Tobacco growers’ earnings rise 30pc on BAT deliveries

Tobacco producers affiliated to BAT were paid Sh1.3 billion for deliveries last year, representing a 30 per cent increase on 2013 payments.

The listed firm said Kenyan producers delivered eight million kilogrammes of leaf in 2014 compared to seven million in 2013, with the highest grade attracting Sh223 per kilogramme.

“We paid out about Sh1.3 billion in 2014. From that a farmer in Kenya can earn anything between 20 and 30 per cent as the margin on his investment. Farmers always push for higher prices and we have consistently improved our prices payable to them,” said BAT head of operations for East and Central Africa Dirk Eloff on Friday.

Producers have in the past agitated for higher tobacco prices, arguing they incur high cost of inputs and inflation erodes their margins.

The MD said the company currently has 5,200 farmers on its books which indicate a drop of 500 from the 5,700 contracted in 2013.

BAT provides farmers with upfront loans for inputs to the tune of 30 per cent of the potential gross income, and defaulters are not contracted for the following year. Some farmers could also have shifted to other tobacco manufacturers or crops during the year.

“They know upfront what they are going to get for a kilo delivered. The highest price that we paid for a kilo of tobacco for the 2014 crop is Sh223 for the highest grade,” said Mr Eloff.

Tobacco farmers through the Kenya Tobacco Farmers Association (Ketofa) had last October demanded at least Sh300 per kilogramme for the highest grade leaf though.

“Tobacco farming is a time and resource consuming venture that demands proper remuneration,” said Ketofa chief executive Joseph Wanguhu.

“High cost of living and highly priced inputs have ensured that most farmers continue to live in poverty despite improved leaf pricing.”

BAT area director for East and Central Africa Chris Burrell, however, claimed the agitation for price increment did not come from all the contracted farmers, but rather from those who also work with “third parties”.

The multinational subsidiary has seen its dividend payout increase substantially over the years as it continues to enjoy higher profits. This has prompted farmers to seek higher prices.

BAT which had 4,918 shareholders —with 100 million issued shares— in its register at the end of December 2014 has a policy of paying out all its net earnings as dividend.

For the 2014 financial year, the company is paying out a dividend of Sh42.50 per share, accounting for its net profit of Sh4.25 billion for the year. This represented a 14.25 per cent increase from 2013 when the net earnings stood at Sh3.72 billion.

READ: BAT Kenya sees net profit rise 14pc on strong exports

The company attributed the increase in earnings to better performance of its contract manufacturing business for the Democratic Republic of Congo, improved performance of its domestic market and exchange gains on its export sales.

A weaker shilling helped exporters earn more last year, with BAT’s foreign exchange gains on exports standing at Sh190 million. Revenue rose by seven per cent to Sh34.12 billion.

The domestic market’s share of total revenue for the company has grown over the past four years in relation to that of the export.

In 2014 the split between domestic and export revenues was 55 per cent to 45 per cent, compared to 2011’s 43 per cent to 57 per cent.

The company, however, faces challenges of higher excise taxes and tougher tobacco laws.