The Hindu Business Line : FDI in tobacco processing, cigarette sectors opposed

New Delhi March 24 Even as the row over allowing foreign direct investment (FDI) in retail is raging, tobacco growers in the country are not in favour of the reported move to allow FDI in tobacco processing and cigarette manufacturing sector.

Reacting to the assurance of the Union Commerce and Industry Minister, Mr Kamal Nath, to the Andhra Pradesh Virginia Tobacco Growers' Welfare Association that the Centre would soon allow FDI in tobacco processing and cigarette manufacturing sector, tobacco growers of Andhra Pradesh and Karnataka contend that some multinational tobacco companies and their merchants have swayed a section of tobacco growers in Andhra Pradesh into believing that their produce is on par with high-quality tobacco being obtained in Zimbabwe.

The member of Lok Sabha from Guntur, the major tobacco growing belt in Andhra Pradesh and in the country, Mr Rayapati Sambasiv Rao, told Business Line here that the question is not blind opposition to FDI but to allowing foreign cigarette companies' representatives or merchants from monopolising procurement of tobacco which has done away with competition in the auction centres by reducing the number of players and pulled down the price to the tobacco growers.

Mr Sambasiva Rao recalled that Indian tobacco was exported to erstwhile Soviet Union in huge quantities and after the collapse of the Soviet Union in the late 1980s, domestic trade has gone into the hands of multinational companies and their agents who stay in Guntur throughout the year to get market information and crop size and quality of tobacco produced. If `coloury' tobacco i.e., high grades is produced, they spurn the produce showing their preference for medium grades. Hence the domestic trade was forced to buy this high-grade tobacco at a lesser price because of which farmers were not getting remunerative price, he said.

Auction process

However, the Tobacco Auction system by the Tobacco Board has guaranteed fair weighment, correct grading and prompt payment to the growers. But allowing FDI would destroy this transparent auction process as there would be return to the old practice of marketing, where farmers were neither assured of fair price nor weighment, according to the Karnataka V.F.C Tobacco Growers' Association and Karnataka Tobacco Growers' Forum, Hunsur.

Echoing similar concern, Mr C.H. Vijayashankar, a Lok Sabha member from Mysore (Karnataka) has also sent appeal to the Prime Minister, Dr Manmohan Singh, and Mr Kamal Nath, stating that multinational companies operate only in the premium segment which results in import of 90 per cent of raw material from Brazil, the US and Zimbabwe.

So any grant of FDI to these companies in processing would lead to reduced usage of Indian tobacco adversely impacting farm price and destabilizing the extant auction system that has been efficiently delivering results to growers.

Tobacco growers apprehend that the Indian manufacturers as well as exporters have made huge investments in processing plants and other infrastructure support for procuring, processing, storing and shipment of leaf tobacco.

With the direct entry of foreign leaf merchants, there is a real threat to more than 400 marginal and small traders losing their business, besides endangering lakhs of employees working for them in the field.

Yet another doubt assailing the farmers is that these foreign companies typically `under-grade' and set low prices and as the buyers operate as a monopoly or cartel, farmers have little recourse but to comply with whatever offered. FDI in tobacco processing and cigarette manufacturing should have adequate safeguards built into it so that domestics growers get remunerative price and domestic dealers directly trade with foreign cigarette companies who want to procure from India, instead of trading with global leaf merchants who are but "middle men", he said. The State Trading Corporation should procure 20,000 tonnes from the auctions, which would help farmers realise reasonably good price and the volume of procurement should be distributed among small and medium traders so that healthy competition in the tobacco auction floor would be ensured, he added.

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