Philip Morris may join hands with Guntur firm for Indian venture

Tobacco major said to have allocated Rs 370 crore for R&D

Philip Morris International Inc "" the biggest cigarette manufacturer in the world "" after incessant efforts for over a decade, has finally succeeded in getting a licence to grow and market tobacco crop in the country and export it, according to market sources here.

Philip Morris International Inc, owned by US holding company Altria Group, is one the most profitable international tobacco companies and produces seven of the top 20 best-selling international brands, including Marlboro "" the global brand leader, Lark, Chesterfield and L&M.

The multinational is learnt to have allocated Rs 370 crore for R&D, and for implementation of modern farm technologies in tobacco cultivation.

The Philip Morris experts recently toured Guntur and Prakasam districts, apart from Karnataka, and have apparently identified a prominent tobacco growing and exporting company in Guntur as its partner in the joint venture, according to sources.

However, the spokesman of the said Guntur company, which is publicity-shy, when contacted by Business Standard, neither confirmed nor denied the market buzz.

It is learnt that other tobacco companies failed to woo Philip Morris experts. The latter seemed to have been impressed by the modern and organic farming methods adopted by the Guntur company, which they ultimately chose.

The Guntur company has also developed TSN (tobacco specific nitrosamines) free tobacco hybrids, which is an unprecedented revolution in the tobacco cultivation. TSN's are the most harmful and carcinogenic constituents of the cured tobacco crop.

The paradox of tobacco is that TSN's are not found in green tobacco leaves. They will appear after curing of tobacco is carried out, which makes development of TSN free tobacco very difficult. The Guntur company has accomplished what the American tobacco giants are still striving to reach.

FDI (foreign direct investment) protagonists have welcomed the news, saying that competition would do a lot of good to tobacco market and farmers.

They point out that the number of bidders in the auction floors of the Tobacco Board over the years has come down from 300 to below 20. Small traders were wiped out of auctions. Competition is dead in the Tobacco Board's auction floors. Philip Morris' entry would change this situation. Tobacco farming would be modernised, new hybrids produced, quality improved and yields increased.

FDI opponents argue that foreign companies would destroy domestic tobacco and cigarette companies. They say that governments and non-governmental organisations (NGO's) all over the world are waging a war against tobacco use. So FDI need not be allowed into the country at this time.

Foreign companies meddle with prices and make market serve their interests and profits. They wonder that under these circumstances how Philip Morris could snatch a licence.

They raised eyebrows when some months ago Philip Morris bagged a licence to sell its world famous cigarette brand 'Marlboro' in India. They suspected then itself that something had been brewing in the tobacco sector, much to their disliking.

Keen observers of tobacco sector are yet to believe the news as they recall that though economic reforms started in 1991, tobacco has remained a virgin sector, protected zealously from foreign direct investment (FDI) by the Foreign Investment Promotion Board (FIPB) of the Commerce Ministry.

Along with Philip Morris, other tobacco giants like Rothmans, R J Reynolds (JTI) and Imperial Tobacco stood in queue before the FIPB of the Commerce Ministry.

These companies promised that they would not come in the way of business of domestic companies and that they would allocate massive funds for research and development and execute modern farm technologies to help Indian farmers harvest higher yields of quality tobacco of international standards.

They would offer remunerative prices to farmers and increase exports. They submitted that they would export only specified percentage of cigarettes they manufacture in India.

Former chief minister N Chandrababu Naidu, at the height of his command over the Vajpayee government, specially recommended the case of Rothmans to it. But Rothmans was not granted any licence and so were other transnationals.

The FIPB also did not allow Indonesian cigarette company Sampoerna last year to sell its popular clove cigarette brands 'Sampoerna' and 'Gudong garam'. In retaliation, that company stopped purchasing about 1,500 tonnes of tobacco from our exporters.

Now the guessing game in the tobacco sector is that after Philip Morris, which is the next multinational likely to get licence to enter the domestic tobacco sector?

Smoking gun

• Philip Morris experts recently toured Guntur and Prakasam districts, apart from Karnataka
• FDI protagonists welcomed the news, saying that competition would do a lot of good to tobacco market and farmers
• IFDI opponents argue that foreign companies would destroy domestic tobacco and cigarette companies