‘Unfair’ trading system leaves East Java farmers weak against Big Tobacco – Community

Nurika Manan, Multatuli Project (The Jakarta Post)


Lumajang, East Java ●
Sun, March 13, 2022

Business relations between big tobacco companies and farmers in East Java are officially referred to as “partnerships”, but farmers say they are deeply imbalanced.

Tobacco farmer Sojo couldn’t hold back his anger that day in 2017. He stood among hundreds of other farmers waiting for his crop to be graded on a factory conveyor belt. He jumped on the machine, found the “off” button and turned off the belt. He then shouted at the factory workers to stop grading and trading the crop.

He was angry because he felt he and other tobacco growers were being treated unfairly – that they had no say in the grading process and were forced to accept what the graders decided, even though they felt it was inaccurate. The factory was owned by a company that sold tobacco leaf to a major cigarette producer in Ngawi, East Java.

The business relationship between Ngawi’s tobacco buying company and the farmers was officially referred to as a “partnership”, but it was certainly not equal, Sojo said.

Sorters assessed the quality of farmers’ blast-cured tobacco leaves and graded them by quality to set a price.

The “partnership program”, established by a 2019 regulation of the Ministry of Agriculture, aims to create mutually beneficial cooperation between small farmers and large tobacco companies. It is intended to offer farmers assistance in growing tobacco through the provision of training, seeds and fertilizers, while tobacco storage companies source tobacco leaf.

Difficult market: Fifteen tons of tobacco are stored in bags near the houses of Ngawi farmers. (Multatuli/Nurika Manan Project) (Multatuli/Nurika Manan Project)

Weak negotiating position

“The partnership seems too good to be true. In effect, the system weakens farmers’ negotiating positions on pricing and grading systems,” Sojo said.

The country’s tobacco trading system does not allow farmers to sell directly to large factories. Instead, the product must pass through a long chain of middlemen, small and large traders and tobacco graders before it reaches the factory.

“It is the middlemen and sorters who have tremendous power in determining quality and prices, which are often subjective as there is no baseline standard,” Sojo added.

He said that once, after seeing his crop rejected by a factory, he gave it to another farmer, who managed to sell it easily to the same factory. This, he said, was proof that the system was subjective and irresponsible.

But there is a more common practice involving discarded crops. Middlemen often wait to approach farmers until their crops are rejected by large factories and offer them a much lower price, usually Rp 7,000-8,000 per kilogram, compared to the factory price of Rp 25,000. Many farmers think this is their only alternative to just throwing away their crops.

The costs of bad weather

Mudi, chairman of the East Java branch of the Association of Indonesian Farmers (APTI), said the bad weather has also hurt tobacco farmers.

“From October to early November, Lumajang entered the rainy season, with heavy rains destroying around 30-50 percent of the crop,” Mudi noted.

Sojo experienced the same thing in Ngawi. His last harvest gave him 70% of his normal yield due to bad weather. And what he managed to harvest, Sojo added, was of poor quality.

East Java is the largest tobacco-producing province in the country, producing 85,000 tons of tobacco leaf in 2020 from some 370,000 tobacco growers. The second largest producer is Central Java with 48,300 tons of tobacco, and the third largest is West Nusa Tenggara with 46,000 tons in the same year, according to data from the Ministry of Agriculture.

Drajat Irawan, head of East Java’s industry and commerce bureau, said the province had contributed some Rs. national excise.

Despite this contribution to state revenue, the protection granted to tobacco growers remains limited.

“The tobacco partnership and trading system has worked against farmers. So far, the government has paid attention only to the regulation of tobacco excise duties as sources of state revenue, while leaving the tobacco trade to middlemen and large corporations, without meaningful intervention to change that system,” Mudi said.

Bad weather: Tobacco plants turn yellow and rot in Bojonegoro at the start of the rainy season.  (Multatuli/Nurika Manan Project)Bad weather: Tobacco plants turn yellow and rot in Bojonegoro at the start of the rainy season. (Multatuli/Nurika Manan Project) (Multatuli/Nurika Manan Project)

Fair prices?

Sulami Bahar, president of the East Java chapter of the Association of Cigarette Companies (Gapero), denied that the tobacco pricing and marketing system was unfair.

“Cigarette companies set fair prices for farmers’ crops,” he said.

However, he acknowledged that cigarette manufacturers did not interact directly with farmers, who had to go through a long chain of trade.

“We buy their crops through third parties, the middlemen. If there is any divergence in this trading system, it must involve those in the middle stages,” Sulami said.

“It is unreasonable to blame the industry for fluctuating tobacco prices. Again, we have no direct interaction with farmers.

Multiple systems

Different tobacco growing areas have different trading systems. In East Java, at least two systems prevail. One is the factory partnership program described in Sojo and Mudi, and the other is to sell the leaves to middlemen.

Many farmers prefer to sell their crops to intermediaries because they are paid faster than under the partnership. Sometimes farmers also play the role of intermediaries, selling and buying from small farmers.

Sojo, for example, is a farmer and a middleman. Since 2011, he has been buying tobacco leaves from small farmers. One of his best days as a middleman earned him Rp 25 million in profit.

“But other times I don’t get anything for three months,” he said.

Big Brick: A man displays a packet of tobacco in a warehouse in Ngawi.  (Multatuli/Nurika Manan Project)Big Brick: A man displays a packet of tobacco in a warehouse in Ngawi. (Multatuli/Nurika Manan Project) (Multatuli/Nurika Manan Project)

Whichever system farmers choose, they have little say over prices. A study conducted by the Muhammadiyah Tobacco Control Center (MTCC) at Muhammadiyah Magelang University (Unimma) and by Gumilang Aryo Sahadewo, assistant professor at the Faculty of Economics and Business, Gajah Mada University (UGM), revealed that while farmers had to bear all the initial costs of growing tobacco, the prices dictated by warehouses and “partner” companies did not take into account the costs that farmers had to bear.

These expenses included not only planting, growing and harvesting, but also transportation, taxes and incidentals.

The study, which involved 2,500 farmers from East Java, Central Java and West Nusa Tenggara, was actually meant to back up the big tobacco companies’ narrative: that tobacco farmers earned a decent living. life and that tobacco control policies would have a negative impact on farmers. livelihoods, Gumilang said.

The data, however, suggested otherwise.

“The majority of small tobacco growers are poor. Many tobacco growers are prone to losses due to the high cost of growing tobacco,” he added.

UGM sociologist AB Widyanta said many farmers continued to grow tobacco because they assumed it would remain profitable and provide a stable source of income.

“Having been involved in this business for many years, farmers are reluctant to step out of their comfort zone.”

He said they were trapped between government interests and big tobacco companies.

“The government is using farmers as a ‘cash cow’, to generate tobacco excise revenue from the industry. At the same time, farmers are left unprotected against the greed of intermediaries and industry.

Sojo, when asked, didn’t know how to fix the situation.

“When we think about what the future may hold, we feel stuck between a rock and a hard place. It hurts us tobacco farmers.

This article first appeared in Project Multatuli in Indonesian. It was made possible thanks to the support of the Association of Indonesian Public Health Experts (IAKMI). It was translated by Rita Widiadana and the Indonesian version was edited by Maria Hartiningsih.

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