Tobacco farmers going for 'green gold' rush

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).