Delay in Trade Quota Sends Tobacco Crashing 50%

More lucrative than rice, crop has narrow export market

After steady increases, prices for tobacco, which is grown along the banks of the Mekong and depends on export to Vietnam, have dropped by up to half in the last year as talks on a duty-free export quota have stalled, causing demand to dry up.

Lacking buyers, much of the export inventory harvested at the end of the growing season in March and April may now rot or be sold off at a loss, according to farmers and a global cigarette manufacturer.

In 2007, Cambodia and Vietnam passed an expansive trade agreement granting duty free access for a list of products including tobacco. Prices rose skyward on demand last year from $1 per kilogram in 2007 to around $3.

But unlike in previous years, a quota on tobacco, which in the past has amounted to 30 percent of Cambodia’s 10,000-ton harvest, has not been set so far this year, according to British American Tobacco, Cambodia’s largest cigarette manufacturer.

With the next planting season two months away, farmers say that prices for dry tobacco has in some cases fallen by 50 percent.

“This year the price of tobacco is much cheaper than last year,” said Mann Mat, 47, a tobacco farmer in Kompong Cham province’s Kroch Chhmar district. “Last year it cost about 12,000 riel per kilogram whereas this year it has dropped to about 6,000 riel.”

Mr Mat said he had produced and bought about ten tons of dried tobacco this year and would store it until the price bounces back to somewhere near last year’s peak. But he is one of a lucky few that has the adequate storage facilities to preserve the tobacco’s quality. Most other farmers will be obliged to sell their produce at this year’s lower price, he said.

Sorasak Pan, secretary of state at the Ministry of Commerce, said he was unaware when the next quota for tobacco would be determined.

“We just don’t do it over night like that because it includes everything, not just tobacco,” he said.

Chan Nora, another secretary of state at the ministry was also unsure of talks regarding the quota on tobacco but said that they were usually negotiated every year.

In total there are about 14,000 hectares of land in Kandal, Kompong Cham and Kratie provinces being used for tobacco cultivation. British American Tobacco sources tobacco by contracting local farmers on about 2,500 hectares of that land who produce about 4,000 tons.

With Cambodian tobacco, British American Tobacco produces brands such as ARA, Liberation and National for the local market.

Kun Lim, head of corporate and regulatory affairs for British American Tobacco, said that once duty free access was granted to the Vietnamese market in 2007 with a quota of 3,000 tons per year, leaf buyers from Vietnam jumped at the opportunity.

“It opened up the possibility of exploring and testing the product’s quality and generating some consistency,” Mr Lim said. However, with the additional demand and no movement on the supply front prices shot upward.

In 2008 the price doubled to $2 per kilogram and in 2009 the trend continued sending the price up to around the $3.

Mr Lim said that some farmers who were contracted to British American Tobacco prior to the price hike simply broke their contracts when they saw a better price for the commodity could be reached elsewhere.

“We have had this problem the last two or three years. It’s quite frustrating…and we are the only company that has invested,” he said.

Mr Lim said that manufacturers and farmers would need to know what the quota is for the following year in November, when tobacco is planted, if a similar situation is to be avoided in the future.

“It is unfortunate that there is nothing much anybody can do to help,” he said. “The demand is there all we need now is consistency.”

Kroch Chhmar commune chief Eang Chhun Heang said that many people in his commune had speculated that tobacco prices would stay high through 2010 and had, thus, chosen to plant the crop as an alternative other commodities.

“The farmers have lost profit this year. Next year they will reduce the amount they plant.”

 

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