Recently, murmurs in the development community have posited that mainly because of its strong supply chains and high profitability, a re-tooled tobacco industry might be a suitable development partner.  A recent article by tobacco farming researchers across six countries systematically debunks this notion by demonstrating why the tobacco industry has proven to be a mostly unequal and often unfair partner with farmers.

Largely using a series of studies across five major tobacco-growing countries (Indonesia, Kenya, Malawi, Philippines and Zambia), the researchers point to some crucial dynamics that suggest a poor economic arrangement for tobacco farmers. A crucial part of the problem is that most tobacco farmers in lower-income countries are on contracts with leaf-buying firms.  These contracts typically create a situation of price-taking by the farmers: the tobacco leaf-buying companies (usually either a multinational cigarette manufacturer or a multi-billionaire dollar leaf-buying multinational) are the sole dictators of both price and quality (price is also greatly shaped by the quality assessment) leaving farmers with little to no leverage… and low, low prices when they sell.

These studies also document that contract tobacco farmers are often further taken advantage of in their contracts because the prices of the contract inputs are significantly higher than market prices.  Working mostly in credit-scarce contexts, farmers begrudgingly accept these poor terms.

As a result of these inequities, tobacco farmers are faring poorly.  The figure below demonstrates the economics of being a tobacco farmer. Incorporating only direct costs (“unadjusted”) such as fertilizer, agricultural chemicals and hired labour, most farmers are working at an operational loss.  When even a small value is assigned to household labour (“adjusted”), the farmers’ losses are typically significantly greater.  One of the reasons that the tobacco industry is so profitable is that they successfully keep their own costs—and farmers’ incomes and profits—down. (See Above Figure)

So, what are the solutions? A new initiative spearheaded by the United Nations Development Programme aims to introduce innovative financing through a social impact bond to help farmers move to viable alternative economic livelihoods. The developing plan—with a pilot planned for Zambia and one other country— will seek to address some of the key structural difficulties faced by tobacco farmers by a) linking farmers more effectively to buyers for alternative crops; b) helping farmers access credit successfully; c) creating circumstances wherein farmers can earn cash from their economic activities; and d) creating educational opportunities for farmers to engender their non-tobacco livelihoods.

Curing Tobacco in Zambia (Credit: J Drope)

The best potential partners will be those with a vested interest in engendering economically just livelihoods for these farmers, including but not limited to governments, inter-governmental organizations and private businesses with a commitment to both profit and fundamental economic fairness.

Jeffrey Drope