ITGA has been in close contact with its member associations and is working to assess the main difficulties this crisis is posing to tobacco growers. As part of our efforts surveys have been conducted in order to identify possible areas of intervention. ITGA's international spread allows for a clear view of the challenges which each region is facing. The next piece is an interview with ITGA's Vice-President, José J. Aranda of the Cámara del Tabaco de Salta (Argentina).
- Which tobacco-growing region has suffered the greatest impact as a result of the Argentine industry's lockdown?
Mr. José J. Aranda: The most affected tobacco-growing regions are Salta, Jujuy, Misiones, Chaco, Corrientes, Catamarca, and Tucumán. As a result of the lockdown, points of sale are experiencing a shortage of cigarettes and this, in turn, means cigarette sales are down, impacting the Special Tobacco Fund (STF or FET)), which is funded by excise taxes on cigarettes. Lower cigarette sales mean lower excise tax revenues for the Fund.
- What has been the impact of cigarette shortages on the STF (FET)?
Mr. José J. Aranda: Shortages mean lower tax revenues for the STF (FET). However, we expect the reactivation of the industry and cigarette sales to have a positive impact on tax revenues. When this ordeal began, before the lockdown, manufacturers had cigarette inventories, which were funneled to the market, generating a partial tax collection. Then the inventories dried out and tax revenues went down to zero.
- How will lower payouts from the STF impact tobacco growers?
Mr. José J. Aranda: Under the model we have in Salta and the other tobacco-growing provinces, the STF provides approximately half of our growers' income. So, if payouts are lower then they will negatively impact our growers' income and perhaps they may not be able to cover their production costs or preparations for our next crop may pose increased challenges for them.
- Which tobacco type has been most affected?
Mr. José J. Aranda: In Argentina, 70 percent of the total tobacco output is flue-cured Virginia. Only two provinces, Salta and Jujuy, grow this type of tobacco, and Salta is the most affected province.
- Due to the buying process progressing at a slower pace, has the quality of tobacco been affected by delays?
Mr. José J. Aranda: As everybody knows, when this situation began, a third of tobacco purchases were pending in Salta; in other words, we had already purchased two-thirds of the required tobacco volume. Therefore, quality did not suffer too much. In the case of Misiones, which grows Burley tobacco and starts its yearly crop later than Salta and Jujuy, purchases were just beginning when the Covid-19 broke out, and some delays and the slower pace of purchases have had a greater impact on the quality of tobacco leaves.
- Given that tobacco income is coming in late due to the lockdown, how is this affecting growers' financial capacity to meet expenses and payment obligations?
Mr. José J. Aranda: Any delay has a negative impact on growers and they find it difficult to meet their short-term obligations. We believe that now that the cigarette manufacturing industry is operating again, the whole value chain should start to move along. It should be noted that growers receive income from two sources, namely from the price paid for their tobacco, which they receive now in June, when the season is over, and STF payouts, which are an income supplement for growers to cover their crop's initial costs and related financial obligations.
- What impact will this have on the 2020/2021 tobacco crop?
Mr. José J. Aranda: If the value chain is reactivated and continues to operate normally, there should be no impact at all on the next crop, assuming the industry will not come again to a standstill. But these factors are beyond our growers' control and they depend on external variables and our country's own instabilities.
- Have cigarette manufacturers changed contracts or demand levels?
Mr. José J. Aranda: Our foreign customers have not changed the commitments agreed prior to the new crop. Volumes agreed between the buying company and growers have not been modified.
- Will this lead growers to stop producing tobacco and switch to another crop?
Mr. José J. Aranda: Under the Salta production model, it is difficult for growers to stop producing tobacco, as tobacco growing is the only crop in the province that demands labor and has the necessary structure to make such a complex activity possible. Tobacco institutions provide social and mutual services, such as the provision of working clothes and life insurance for workers, social security for growers and their family members, agrochemicals, insurance coverage against the risks of hailstorms, community tools and machinery, among other development programs for farmers to grow tobacco. Therefore, it seems unlikely that growers will leave the tobacco crop. However, as a result of lower income, they may indeed reduce the number of hectares planted to tobacco.
- Are other crops facing similar difficulties?
Mr. José J. Aranda: Other crops are facing similar and even greater difficulties due to lower demand and prices, particularly those produced for the domestic market. Export crops have better prospects.
- Is the price adjustment agreed with the industry enough to cover the increasing costs of inputs, pushed by the inflation rate?
Mr. José J. Aranda: The increase agreed with the industry was 46 percent. This will help cover part of the costs borne by the grower. But all this is contingent on the real possibility a grower has of selling his tobacco and stay in business. Agreements on increases are useless if the prices are below the support level, or if tobacco generates losses or does not have a market. So, this is an agreement that ensures a certain level of demand in a market dominated by Brazil, our "super competitor".
- Are the costs related to compliance with Covid-19 measures harming tobacco growers' profitability?
Mr. José J. Aranda: To start with, tobacco growing has to meet a series of sanitary and prevention measures aimed at ensuring safe labor conditions. We have the Covid-19 measures to meet now, which might only involve the additional costs of purchasing face masks and hand sanitizer. Therefore, they should not overly impact tobacco growers’ profitability.