Summary

BAT was forced to sell its tobacco industry to the Thai government during WWII as a result of the Japanese occupation. After the acquisition, the Thai government created the Thailand Tobacco Monopoly or TTM, and in the beginning, continued to use the contract buying scheme set up by BAT. After the war, however, cigarette sales escalated to the point that TTM could no longer keep up with demand using the contract buying scheme. As a result, TTM got out of the curing business. Instead, they created a curing system which allotted tobacco quotas to curers, who contracted directly with producers to grow the leaf.. The producer then sold the leaf back to the curer, who in turn, sold the cured leaf back to TTM for processing.

Some years later, TTM developed another system to assist rural people, giving some of the quota to small curers. Unlike the large curers, who provided the seed to the producers, the small curers received their seed from TTM. Currently, the system is divided into small and large curers. A large curer is one with a quota between 10,000 to 500,000 kg. A small curer is one with a quota between 1,600 to 5,000 kg. Since TTM is a state-run monopoly, foreign companies are not allowed to manufacture tobacco in Thailand but they can buy tobacco for export.

Leaf Estimates

Thailand produces flue-cured, burley, and a small quantity of dark air and sun-cured, and oriental tobacco. Leaf production for 1999 is estimated to drop by about 10 percent or to reach 61,000 metric tons. Curers blame this sharp drop in production on a reduction in the quota and poor growing conditions. Domestic leaf consumption is expected to drop by about 12 percent in 1999 due to decreased cigarette consumption. Thailand is a well-known exporter of filler type leaf tobacco and a major importer of full-flavored tobacco leaf. Leaf imports are forecast to reach 5,083 metric tons, down almost 34 percent in 1999 as a result of decreased cigarette demand and high stocks. Leaf exports are projected at 27,400 metric tons, down 4 percent in 1999 due to dampened demand for Thai tobacco and increased competition from foreign sources.

TTM recognizes that there is an over-supply of leaf tobacco in Thailand. Stocks are running at year and half levels, when optimum levels are normally only about six months. And for 1999, leaf stock levels are projected to increase by nearly 18 percent. To address this problem, TTM will cut the tobacco quota levels in the coming years. Sources are anticipating that TTM will make a 40- percent reduction in the flue-cured quota, a 52- percent reduction in the burley quota, and a 37- percent reduction in oriental leaf in the coming year.

Flue-cured Leaf

All flue-cured production is centered in the High Northern Provinces. Production is divided into early, middle, and late season crops. The early crop, which is planted on hilly or inclined lands in August and September, is preferred by both the domestic user and exporters due to its thin body and aroma. However, the early crop production is limited by its higher production costs and higher production risks. The middle and late crops are seeded in October and November and harvested in December and January, respectively, when weather conditions are better.

Flue-cured production is estimated at 23,000 metric tons, down about 8 percent in 1999. Unfavorable weather is the reason for the 8- percent reduction. Curers receive 65 baht/kg for flue-cured tobacco from TTM, and about 33 to 38 baht/kg from exporters. Flue-cured stock levels are expected to increase by about 24 percent in 1999 as a result of an 11-percent decrease in domestic consumption. This 11 percent drop in domestic consumption is the result of decreased cigarette sales. Because of tight competition on the world market, exports are estimated to drop by 23 percent. And imports are expected to total 2,660 tons as compared to 4,725 tons due to decreased cigarette demand.

Curers

Curing Barns

Traditional curing barns are brick structures fueled by firewood. These curing barns are not cost effective, with costs estimated between 7 to 8 baht per kilogram. Moreover, curing costs are expected to increase. Declines in the availability of firewood, increased concerns over the environmental impact of deforestation, plus the use of lignite, the most common alternative to firewood, are contributing to rising costs. Many large curers are recognizing these limitations, and are modifying their traditional curing facilities into bulk curing systems. According to the curers, the new system lowers the cost of fuel and labor, and increases the yield and quantity by as much as two standards. As a result, variable costs of production dropped by 5 to 10 baht/kg, or about 10 to 20 percent of the variable cost. However, the initial investment is so expensive that few curers are able to switch to the new system.

