Ministry to devise tobacco deregulation system

ECC underscores need for exit strategy to end govt's role in price fixing

ISLAMABAD:

Pakistan's economic managers have expressed the desire to end the federal government's role in fixing tobacco prices and have directed the Ministry of Food Security to come up with a deregulation mechanism within three months.

The Economic Coordination Committee (ECC), in a recent meeting, agreed with the price fixing proposal approved by the Pakistan Tobacco Board (PTB), stressing that it was the need of the hour to chalk out an exit strategy for the federal government from price fixation.

During discussions, the Ministry of National Food Security and Research informed the ECC that the subject had been deferred previously to fulfill the missing prerequisites. It was highlighted that Section 8 of the Pakistan Tobacco Board Ordinance, 1968 required the fixation of the maximum price. The ECC deliberated at length the mechanism for determining the minimum indicative prices (MIPs) for tobacco, keeping in view the formula approved by the PTB.

Federal Board of Revenue (FBR) chairman drew the attention of the forum that, given the high production of tobacco and low local consumption, the aspect of exportable surplus should also be discussed so that farmers could avoid losses.

The food security ministry pointed out that a summary on the minimum indicative price of tobacco crop (2026) and the revision in tobacco cess rates for financial year 2026-27 had been presented to the ECC in its meeting held on September 7, 2026. The committee deferred the decision and directed the ministry that a case be submitted with justifiable analysis, along with a workable strategy for deregulation of the PTB in line with the vision of the federal government.

PTB is mainly mandated to promote the cultivation, manufacturing and export of tobacco and tobacco products. MIPs for different grades of tobacco are notified by the federal government under Section 8(1) of the PTB Ordinance, 1968.

The ministry apprised the ECC about the key questions raised. These included why did the proposed MIP for 2026 show a decrease as compared to 2025? Why did White Patta/Rustica appear to cost more while all other types declined? And why did different types of tobacco show different MIP trends from year to year?

The ECC was told that the maximum price was calculated on the basis of the cost of production plus average inflation spanning eight cropping months (January to August) of the previous year and a fixed 5% profit margin. Since the Price & Grade Revision Committee generally meets in November or December for the forthcoming crop, the average inflation of the previous crop year is used.

For 2026, the cost of production for Flue-Cured Virginia (plain) tobacco was calculated at Rs473.61 per kg. With addition of the previous year inflation rate of 5.43% (January to August 2025), the MIP came in at Rs523/kg. While forwarding a draft summary to the food security ministry, the PTB, in its letter dated May 5, 2026, reported the prevailing inflation trends and the hardships of growers while considering the revised MIP. PTB stated that the average inflation for August 2026 was 9.26%, compared with 5.43% for the corresponding period of 2025. If the 2026 inflation rate of 9.26% was applied, it indicated an MIP of Rs541.14/kg.

It was pointed out that Punjab and Khyber-Pakhtunkhwa had separate cost of production committees comprising growers, tobacco companies and provincial agriculture departments. Each committee assesses the prevailing local production costs and gives its recommendations.

Keeping in view the prevailing economic conditions and in the best interest of tobacco growers, the Ministry of Food Security proposed that MIPs and cess rates notified for the previous year (2025) may be maintained for the 2026 crop. The ministry also submitted a proposal to find a workable solution for the deregulation of PTB. The ECC considered a summary titled "Minimum Indicative Prices of Tobacco Crop (2026) and Revision of Cess Rates on Tobacco for the year 2026-27" and approved the proposal with the directive that the food ministry should come up with a proposal for deregulation of the price mechanism within three months.