BAT Increases Payout to Retain Dwindling Farming Workforce

In a bid to address the declining number of contracted tobacco farmers, British American Tobacco (BAT) Kenya has taken the strategic step of increasing its tobacco leaf prices.

This move aims to stem the mass exodus of growers and ensure the sustainability of its supply chain. 2023 presented significant challenges for BAT Kenya as economic turbulence, geopolitical disruptions, and rising costs impacted both domestic and export markets. In the domestic market, affordability issues led consumers to shift towards lower-priced cigarette brands, a phenomenon known as downtrading. Additionally, the prevalence of illicit trade in tax-evaded cigarettes, estimated at 27% based on third-party research, not only affected industry revenues but also deprived the government of approximately Sh 7 billion in annual tax revenue.

BAT Kenya also faced supply disruptions related to its modern oral category, specifically tobacco-free oral nicotine pouches, as regulatory uncertainty hindered the commercialization of its oral nicotine pouch factory in Nairobi which could have contributed significantly to the country's economic growth. To address these challenges, BAT Kenya implemented several initiatives. Notably, the company raised the pay per kilo for tobacco leaf by five per cent, reaching Sh198.75 in the financial year ending December 2023. This move aimed to retain contracted farmers and stabilize the supply chain.

Furthermore, BAT offered free tobacco seedlings, fertilizers, and personal protective equipment to farmers while encouraging crop diversification by providing free or subsidized maize and avocado seeds. This approach allowed farmers to earn extra income without abandoning tobacco cultivation. Additionally, BAT introduced the "Thrive" initiative, a global program launched by its parent company, BAT Group, in 2016.

The program focused on making tobacco farming attractive by introducing hybrid tobacco seed varieties to enhance crop yield and disease resistance, as well as implementing low-cost technologies, such as mechanized ploughing and ridges to optimize costs and maximize returns for farmers. Despite these efforts, the number of contracted tobacco farmers declined, with BAT Kenya closing the year with 1,672 farmers, a 19.7% drop from the previous year. The total payout to farmers was below Sh 1 billion for the second consecutive year, and the amount of tobacco leaf delivered to BAT decreased for the fourth straight year.

Looking ahead, BAT Kenya faces the dual challenge of retaining existing farmers and attracting new ones.