'Pawns' in the battle royale

MANILA, Philippines - The ongoing process to reform the excise tax particularly relating to cigarettes is turning out to be a battle royale. On one side are those who want badly to continue enjoying the benefits of an eschewed system that has been milked during the past 15 years.

Facing them are those who are genuinely in favor of a reform that will establish a level playing field in the cigarette industry, and one that will further enhance the image of the country as an investment option where rules for doing business are on even terms.

The reform bill will also provide not only more revenues for the government but will help address critical health issues related to cigar and cigarette smoking especially among the youth and those belonging to lower-income levels.

In this ongoing struggle in the House for a new excise tax law, the plight of the tobacco farmers has become another hotly-contested issue.

Rallying the farmers

Both sides in the ongoing battle royale at the Ways and Means Committee of the House are professing their concern for the interest of the farmers and claiming that their respective proposal will provide benefits for the beleaguered group.

Chris Nelson, president of PMFTC (the merged company of Lucio Tan’s Fortune Tobacco and Philip Morris), was quoted as stating that the extension for another five to six years of the existing excise tax structure for cigarettes will redound to the benefit of the tobacco farmers.

Nelson also repeated his call to the government not to push for the reform of the cigarette excise tax as any change will be detrimental to the farmers and will lead to the collapse of the industry. In short, the farmers have become a convenient alibi to maintain status quo.  

On the other side of this raging debate, state officials led by Finance secretary Cesar Purisima announced that the government is ready to provide assistance to tobacco farmers who may be affected by the reform of the excise tax.

Purisima has stated that part of the estimated P30-billion incremental revenue each year from the reformed excise tax structure will be allocated to programs that will assist the tobacco farmers – either to shift to alternative crops or to upgrade the quality of the tobacco produce in order to make it more competitive in the export market. 

Either way, for or against the tax reform, it would seem that the farmers stand to win. The question therefore shifts to which of the proposals will give the farmers more long term benefits and on a sustainable basis.

To gain insight on the real situation at the farmers’ level, let’s go over the information presented by the Action for Economic Reforms (AER) during the recent Ways and Means hearing.

Tobacco monopoly is hurting the farmers

According to the AER study, the tobacco monopoly with Lucio Tan’s Fortune Tobacco and Philip Morris controlling over 90 percent of the market is hurting the farmers rather than protecting them.

AER cited that the price of raw tobacco during the 2009-2010 crop season or prior to the merger of Philip Morris and Fortune Tobacco was P95 per kilo. Immediately after the merger, the price of raw tobacco dropped to P73 per kilo during the 2010-2011 crop season, representing a decrease of 23 percent.

Many farmers shifted from tobacco to other crops

AER cited two factors to demonstrate the apparent shift of many farmers from planting tobacco to planting other crops. One of them shows that the total tobacco produce has been declining since 1990. From a high of 81,729 metric tons in 1990, it is now down to 40,529 metric tons in 2010.

The land area devoted to tobacco farming was also significantly reduced from 63,200 hectares in 1990 to 29,707 hectares in 2010. It is apparent that tobacco farming is slowly but surely becoming a sunset industry as observed by political leaders in the northern part of the country.

More lucrative crops than tobacco

AER pointed out that farmers are discovering that there are more lucrative crops that can be planted in Region 1 other than tobacco. Sweet pepper, hot pepper, bitter gourd and tomato are some of the crops that generate higher net income than Virginia tobacco.

Using soil and climate analysis, the AER study identified tobacco growing areas that are highly suitable for other crops.

Increasing bargaining power of farmers

AER has declared its support of the Abaya bill (HB5727) which seeks to create a level playing field in the tobacco industry, and for the dismantling of the monopoly achieved by the merged company of Lucio Tan’s Fortune Tobacco and Philip Morris.

According to AER, the entry of more competition in the cigarette industry will increase the bargaining power of the farmers. As the number of buyers of raw tobacco increases, the farmers will be able to sell their produce at higher prices. This will arrest the declining price per kilo of raw tobacco which started when the PMFTC merger happened.  

Promise of instant rewards

The battle to win the support of farmers is tricky. It is difficult to resist the temptation to accept here and now an immediate offer of cash or other incentives when compared with a promise for longer term benefits that will entail some work and a bit of time to realize.

In here lies the challenge being faced by those who are after genuine reform. After all, those who stand to lose huge amounts of revenue from the proposed changes, offering instant rewards to affected parties like the tobacco farmers can be a very persuasive tool.

We will just have to trust our tobacco farmers that, after a thorough discussion, they will vote to change a system that would be good for the country and Filipinos, and not just Philip Morris or Fortune Tobacco.

Facebook and Twitter

We are actively using two social networking websites to reach out more often and even interact with and engage our readers, friends and colleagues in the various areas of interest that I tackle in my column. Please like us at www.facebook.com and follow us at www.twitter.com/ReyGamboa.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.