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Special Report
MARKET
PROFILE:
ARGENTINA
Unmanufactured Tobacco
Argentina is the 11th largest producer of leaf tobacco worldwide. The area planted to tobacco in 1998 is expected to increase 11 percent from last year. Argentina total leaf production this year is expected to reach 129,400 metric tons, 5 percent more than in 1997. Since 1996, there has been tremendous investment flow into the tobacco sector triggered by good returns. The number of new curing barns, irrigation systems and machinery is significant. Consequently, leaf tobacco quality has been increasing. International demand for Argentine leaf tobacco has also increased. Over the last four years exports have increased 45 percent. This year exports are forecast to reach 60,000 tons. Argentina’s leading export markets for unmanufactured tobacco are the United States, which buys nearly 40 percent of Argentine leaf exports, and the European Union. Argentina’s biggest competitor on the international markets is Brazil. Argentina is not a significant leaf importer. In 1998, Argentina is projected to import 2,000 tons of leaf tobacco, a 50 percent decrease from 1997. Much of this decline is due to increased leaf output. Most of Argentina’s leaf imports come from Brazil, Africa, and China.
Flue-cured
Flue-cured tobacco, the leading tobacco type grown in Argentina, accounts for 61 percent of their leaf production. Most of the Argentine flue-cured crop is grown in the provinces of Jujuy and Salta, which are located in the northwest part of the country. Argentina’s total flue-cured production is forecast to reach 86,500 tons this year, nearly 15-percent more than in 1997. Area planted to flue-cured in 1998 is expected to climb 13 percent to 45,000 hectares. Much of this increase is due to favorable grower returns in 1997. Record yields are expected this year as a result of improved crop management. Although flue-cured production is projected to increase overall from last year, bad weather did impact the crop size in the provinces of Jujuy and Salta. However, sources indicate that the quality will not be affected by the bad weather.
Domestic use of flue-cured tobacco is projected to increase marginally in 1998 to 21,500 tons. This increase is due to a slight increase in cigarette and other tobacco product demand. However, it is expected that supply will outpace demand in 1998 and result in lower prices this year. Grower prices for flue-cured tobacco are expected to drop 16 percent to $1.60 in Salta and Jujuy.
Argentina is the 6th largest exporter of flue-cured tobacco in the world. Flue-cured accounted for 71 percent of Argentina’s leaf exports in 1997. However, exports are expected to drop 5 percent to 40,000 tons this year due to weak international prices. Some sources indicate that 5,000 to 6,000 tons of flue-cured tobacco will be held in consignment until exported. Argentina’s major export markets for flue-cured tobacco are the United States, the United Kingdom, Germany, and France. Argentina is not a significant leaf importing nation. Since production doubled in the past year, flue-cured imports are projected to total 1,000 tons this year, a 33 percent decrease.
Burley
Argentina is the 6th largest producer and 7th largest exporter of burley tobacco in the world. Burley tobacco accounts for about 31 percent of Argentina’s total leaf production. Nearly all of Argentine burley is produced in the provinces of Tucuman in the northwest and Misiones in the northeast. Area planted to burley is expected to total 27,700 hectares in 1998, up 14 percent from last year. Increased foreign demand and marginal growth in cigarette production encouraged farmers to produce more.
Despite an increase in planted area, production is expected to decrease 4 percent to 34,600 tons in 1998. Much of this decline is due to bad weather affecting the main burley producing regions, particularly in Misiones where poor weather conditions were blamed for a 30 percent loss in the burley crop. Quality, however, is expected to be good due to sufficient humidity and heat during the curing season. Burley prices are forecast to remain unchanged from last year at $2.08 per kilogram.
Burley exports are expected to decrease nearly 7 percent to 14,000 tons in 1998. This decrease is due to lower production and consequently lower leaf availability. In the last four years burley exports increased 17 percent. Argentina’s top burley export markets are the United States, Brazil, and Germany.
Special Tobacco Fund
The price of Argentina’s unmanufactured tobacco is supported through a Special Tobacco Fund (STF). This fund remains the only official commodity support program in the Argentine agricultural sector and has been a topic of great debate. The STF which is financed through a 7- percent excise tax on cigarettes, was developed to support tobacco producers. Although phased out in 1994, strong lobbying from the domestic sector was able to regain the full amount for use in the tobacco provinces for its producers. However, due to WTO comments, Argentina can only allocate $86.5 million for price support. However, non-tobacco support for such things as crop insurance, salaries, debt payments, etc., can be distributed under the "green box" provisions. These types of support are not subject to reduction requirements under WTO. Price supports are expected to be reduced nearly 13 percent over the next ten years to $75 million due. The price support paid to tobacco last year on the average totaled $.72 per kilogram. An additional $.30-$.50 per kilogram was given as non-tobacco support crop insurance.
