Will cigarette price hikes help farmers?

Will cigarette price hikes help farmers?

By Slamet Hadi Purnomo

SURABAYA (Antara): Retail prices of cigarettes have increased
up to 100 percent since the beginning of April. Will the increase
benefit farmers?

The opinions on the matter are divided.

An observer of agricultural and socio-economic issues, Prof.
Dr. Kabul Santosa of Jember University in East Java, says the
decision by the director general of customs and excise should
result in higher profits for farmers.

In his opinion, the increase in cigarette prices will create a
better opportunity for tobacco farmers to sell their produce to
factories at a higher price.

"I am optimistic that the increase in cigarette prices will
have a positive impact on tobacco farmers who will be able to
gain bigger profits," says Kabul, who is rector of Jember
University.

He explains that although planting costs have been on the
increase due to the monetary crisis, tobacco prices stand a good
chance of being adjusted to market conditions.

"There is no need to fear that tobacco will not sell. The most
important thing now is how to create a good partnership between
farmers and cigarette factories for mutual benefits," he says.

While the monetary crisis persists, cigarette factories are
highly unlikely to rely on tobacco imports which must be financed
in dollars. The taste of imported tobacco also may not match
consumer preferences, he says.

Tobacco farmers, however, are not so optimistic. Farmers from
Jember and Bondowoso now face high planting costs like their
counterparts in Bojonegoro, Lumajang, Paiton and Madura, which
are the tobacco production centers of East Java.

The increase in cigarette prices may only benefit the
belandong (tobacco traders), they suspect. Past experience has
shown the farmers that tobacco market prices are determined by
the belandong who have a special working relationship with
warehouse owners.

"It is the belandong who lead a happy life because they never
lose," says Misnadin, 42, a tobacco farmer in Ambulu district,
Jember.

The same opinion is voiced by Priyo Soemanto, a tobacco
consultant, who says the increase in cigarette prices is not sure
to benefit tobacco farmers.

"It may happen that in the current monetary crisis, the income
of tobacco farmers decreases because cigarettes are not a basic
need. People will give priority to essential staple foods," says
Priyo, former chief of the Jember Tobacco Institute in East Java.

Caution

The current head of the institute, Surachmad, says the
increase in cigarette prices should be considered with caution.

He reasons that logically there should be a positive
correlation between the increase in cigarette prices and that of
tobacco prices because the raw material for cigarettes is
tobacco.

However, because the market is strongly influenced by various
factors such as the economic situation and the market chain of
tobacco, the positive correlation may not come into play.

Citing an increase in cigarette prices in 1991, he says
tobacco was warehoused because cigarette consumption at the time
decreased drastically.

Cigarette prices in 1991 increased for some time in line with
the increase in cigarette excise taxes, forcing consumption down
from 138.5 billion cigarettes in the previous year to 129.7
billion in 1991. The cigarette consumption in 1992 increased to
134.6 billion cigarettes and totaled 170.4 billion in 1997.

With a possible decrease in demand to come, Surachmad says
farmers should not hastily increase tobacco production with the
objective of gaining big profits.

Should tobacco flood the market during a downturn in demand,
he says, tobacco prices could fall and create hardships for the
farmers who still would have to deal with high production costs.

As of 1997, Jember had 18,000 hectares of tobacco producing
land with an output of 16,020 tons.

Surachmad says the 1997 price of tobacco was good but that
quality was not at its best. "However, once again, the increase
should not induce the planting of tobacco on a big scale."

Top quality dried tobacco leaves cost between Rp 1.25 million
and Rp 1.75 million per quintal, with medium quality costing
between Rp 800,000 and Rp 1 million per quintal and "filler"
costing from Rp 500,000 to Rp 700,000 per quintal.