COOPERATIVE TOBACCO EXCHANGE

1. PURPOSE OF PRESENTATION

The purpose of this presentation is to:
emphasize the crucial role played by tobacco production at farm level;
and why the substitution of tobacco with other crops is in most cases not economically viable.

2. BACKGROUND INFORMATION
Tobacco is the fifth biggest annual cash crop industry in the country and
is conducted by 673 farmers;
who cultivate 14900 hectares annually;
provide employment to nearly 38000 people at farm level and 2500 at five co-operatives;
represent a capital investment of more than R4 billion at farm level; and
spend more than R300 million annually on the costs of inputs.

3. GENERAL STATISTICS
contribution of agriculture to GOP : R24 021 million (4,5%)
contribution of tobacco to agriculture : R535 million (2,2%) more than 30 million kilograms are produced annually.

4. FEATURES OF TOBACCO PRODUCTION
The planting, growing and handling of tobacco are a very specialised science which demand unique requirements for achieving success.

4.1 Labour intensive crop
No other crop in the world is as labour intensive as tobacco production. Internationally it is recognised that tobacco production requires 533 man-days per hectare. The nearest labour-intensive crop produced worldwide is rice which requires 217 man-days per hectare.

In South Africa the following figures are applicable to the Northern Province, Mpumalanga and North-West Province where production mainly takes place:
Northern Province : 1,5 workers per hectare
Mpumalanga : 1,8 workers per hectare
North-West Province : 1 6 workers per hectare

The effect of these figures on employment creation can be illustrated by the fact that although tobacco production only amounts to 4,4% of the area cultivated in the Nelspruit district, it provides 24,1% of the employment opportunities in agriculture in that area.

4.2 Benefits to other sectors
The production costs of tobacco are exceptionally high. Per hectare the cost is estimated at R26 000, which is several times greater than that of most other substitute crops.

As a result vast amounts of money are ploughed back into the economy of the rural areas, which make these economies highly dependant on the successful cultivation of tobacco.

It is estimated that the South African tobacco farmers will spend the following amounts on their inputs during 1998:
fertilizers - R33,6 million
chemical products - R27,0 million
electricity - R23,8 million
fuel and lubricants - R15,4 million
wages and salaries - R91,0 million
implements and vehicles - R28,0 million
crop insurance - R53,2 million

The rate of downstream beneficiation of tobacco is higher than that of any other crop grown commercially in the RSA. The government is the main beneficiary.

For every one kilogram of tobacco grown, the different role-players benefit as follow:
grower - R 17,00
manufacturer - R108,00
marketer - R 97,00
government - R175,00

4.3 Emergent farmers
Tobacco lends itself most favourably to cultivation by emergent or small-scale farmers for the following reasons:
it has a high value-to-weight ratio;
it maintains quality;
it is relatively easy to transport;
it returns a high income per hectare;
it commands a stable price.

Small-scale projects are underway in:
Groblersdal
Balfour/Katrivier Valley
Badplaas/Heunigklip
New Forest.

4.4 Earner of foreign exchange
Tobacco consumption is increasing worldwide and South Africa is expanding its exports. More than R100 million of foreign exchange will be earned by tobacco exports this year.

4.5 Utilisation of water
In a country where water resources are very limited tobacco is a most Rand-effective user of irrigation water. The peak requirement of water coincides with the peak seasonal rainfall.

This can be indicated as follows:
Crop Total Required Return per Kilolitre
Tobacco 600 mm R10,89
Citrus 750 mm R7, 33
Sugarcane 1200 mm R1,83
Maize 700m R1,00

5. TOBACCO SUBSTITUTE CROPS
5.1 Possible substitutes
Tobacco is a summer cash crop and the following crops may be considered as substitutes:

In Mpumalanga
Potatoes, carrots, beans and cabbage;
Sub-tropical crops;
Citrus;
Sugarcane;
Cutflowers

In Northern and North- West Province
Cotton;
Paprika;
Maize

In Eastern and Western Cape
Carrots;
Cabbage;
Wine and table grapes;
Potatoes;
Pumpkins

6. IS SUBSTITUTION POSSIBLE?
Factors to be taken into account:

is the substitute a summer or winter crop?
is the substitute a cash or long-term crop?
- what is the price elasticity and market size for the substitute?
what is the cost of converting to other crops?
what is the usage and availability of water?
what is the income per hectare?
what is the labour usage per hectare?
what is the prospects for mechanisation?

6.1 Summer or winter crop
[Ed note: table not included]

SUMMARY: there may be only a limited number of crops that might be viable as substitutes. Other factors will have to be taken into account and will be highlighted below.

6.2 Price elasticity and market size
[Ed note: table not included]

Only 30 hectares of cut flowers are cultivated in Mpumalanga, clearly showing the small market for cut flowers. A total of 8000 hectares in Mpumalanga are not utilised during winter for the cultivation of vegetables due to the fact that the market is already saturated.

SUMMAR Y: Most substitute crops are subject to high elasticity' and their market size is limited.
6.3 Cost of converting to other crops
citrus - R50 000 per hectare
wine grapes - R56 000 per hectare
table grapes - R84 000 per hectare

The above takes a further three to seven years to reach full production potential.

SUMMARY: Under most conditions it is too expensive to convert from tobacco production to the production of other crops.

6.4 Usage and availability of water
Mpumalanga - Water availability fluctuates, but more productive when used on tobacco.
Northern and North- - Water is very restricted.
West Province
Eastern and - Water availability fluctuates, but is more productive when used
Western Cape on tobacco.

SUMMARY: As a crop tobacco is the most economic user of water.

6.5 Income per hectare
Income per hectare has to equal or exceed that of tobacco to make conversion to other crops more profitable or to justify their required investment.

[Ed note: table not included]

The effect of the above can be further indicated as follows:

with tobacco cultivation a small farmer can earn a nett income of R5000/ha
with cattle farming, 416 kg of meat have to be slaughtered per hectare, or 2,5 tons of maize per hectare has to be produced
however, the average meat production per hectare in Mpumalanga is 40 kg/ha, thus indicating that tobacco is 10 times more productive than cattle farming
maize production at best can provide a nett income of R500/ha which also is ten times less than that of tobacco
people throughout Africa are moving away from food production and into the production of cash crops.

SUMMARY: Tobacco returns a much higher nett income than most other crops.

6.6 Labour requirement per hectare

[Ed note: table not included]

SUMMARY: Tobacco is by far the most labour-intensive crop. A large percentage of labour will not be accommodated if farmers convert to other crops.

6.7 Prospects for mechanisation
Mechanisation has already resorted to as a substitute for labour with regard to cotton, maize, beans, wine grapes and even some vegetables. In Australia the production of wine grapes is mechanised to such an extent that only 0,025 man-days are required per hectare.
Other crops like citrus and sub-tropical crops which are relatively labour intensive are grown complementary to tobacco.

SUMMARY: Tobacco production does not lend itself to mechanisation as is the case with most other crops.

7. CONCLUSION
This document provides conclusive evidence that tobacco production is an important component of the agricultural sector. There are several reasons why tobacco production cannot be replaced on a large scale Without causing severe economic and social implications.

The unique features of tobacco are:
it is a summer cash crop;
it is highly labour intensive;
it returns a high income per hectare;
it enjoys a stable and large market;
it is a productive user of water;
it's human labour requirement cannot be replaced by mechanisation;
it lends itself to small-scale farming;
the high input costs are most beneficial to other sectors and especially to the economy of the rural areas.