Cigarettes
The Argentine cigarette industry is composed of two large companies: Massalin Particulares that is mainly owned by Phillip Morris and Nobleza Piccardo which is owned by British American Tobacco Company (BAT). Massalin Particulares maintains about a 60 percent share of the domestic cigarette market. Both companies are licensed to manufacture foreign brands in Argentina. In 1994, American-blend type cigarettes represented 89 percent of total sales in Argentina, mixed blends accounted for 10 percent, and dark type cigarettes the remaining 1 percent. Cigarette production is projected at 41.3 billion pieces in 1998, unchanged from 1997.
An economic recession, high unemployment, and increased cigarette prices have had an impact on the demand for tobacco products in Argentina. However, consumers are smoking the same amount but are reported to be switching to more economical brands. Domestic consumption is predicted to remain unchanged in 1998. In past years it has been reported that the consumption of smuggled brands was significant in Argentina. Many of these cigarettes entered from Brazil and Paraguay. However, In 1997 cigarette smuggling was reported as being under control.
While anti-smoking policies in Argentina are not that strong, they are having some impact on the level of cigarette consumption. Cigarette advertising on radio and TV is restricted during daytime hours. In addition, manufactures are voluntarily including health warning statements and indicating the content of nicotine and tar on cigarette packs.
Country Profile
Total area: 2,766,890 km2; land
area: 2,736,690 km2
Comparative area: slightly less than three-tenths the size of the
US
Land boundaries: total 9,665 km, Bolivia 832 km, Brazil 1,224 km,
Chile 5,150 km,
Paraguay 1,880 km, Uruguay 579 km
Coastline: 4,989 km
Land use: arable land: 9%; permanent crops: 4%; meadows and
pastures: 52%; forest and woodland: 22%; and other 13%.
Irrigated land: 17,600 km
Population: 35,797,536 (July 1997 est)
National product real growth rate: 4.4% (1996 est)
National product per capita: $8,600 (1996 est)
Inflation rate (consumer prices): 0.1% (1996)
Unemployment rate: 16.1% (1997)
Agriculture: Accounts for 8% of GDP ( including fishing);
produces abundant food for both domestic consumption and exports;
among world’s top five exporters of grain and beef;
principal crops- wheat, corn, sorghum, soybeans, and sugar beets.
The Argentine economy remains very stable and conducive to greater investment in the agricultural sector to produce, process, and transport greater quantities of agricultural products. After decades of economic decline and chronic bouts of inflation, Argentina began a successful economic restructuring based on trade liberalization, privatization, public administrative reform and macroeconomic stabilization in 1989. The 1991 convertibility law established a quasi currency board which has provided price stability. The government privatized most state-controlled companies, opened the economy to foreign trade and investment, improved tax collection, and created a private pension and workers compensation system. As a result of these measures, Argentina’s GDP grew six percent per year and unemployment dropped to 16.1 percent in 1997. Lower unemployment is predicted over the long term.
Structural reform coupled with monetary stability fostered major new investments in industrial sectors producing goods for exports. As a result, Argentine’s exports more than doubled in three years from about $12 billion to about $26 billion in 1997.
Argentina is in a good position to take advantage of expanding market opportunities overseas due to lowering of trade barriers and subsidies. Argentina is a member of the Mercosur union. Mercosur is one of the largest integrated markets in the developing world, and close cooperation between Brazil and Argentina is key to Mercosur’s impressive growth. Mercosur countries have preferential trade arrangements with each other and have an average trade-weighted external tariff of 14 percent. Eighty-five percent of goods are included in Mercosur’s common external tariff. Remaining goods will be phased into the common external tariff by 2006.
President Menem will continue economic reform through 1999, when his second term ends. Currency convertibility is expected to continue, with the Argentine peso remaining at par value to the U.S. dollar. Economic growth in Argentina will be driven by lower interest rates, continued low inflation, growth in productivity and foreign direct investment. Furthermore, revenue from tobacco exports are encouraging expansion in the tobacco industry and other industries indirectly. (Source: The World Factbook, CIA)
Prepared By: Arnella Trent, Tobacco Analyst, Foreign Agricultural Service, USDA, (202) 720-9496
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