Is the tobacco industry headed for collapse?

VIGAN CITY , Philippines  â€” Is the multimillion peso tobacco industry headed for collapse? The question popped out here recently amid anxieties prevailing in the Ilocos tobacco heartland on the future of the crop after the government began implementing Republic Act 10351 which is known as the New Sin Tax Reform Law.

The industry has been a regular source of revenues for the government with the excise tax payments collected annually from cigarette manufacturers running into billions of pesos.

With the passage of RA 10351 that increased the tax rates for tobacco and alcohol products, the government expects to raise P248 billion in the next five years starting this year. For 2013, revenue collection is targeted to reach P33.96 billion out of which 69 percent or P23.4 billion will come from tobacco.

While revenue authorities may be feeling victorious over the law’s passage because of the windfall it will bring into the state coffer, tobacco farmers are seeing the opposite.

They believe the increase in the cigarette tax which triggered a similar increase in cigarette prices would sharply dampen patronage of the tobacco product.

“This law will lead to the extinction of the tobacco industry,” Bernard Vicente, vice president of the Philippine Tobacco Growers Federation, told newsmen.

“Sales of cigarettes will drop drastically and will in turn bring down demand for tobacco by the cigarette manufacturers. They might even close shop” he asserted.

It is too early to judge if their fear is justified. Last year, the farmers stormed the Senate during its deliberations of the sin tax reform bill. Busloads of leaf farmers from the northern provinces took turns in staging a vigil at the Senate grounds protesting against the bill. They called their protest action  “Tobacco Revolt” which kicked off in Ilocos capitals during the holy week with the farmers voicing out their stand and displaying anti-sin tax placards taking advantage of the Good Friday crowd who were visiting their dead in the cemeteries. 

At the Senate, the movement’s leaders sought out the senators some of whom were available to receive them. They had a strong ally in then Senate President Juan Ponce Enrile who hails from Cagayan Valley, a tobacco producing region. In the end, however, the administration-sponsored bill was passed.

The farmers are troubled. They hear reports about a large cigarette manufacturing firm allegedly poised to transfer its operations to a “friendlier” country. Although raw and unverified, the report fanned their anxiety even more.

“Kasano daytoyen, awanen a agmula ti tabako, (How is this, tobacco-growing is gone),” Danilo Custodio exclaimed after the report reached him.

“There is nothing they should be afraid of,” former councilor Ceasar Llanes of Candon  City, the country’s top virginia tobacco producing locality, told The STAR. “They should fear no more for their crop should the government turn its eye on the alternative uses of tobacco,” he stressed. Llanes who, at one time, was engaged in tobacco trading has expressed his interest in tobacco’s other products.

Former Administrator Carlitos Encarnacion of the National Tobacco Admnistration (NTA) under whose watch (2001-2010) a tobacco dust processing plant was established in La Union had batted for the development and commercialization of other products from the crop, mainly tobacco dust and virgin pulp. He convinced the National Economic and Development Authority (NEDA) on the potentials of both products so that it gave the green light for NTA to proceed.

This paved the way for the establishment of the dust plant in Sto. Tomas, La Union which operated for awhile until Encarnacion’s tenure ended. A tobacco pulp processing plant up for construction in Labut village in Santa, Ilocos Sur was also aborted as Encarnacion exited from the tobacco agency before construction activity could start.

There are other discovered tobacco products but dust and pulp present brighter potentials, an NTA study done during Encarnacion’s time showed. Tobacco dust, produced from tobacco leaves, was touted as an environment-friendly organic mollusscicide that eliminates snails and other pests in fishponds. If utilized, researchers said it would not yield toxic residues unlike cyanide-based chemical pesticides erstwhile used by aquaculture operators which had rendered their fish harvest unsafe. As tested, the dust material also enhances the growth of ‘lablab’, a fish nutrient, in the fish farms, the NTA research study showed.

Dust production was found to yield good income both for the tobacco farmer and the fishpond owner, it was learned. The farmer’s production costs are minimal as he no longer depends on high-priced fertilizer, insecticides and other inputs in raising the crop. He is no longer required to raise high quality leaves that cigarette making requires. The fishpond owner, apart from overcoming environmental and health concerns for his fish harvest, stands to save P28,000 a hectare per cycle everytime he uses tobacco dust.

Based on the NTA study, the potential market for tobacco dust is huge. It was estimated that fishpond areas nationwide would need 423 million kilos of tobacco dust for a year’s (two cycles) operation. 250 million kilos of this volume would be dispensed in Regions 3 and 6. Because of the huge market they were looking at, the agency’s specialists boasted that the northern regions’ tobacco output may not be enough to fill the demand. They suggested tobacco-growing in other areas saying that dust processing would only depend on ordinary tobacco which they said can be planted anywhere unlike the high grade types that are only suited in the northern region.

Tobacco virgin pulp which is derived from the plant’s stalks holds great promise for paperbag and commercial paper production. Thrown away or left behind in the farm to rot after harvest, the stalks have earned importance after they were found as a viable and sustainable source of virgin pulp. Their importance was reinforced after shopping malls, stores, and various other establishments started replacing their plastic bags with paperbags and other biodegradable materials. Encarnacion said that the future looks pretty good for tobacco pulp as local government units have began enacting ordinances mandating a ban against the use of plastic wrappers in the malls and all places of commerce.