Ceylon Tobacco Company PLC (CTC) yesterday announced it would be closing its leaf depots situated in Anuradhapura and Sigiriya.
In December 2016 the company announced that it was considering the closure of four leaf depots due to the sharp drop in demand for tobacco leaf as a result of declining volumes.
In the first phase CTC will wind down operations in Anuradhapura and Sigiriya starting with the closure of the two leaf depots. Shutting down the two depots is estimated to impact the livelihoods of approximately 2,000 persons depending on tobacco farming, who stand to lose close to Rs. 200 million in annual income.
“It is no secret that the excise and VAT hikes in October and November last year, which led to a staggering 43% price increase in legally-manufactured cigarettes, had an impact on our business and manufacturing operations in Sri Lanka. We have, on several occasions, highlighted that any impact on our business would have a ripple effect on the livelihoods supported across our value chain. It is unfortunate that policymakers ignored these facts when increasing taxes on the legal tobacco industry and we are now seeing the unintentional results of such actions,” CTC Managing Director and CEO Michael Koest said.
The company also underwent a 20% head count reduction at the start of 2017 as a result of reducing one shift at its Colombo factory.
The increase in retail price of cigarettes and the resultant decline in volumes has jeopardised the sustainability of a business that has been legally operating in Sri Lanka for over 100 years. This could spell disaster to the livelihoods supported across the company’s value chain. Currently CTC directly and indirectly employs over 46,000 persons and supports around 300,000 livelihoods at various stages of our operations from farming tobacco to the distribution and sale of its products.
“We source all our tobacco leaf locally from over 20,000 farmers and infuse around Rs. 2 billion to the rural economy annually through our farming activities alone. We partner with these farmers and guarantee the purchase of their full crop at a pre-agreed competitive price. No other farming community in Sri Lanka enjoy the amenities and support that our farmers have enjoyed for decades. We are concerned that the impacts faced by our business will have far reaching impacts on the local communities and rural economies dependent on the legal tobacco industry,” warned Koest.
The high prices of legal cigarettes have also driven smokers to products such as beedi or smuggled cigarettes, which indicates that smokers are substituting legal cigarettes with cheaper and illegal alternatives. As a result, the Government lost Rs. 13 billion in excise revenue during the last quarter of 2016. The company notes that this defeats the Government’s major objectives of increasing taxes on tobacco such as improving public health and increasing revenue.