Although the lifting of the tobacco sales ban is a relief to the legal tobacco industry, it now has a mammoth task ahead as the illicit trade of cigarettes was given 100% market share during the ban.
Chairman of the Black Tobacco Farmers Association (BTFA), Shadrack Sibisi, has expressed appreciation following Pres Cyril Ramaphosa’s announcement to lift the ban that lasted nearly five months.
“It’s going to be a tough road going forward, but tough is better than never. As much as we are not going to be planting the same amount of hectares as we were supposed to because we still have to sell what we had in the previous season, it’s better than nothing,” Sibisi said.
The organisation is still uncertain about whether the lifting of the ban will last or if it will be reinstated if the country were to go back to lockdown level three. However, they remain hopeful.
Although the covid-19-related ban was lifted on Tuesday, 18 August, the future of tobacco sales remains a crucial point in an ongoing court case between the government and tobacco companies.
According to media reports the possibility of a renewed tobacco ban spearheaded by cooperative governance and traditional affairs minister Nkosazana Dlamini-Zuma cannot be excluded.
In a letter sent by the state attorney to the Fair-trade Independent Tobacco Association (Fita), the government said that, “This is not because they intend to reinstate the temporary prohibition at a later stage, but simply because agreeing to this condition would constitute an impermissible and unlawful fettering of the minister’s discretion conferred upon her in terms of the Disaster Management Act 57 of 2002.”
Industry in long term decline
According to Riaan Prinsloo, chief investment officer at Efficient Private Clients, tobacco giant British American Tobacco South Africa (Batsa) lost as much as $25 million pounds a month in tobacco sales during the ban.
“Batsa is a massive company, but still that is a lot of money to lose on a monthly basis.”
He explained that Batsa share prices depreciated in South Africa and internationally as a result of the lockdown, but a lot of other factors also contributed to the drop.
“There is a lot of pressure on the tobacco sector as investors are concerned about their environmental impact and the social impact of tobacco.”
According to Prinsloo, BATSA’s shares are down by R130 from R700 in March to R570.
However, he added that the tobacco company generates quite a large cash flow and most of the money they make is in British pounds, because their primary listing is in London.
They also have a secondary listing on the Johannesburg stock exchange, which protects them against volatility in the South African currency. This local listing makes Batsa the only tobacco company that the public can buy shares in locally.
How much do farmers profit from tobacco industry?
Sibisi said farmers can make roughly R33 for every 1kg of tobacco leaves they sell.
“All tobacco farmers sell their tobacco leaves to the Limpopo Tobacco Processors (LTP) and then they sell to Batsa and other companies,” he says.