WORLD DEVELOPMENTS

Highlights:

The government of Australia restructured regulations affecting the tobacco industry effective January 1, 1995 with the goal of making the Australian tobacco industry more internationally competitive. Changes included eliminating the national production quota, the Average Minimum Price and the Local Leaf Content Scheme. Some of the results include a 20 percent increase in production since 1995 from 7,600 metric tons to 9,100 tons, while use of foreign leaf tobacco has declined. Cigarette consumption and leaf exports have also declined over the same period.

Brazil's flue-cured production (farm-sales-weight) for 1997 is estimated to reach 386,000 metric tons, an increase of 22 percent from 1996. Much of the increase in output and corresponding increase in planted area (up 16 percent) stems from industry expectations that leaf exports and domestic cigarette production will both increase in 1997. Exports are critical to the well-being of the Brazilian leaf industry, accounting for nearly three-fourths of Brazil's flue-cured production. In 1997, Brazil's flue-cured exports are forecast to reach 240,000 tons, an increase of 3 percent from 1996. Lower international stock levels along with attractive Brazilian prices account for much of this increase. The United States and the European Union are by far the leading export markets for Brazilian flue-cured tobacco, accounting for over 70 percent of this trade in 1996.

Brazil's domestic cigarette production is forecast to rise noticeably in 1997, up 5 percent to 208 billion pieces. Much of this increase in output is due to an expected 10 percent increase in cigarette exports, reaching 86 billion pieces. Brazil's cigarette exports have been trending higher in recent years due a strong international demand for Brazilian brands (mainly in Europe and Russia) and a rise in contraband cigarette sales in Brazil. Because Brazil's cigarette exports are exempt from taxation, many of the cigarettes exported to Brazil's neighboring countries (Paraguay, Uruguay, Argentina, and Bolivia) are smuggled back into Brazil. Industry sources estimate that nearly 25 percent of the cigarettes consumed in Brazil are contraband.

Previous projections indicating tobacco production in China at 2.55 million metric tons in 1996 underestimated actual production. Current production figures indicate that China produced 2.9 million tons in 1996 and that the 1997 crop is forecast to be about the same. This is a marked increase in production figures from 1995 when production did not reach 2.1 million tons.

Following the course laid out by Japan, Korea has reduced production and increased imports of leaf tobacco to compete more effectively against higher quality imported cigarettes. Korea Tobacco and Ginseng, Korea's state tobacco monopoly, is focusing on quality over quantity for domestic leaf production. The result is a 9 percent decrease in planted area and a 27 percent decrease in leaf production to 61,000 metric tons in 1996 from 84,000 tons in 1995. Imports of leaf tobacco, especially oriental leaf tobacco, have risen almost 28 percent, from 12,400 tons in 1995 to 15,700 tons in 1996.

United States leaf tobacco exports to Malaysia increased dramatically in 1996. Malaysia has become one of the main sources of American-brand cigarettes in Asia. Exports in 1996 increased more than 10 percent over the previous year, reaching an export value of over $ 47 million. Malaysia's imports of foreign tobacco in 1996 increased 20 percent over the previous year 11,100 tons. Malaysia's use of U.S. leaf, which represents over 55 percent of their total foreign leaf use, registered a 17 percent increase from 5,300 tons in 1995 to 6,200 tons in 1996.

The Philippines appears poised to continue its decline as a leaf tobacco and cigarette producer. In 1996, the Philippines enacted legislation intended to bring it into compliance with its obligations under the General Agreement on Tariffs and Trade. The new legislation, RA8240, is a tax scheme which effectively reduced the price differential between local and foreign brands. The new tax scheme, along with increased per capita income, are expected to reduce both demand for local cigarettes and the demand for local tobacco used to produce them and increase the demand for foreign brands.

Thailand’s leaf tobacco production increased over 30 percent from 48,800 metric tons in 1995 to 65,200 tons in 1996. Thailand Tobacco Monopoly purchased most of the leaf tobacco for use in the production of cigarettes for local consumption. Increases in production are forecast to continue. This is true especially for burley production, which is being promoted for export by locally based leaf traders. In 1996 approximately 10,000 tons of leaf were exported. Increased production goals could push exports to over 30,000 tons by the year 2000.

In addition to record production, Zimbabwe’s 1996 flue-cured crop proved the highest quality in any of the last 5 years. Ripe, spotted tobacco accounted for 44 percent of total production and standard grades accounted for 32 percent of production leaving just 24 percent of total production as either drought or green and non-descript. Total production in Zimbabwe increased in 1996 to 174,000 metric tons, a small increase from 1995. However, tight world supplies and Zimbabwe's high leaf quality drove prices up to an average of $ 2.94 per kilogram on the auction floor and pushed sales over 200,000 tons, drawing down stocks. Increased acreage planted and continued high yields are precursors to a forecast production over 180,000 in 1997.

Auction:

Zimbabwe Flue-cured Tobacco Auction Update
Sales Through Week 4
May 20, 1997

Last modified: Wednesday, November 26, 2003