Tobacco farmers seek share of BAT Kenya’s fortunes

Tobacco farmers are asking for a bigger slice of cigarette maker BAT’s fortunes as the listed company rides a high earnings tide that has seen its share price this week hit the Sh1,000 mark.

The farmers, most of who grow tobacco for the cigarette maker on small-holder farms, reckon that all stakeholders should enjoy the good fortunes based on their contribution to the company’s operations.

BAT shareholders are already enjoying the fruits of improved fortunes through a lucrative dividend sharing policy that has seen the firm pay out its entire net earnings as dividend in the past three years.

Company filings show that BAT paid its 5,700 contracted farmers a total of Sh1.045 billion in 2013, a 51 per cent increase on the Sh690 million paid out in 2012.

On average, that payout means each farmer took home about Sh184,000 last year.

The cigarette maker paid farmers Sh700 million in 2011 – Sh100 million more than the Sh660 million it paid the growers in 2010.

Farmers said BAT paid for their tobacco leaves at a price of between Sh50 and Sh223 per kilogramme.

This represented an improvement from the previous year’s price range of between Sh46 and Sh170 per kilogramme of cured leaves or a raise of between nine and 31 per cent.

The payments depend on leaf quality with the highest leaf grades attracting top prices.

BAT’s shareholders have, however, enjoyed the company’s good tidings that have left them as the highest paid owners of a public listed firm in Kenya.

The cigarette maker has 100 million issued shares that are owned 76.8 per cent by foreigners (60 per cent by London-based multinational British American Tobacco Plc) and 16.4 per cent by local institutions going by regulatory filings at the beginning of August.

The company had 4,978 shareholders at the end of August comprising 4,318 local individuals collectively owning 6.44 million shares.

BAT last year paid its owners its entire Sh3.7 billion profit in dividends or Sh37 a share – a move that has positioned it as the most sought after stock at the Nairobi Securities Exchange (NSE) as both individual and institutional investors battle for a piece of the pie.

READ: BAT Kenya commits to 100 per cent dividend payouts

The London Stock Exchange-listed British American Tobacco Plc earned Sh2.2 billion in dividends last year and Sh1.9 billion in 2012. Records show that the British firm has shipped out a total of Sh12.4 billion in dividends over the past decade from the Kenyan subsidiary.

BAT Kenya managing director Chris Burrell has announced that the company is committed to continuing its current dividend payout policy and signalled an even higher payout this financial year that is pegged on a positive profits outlook.

Tobacco farmers are now demanding better prices for their produce citing the high cost of inputs and rising inflation that nearly wipe out any improvement in the pricing for tobacco leaves.

“Tobacco farming is a time and resource consuming venture that demands proper remuneration,” said the Kenya Tobacco Farmers Association (Ketofa) chief executive Joseph Wanguhu, adding that high cost of living and highly priced inputs have ensured that most farmers continue to live in poverty despite improved leaf pricing.  

Mr Wanguhu said BAT’s profitability and record dividend paid out to shareholders can only be matched by pricing highest quality leaf grades at Sh300 per kilo.

John Chacha, a farmer from Kuria West constituency of Migori, said recent calls for better pricing of tobacco leaves have gone unheeded.

“Some of us are quitting tobacco farming because of the earnings erosion from a chaotic leaf grading system that many of us do not understand,” he said.

BAT Kenya’s head of leaf Geoffrey Chege, however, maintains that the farmers could only improve their earnings with better quality leaves that fetch better prices.

“Even as our growers ask for increased leaf prices, they need to practice good farming practices that yield better quality leaves. How much each farmer earns from his produce is mainly a factor of leaf quality, which dictates the price paid,” Mr Chege said, insisting that current prices are the product of a careful balancing act that seeks to reward farmers, employees and shareholders equitably.

In 2013, the volume of tobacco produced by Kenyan farmers grew by 25 per cent to seven million kilogrammes and BAT said leaf quality also improved significantly culminating in higher earnings for farmers.

“We concluded contracts with an additional 1,500 farmers in 2013 to bring the number to over 5,700,” Mr Chege said.

BAT says overall gross farmer earnings improved in the year driven by the volume increase, quality improvement and a 10 per cent yield increase per unit (acre) of land under tobacco.

On Wednesday, BAT closed trading at a price of Sh999, touching the Sh1,000 mark in trading for the second time in one week.

At current valuation, BAT joins a select club of seven companies that have crossed the Sh100 billion market capitalisation mark. The others are Safaricom, EABL, Equity Bank, KCB, Cooperative Bank and Stanchart.

Analysts said the company remains in a secure market position, being in an industry with high entry barriers that attract investors to the counter. 

In line with other company stocks which are dividend driven, analysts said that so long as there is an expectation of higher profits, the share prices will continue to appreciate.

“The biggest story around these companies is their performance. Profit growth is the key driver,” said Robert Bunyi of Mavuno Capital.

This year, BAT was also spared the customary annual hit that comes in the form of higher sin-taxes in the national budget.

The company, however, remains in the top list of Kenya’s highest taxpayers. The tobacco firm said it paid Sh14.5 billion in taxes last year, making it Kenya’s fourth largest behind Safaricom, EABL and the Teachers Service Commission.

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