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The Karnataka State Tobacco Growers' Forum has petitioned industries minister Murasoli Maran to undertake a comprehensive study of the experience of other countries which have liberalised foreign direct investment (FDI) in cigarettes and examine if FDI actually succeeded in improving the lot of tobacco cultivators in those countries.

The Forum has urged the government to disallow such FDI if it does not translate into improved earnings for the growers.

Welcoming the minister's decision to review the issue of permitting FDI in tobacco, the Forum, in a letter, said that in countries like Argentina, Brazil, Poland and the Philippines, there was a tremendous spiralling of the sale of contraband cigarettes from five to 35 per cent, following the liberalisation of the FDI norms in these countries.

"In fact, the Russian market was completely swamped by contraband cigarettes, particularly of the premium international brands of cigarette multinationals," the letter says.

The letter says that cigarette MNCs typically first secure a firm grip over the marketing and distribution network for cigarettes in the host country which liberalises FDI in the sector. To do this, they set up nominal manufacturing facilities to produce cigarettes in the low and middle segments.

After consolidating their grip of the local distribution network with the setting up of the small production units, they then flood the distribution channels with contraband cigarettes of their well-known premium brands, the letter alleges.

The trade obliges since margins in contraband are significantly higher than in duty-paid cigarettes, it says.

The growers have said they have already been through a difficult time during the last few years due to the glut in international and domestic tobacco markets. The devaluation of currencies of other tobacco-growing nations like Zimbabwe, Thailand, Indonesia, Brazil and Philippines has also aggravated the problem of unremunerative price realisation of Indian tobacco in international markets.

Therefore, the growers have to increasingly depend on the domestic market which anyway is burdened with the anti-tobacco sentiment and ballooning excise duties.