Compiled by Yamini Sequeira

LETTING IT GO UP IN SMOKE

Monisha Abraham slams the non-salutary impacts of contraband on the industry

Tobacco is widely perceived as a cash crop in comparison to its agricultural counterparts in the rural economy – on account of the higher dividends enjoyed by its value chain. Countries that engage in tobacco cultivation employ a higher payout for tobacco farmers. The higher the yield therefore, the greater the potential for tobacco farmers to enjoy financial stability.

In addition, tobacco exports contribute to sustaining its value chain while ensuring job stability for cultivators and other stakeholders engaged in the trade.

While Sri Lanka doesn’t currently export tobacco and generate earnings for the local economy, countries such as Brazil, Bangladesh and India are all major exporters that reap the benefits of international trade, and can be considered examples to assess its advantages.

Monisha Abraham explains: “The tobacco industry faces several challenges. Cigarette smuggling is a key problem that further undermines tax revenue generation for the local economy and threatens national security with illegal activities being financed out of the proceeds of such activity.”

“This only underlines the vital need to revisit the country’s system of justice and law enforcement – while seriously considering the implications of increased taxes that pave the way for illicit cigarettes to infiltrate and exploit the domestic market,” she emphasises.

It’s important to note that high taxation on cigarettes is misconstrued as higher tax revenue for the government. Consequent to successive and excessive tax hikes however, revenue from the legal cigarette industry declined for the first time in 2019 – with unaffordability driving a shift in legal volumes to the illicit category, which offers cheaper alternatives.

Abraham points out that this only demonstrates the capacity of smugglers to meet the increasing demand for cheaper cigarettes due to higher priced legal products in the market. Another important consideration in terms of contraband is the access to substandard cigarettes that aren’t subjected to quality or compliance checks.

ROADBLOCKS The plantation sector has been facing numerous challenges over the years. Commenting on the road ahead, she says: “Tobacco farmers operate effectively within highly governed agricultural frameworks and constantly benefit from best in class field extension practices shared under the legal sector’s local and international standards.”

“Furthermore, tobacco cultivators are urged to use organic fertiliser to encourage sustainable farming practices. Though challenging, this paves the way to provide many benefits to farmers and the industry in the long term,” Abraham affirms.

She notes that the legal tobacco industry ensures fair pay and guaranteed prices for farmers, which helps sustain communities engaged in cultivation. However, this positions Sri Lanka as being less competitive on pricing in comparison to other markets.

Innovations and technological advancements in the local tobacco industry require more attention too.

In Sri Lanka, tobacco operations are significantly labour intensive. As a result, automation proves to be challenging, given the limited scale of field footprints compared to larger-scale operations seen in Brazil and Bangladesh, for instance.

A notable development on our national landscape however, is the evolution of automation used in several phases of the tobacco curing process where Sri Lanka is seen to apply a hybrid of local and international curing practices.

In addition to this, the use of fully sustainable biofuel by way of paddy husks and looseleaf barns across the legal cigarette segment are also developments that must be acknowledged.

Evaluating the economy, Abraham explains that “due to the lack of consistent fuel supplies to carry out manufacturing and distribution operations, and the challenges experienced during the recent crises in the country, the legal cigarette segment looks to the state for the necessary support and resources to continue operations without disruption.”

It’s vital that the tobacco industry is further supported through access to imported raw materials with reduced lead times to ensure speed to market delivery, practical regulatory frameworks to support production, and a streamlined authority to help expedite state and industry-related interventions to ensure the best outcomes for the local economy.

“An important factor in this context is maintaining moderate pricing of products to revive consumers’ disposable income and bring stability to a shaken financial system. In addition to this, increasing tourism arrivals, stabilising exports across established industries that bring in much needed revenue and injecting dollar liquidity into the market are some other measures that can be actioned to bolster Sri Lanka’s challenged economy,” she elaborates.

SUSTAINABILITY As manufacturers with a largely locally-based value chain, regulatory frameworks to localise all elements of the production process including raw materials will help contribute to reducing the impact on consumers.

The sustainability of resources is a priority for businesses and nations. Abraham opines: “A key challenge is the brain drain – the migration of good people resources – which was exacerbated in the light of recent events in Sri Lanka. Local talent has great potential to revive the country at this critical juncture and it’s imperative to have all hands on deck as we strive to overcome the challenges we’ve faced as a nation.”

“In addition to this, support to localise the production of raw materials to strengthen supply chains and implementing viable regulatory frameworks to encourage high revenue generating businesses to continue investments will prove to be highly beneficial and lucrative for Sri Lanka in the long term,” she asserts.

Looking ahead at future prospects for the economy, Abraham observes: “With the local landscape posing unprecedented economic challenges stemming from high inflation, curtailed disposable income of consumers, limited access and availability of products due to the fuel crisis and the global front increasing pressure through recession, as well as the impact of the Russia-Ukraine war on industries worldwide, the challenges for businesses and individuals seem unsurmountable.”

“However, Sri Lankans have always proven to be resilient in the face of many crises. And it is now more relevant than before for businesses to step forward to help sustain the local economy at this critical juncture, with solutions such as driving exports and introducing new categories to increase business revenue,” she urges.

The interviewee is the Managing Director and Chief Executive Officer of Ceylon Tobacco Company (CTC)