Tobacco farmers going for 'green gold' rush

By Prapti Widinugraheni

MATARAM, West Nusa Tenggara (JP): Farmers in this province are conducting their annual harvest of tobacco leaves, from which the government and local administration expect revenues from various levies.

Lombok, one of the two major islands in West Nusa Tenggara, is a major producer of Virginia-type tobacco, which is the main ingredient of cigarettes (locally called white cigarettes to distinguish them from kretek or clove-blended cigarettes).

Although various types of tobacco are widely grown across the country, with an abundance produced in East Java, the planting of Virginia tobacco is limited to Bojonegoro and Jombang (East Java), Garut (West Java), Klaten (Central Java), Tanah Karo (North Sumatra), Bali and Lombok.

According to Suhirman Muljodihardjo, the Ministry of Agriculture's director for production, the favorable soil and climate conditions in Lombok make the region's Virginia tobacco one of the finest in the country.

"Among the agricultural commodities promoted by the government through its various intensification programs, Virginia tobacco from Lombok has the brightest future," he said.

The provincial administration, for one, is more than aware of this fact.

According to West Nusa Tenggara Governor Warsito, levies collected from tobacco harvests contributed Rp 31.5 billion (US$14 million) in revenues to the provincial administration, while duty payments on the produce -- Rp 75 per kilogram -- gave Rp 600 million to the government last year.

"Most of the funds are actually spent for the prosperity of the farmers themselves," he said.

Whether or not this is true seems to depend on the farmers.

Umar Hasan, a tobacco farmer, said during a discussion with Governor Warsito earlier this month that he could harvest up to two tons of tobacco leaves from the 12 hectares of tobacco plantations that he rented.

Earning

"I can earn a gross revenue of up to Rp 7 million per hectare if the climate is good. With other costs deducted, I can earn Rp 4.5 million per hectare in net revenues," he said. This means a single harvest can bring him up to Rp 54 million.

But being a millionaire, it seems, does not necessarily make him prosperous.

"I have three wives and a lot of children," he said when asked about his lifestyle, which may explain why Lombok, despite its ability to reap ravishing revenues from its tourism and agricultural industries, continues to be one of the country's poorest regions.

Ma'rif, another farmer who owns a five hectare tobacco plantation on less favorable, arid land in Lombok's southern region, claims he gains only Rp 1 million per hectare in net earnings.

But, like many other farmers in this predominant Moslem region, he has accomplished the haj pilgrimage to Mecca using the money that he has earned so far from his tobacco harvests.

Despite hefty profits from their tobacco plantations, in reality the incomes of tobacco farmers depend greatly on the market's supply and demand.

Unlike strategic commodities such as rice, the tobacco market is free of government control, which also means that farmers receive no special protection from price regulations.

The commodity's prices, therefore, may fluctuate greatly, and buyers -- having the advantage of selecting the suitable grades of tobacco they need for their enterprises -- more often than not, gain the upper hand.

Not all farmers, however, are so vulnerable to market forces. Some, particularly those involved in partnership programs with "supervising companies", have considerable bargaining power.

Umar and Ma'rif, for example, are supervised by PT BAT Indonesia, a producer of filter cigarettes with brands such as Lucky Strike, Commodore, Kent, State Express 555, Benson & Hedges, Ardath and Escort.

"Supervising companies" such as BAT, which has been operating for almost 25 years in Lombok, are responsible for providing assistance to farmers in the overall planting, harvesting, processing and marketing of tobacco.

In return, the companies obtain tobacco of suitable quality for their cigarette factories.

Prices

Tobacco prices are later determined through price negotiations between farmers and company managers, which are mediated by the government's local plantation office.

Soerono, the head of the local plantation office, said that the negotiated floor prices, which are fixed at the start of each harvest season, are then regulated by a government decree, "to ensure that no one gets pressurized".

Floor prices, he said, depend on farming analyses, market conditions and levels of demand, among other factors.

"Prices vary among companies because leaf-grading is based on a company's individual requirements. Grade A for company X, for example, may be considered lower than Grade B for company Y," he explained.

Last year, prices ranged between Rp 2,950 and Rp 3,025 per kilogram for tobacco leaves of low quality and Rp 4,000 for super qualities.

"If market prices go up, negotiations may take place again and prices may be reviewed periodically," he added.

However, Soerono said, if market prices turn out to be lower than the negotiated prices, the risk must be taken by the supervisors or buyers.

Moesamto, BAT's leaf manager, said that negotiated prices have always guaranteed a certain amount of profits for farmers.

"Last year, for example, production increased by 10 percent but because we had made a commitment, we bought all of the harvest anyway and the farmers still gained profits," he said.

Gunawan Widjaja, BAT's corporate affairs director, said that unlike seasonal traders from outside the region, BAT does not buy only good-quality leaves but purchases the whole tobacco plant, including its stem.

"Lower prices on the market are the risk we have to take because we are committed to buying only from our farmers," he said.

Seasonal traders, he said, frequently offer better prices. "This is possible because they don't have to provide farmers with assistance," he said.

In return, BAT also demands total loyalty from its farmers.

"Ill-behaved" farmers, however, sell their yields to other traders. Gunawan pointed out that last year such farmers caused BAT to lose up to 500 tons of tobacco.

As a solution, BAT suggested that the government stipulate regulations to control illegal traders and to ensure that farmers stay loyal to their partner companies.

Gunawan said that BAT has also signed a cooperation agreement with the Mataram University to conduct surveys on the social aspects of tobacco farmers. The survey is also expected to be used as a basis for the government to stipulate stricter marketing regulations.

According to Moesamto, BAT currently imposes penalties on its "semi-loyal" and "disloyal" farmers by limiting their credits and cutting back technical assistance.

Loyalty

"It is only natural that BAT expects farmers to be completely loyal. Unlike traders, BAT helps them obtain high-quality seeds, assists them in the tobacco processing and guarantees them a market," Moesamto argued.

So far, there have been no complaints from the farmers nor from the creditor bank, Bank Yama.

Untung Suryadi, Bank Yama's credit director, said that the bank "completely trusts" BAT and is willing to bear all the risks entailed.

"Last year, the risk rate was only about two percent and during that year, there were no problem loans," he said.

Farmers, aware that they do not always obtain the price they ask for, also seem content with the profits they earn.

"At least we are always guaranteed a certain amount of profits (from the committed price)," said H.M. Syafei, a farmer who has been supervised by BAT for 15 years.

Meanwhile, the local administration has given a positive response to BAT's requests for stricter marketing regulations.

Governor Warsito, for example, acknowledged that it was necessary to map out clearly which regions in Lombok are supervised by which company. He also said that the government would impose stricter control over seasonal traders.

Currently, eight companies and buyers are registered in Lombok. These are BAT Indonesia (which controls 1,179 hectares of tobacco fields), state-owned PTP XXVII (349 hectares), PT Djarum (1,083 hectares), CV Trisno Adi (742 hectares), PT Tresno (238 hectares), PT HM Sampoerna (562 hectares), PT Sadhana AN (389 hectares), UD Cakrawala (110 hectares) and individual plantations managed by farmers (679 hectares).