| United States Department of Agriculture |
| Foreign Agricultural Service |
| Circular Series FT-2-97 |
| February 1997 |
World Markets and Trade
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Tobacco: World Markets and Trade |
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WORLD DEVELOPMENTS
Highlights:
Malawi's burley exports are forecast to reach about 90,000 tons in 1997, up 10 percent from 1996. Exports are vital to Malawi's tobacco industry. Over 95 percent of the tobacco crop goes into the export market, and nearly 70 percent of the country's foreign exchange earnings are generated by tobacco trade. The leading export markets for Malawi's leaf include Europe, Asia and the United States. The expected increase in foreign demand along with an increase in burley production by the country's smallholder growers is likely to push total burley output to nearly 125,000 metric tons, up 6 percent from 1996.
Turkey's oriental exports are forecast to drop about 8 percent in 1997 to 120,000 tons. Much of this decline is due to higher oriental production in many of Turkey's competitor countries. However, the Turkish industry is expecting an increase in the foreign demand for the higher quality oriental grades this year. This has prompted them to increase production limits of oriental tobacco in 1997 to nearly 235,000 tons, an increase of 7 percent from 1996. It is expected that Turkey's oriental trade will remain strong over time due to export price liberalization, and reduced availability of good quality oriental tobaccos in other producing countries.
Auction Reports:
Through the 44th sale day of the 1996/97 Canadian flue-cured tobacco marketing season, the Ontario Flue-Cured Tobacco Growers Marketing Board reports that 44,969 metric tons of flue-cured tobacco have been sold so far this year. This represents a 10 percent increase in sales when compared to the same period of last year's marketing season. Prices in Canadian currency so far this year are averaging $4.03 (US$3.03) per kilogram, up nearly 10 percent from last year, with sales of "A" graded leaves accounting for 76 percent of purchases, up from 75 percent last year.
U.S. DEVELOPMENTS
Highlights:
The U.S. Department of Agriculture announced on February 13, 1997 that the combined flue-cured tobacco no-net-cost assessment and marketing assessment will be 1 cent for the producer and 1 cent for the purchaser on each pound of 1997-crop flue-cured tobacco marketed. The no-net-cost assessment for the 1997-crop was set at .1895 cent per pound for each the producer and purchaser and was determined through Commodity Credit Corporation analysis of potential losses on the sale of current inventory and on 1997-crop loans projected over the normal sell-out period of 5 years. The tobacco marketing assessment was announced on December 16, 1996 at .8105 cent per pound for each the producer and purchaser of 1997-crop flue-cured tobacco.
Auction Reports:
Through the 41st sale day of the 1996/97 U.S. burley and dark tobacco auction season, total gross sales of U.S. burley tobacco (type 31) reached 253,082 metric tons, up 8 percent from last year when 233,401 tons were sold during the same 41 day period. Prices for type 31 are averaging $4.24 per kilogram so far this year, up 15 cents per kilogram from last year. So far this year no type 31 tobacco has gone under loan. Sales of Virginia fire-cured (type 21), eastern district fire-cured (type 22), Virginia sun-cured (type 37), western district fire-cured (type 23), and greenriver (type 36) tobaccos are reported to be higher so far this year. Sales of one sucker (type 35) are unchanged from last year. Prices are averaging higher in all markets so far this year when compared to last year, while loan take is lower.
U.S. TRADE SUMMARY FOR JANUARY-DECEMBER 1996
U.S. unmanufactured tobacco exports for 1996 totaled 222,316 metric tons, valued at $1.39 billion. This represents a 6 percent increase in quantity and a 1 percent decrease in value when compared to 1995. The leading U.S. leaf export markets in 1996 were: Japan, 40,245 tons; Germany, 27,330 tons; the Netherlands, 18,320 tons; Belgium/Luxembourg, 18,200; Turkey, 15,942 tons; and the United Kingdom, 15,615 tons.
Flue-cured exports in 1996 reached 112,795 tons, valued at $786.5 million. This is down 8 percent in quantity and down 9 percent in value from 1995. The leading U.S. flue-cured export markets in 1996 were: Japan, 22,940 tons; Germany, 15,489 tons; the United Kingdom, 9,726 tons; Turkey, 8,338 tons; Belgium/Luxembourg, 7,551 tons; and South Korea, 6,552 tons.
