Tobacco growers reject plan to end WAP, challenge official profit estimates

Tobacco growers have urged the federal government to suspend plans to abolish the weighted average price (WAP) mechanism until consultations are held with farmers, arguing that official profit estimates used to justify the proposed changes substantially overstate growers' actual earnings.

At a press conference on Saturday, representatives of the farming community said the Ministry of National Food Security was preparing amendments to the Tobacco Marketing Rules, 2016, and Martial Law Order (MLO) 487, which would eliminate the WAP mechanism currently used to determine the annual minimum indicative price (MIP) for tobacco.

Former Pakistan Tobacco Board (PTB) director Muhammad Ayaz Khan alleged that figures presented to the federal cabinet for the 2024-25 crop were misleading because inflation and financing costs had been counted as farmers' income rather than production expenses.

According to the growers, the cabinet was told that farmers earned a profit of 26.41 percent under the MIP during 2024-25, whereas the actual return was about 4.81 percent. Likewise, they said profits under the WAP were presented at 67.33 percent, while the actual figure was closer to 5.07 percent.

Khan said tobacco cultivation requires investment of around Rs2 million per hectare and involves significantly higher production costs than most other crops, making an accurate pricing mechanism essential for growers.

He said PTB estimated tobacco production at 3,630 kilograms per hectare for the 2023-24 crop, although research stations recorded yields of about 2,100kg per hectare. Following windstorm damage, average production fell to around 2,900kg per hectare. With the WAP fixed at Rs709 per kilogram, gross income amounted to Rs2,056,100 per hectare. After deducting cultivation costs of Rs1,750,749, growers earned a net income of Rs305,351, equivalent to a profit of about 17 percent over the eight month crop cycle, rather than the 67 percent cited before the cabinet.

For the 2024-25 season, Khan said PTB estimated production at 3,623kg per hectare, while cultivation costs increased to Rs1,804,000. Although the WAP was fixed at Rs719 per kilogram, tobacco companies contracted to purchase only 2,100kg per hectare.

Natural calamities reduced average production to about 2,750kg per hectare, he said. Companies purchased 2,100kg at Rs719 per kilogram, while the remaining 650kg was bought at the MIP of Rs545 per kilogram after the crop was declared surplus. Total gross income reached Rs1,864,150 per hectare, leaving a net return of only Rs60,150 after production costs, or about 3.3 percent over eight months.

Khan said 2022-23 was the only recent marketing year in which tobacco growers earned substantial profits, as reduced supply and stronger demand pushed market prices to around Rs700 per kilogram despite the MIP being fixed at Rs310 per kilogram, generating profits of approximately Rs1,571,000 over the season.

Khasthkar Ittehad Association Patron in Chief Iqbal Khan Shewa said the 2024-25 crop was badly affected by natural calamities and alleged that companies refused to purchase low grade tobacco, leaving large quantities stored in farmers' warehouses. He said many growers had been pushed into debt and urged the government to conduct an independent survey of tobacco farmers before making changes to the tobacco pricing framework.