The smoking truth

Along with so many businessmen, I too followed the issue of the Sin Tax closely. The reason why the bill took so long to pass was the many hours of debate on the floor, with lobbyists from both sides arguing their points heatedly to advance their own interests.

After the passage of the Sin Tax Bill, where is the tobacco industry now, and more importantly for some quarters, how has it affected our tobacco consumption as a people?

From the horse’s mouth, the Sin Tax has not affected our consumption, but BIR commissioner Kim is pleased to let everyone know that the excise taxes collected from tobacco have substantially increased from 2012 to the current year. From July 2012 to July 2013, consumption of cigarette sticks is almost the same, though some have opted to downshift to cheaper cigarettes because of the 100 percent increase in cigarette prices. The excise taxes, though, have definitely been worth the long debates on the floor, at least for the BIR.

From all manifestations, our cigarette importation has increased from last year. Taxes of imported cigarettes are the same as the local cigs, and new companies have come up and are now importing tobacco.

Tobacco is the only crop here that enjoys government subsidy.  We talked with the very capable administrator of the National Tobacco Administration, Mr. Edgardo Zaragosa and he says this most probably started from the time of deposed President Marcos who wanted to protect the tobacco farmers of the north where he hails from, and this has been carried to this day. It is the only crop with a floor price to insure the farmer’s minimum income, and under the law, this should not be lower than 25 percent of all inputs, cash and non-cash. To give you an idea of how this works, Mr. Zaragosa gave this actual sample computation on a per hectare basis from Virginia tobacco: cash inputs- P29,000; non-cash (which includes labor)-P38,000; 25 percent due to farmer-P23,000 or a total of P90,000/hectare to be paid by Virginia tobacco as grower to the tobacco farmer. The government has seen fit to provide utmost support to our tobacco farmers: RA 7171 and RA 8240 provide funds to local government units of tobacco-producing areas which are part of the excise taxes collected from tobacco. And over the years, the actual buying price of tobacco is higher than the prescribed floor price, ensuring a clear profit for the farmer.

Actually, buyers like Philip Morris engage the farmers and even lend the initial investments, provide new technology and other support to ensure better production.  With the continuing process of improving the quality of our tobacco production, Mr. Zaragosa says Philippine tobacco is now very competitive in the world market. According to the most recent export data available, our export of tobacco leaves are significantly higher already, and with the development of the Isabela barley, this is now considered as the best barley tobacco in the world. Philip Morris, which has been the acknowledged leader in the local industry for the last seven or eight years, is in fact now looking at more areas to plant tobacco. The expansion plans are definitely a good sign for Philippine tobacco. Export companies like Universal Leaf, a multinational company, are likewise looking at new areas for planting. For their part, Philip Morris initiated a project in Claveria, Misamis Oriental, and from the initial results, the tobacco was reported to be in excellent quality and the yield is higher than the old traditional tobacco strain from the north which was at two tons/hectare. With the new strain, they can get as much as 2.2 – 2.5 tons/hectare.

Our competitors in the region include Malaysia, Indonesia, India and China. The recent devaluation of the currency of India has rendered our tobacco export prices more attractive. Volume-wise, however, we cannot hope to approximate China’s production. While ours stand now at around 70 million plus kilos per year, China’s is 30 times bigger at two billion kilos/year. 

Actual figures which we got from the National Tobacco Administration through Mr. Zaragosa show that in 2010, we harvested 74 million kilos; in 2011 this went up to 79 million kilos. However, in 2012, this went down to 65 million kilos due to the many devastating typhoons that hit the country.  For the current year, Mr. Zaragosa says he is confident that we will reach the 70 million mark, and next season, 2014, this figure should go up to anywhere between 75 – 80 million kilos.

As far as our exports of tobacco leaves are concerned, in 2010, this reached 33 million kilos worth $106 million; in 2011, this stood at 43 million kilos valued at $123 million.  In 2012, this went up to 46 million or  with a value $132 million. For the current year, as of July 2013, we have already exported 31 million kilos valued at $88 million, a clear 34 percent increase from 2012.

That is as far as our tobacco leaves (or what they call as unmanufactured tobacco) are concerned. For exports of manufactured tobacco products (which include cigarettes): for 2010 – 53 million kilos valued at $249 million; 2011 – 71 million kilos worth $339 million; 2012 – 74 million valued at $342 million.

The export figures are slowly but steadily rising, and more contract growers are joining the export bandwagon because export prices are likewise rising. But not to worry, Mr. Zaragosa says, because the domestic demand is fully covered. All cigarette manufacturers in the Philippines now are gearing towards the high-end, high-quality tobacco.  By 2017, the uniform tax for everyone will be 30 percent, so all manufacturers are hard-pressed to manufacturer world-class competitive tobacco products. The foreseeable problem here is the low-priced or what they call unusable tobacco which will not meet the standards, and the NTA hopes that they can develop an export market for this as well.

For now, the NTA continues to prioritize the tobacco farmer through complementary projects to sustain them. One is their partnership with the AGRI Pinoy Meat Processing Project wherein the tobacco farmers can also grow chicken and hogs for additional income. Through their Renewable Energy Program, they also expect to plant four million ipil ipil trees for 2013, and six million trees in 2014 which will be purchased by companies like Virginia Tobacco which require a lot of fuel wood. Kudos.

Mabuhay!!! Be proud to be a Filipino.

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