Tobacco, Transformation and Development Dilemmas from Central Africa by Martin Prowse & Paul Grassin

Author:Martin Prowse & Paul Grassin
Language: eng
Format: epub
ISBN: 9783030339852
Publisher: Springer International Publishing

Smallholder Process and Product Upgrading

The insistence on compliant and traceable tobacco achieved through contract farming is a key example of how lead firms are governing the global value chain much more directly in recent years. From the discussion above, and indeed from the perspective of blue-chip manufacturers, we can identify two principle types of tobacco, or two different products. On the one hand there is conventional burley tobacco, produced by smallholders and sold via auction. We refer to this as standard tobacco. The ‘new’ product is contracted tobacco produced through the Integrated Production System (IPS) where correct inputs and the production process are closely monitored to ensure compliance and traceability. As with other commodities in agricultural value chains, these products are differentiated by their credence attributes. With IPS farming, farmers receive inputs such as seeds, fertiliser, chemicals and hessian sacks in exchange for exclusive purchase rights over the contracted crop. In the early 2010s, IPS farmers yielded 1700/1800 kg per hectare compared to standard burley yields of 700/800 kg per hectare according to leaf merchants. In addition, farmers receive credit from a commercial bank and agronomic supervision. Importantly, leaf companies are loaning further products and services. One company’s package includes hybrid maize seed and fertiliser, as well as a cash advance of around US$100 for three months of the hungry season. A different leaf merchant provides groundnuts and vegetable seed. One leaf merchant provides bags of maize for each contract grower. Enhancing the food security of their growers allows leaf merchants to claim social responsibility which is useful when lobbying government to increase contract farming quotas. Additionally, supplying seed, fertiliser and finance for food security increases the ‘self-enforcement’ range whereby both farmer and firm are less likely to break the contract due to side-selling (by the farmer) or a failure to buy (by the firm) (see Klein 1996; Gow et al. 2000; Prowse 2012).

In terms of product upgrading, and as stated above, the characteristics of IPS tobacco are different enough from standard tobacco for the two to be considered different products. Of the two, IPS tobacco has greater value to lead firms, which explains their demands for all tobacco to be produced this way. From the farmers’ perspective, contracted tobacco should not only increase incomes (through both better quality leaf and higher yields), but the IPS provides an assured marketing channel and wider co-benefits (such as improved food security). Most importantly, though, in terms of process upgrading, the IPS exhibits characteristics outlined above, namely improved quality, increased volumes and increased reliability. Table 4.3 illustrates the quality improvement realised by one leaf merchant, AOI, between 2006 and 2011 with the IPS channel providing more high-quality grade 1 and grade 2 leaves. Supervision combined with improved inputs also increases volumes, risk is reduced and financial management improved. According to a leaf merchant official, IPS farmers earned 193 MKW per man-day (which is above the minimum wage) compared to standard farmers who earned 106 MKW (not only below the minimum wage, but also potentially a loss on investment).

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