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.