Guntur, the tobacco capital of India is the stage for the unfolding of a strange phenomenon. It is that of the tobacco ‘boom’ that has now become a ‘bubble’ all set to go ‘bust’.
Fuelled by increasing demand and record prices over the past couple of years, farmers had resorted to upping the production of tobacco in order to make a fast buck. The bull run of the bumper crop is coming to a halt and the farmers are feeling the pinch. They are now saddled with excess stocks, bundled into bales much like the bundles of AAA rated mortgage securities. The high percentage of rejected bales due to inferior quality has made the average tobacco bale price plummet to new lows. The growers association, a federated body consisting of registered farmers from clusters across Andhra Pradesh has now called for the intervention of the Tobacco Board of India, a body functioning under the Ministry of Commerce, striving to provide fair & remunerative prices to tobacco growers. One of the primary functions of the Tobacco Board is to regulate the production of Virginia tobacco to match with the demand and requirements of customers. Though the authorized limit of production per farmer has been fixed at 170 million kg, lax oversight has led to farmers cultivating up to 200 million kg.
As the first quarter of tobacco auctions come to an end, all eyes are on the Tobacco Board. Will it do a Ben Bernanke and bailout the bales?
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