Burley Leaf

Burley production is located in the Phetchabun and Sukhothai Provinces. Production is divided into early and late crops. The early crop is seeded in July-September and harvested in October-December while the late crop is planted in November-January and harvested in February-April. The early crop production is limited to about 10 to 15 percent of total burley production because of the high risks associated with early planting.

Cigarettes

The member nations of the ASEAN are Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore and Thailand. Member nations agreed at the 1998 ASEAN summit in Vietnam that AFTA would be implemented by 2002. And they also agreed to apply tariffs of 0 to 5 percent by the year 2000 on 90 percent of their total dutiable items. This would account for about 90 percent of intra-ASEAN trade.

Sources report that the ASEAN pact makes it far more advantageous for multinational cigarette companies to produce in one of the member countries. Therefore, Malaysia is replacing Hong Kong as the Asian hub for cigarette manufacturing due to its cheaper labor and to more favorable trading arrangements.

The importation of cigarettes into Thailand can be very difficult. The following procedures are required for importing into Thailand: 1. Apply for import license from the excise department; 2. Obtain a bank guarantee equal to the cif value of the cigarette cargo; 3. Excise department issues a letter to the security printer to release the stamps. ( The security printer prints the excise stamps and the number of stamps are equivalent to the quantity specified from the import department); and 4. Stamps must be displayed on each cigarette pack.

The excise department is also responsible for taxes. There are three taxes for cigarettes: an import duty of 22.5- percent; an excise tax of 70- percent; and a VAT of 7- percent. And each province, except Bangkok, are charged up to 1 baht per pack of cigarettes for financing municipal events and activities.

Cigarette Production and Trade

For 1999, cigarette production is projected to reach 30 million pieces as compared to 34 million a year ago. Domestic consumption is forecast to drop to 34 million, down 9 percent in 1999. A depressed economy and increased cigarette prices are the likely causes for the decline. TTM also blames lost market share on price-competitive imported cigarettes. But low/medium income smokers are switching to hand-rolled cigarettes. To capture that market, TTM plans to unveil a new hand-rolled cigarette product.

The Excise Department controls the maximum retail price for imported and domestic cigarettes. The average price for TTM brand cigarettes is about 28 baht/pack. The retail price for imported cigarettes decreased from 50 to 24 baht per pack.

Smoking Demographics

Approximately 54 percent of the male population over 20 smoke regularly, while only about 5 to 6 percent of women smoke. According to the industry, these rates have remained relatively constant. Also, it is not socially acceptable for women to smoke.

Anti-smoking Regulations

The Ministry of Public Health regulates the health warnings on cigarette labels, and bans cigarette advertisements. They also sponsor anti-smoking campaigns through the media. The Ministry also enforces the Decrees of Tobacco Products Control and Health Protection for the Nonsmoker and the Decree of Tobacco Products Control. The Decree of Tobacco Products Control requires that manufactures and/or importers disclose cigarette ingredients to the Ministry. And the Decrees of Tobacco Products Control and Health Protection for the Nonsmoker allows the Ministry and its officers to regulate the types of public places in which the non-smokers law will be enforced; thus, it allows the Ministry to require that public buildings display signs for smoking and non-smoking areas.

Anti-smoking restrictions

The sale of cigarettes and tobacco products to individuals under 18 years of age is prohibited.

Smoking is restricted in government, public and private building to designated areas and prohibited on public transportation. Cigarette warnings must be rotated every 5,000 packages produced. Each cigarette pack and cigarette carton must rotate the following health warnings in black and white lettering on the front and back sides of the pack: Warning Smoking causes lung cancer; Warning Smoking causes heart disease; Warning Smoking causes emphysema of the lung; Warning Smoking causes bursting or blockage of cerebral blood vessels; Warning Smoking shortens your life; Warning Smoking is addictive; Warning Cigarette smoke is a danger to people nearby; Warning Cigarette smoke is a danger to the fetus; Warning Stop cigarette smoking and reduce the risk of suffering from serious illness; and Warning Stop smoking and make your body stronger.

All direct and indirect tobacco advertising is banned. Cigarette and tobacco product sampling is prohibited. The distribution of cigarettes and tobacco products in exchange for or with other goods and services are prohibited. Tobacco companies are prohibited from sponsoring sporting or other events.