British American Tobacco Uganda (BATU) on Friday evening announced that effective 2015, it will no-longer be purchasing and growing tobacco in Uganda.
Disgruntled farmers petition to the Speaker of Parliament over tobacco control Bill.
In notice to shareholders, BATU management said the board of directors had approved this change in business strategy.
BATU says it will mostly concentrate on the sale of cigarettes, leaving the leaf growing business to another company, Alliance One International.
In the notice, the company announced their main customer for the leaf, British American Tobacco Global Leaf Pool Limited, was planning on signing an agreement with Alliance One International (AOI), which is a global tobacco leaf supplier.
BATU has over 20,000 farmers contracted to supply the leaf in Uganda. In 2013, the company exported 16 million kilogrammes of tobacco, most of which was bought from farmers. In the same year total payments to farmers were about 60 billion Uganda Shillings.
The company also announced that for 2014, they will still buy the tobacco from the farmers but in 2015, the AOI will be the new buyers.
According to the Tobacco (Control and Marketing) Act, farmers can enter a contract with any other company. AOI will have to negotiate with all the BATU farmers in 2015.
In Uganda, BATU doesn’t manufacture any cigarettes. All the cigarettes sold here are imported. With this announcement, it means BATU will now only focus on the cigarette, which will reduce greatly on their expenditure.
The cigarette business, according to the notice, is a more profitable venture and that it would deliver returns to the shareholders. BATU is listed on the Uganda Securities Exchange.
The workers in the leaf division will also lose their jobs with the expectation that AOI will rehire them.
This announcement comes at a time when there is a push from health experts and Members of Parliament for the passing of the Tobacco Control Bill 2012, which the tobacco companies are opposed to.
The bill seeks to regulate the sale, marketing and growing of tobacco in Uganda at a much larger scale than before.
In 2013, Tobacco exports value hit a 20-year high at 280 billion Uganda Shillings and was second to coffee.
This is the final stage in the restructuring of the business by BATU. In 2013, it started exporting the tobacco leaf in raw form to Kenya for processing. They decommissioned the processing plant in Kampala and put it up for sale.