Burley exports in 1996 totaled 52,201 tons, valued at $380.0 million. This is up 11 percent in quantity and up 4 percent in value from 1995. The leading U.S. burley export markets in 1996 were: Germany, 9,705 tons; Japan, 8,395 tons; the Netherlands, 7,242 tons; Thailand, 4,201 tons; and Belgium/Luxembourg, 3,937 tons.
U.S. cigarette exports in 1996 totaled 243.9 billion pieces, valued at $4.74 billion. This is up 6 percent in quantity and down 1 percent in value from 1995. The leading U.S. cigarette export markets in 1996 were: Japan, 67.74 billion pieces; Belgium/Luxembourg, 61.81 billion pieces (much of which is re-exported); the Russian Federation, 17.02 billion pieces; Lebanon, 11.71 billion pieces; Cyprus, 9.49 billion pieces; and Saudi Arabia 9.3 billion pieces.
U.S. exports of bulk smoking tobacco in 1996 totaled 50,062 tons, valued at $381.3 million. This is up 20 percent in quantity and up 17 percent in value from 1995. The leading export markets in 1996 were: Turkey, 9,108 tons; Spain, 8,329 tons; Belgium/Luxembourg, 7,576 tons; and the Netherlands, 4,826 tons.
U.S. unmanufactured tobacco imports for consumption (duty paid) in 1996 totaled 302,385 tons, valued at $922.7 million. This is up nearly 59 percent in quantity and up 68 percent in value when compared to 1995. Imports of oriental tobacco, the leading tobacco type imported by the United States, reached 90,211 tons, valued at $366.7 million in 1996. This is nearly 3 percent higher in quantity and 13 percent higher in value when compared to 1995. Flue-cured imports in 1996 totaled 59,510 tons, valued at $235.0 million, up more than two-fold in quantity and value from 1995. Burley imports in 1996 reached 56,207 tons, valued at $208.9 million, up more than three-fold in quantity and value from 1995. U.S. imports of stems and scrap tobacco in 1996 totaled 62,500 tons, valued at $26.6 million, up more than two-fold in quantity and 80 percent higher in value from 1995. The leading suppliers of unmanufactured tobacco imports for consumption in 1996 were: Brazil, 82,413 tons; Turkey, 72,868 tons; Argentina, 23,285 tons; Malawi, 17,558 tons; Thailand, 14,736 tons; Greece, 13,506 tons; and Zimbabwe, 9,202 tons.
U.S. general imports (actual arrivals) of unmanufactured tobacco in 1996 totaled 326,454 tons, valued at $1.05 billion. This represents a 64 percent increase in quantity and a 90 percent increase in value from 1995.
U.S. TOBACCO TRADE, 1995-96
DECEMBER JAN-DEC JAN-DEC.
1995 1996 1995 1996 1995 1996/1
EXPORTS:
UNMANUFACTURED TOBACCO
METRIC TONS 21,691 21,801 209,482 222,316 209,482 215,000
$1,000 140,592 115,477 1,399,863 1,390,311 1,399,863 1,355,575
$/M.T. 6,482 5,297 6,682 6,254 6,682 6,305
BULK SMOKING TOBACCO
METRIC TONS 3,769 4,553 41,618 50,062 41,618 48,000
$1,000 29,977 32,350 325,567 381,320 325,567 376,800
$/M.T. 7,954 7,105 7,823 7,617 7,823 7,850
CIGARETTES
MIL. PIECES 19,711 19,438 231,100 243,897 231,100 245,000
$1,000 394,381 360,619 4,769,944 4,735,788 4,769,944 4,772,000
UNMANUFACTURED TOBACCO IMPORTS:
FOR CONSUMPTION
MT 15,292 23,652 190,291 302,385 190,291 300,000
$1,000 37,995 66,916 550,136 922,697 550,136 900,000
$/M.T. 2,485 2,829 2,891 3,051 2,891 3,000
GENERAL IMPORTS
MT 28,564 23,519 199,088 326,454 199,088 330,000
$1,000 83,261 82,209 554,658 1,052,535 554,658 1,031,250
$/M.T. 2,915 3,495 2,786 3,224 2,786 3,125
UNMANUFACTURED TOBACCO IMPORTS FROM CBI COUNTRIES 2/
METRIC TONS
CONSUMP 798 1,227 7,225 13,367 7,225 12,500
GENERAL 544 917 6,739 12,780 6,739 12,500
1/ Forecast
2/ Caribbean Basin Initiative (CBI) countries include: Antigua and Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Costa Rica, Dominica, Dominican Republic, El Salvador,Grenada, Guatemala, Haiti, Honduras, Jamaica, Montserrat, Netherlands Antilles, St. Christopher-Nevis, St. Lucia, St. Vincent, Grenadines, Trinidad & Tobago, Panama, and Guyana.
