China lifts leaf tobacco price controls

China has announced that purchase prices for leaf tobacco are to be set by supply and demand rather than by the government, according to an Ecns.com (the official English-language website of the China News Service, CNS) story.

Quoting a government statement, CNS said that tobacco companies were now free to set purchase prices independently, ‘based on companies’ revenues and demands’.

“Tobacco companies have formed long-term common interests with tobacco farmers, and it will be more reasonable to allow them to set prices,” said Wang Shengmin, an official of the National Development and Reform Commission (NDRC).

The lifting of tobacco-price controls was not expected to cause much change in the retail prices of cigarettes because, Wang said, tobacco accounted only for about 5-10 percent of the price of the final product.

The tobacco-price controls announcement was made by the NDRC and China Tobacco Co, and was said to mean that, now, no agricultural product was the subject of such controls.

However, while China has lifted strict controls on agricultural prices, the government has put in place minimum purchasing prices for key crops, such as rice and wheat, and has been willing to step in with purchases and storage for products such as corn and rapeseed to protect the interests of farmers.

Meanwhile, Li Guoxiang, a researcher with the Chinese Academy of Social Sciences, was quoted as saying that the government-dominated pricing system had led to high inventories and overcapacity in leaf tobacco output.

But while the new market mechanism is expected to help establish reasonable prices, observers noted that tobacco companies needed to build an auction mechanism or set up regular meetings with tobacco farmers so as to keep the average price of leaf tobacco stable and to protect the interests of farmers, most of whom lived in poor areas.

Although China produces annually about 2.5 million tonnes of tobacco with a total value of roughly Yuan100 billion ($16.1 billion), tobacco accounts for only a small portion of the country’s total agricultural output.