Tobacco farming in South Africa is being threatened by the proliferation of illicit trade in tobacco products, having lost 2 million tonnes in production since 2012, while input costs have been rising.

Speaking at an annual Farmers Day in Limpopo today, Limpopo Tobacco Processors (LTP) Rudolf Otterman, Chairman of LTP said total tobacco production in 2012 stood at 13,5 million tonnes, while just 11,3 million tonnes was produced in 2016.

“We’ve emerged from the devastating drought of 2015 and yields are improving, but we face an even greater threat in the form of the illicit trade, which robs the legal industry of income and puts all the jobs and livelihoods in the tobacco value chain at risk,” said Van Staden

British American Tobacco South Africa estimates that 47% of the tobacco market is controlled by illicit players, making it one of the largest in the world and costing the fiscus up to R9 billion a year in uncollected taxes as production volumes are concealed from the authorities and escape taxation.

This makes these illegal products far cheaper than legal cigarettes, which pay a minimum tax of R16,30 per packet of 20 that the illicit products don’t pay – meaning legal producers not only lose out to unlicensed competitors, but have to compete for market share with these unfairly priced products.

The consequences are potentially devastating. The more volumes of legal tobacco decline, the more it costs per kilogramme to produce – threatening the sustainability of the sector. Unit costs of tobacco have already gone from R4,12/kg to R4,92/kg (19,4%) between 2012 and 2016.

This has severe implications for the economy and employment in a struggling agricultural sector that is vital to vulnerable communities in neglected rural areas such as Limpopo – the biggest tobacco-growing area in the country.

“Farmers face enormous commercial challenges due to illicit trade and as a result we are forced to purchase less leaf from them, resulting in job losses in the whole tobacco value chain,” said BAT’s Head of External Affairs, Joe Heshu.

“It is not just the annual turnover in processed tobacco of more than R600 million a year that is under threat, it is the job security of everyone in the value chain, from farm workers and commercial farmers, small-scale farmers in our highly successful Emerging Farmers Initiative, people employed by tobacco processors and at our production facility in Heidelberg and distribution and retail staff, not to mention the indirect jobs that this industry supports,” said Heshu.

An economic impact assessment conducted by respected research house Quantec showed the economy-wide impact of BAT alone contributed more than R18 billion to South Africa’s GDP in 2015, while its operations generated more than R14 billion in tax revenue and supported more than 72 000 jobs.

“If government continues to do nothing we will soon find ourselves in great difficulty to continue farming and manufacturing in South Africa,” Heshu said.

Source: Limpopo Tobacco Processors