ECC directs open market pricing for tobacco
ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has directed the Ministry of National Food Security and Research to devise a well thought-out plan to move away from the current practice of fixing indicative prices and make a transition towards open market prices for the tobacco crop, sources told Business Recorder.
At a recent meeting of the ECC, Ministry of National Food Security and Research briefed the forum that the Pakistan Tobacco Board (PTB) had been established under Pakistan Tobacco Board Ordinance, 1968 (I of 1968) mainly to regulate, control and promote the export of tobacco, tobacco products, undertake research in tobacco and develop new tobacco growing areas.
As per Section 8(1) of PTB Ordinance, 1968, the Minimum Indicative Prices (MIPs) for different grades of various types of tobacco were to be notified by the Federal Government.
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The MIPs were recommended by the Prices & Grade Revision Committee (PGR) of the Board on the basis of Cost of Production (CoP) determined by the Cop Committee(s) under PTB Bye-Law No.11(5). Two committees (one for Khyber Pakhtunkhwa and other for Punjab) for determination of CoP were constituted in pursuance of PTB Bye-Law No. 11(6).
The PGR Committee finalized per kg CoP and recommended the MIPS for various types of tobacco for different areas in its meetings held on December 9, 2024. It was worth noting that MIPs were not support prices, rather these were the minimum threshold at which tobacco companies purchase tobacco from farmers. Accordingly, no subsidy was involved on part of the Government.
One of the functions of PTB, under Section 9 of PTB Ordinance 1968, was collection of cess imposed on tobacco produced in Pakistan. The cess rates, not exceeding three percent ad valorem, were to be notified by the Federal Government, by notification in the Official Gazette.
The current cess rates were required to be revised for the year 2025-26 in line with the increase in MIPs of all types of tobacco i.e. (i) Flue Cured Virginia (plain area, Rs 16.35/kg, sub-mountainous area Rs 18.47/kg); (ii) White Patta & other type of Rustica, Rs 7.87; (iii) Burley, Rs 9.48/kg; (iv) Dark-Air Cured Tobacco (DAC), Rs 11.66/kg; (v) Naswar/Snuff/Hookah and other Rastica tobacco and its products Rs 7.87/kg and ;(vi) sun Cured Virginia Rs 10.50/kg).
An estimated increase of approximately Rs.222.81 million was anticipated for the fiscal year 2025-26 as a result of the proposed enhancement in cess rates. MIPs of various types of tobacco and, the current cess rates were notified by the Federal Government vide S.R.O. NO.210(1)/2024 of February 19, 2024.
During the ensuing discussion the ECC examined the issue of Minimum Indicative Prices in detail and noted that determination of minimum prices for the tobacco crop in line with the policy of the Government to shift emphasis away from support price regime towards a price regime that is determined by the open market forces of demand and supply. The ECC also noted that since cess on tobacco crop is being collected as percentage of Minimum Indicative Prices, cess collection will be less if open market prices are more than the Minimum Indicative Prices.
The ECC, however, noted that since the practice of determination of Minimum Indicative Prices for tobacco crop is already in place and the said mechanism supports the farmers in case produce/supply of the crop is more than its demand, more deliberations need to be done before the current practice of determination of Minimum Indicative Prices can be abolished.
After detailed discussion, the ECC approved revised MIPs for all types of tobacco with the direction to the Ministry of National Food and Security and Research to devise a well thought out plan to move away from the current practice of fixing indicative prices and make a transition towards open market prices for the tobacco crop and present it before the ECC.
Copyright Business Recorder, 2025
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