NOTE: DUE TO DATA AGGREGATION, ROUNDING ERRORS MAY OCCUR. SOURCE: COMPILED FROM BUREAU OF THE CENSUS RECORDS. PREPARED BY USDA/FAS/TCSD FEBRUARY 1997
TARIFF-RATE-QUOTA UPDATE
U.S. Tobacco Imports Subject to Tariff-Rate-Quota 1/
September 13, 1996 Through February 16, 1997
Metric Tons
Quota 1996/97 Imports Percent of
Recipients Quota to Date TRQ Used
Argentina 12,000 4,590 38.2%
Brazil 80,200 19,308 24.1%
Chile 2,750 618 22.5%
EU 10,000 905 9.0%
Guatemala 8,875 1,155 13.0%
Malawi 12,000 7,127 59.4%
Philippines 3,000 0 0.0%
Thailand 7,000 336 4.8%
Zimbabwe 12,000 2,110 17.6%
Residual 2/ 3,000 3,000 100.0%
Total 150,825 39,149 26.0%
1/ U.S. Tariff Schedule line items subject to the tariff-rate-quota (TRQ) include flue-cured and light air-cured tobacco, including burley, which are used in the manufacture of cigarettes for consumption in the United States.
2/ A TRQ of 3,000 metric tons is available to all countries, other than the 9 designated quota recipient countries, and is allocated on a first come/first served basis.
NOTE: The TRQ is administered on a September 13 - September 12 trade year.
SOURCE: U.S. Customs Service.
FEBRUARY 1997 SPECIAL REPORT
Market Profile: Malawi
The Republic of Malawi became a multiparty democracy following a referendum on 14 June 1993. Previously Malawi was a one-party republic. Currently, the ruling party is the United Democratic Front (UDF) headed by Bakili MULUZI. Malawi is landlocked and bordered by Mozambique, Tanzania and Zambia.
Total Area: 94,080 square kilometers (landarea)
Population: 9,808,384 (July 1995 est.); 2.63% growth
Age structure:
0-14 years: 48% (female 2,361,309; male 2,384,679)
15-64 years: 49% (female 2,479,108; male 2,335,729)
65 years and over: 3% (female 139,632; male 107,927) (July 1995 est.)
Climate: tropical; rainy season (November to May); dry season (May to November)
Labor force: 428,000 wage earners; agriculture 43%, manufacturing 16%, personal services 15%, commerce 9%, construction 7%, miscellaneous services 4%, other permanently employed 6% (1986)
Economic overview: Landlocked, Malawi ranks among the world's least developed countries. The economy is predominately agricultural, with about 90% of the population living in rural areas. Agriculture accounts for 40% of gross domestic product (estimated at $7.3 billion in 1994) and 90% of export revenues. After two years of weak performance, economic growth improved significantly in 1988-91 as a result of good weather and a broadly based economic adjustment effort by the government. Drought cut overall output sharply in 1992, but the lost ground has been recovered. Good prices and improved tobacco production lead to improved economic welfare since 1993. The economy depends on substantial inflows of economic assistance from the IMF, the World Bank, and individual donor nations. The new government faces strong challenges, e.g., to spur exports, to improve educational and health facilities, deal with environmental problems of deforestation and erosion, and limit corruption.
Agriculture: Accounts for 40% of GDP; cash crops - tobacco, sugarcane, cotton, tea, and corn; subsistence crops - potatoes, cassava, sorghum, pulses; livestock - cattle, goats. Agricultural related industry includes processing (tea, tobacco, sugar), sawmilling and cement.
BACKGROUND:
Malawi's arable land, which is about 25% of Malawi's total land area, is distributed fairly evenly throughout the country. The more fertile areas are those in south and central portion of the country. Less than one percent of Malawi's arable land is irrigated, so rainfall is important for agriculture. There are two seasons - a wet and dry one - with the rainy season beginning in November in southern Malawi and beginning as late as January in northern Malawi.
