Tobacco companies — both leaf-buying firms and transnationals that transform tobacco leaf into cigarettes and other tobacco products — are typically highly profitable and create strong supply chains. This has led to some in the development community viewing them as potential partners in promoting the livelihoods of smallholder farmers. It’s been suggested that the industry’s market knowledge and skills could be harnessed to create new supply chains for other crops.
Based on existing conditions and persistent business practices, we are deeply skeptical that this is a viable proposition.
Cycles of poverty
We have contributed to a growing body of recent, rigorous research across multiple countries that suggests most smallholder tobacco farmers are not seeing their livelihoods improve but, instead, are trapped in cycles of poverty with limited prospects for economic growth.
Our results, based on nationally representative, household-level surveys of smallholder tobacco farmers in five major tobacco-growing countries — Indonesia, Kenya, Malawi, the Philippines, and Zambia — suggest that farmers not only fail to make a living wage, very often they would be better off reallocating their main factors of production, particularly labor and land, to other economic endeavors.
Why is this? The tobacco industry’s supply chains in these countries are impressive and, in most cases, are superior to what is offered by governments or companies for other agricultural goods. But there are structural challenges that contribute to the general impoverishment, if not actual exploitation, of tobacco farmers.
Most are under contract with leaf-buying companies, which provide the principal inputs — seeds, fertilizer, agricultural chemicals, etcetera — in advance, without requiring up-front payment. The farmer is then obligated to sell their leaf to the provider of the inputs, with the input costs subtracted from the farmer’s sales revenues. There are at least three fundamental, systemic problems with this arrangement.
First, it creates a situation of monopsony, or one buyer only, in which the leaf buyer sets both the identification of the leaf quality — the grade — and the corresponding prices. We have consistently observed systematic downgrading of quality compared to independent quality assessments, which lead to lower prices for the farmer, and/or very low prices across grades of leaf quality.
Second, our empirical results from the five countries studied demonstrate that contract farmers’ input costs set by the leaf-buying companies typically are significantly higher than those incurred by their independent farmer neighbors.
Third, leaf buyers stop buying from their contract farmers once they’ve reached their own commercial targets, leaving these farmers with nowhere to sell their product. Being a noncontract or independent farmer is scarcely a better option. In some cases, it appears they are purposely targeted by oligopsonistic leaf buyers — usually there are only two or three buyers in each region — and frozen out of the market, harming their livelihoods.
Lack of opportunities for education and value addition
The tobacco industry’s strong supply chains have other consequences. Many farmers only receive agricultural education related to tobacco. In some cases, the industry fills a void left by government’s departure from this space; in others, governments stop providing education services to farmers, arguing that it is being provided by the tobacco industry.
The outcome is the same: Many farmers in our country studies report that they are losing knowledge about cultivating alternative crops. From a Sustainable Development Goals perspective, potential welfare gains may be lost if farmers don’t have opportunities to improve yields for nontobacco crops.
Light processing would enhance the value of tobacco leaf, but in most countries, leaf-buying companies purchase the raw leaf and do the processing themselves. This doesn’t negate the fundamental, systemic problems, but remains an income opportunity lost for most tobacco farmers.
Illness, environmental harm, and child labor
Tobacco companies claim to adhere to environmental, health, and safety protocols, but farmers report that they, and often their children, handle raw tobacco and toxic agricultural chemicals directly, without protective gear. Tobacco farmers in each of our study countries are far more likely than nontobacco farmers to report illnesses consistent with green tobacco sickness: acute nicotine poisoning from handling tobacco leaf. The Tobacco Atlas also notes that tobacco cultivation almost always results in serious environmental harms, including deforestation and desertification.
Nearly a fifth of farmers across the five countries studies said their children regularly miss school to help cultivate tobacco, and Human Rights Watch’s Indonesia research suggests the real level is higher. This has the potential to reduce their opportunities to pursue alternative livelihoods in adulthood. Other independent reports suggest this phenomenon is disproportionately high in tobacco farming because it’s such a labor-intensive crop.
Finally, research among former tobacco farmers in Indonesia, now being replicated in our other study countries, finds that they are materially better off almost immediately after ceasing to grow tobacco. Not only do they increase their profits by growing other local crops, they also have more time to dedicate to other economic and noneconomic activities.
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We strongly support the development of alternative livelihoods for tobacco farmers, extending to the creation of supply chains and value-adding capacities for alternative crops. However, we see no role for tobacco companies to assist in this process, despite their knowledge, skills and global supply chains.
The political and economic legacies of the tobacco industry are not ones that encourage trust in the likelihood of fair or healthy outcomes compatible with the SDGs. Tobacco companies increasingly cite the SDGs as a rationale for engagement with governments and international organizations, in contravention of the World Health Organization Framework Convention on Tobacco Control and the Model Policy for Agencies of the United Nations System on Preventing Tobacco Industry Interference — tools to promote global health and development.
Rather, this is a role for government agencies, potentially with the support of international organizations, civil society or other private companies involved in nontobacco agricultural development. The empirical research strongly supports this position and should underpin efforts to promote viable alternative livelihoods for tobacco farmers going forward.