Nageswar Rao of Ngpadu village in Prakasam district of coastal Andhra Pradesh, a farmer who has grown only tobacco for more than three decades, is anxious about his future.

Despite the golden crop having given him handsome returns for decades, Rao is sceptical mainly due to huge rise in the cost of production while price realisation from tobacco this year remains low. It?s due to bumper crops in Brazil and Zimbabwe.

For last many years, Rao earned an average annual income of more than R1 lakh from his 10-acre and by selling Flue Cured Virginia (FCV) leaf, a fine quality of tobacco used in making cigarettes all over the world.

But this year the average rate of FCVs has fallen to R97?100 per kg from R110?120 per kg realisation last year since auctions for this year started in February, 2011.

According to an assessment by the Tobacco Board, excess carry forward global stocks to the tune of 300 million Kg and estimated excess production of 150 million Kg this year have led to ?sluggishness? in global demand.

?The cost of production such as labour and drying has gone up significantly while price realisation has remained stagnant,? a worried Rao told FE. He is worried that alternate crop options are limited because of absence of irrigation facilities in this predominantly tobacco growing region of coastal Andhra Pradesh.

Similarly, P Srinivas Rao, who has cultivated tobacco for years by taking up 15 acres of land on lease in Ngpadu village, is unsure of taking up tobacco next year.

Tobacco?s contributions to the national economy is staggering as the government earned central excise revenue by selling cigarettes to the tune of R13,500 crore and foreign exchange of R4,163 crore from exports of tobacco and tobacco products during 2010-11.

The reluctance of tobacco farmers to shift to alternate crops is understandable due to a well established support system provided by the Tobacco Board since 1985 to 1.25 lakh registered farmers, mostly in Andhra Pradesh and Karnataka. They are supported from saplings plantation to getting bank loans, buying fertilisers and selling leaves via auction.

?The kind of system we have created here is highly cushioning for farmers. Each tobacco farmer receives a loan of R3 lakh annually, which no other farmers get. The loans the farmers take are deducted from the auction platform. Thus, banks are interested in extending loans because of cent per cent recovery record,? said G Kamala Vardhana Rao, chairman, Tobacco Board.

?Another key factor, which is keeping many farmers in tobacco cultivation, is that it could withstand drought conditions,

require less crop management and there is an assured market,? added C Seshaiah, ex-president, AP Tobacco Growers Cooperative Union, Ongole. Till 2005, FCV price were average while the Tobacco Board fixed the crop size at 205 million Kg. By 2006, the US and Canada reduced their crop size and European Union withdrew subsidy given to farmers which led to drastic fall in tobacco production in the US and Europe.

?This helped the Indian market to grow and boom during 2007-9. A farmer, who was getting on an average R80-90 a kg till 2006, started to get R140 a kg during the boom period,? added Vardhana Rao of Tobacco Board.

?In Andhra Pradesh, farmers, who were earlier cultivating palm oil, cotton and chilies, shifted to tobacco cultivation thinking that the boom would continue,? Marella Banegarubabu, a tobacco farmer from Guntur said.

Last year the Indian Tobacco Association (ITA), the key body of exporters and buyers, while painting a rosy picture had estimated that the FCV production in the country is likely to exceed 350 million kg, which is about 80 million kg more than the authorised quantity by the Tobacco Board..

?We could not anticipate bumper crop size in Zimbabwe and Brazil, which led to decline in demand this year,? Bellam Kotiah, president, ITA admitted.

However, the Tobacco Board is in no mood to oblige. ?All these years traders were buying for the trade, this time they should buy for the farmers. They can incur losses this year as farmers need help,? Vardhana Rao of Tobacco Board said.

With India being signatory to the World Health Organization Framework Convention of Tobacco Control (FCTC), which aims at restricting tobacco cultivation because of adverse health impacts, the pressure to reduce tobacco cultivation would be immense during the coming years.

The Tobacco Board has presented a proposal to commerce ministry on rehabilitating those farmers who want to surrender their licences. As per the proposal, R5 lakh would have to be given to each tobacco barn (drying place) to encourage them to take up alternate crops.

In order to extend the proposed rehabilitation package for the existing 96,865 barns, a financial compensation of R4,843 crore is needed which the commerce ministry is yet to take a call on. ?We have presented to the central government a proposal about tobacco farmers, who want to surrender the barn. Money involved is quite huge,? Rao of Tobacco Board said.