By Timothy S. Donahue

Top Takeaways:

• Margin pressure: Rising input costs and flat auction prices are hitting farmer returns
• Oversupply risk: Output far exceeds approved production, weighing on market prices
• Demand drag: Weak global demand and external pressures slow buying activity

Tobacco farmers in India’s Nellore region are facing a difficult season, caught between rising production costs and stagnant auction prices that are eroding their profitability.

Officials say the current stress reflects a sharp imbalance between supply and demand. Production for the 2025–26 season was initially capped at 140 million kilograms by the Tobacco Board of India, but actual output is estimated to have surged to about 240 million kilograms as farmers expanded cultivation in response to strong returns in recent years.

That oversupply is now weighing heavily on prices.

Auction rates at the Kaligiri Tobacco Auction Platform have hovered around Rs 250 (US$2.65) per kilogram since the season began—well below last year’s levels, when opening prices were around Rs 280 per kilogram and premium grades reached Rs 348 per kilogram.

The gap is hitting growers at a time when costs are climbing. Farmers report that expenses tied to land leases, barn rentals, fuel wood, and labor have all increased significantly, pushing total costs per barn up by roughly 20% compared with the previous season.

That combination—higher costs and flat pricing—is squeezing margins throughout the region. Officials point to broader market dynamics.

“Due to weak demand, companies are buying cautiously. Farmers are advised to monitor market conditions regularly and bring their tobacco bales to auction platforms accordingly to secure better prices,” said Kaligiri Auction Superintendent G. Rajasekhar.

Global factors are also playing a role.

Officials said that higher GST on tobacco products and disruptions linked to the ongoing Middle East conflict have contributed to softer demand and slower purchasing activity among buyers. The result is a more cautious market.

Approximately 1,400 farmers have registered around 1,200 barns at the Kaligiri platform this season, reflecting the scale of production and the number of growers now facing current price pressures. For many, the timing is particularly challenging.

Farmers expanded acreage after three years of relatively strong prices, encouraged by higher production allowances from the Tobacco Board. That growth has now collided with weaker demand, leaving excess supply in the system.

Growers are urging intervention. Farmers have urged the Tobacco Board to engage with government authorities and industry buyers to help stabilize prices and ensure viable returns.