Tobacco provides direct and indirect employment to more than 45.7 million people, around 70% of whom are in the agricultural sector. Tobacco is a highly remunerative crop providing economic/social benefits to farmers in the tobacco growing regions.
ASSOCHAM study Tobacco Economics in India: The Voice of the Farmer and other Stakeholders found that the tobacco growing areas of the three major tobacco producing States in India, viz., Andhra Pradesh, Karnataka and Gujarat are better off in several socio-economic parameters as compared to the non-tobacco growing areas of these States. “…tobacco does create higher returns and other social capabilities for its farmers than those who are engaged in growing other cash crops,” the study report observed.
Studies conducted by the Central Tobacco Research Institute (CTRI), Rajahmundry, have shown that FCV tobacco is more remunerative than other crops grown in the region, and is difficult to substitute.
The performance of FCV tobacco has been impressive, particularly in terms of farmer earnings. Between 2001-02 and 2013-14, the gross earnings of FCV tobacco growers have increased more than six times.
| FCV Tobacco | 2001-02 | 2013-14 | Change |
|---|---|---|---|
| Production (Mln. Kg) | 167.97 | 315.92 | 88% |
| Average Price (Rs/Kg) | 34.80 | 122.60 | 252% |
| Gross Returns (Rs Cr)* | 584.55 | 3873.19 | 563% |
| Exports (Rs Cr) | 483 | 4086 | 746% |
Source: Tobacco Board (*Derived)
However, demand for FCV tobacco has reduced considerably post 2013-14 due to sharp decline in legal cigarette volumes on account of high taxes and growth of illegal cigarette trade.
In fact, since 2013-14, the earnings of FCV tobacco farmers have shrunk cumulatively by more than Rs.6,053 crores due to drop in offtake of tobacco for the manufacture of domestic legal cigarettes. From a normal crop size of 316 million kgs in 2013-14, the crop size has shrunk to an average crop size of around 215 million kgs per annum for the past 5 years.
| Year | FCV Tobacco Production(Million Kgs) |
Gross Earnings* (Rs. Crore) |
Drop in Earnings vs Normal Crop of 2013-14 (Rs. Crore) |
|---|---|---|---|
| 2013-14 | 316 | 3812 | – |
| 2014-15 | 293 | 2880 | 932 |
| 2015-16 | 190 | 2346 | 1467 |
| 2016-17 | 204 | 2743 | 1069 |
| 2017-18 | 240 | 3219 | 593 |
| 2018-19 | 209 | 2719 | 1094 |
| 2019-20 | 235 | 2914 | 898 |
| Cumulative Drop in Farmer Earnings | 6053 | ||
Source: The Tobacco Board, Government of India (*Derived: Figures rounded)
Covid-19 Pandemic Causes Major Disruptions in FCV Auctions
FCV tobacco auctions witnessed severe disruptions in 2020 in the wake of lockdowns imposed by the Government to combat the spread of Covid-19 pandemic in India. The Tobacco Board initially suspended auctions in both the FCV tobacco growing states of Andhra Pradesh and Karnataka in the third week of March 2020 and allowed gradual resumption of auctions only towards the end of April 2020. This left the farmers with huge unsold stocks amidst fears of crop damage owing to prolonged storage in open fields and crash in prices due to the delayed auctioning of the perishable crop.
Even after gradual resumption of auctions, the trade remained lacklustre with lower turnout of buyers amid pandemic-linked travel restrictions. In view of the massive disruptions in trade and in anticipation of drop in global demand, the Tobacco Board reduced the crop size for tobacco from a total of 235 million kgs last year to 203 million kgs this year. While the authorized crop size for Karnataka came down from 99 million kgs before Covid-19 to 88 million kgs subsequently, the crop quota for Andhra Pradesh this year is now fixed at 115 million kgs against 135 million kgs allowed in 2019-20. With reduced crop size, farmers will be left with huge unutilized land areas having no equally remunerative substitute crops to grow thus further reducing their farm earnings.