Commercial production of Virginia tobacco was first introduced around Blatyre, in southern Malawi, in 1889. Production migrated north throughout the early twentieth century. Production also expanded from Virginia tobacco to include burley, dark and oriental tobaccos. Tobacco was an important part of the Malawian economy by 1930. With the onset of the depression and the worldwide economic ramifications, the parastatal Tobacco Association of Malawi (TAMA) and the Ministry of Agriculture's Tobacco Exporters' Association of Malawi (TEAM) were established to protect and develop the Malawian tobacco industry and its export interests. During the 1930's Malawi established various other state and parastatal tobacco organizations including the Agricultural Marketing and Developing Corporation (ADMARC) and the Ministry of Agriculture's Tobacco Control Commission.
The Tobacco Control Commission (TCC) was established in 1936, concurrent with two competing private auction houses in Lilongwe. These became the exclusive venues for selling tobacco after prices reached all time lows in 1937. These auction houses provided competing markets for grower tobacco until 1962 when they were merged into a single auction house, the Auction Holding, Ltd. (AHL). While AHL is private, board members include representatives from ADMARC, TCC and TEAM. There are now auctions in Lilongwe, Limbe (a southeastern suburb of the southern city of Blantyre) and a new auction house being built in Mzuzu, in northern Malawi. The auctions in Lilongwe and Limbe average sales of 12,000 and 7,000 bales per day respectively. The new auction house was in operation part of the last auction year.
While a majority of tobacco is produced in central Malawi, the new auction house opening in the north reflects that tobacco is now heavily cultivated throughout Malawi. Over 92 percent of Malawi's tobacco production is either flue-cured or burley. In 1995, northern Malawi produced 16,620 tons of flue-cured and burley tobacco representing almost 14 percent of Malawi's total flue-cured and burley production. In the same year, the central region, around Lilongwe, produced 81,680 tons of tobacco, over 67 percent of the of total flue-cured and burley tobacco produced in Malawi, and the southern region produced 23,120 tons of tobacco, 19 percent of the total flue-cured and burley tobacco produced in Malawi.
Tobacco is produced on land with three different land rights: freehold estate; leasehold estate; and customary tenure. A freehold estate owner has title to the land free and clear of encumbrances. Very little land is held as a freehold estate. Leasehold estates (estates) are negotiated with the government of Malawi usually through traditional users and local leaders. The minimum size of an estate is 10 hectares. The estate manager - usually referred to as the owner - registers with the Ministries of Agriculture and of Land and Evaluation. Estates may be managed exclusively or land may be partitioned out to tenant farmers. Customary tenure permits farmers to continue using farm land that has been under till by the same family where the family does not have sufficient funds to negotiate a leasehold estate. These smallholders are normally allocated land by the community leaders. Between 30 and 40 percent of Malawi's arable the land is tilled by estate managers or their tenant farmers. Most of the agricultural land is tilled by smallholder farmers.
The first type of tobacco to be exported commercially was Virginia flue-cured; however, sun-cured and dark air cured were also exported. By the 1930's, government regulation required that all producers be registered and that flue-cured tobacco be sold over the newly established auction floors. By the mid-1940's, permits were required to grow flue-cured tobacco. While both estates and smallholders could grow dark air- and sun-cured and dark fire-cured tobacco, production of these types of tobacco were concentrated in the smallholder estates. Since most small holders were not producing the minimum required to sell directly on the auction floor the smallholders would sell these tobaccos to ADMARC, which would market them on the auction floor. At the end of the 1950's estates were limited to growing flue-cured and burley tobacco. This restriction has been liberalized, and restrictions on growing will be phased out completely after 1998. Since the late 1970's the government extension service provided special training, price supports and loan guarantees for smallholder farmers wishing to grow burley tobacco. The estate shift from the production of predomenently flue-cured tobacco to burley tobacco occurred at this time. In 1981, for the first time Malawi produced more burley than flue-cured tobacco.
