Tobacco Prices Touch Record Rs 110 A Kg

Guntur: Tobacco prices are continuing to rule high in the Andhra Pradesh auctions. For the first time, Virginia tobacco fetched a record Rs 110.40 a kg on Thursday on the Koyyalagudem auction floor in West Godavari district. The district produces the best tobacco in the State.

Average price

So far, 94.5 million kgs of tobacco has been sold on the auction floors in the State at an average price of Rs 77.25 a kg as against last year’s average price of Rs 47.50 a kg by this time. Still, roughly 60 million kgs of tobacco remains to be sold in the State. According to rough estimates, the farmers have got an incremental income of Rs 285 crore more this year than the same time last year.

Admitting that the farmers are getting very good prices this season, Dr Y. Sivaji, President of the Andhra Pradesh Virginia Tobacco Growers’ Association, said that certain factors in the international market triggered the price rise on the auction floor. “The drastic slump in production in Zimbabwe from a level of 250 million kgs to 60 milion kgs, due to racial unrest in that country, is one of the major factors for the price rise. There has been production slump in Brazil by 70 million kgs or so and besides that China is no longer able to dump in the international market at lesser prices, as it has joined the WTO. There are no carryover stocks in India or anywhere else in the world,” he said.

Plea to growers

Dr Sivaji, however, cautioned the farmers in the State to be wary of the “designs of the trade to effect a price correction in the State.

The trade is attempting to depress prices by forming into syndicates and imposing a ceiling price. Such attempts should be foiled by farmers and they should get an average price of $2 a kg on the floors.

They should not part with the crop, if they do not realise the price”.

On the floors in the southern lights soils and southern black soils, he alleged, “the trade is up to its old tricks.” He also cautioned farmers that they should not go in for surplus production, encouraged by the high prices. The reduction of punitive cess for the current year’s surplus from Rs 2 a kg plus 15 per cent of the value to Rs 1 a kg plus 5 per cent of the value was not a correct move, he said.

Dr Sivaji, however, expressed happiness that he could realise the long-cherished dream of securing $2 a kg to the Indian tobacco farmer this season.

Tobacco Stocks Still Weak On Budget Blues

Kolkata: Cigarette stocks remarkably did not participate in the general upward movement on Tuesday as the tax blow continued to drag them downwards.

According to analysts, apart from the Budget blues on non-filtered cigarettes, the introduction of pictorial warning, which may come up during the first quarter of 2008-09, have raised apprehension of substantial fall in revenue for the manufacturers.

Ram Patnaik, an analyst at Religare, felt that passing on the huge tax burden for the non-filtered cigarettes to the consumers may not be possible as the segment is considered highly price sensitive and consumer behaviour is considered to be rigid.

According to industry sources, ITC may opt for gradual phase-out of the segment altogether and two other players in the segment — VST and GTC — may not have much option but to reduce the production of non-filtered smoking sticks drastically.

Introduction of filtered variety of the old non-filtered brands is unlikely to shift smokers’ loyalty, said an industry insider. “Retaining market share at the low price segments would be a difficult proposition in view of the competition from bidi and ‘unauthorised’ cigarette manufacturers,” said a cigarette marketing personnel.

Declining Acceptance

ITC, with a large basket of cigarette brands, may withstand the pressure better that others, which rely more on non-filtered verities.

Two non-filtered brands contribute roughly 30 per cent of ITC’s cigarettes volumes, while in case of GTC and VST, it is estimated to be more than 50 per cent.

Current lobbying by the manufacturers, with the Finance Ministry, might be described as a shot in the dark, an analyst with a large brokerage said. Interestingly, many of the brokerages have, of late, stopped tracking tobacco stocks, except for ITC, which is considered as an FMCG player.

“Increasing “sin” tax, gradually declining social acceptance, health and ethical issues are forcing brokerages to ignore the sector,” the analyst said. The proposed statutory pictorial warnings, instead of verbal currently in vogue, may further alienate smokers and investors from the sector.

The counters such as GTC, VST and ITC have fallen sharply in the past one month, after the new tax proposals in the Budget for 2008-09. GTC has lost 49 per cent, VST 23.5 per cent, ITC 5.37 per cent and Godfrey Phillips 1.5 per cent, much in order on dependence on the non-filtered sticks. Barring GTC, which moved up by 2.34 per cent, three others finished flat on Tuesday.