Tobacco prices up on lower reserves

According to industry observation on tobacco auction in Karnataka, 90,350 tonne of the crop was marketed in 2004 at an average price of Rs 47.42 per kg, compared with 73.68 million kg at Rs 40.45 per kg a year ago, an Icra report said.

Though the tobacco production, in 2004, went up 22.6 per cent, the average price, too, correspondingly rose 17.2 per cent. Lower carryover stocks and increased export demand led to higher prices for cigarette tobacco in 2004-05.

Furthermore, favourable climatic conditions in Karnataka contributed to the development of better-quality leaves, which enabled farmers to command higher prices for their crop in 2004-05.

However, tobacco farmers in Andhra Pradesh (AP) received a lower average price owing to the comparatively lower quality of their crop. In spite of higher stocks, prices are likely to remain firm in 2005 on the back of an expected increase in domestic demand.

India's non-manufactured tobacco production is expected to grow 2 per cent during 2005-06 to 0.68 mt (farm sales weight - FSW basis), mainly because of better returns from cigarette-specific tobacco and increasing domestic consumption.

Production of FCV or flue-cured Virginia (FSW) is expected to go up 31 per cent from 0.198 mt in FY05 to 0.232 mt in FY06, mainly owing to increased yield and a rise in planted area on the back of normal monsoon rains in the major growing areas of AP and Karnataka.

The widespread adoption of improved varieties, combined with the adoption of improved cultural practices, has improved unit yields for tobacco.

Substantial increases in the use of fertilisers and insecticides for tobacco have also played a key role in pushing the production up. Similarly, increased use of irrigation, which gives higher yields compared with rainfed production, has also made an important contribution. Finally, price hikes also seem to have stimulated higher output.

In the last three decades, the prices of farm-harvested tobacco have increased three- to ten-fold, varying from region to region.

Moreover, the rise in the wholesale prices for tobacco has been higher than that for cereals or other alternative crops such as cotton, pulses, chili and groundnut.

A wide variety of tobacco is grown in as many as 16 Indian states under diverse agro-climatic conditions. However, around 65 per cent of the total output is of non-cigarette types.

Amongst the varieties used in cigarettes, cultivation of FCV tobacco was initially confined to the traditional black soil areas of AP. However, to suit the quality requirements in domestic as well as export markets, cultivation of FCV was encouraged in light soils in Karnataka and AP.

The area under tobacco, about 0.25 per cent of the total cropped area, has been in variance over the past three decades. The area appears to be under strong influence of the prices in the preceding year.

On increased yields, production of tobacco rose from 0.36 mt in 1970-71 to an estimated 0.68 mt in 2004-05.