question is how these farmers can be integrated in to these value chains and who should take the lead. 

How does a better 

model look?

Firstly, there should be a responsible authority (a committee, project, programme) that would lead the process of introducing alternative income sources to tobacco farmers. This authority/entity should represent all the stakeholders. For example, it should have Government representation, CTC, representatives from the beedi and cigar industry, representatives from smokeless tobacco industry, potential private sector entities that focus on buying other crops for local and export purposes, representations from farmer groups and associations and research entities (these research entities can be universities and Government research institutes) and financial institutions. 

Once this sort of an entity is in place, a clear message has to be communicated to farmers about the seriousness on the ban, whether it would happen or not and which farmers (farmers with smokeless tobacco products and farmers with CTC and beedi and cigar industry) are affected and the timeline. Once this is done farmers will take this seriously and would come up with ideas or desired situations for them more confidently and clearly. 

As a company it does not make any sense for CTC to get into a business other than tobacco. Therefore, one should not expect CTC to arrange a system where they would buy what farmers grown in their diversification activities. 

However, if the Government is introducing a tobacco ban that would put farmers out of livelihoods, it should be the Government priority to make sure their disposable income is safe. There are many ways that Government can do this. 

For example, the agriculture modernisation project can help these framers get in to better value chains in terms of other cash crops. Remember if these farmers were to go back to the conventional value chain where they supply to local economic centres, they will only face useless prices and their supply at the end might flood the local market bringing prices further down. These farmers also can be linked up with Good Agriculture Practices (GAP) program and with the Sri Lanka Fruit and Vegetable Producers, Processors and Exporters Association. 

While it does not make sense for CTC to become a fruit and vegetable exporter or a middle man in the export value chain, it could take on the role of a facilitator or coordinator helping farmers to get on to better value chain during the diversification efforts. CTC can go one step further and help by doing research to provide sufficient information for everyone to help these farmers to go through a successful diversification phase.

(The writer is an Agriculture and Environment Economist. He 

can be reached at [email protected].)

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