Covid-19 and the Global 2020 Tobacco Leaf Marketing Season

By International Tobacco Growers’ Association

During the marketing season, hundreds of thousands of tobacco growers travel to the auction and contract floors to sell the tobacco they have produced during the year. The disruption caused by the pandemic has increased the cost of transporting and has made it difficult for farmers to be present during the sale.

These factors together with domestic economic difficulties reduce the growers’ profitability and directly threatens their livelihoods. Independent farmers are much more exposed to the effects of the Covid-19 as they do not benefit from the support the companies provide. With the market disruption, the only growers that are certain that their tobacco will be bought are the ones subject to contracts.

Tobacco is a cash crop, meaning that growers produced for the bulk payment they receive after the sale that allows for other investments on the farm (diversification, tools, big-ticket items). The cash infusion is vital for the overall development and maintenance of the agricultural capabilities of tobacco growers, specifically of small-scale growers which do not have other crops that produce the same profitability at that scale.

The sale of tobacco has accelerated in both Malawi and Zimbabwe. In Zimbabwe, the tobacco is progressing at a faster rate compared to 2019 which, if put together with the delayed marketing season, is quite a remarkable figure (see table 1). It is still early to have a clear view of how the season will end, but if the pace remains steady hopefully tobacco growers can generate significant revenues that will motivate them to continue to grow tobacco.

The major problems affecting tobacco growers, besides the disruption to the marketing seasons caused by the Covid-19 pandemic and the measures introduced, are the economic difficulties that several major tobacco-producing countries are facing (Argentina, Brazil, Zimbabwe, and Malawi). Rampant inflation is seriously reducing the purchasing power of tobacco growers and eroding their profitability as the production costs increase.

Contracted tobacco growers represent the majority of the tobacco that has been sold, accounting for 97% of the total tobacco sales. Independent and non-contracted tobacco growers are the most affected by the volatility of prices and demand. Zimbabwean tobacco growers have withheld tobacco from the auction floors due to some protests regarding the payment systems and some of the measures introduced due to the pandemic. After the protests by tobacco growers, the Tobacco Industry and Marketing Board (TIMB) has reviewed the safety protocols and has removed the requirement that all vehicles delivering tobacco had to weigh at least seven tons, which steeply increased the transport costs for small-scale tobacco growers. The presence of tobacco growers who deliver more than 100 tobacco bales has also been permitted, allowing farmers to be present and safeguards that all rights are upheld while displaying more transparency in the process. After a very demanding year, farmers want to ensure they receive the best possible price for their production. The fact that the stakeholders are working to solve the problems that farmers have highlighted provides hope and stability for everyone towards a safe and successful season.

In Malawi, the situation is similar to Zimbabwe as the season is progressing and prices, for the time being, are higher than in 2019. However, several protests have erupted with some tobacco growers taking the Tobacco Control Commission (TCC) to court over the inability of growers to be present during the sale process. Consequently, rejection rates reached 50% which increased the growers’ worries about the process. Tobacco growers do not usually send their best tobacco at the beginning of the season to better understand how prices will progress, thus saving the best for last. The introduction of a new bidding system has been appointed as the reason behind the higher rejection rates. As farmers adapt to the new system that rejection rates will tend to decrease. Tobacco is the main-source of foreign-exchange for the country and during these difficult times growers the necessity to maximize revenue is reinforced. As economic and sanitary crises always disproportionately affects those at-risk, so  Malawi will need all the resources it can gather to be able to support those who need them the most.

So far, the most affected country is India due to the Andhra Pradesh marketing season challenges. The tobacco auctions were active both in Karnataka and Andhra Pradesh. The auctions were suspended in the two regions, however, in Karnataka, the auction was closed to its ending date, while in Andhra Pradesh the marketing season had recently started so the impacts of the suspension will be felt more severely. The lack of international leaf dealers, due to the traveling restrictions, during the Karnataka auctions was appointed as one of the reasons for prices not being higher. Only after the auctions restart will growers know the impact that the lockdown has had on tobacco prices.

Tobacco production has been decreasing for the past few years as an effect of the lower demand for tobacco products. Tobacco growers are adapting to this situation by lowering the area under tobacco production. Unfavorable weather conditions in both Brazil and Zimbabwe decreased the tobacco output which was reviewed to a lower estimate than initially presented. ITGA members are spread throughout the globe with significant economic and cultural differences and the ability to adapt and to respond to these situations differs from country to country. Considering that the major problems that have been pointed are related to the lockdowns or economic difficulties external to the sector it is clear that tobacco, despite the difficulties the sector is facing, can be seen as a shelter for hundreds of thousands of tobacco growers.

The tobacco sector should rise to the occasion and help those who are most vulnerable. Tobacco manufacturers who continue to generate stable revenue thanks to its capacity to weather economic storms should use this opportunity to support the farmers that grow the raw material. Tobacco growers are the sector’s keystone and should not be forgotten during one of the most severe crises the world has ever faced.

ITGA’s thorough analysis prompted us to develop our campaign (#togetherwecare) focusing on small-scale and non-contracted farmers, those that will be most affected both by health and the economic difficulties.