SWABI: Tobacco growers have been left vulnerable to financial exploitation following delays in quota allocations, which have resulted in overproduction and a subsequent price crash. According to growers and industry leaders, this situation has caused a loss of over Rs6.56 billion, leaving many farmers unable to recover their production costs.

The government is required to announce tobacco quotas by October each year, allowing growers to plan their production accordingly. However, the quota for the current fiscal year was not announced until December and was lower than the previous year. This delay has led to an oversupply of tobacco, with prices dropping sharply. Leading industry figures argue that this not only harms growers but also benefits tobacco companies.

Ayaz Khan, a former member of the Pakistan Tobacco Board (PTB), criticised the government for declaring flue-cured Virginia (FCV) tobacco surplus, causing significant losses to farmers. “The growers have suffered a loss of Rs6.56bn, while companies are expected to make profits from the same amount,” Khan said in an exclusive interview with Dawn.

Exploitation of farmers

Once the quota is fulfilled, any remaining tobacco is declared surplus under tobacco marketing laws. Growers are forced to sell this surplus at a minimum indicative price (MIP) set by the Economic Coordination Committee (ECC). This year, the MIP was set at Rs548 per kilogram, despite the average price being Rs719.76 per kilogram before the surplus was declared.

Khan pointed out that tobacco companies are exploiting farmers by purchasing surplus tobacco at the MIP, which is Rs175 lower per kilogram than the market price. “This year, a total of 33.73 million kilograms of surplus tobacco have been declared, and companies are buying it at a fraction of the market price,” he added.

Delayed quotas and price crash cause Rs6.56bn losses

Iqbal Khan Shewa, founder member of the Tobacco Growers Association (TGA), highlighted the growing financial burden on tobacco farmers. “The costs of production are increasing daily, while incomes are declining,” Shewa said.

He also criticised the local and multinational tobacco companies for not meeting their quota commitments. According to Shewa, smaller cigarette manufacturers and national companies failed to purchase their allotted quotas, further destabilising the market. Tobacco cultivation plays a significant role in Pakistan’s economy, contributing to the country’s gross domestic product (GDP). Last year, the federal government earned approximately Rs240bn in Federal Excise Duty (FED) from the tobacco sector. In addition, companies have generated millions in export revenue.

Despite this, the industry’s current downturn is having broader consequences. The reduction in tobacco quotas and price crashes are expected to lead to reduced exports, loss of government revenue, and increased unemployment in tobacco-producing areas.

Export discrepancies

While the quota for the current year has been reduced to 74.81 million kilograms compared to 77.32m kilograms in 2024, tobacco companies continue to purchase tobacco at lower rates despite higher export numbers. In 2023-24, Virginia tobacco exports reached 21 million kilograms, and in 2024-25, the figure increased to 48m kilograms, a 129pc increase.

Khan further criticised the multinational companies, which often set agreements with growers to purchase 2,100 to 2,200 kilograms per hectare. However, when companies buy at the lower MIP, farmers face significant losses. “A farmer will lose around Rs3m per hectare this year,” he said, adding that inflation-adjusted costs per hectare are approximately Rs1.8m, while companies only compensate Rs1.5m.

In addition to financial exploitation, tobacco growers have been impacted by natural disasters. This year, the tobacco crop faced damage from climate change-related events, further compounding the losses for farmers. Despite the challenges, the federal government, the PTB, and multinational companies have remained silent on compensating farmers for these natural disasters.

The national assembly’s standing committee on tobacco is scheduled to meet in Islamabad on Tuesday to address these issues and discuss possible solutions for the struggling tobacco sector. However, growers remain sceptical about any immediate relief.

Published in Dawn, September 23rd, 2025