Malawi currently produces five types of tobacco varieties for export: flue-cured, burley, dark air- and sun-cured, dark fire-cured and oriental tobacco. Of these, flue-cured, burley, dark air- and sun-cured and dark fire-cured must be sold at one of the auctions. Oriental tobacco may be produced on contract, although export licenses are still required. As with all modern tobacco auctions, tobacco is sold by the ton at breakneck paces - with each sale consummated in 6 to 15 seconds. Like the American auction after which it was modeled, after the sale the buyer will inspect the bales for quality and the seller may decline to accept the sales price and re-sell it at the auction at another time.
Once sold at the auction tobacco transits out of Malawi through one of four ports: Dar-es-Salaam in Tanzania, Nacala or Beira in Mozambique, and Durban in South Africa. As a landlocked country, transport of tobacco out of Malawi has always been difficult. Originally, tobacco was shipped through Beira, either through Harare, Zimbabwe, or as roads improved, overland directly to Beira. Post-independence internal disorders and lack of governmental administrative control during the 1980's made exports through Mozambique difficult. In the 1990's Malawi diversified its transport structure through trade agreements and shipping corridors through South Africa and Tanzania. In 1991, 65 percent of exports were through South Africa, 25 percent through Tanzania and the rest through Mozambique. Exports continue to be shipped predominantly through South Africa.
TOBACCO SITUATION:
Production: Malawi has always produced predominantly burley and flue-cured tobacco. As total production of tobacco increased, as burley became relatively more profitable and the relative share of production has shifted from flue-cured to burley. This trend will continue as burley continues to be the most profitable product for smallholders and tenant farmers. In 1996 Malawi produced 94,180 tons, dry weight, of tobacco and increased planting is projected to increase production in 1997, which may exceed 100,000 tons. Eighty percent of this production, or 75,000 tons, was burley production. This is in contrast to 1990 when burley represented about 58 percent of total production, or 1980 when it represented a mere 32 percent of total production. Burley production only surpassed flue-cured production in 1981. Flue-cured, once a staple tobacco crop in Malawi, now represents about 13 percent of total production. As a percentage of overall production it has dropped from representing over 40 percent of production in 1980 to 22 percent in 1990 and to less than 13 percent in 1996. Dark fire-cured tobacco which represented about 30 percent of total production in the late 1970's now represents just over 7 percent of total tobacco production. Oriental, dark air and sun-cured, and dark fire-cured, tobaccos, combined, equal 7.6 percent of total production.
Improved weather, liberalization of small farm production limitations, higher auction prices in 1995 and support for smallholder farmers have led to a rebound in production in 1996. After falling over 32 percent in 1994, total production increased 34 percent in 1995 and over 6 percent in 1996. Most of this increased production was concentrated in burley production. Burley production increased nearly 31 percent from 70,580 tons in 1994 to 92,327 tons in 1995 and increased over 15 percent in 1996. In contrast, flue-cured, dark air- and sun-cured, dark fire-cured and oriental production has declined in at least three out of the last five years and none of them have returned to the record levels of production seen in 1991 and 1992.
As part of the liberalization, tenant farmers are increasingly able to sell their product to intermediate buyers instead of selling to the estate owner. Intermediate buyers purchase tobacco from tenant farmers and sell it on the auction floor. Recent estimates are that as much as 40 percent of estate production may have been marketed through intermediate buyers. TAMA is concerned about the impact of intermediate buyers on the quality and is working to maintain the quality of Malawi's tobacco. Whether brought to the auction floor through estates or intermediate buyers, once auctioned, most of Malawi's tobacco production is exported.
Exports: In 1996 exports increased about 3 percent to 101,720 tons and are expected to stabilize there as production rises to meet exports. Exports have increased dramatically since 1994, when production dipped substantionally, increasing 28 percent in 1995. This contrasts to exports of 83,735 tons in 1990 and 61,061 in 1980. Most of the tobacco exports in 1996, 80 percent or 82,000 tons, were of burley tobacco. Other exports include 12,200 tons of flue cured tobacco, 6,500 tons of dark fire cured tobacco, 700 tons of dark air- and sun-cured tobacco, and 320 tons of oriental tobacco, representing 12, 6, 1 and less than one percent of the total exports, respectively.
Export levels are affected predominantly by the quantity and quality of Malawi's production and world prices. In 1996, good weather combined with a tight world supply to provide excellent export opportunities for Malawi growers. Continued world undersupply of tobacco, increased cultivated acreage and a good market could provided for increased exports in 1997.
Malawi Article prepared by:Kevin Latner
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