In a recent move Pakistan Tobacco Board (PTB) and Ministry of Commerce (MOC) have blatantly violated their own rules and legislation by fixing the Minimum Indicative Price (MIP) for tobacco crop 2015. It is learnt through reliable sources that PTB/MOC has announced the MIP in gross disregard and violation of a defined legal procedure.

The law dictates that each year MIP will be calculated in line with the Cost of Production (COP) of tobacco farmers. A special committee comprising of representatives of tobacco farmers, tobacco companies and Pakistan Tobacco Board is constituted each year to calculate the COP and a consensus of all stakeholders is necessary to conclude the COP process. This year PTB arbitrarily calculated COP which was rejected by the tobacco companies, who are one of the most important stakeholders. The tobacco companies requested PTB to share the basis of their COP calculation which request was ignored and PTB illegally and arbitrarily concluded the session without consensus.

COP, which has always been a very transparent process has been violated by illegal interference of PTB due to vested and political interests of a few members. The industry has repeatedly requested at various forums to follow the due legal process but their requests have fallen on deaf ears; rather they have continued to announce the MIP for tobacco crop 2015.

Such arbitrary and illegal steps taken by PTB will damage the long term interest of cigarette manufacturers and farmers. Procedures have been defined to calculate the COP and MIP to protect the farmer, the cigarette manufacturers and overall the tobacco industry in Pakistan. The defined procedures ensure that tobacco prices are set at a level where the farmer’s interest is protected and tobacco is available for local consumption and exports at a competitive price. Circumventing the procedure will result in local tobacco pricing itself out of the international market.

With the increase in tobacco prices, the cost of cigarette manufacturing also goes up and excessive increase in tobacco prices will not be sustainable for the legal tobacco industry. The tobacco industry believes that such violations will increase the tobacco prices beyond the sustainable level for the legal cigarette manufacturers and PTB will effectively be supporting the growth in illicit trade of cigarettes. The illicit sector evades taxes and duties on cigarettes causing a revenue loss of over PKR 20 billion each year to the national exchequer. In an effort to protect government revenue and to curtail illicit trade in tobacco products, PTB must ensure that the defined procedures are strictly followed.  Last year alone, PTB and MOC expressed concern that tobacco exports have declined by 11%. They need to appreciate that exports depend on the quality of tobacco and the price. Excessive price increases will make the local tobacco uncompetitive in the international market and at these prices the tobacco industry foresees a further decline in their export volumes.

Additionally, PTB and MOC should also anticipate a decline in local demand for tobacco by the legal industry which may result in shrinking of their leaf buying operations.

The legal industry, unlike the illicit sector protects the farmer’s interest through timely payments, providing them with fertilizers and pesticides and also invests heavily in their training and welfare through various CSR projects and provision of safety equipment in line with international standards.  The tobacco industry appeal anticipates a quick remedy in the matter by the regulators in an attempt to ensure that the correct legal process is followed which is in the best interest of the farmers, tobacco industry and the country.