WORLD CIGARETTE SITUATION
Mexico - Domestic cigarette production in 2000 is forecast to total 47 billion pieces, unchanged from 1999 due to increased retail prices and health concerns. Cigarette exports are expected to remain the same at 20 million pieces. The Government of Mexico (GOM) approved retail price increases well above the domestic inflation rate. As a result, smokers have shifted from higher priced cigarettes made of high quality flue-cured, burley, and oriental tobaccos to mid and low-priced cigarettes made of lower quality flue-cured, light air-cured, and dark air-cured tobaccos. Cigarette imports are dampened because they are more expensive than domestic brands. Processors report exports of both low priced domestic brands and non-branded cigarettes mostly to Eastern European, Asian, and African countries.
United States - Smokers consumed an estimated 435 billion cigarettes in 1999, down 6.5 percent from the previous year. Price increases, higher taxes, and expanding regulations are the main factors in declining cigarette use. Exports dropped from 201 billion pieces in 1998 to 151 billion pieces in 1999. Cigarette output fell 7 percent to an estimated 635 billion pieces, the lowest since 1974. For calender year 2000, the Federal cigarette excise tax increased by 10 cents per pack making the current per-pack tax 34 cents. Another increase of 5 cents per pack is scheduled for 2002. U.S. cigarette imports for consumption doubled in 1999 due to the gray market, and were estimated at 3 to 4.5 billion pieces, less than 1 percent of total consumption. Legislation prohibiting gray market sales became effective in January 2000 and gray market sales are expected to cease.
Per capita consumption continued to decline, sliding to 2,146 pieces compared with 2,320 pieces in 1998. Premium brand cigarettes gained market share as discount brandsí share of the market slipped from 27.8 percent in 1998 to 26.6 percent in 1999. Prices have been partially offset by aggressive promotions and discounts, mitigating consumption declines in the premium segment of the market.
Brazil - Cigarette production for 2000 is estimated at 110 billion pieces, up 2 billion pieces from the previous season. Cigarette consumption for 2000 is estimated at 104 billion pieces, up 2.3 billion pieces from last season. Contraband cigarettes, especially from Paraguay, which are marketed locally at significantly lower prices, represent a major concern and source of competition for Brazilian cigarette companiesí local sales. According to the tobacco industry, approximately 35 percent of actual domestic consumption results from contraband cigarettes. Total cigarette exports for 1999 were estimated at 6.3 billion pieces, down 1.2 billion from the previous estimate. Exports are likely to remain stable at 6 billion pieces for 2000. The sharp decrease in cigarette exports during 1999 and 2000 is a result of a 150 percent tax imposed on cigarette exports. A main reason for this tax is to inhibit cigarette exports to Paraguay from being smuggled back into Brazil.
Austria - Cigarette production is forecast to increase slightly due to the expected rise in exports. Domestic consumption is forecast to decrease sightly to 15 billion pieces. Domestic sales are expected to remain the same in 1999 or rise marginally as the tax advantages of duty-free shops within the EU were abolished on June 1, 1999. Exports are forecast to rise marginally to nearly 13 billion pieces.
France - Cigarette production is forecast to decrease slightly from 42.4 billion pieces in 1999 to 41.1 billion in 2000, due to increased imports. In 2000, burley production is expected to grow as demand for blended cigarettes grows. Cigarette imports are expected to increase slightly to 63 billions pieces from 62 billion pieces in 1999. France is a net importer of manufactured tobacco products and imports American brand cigarettes from the Netherlands, where Philip Morris plants are located. In 1999, Philip Morris and SEITA were the leaders in the French market for cigarettes, with 35.9 percent and 33.1 percent market share respectively. Cigarette exports are forecast to remain the same in 2000 at 21 billion pieces.
Germany - Cigarette production is forecast to drop slightly to 203 billion pieces from 205 billion in 1999. Domestic consumption is expected to remain the same at 145 billion in 2000. In 1999, the per capita consumption of cigarettes was 1,770 cigarettes, growing steadily since 1993. A general reversal of this trend is currently not expected. The increase in cigarette consumption is likely attributed to the immigration of about two million people in the last 10 years from Central Europe and FSU countries. German consumers are becoming more price sensitive as a result of high unemployment and slow economic growth. Sales of big packs that contain 25 cigarettes are constantly increasing.
Netherlands - Cigarette production is expected to increase to 124 billion pieces in 2000 from 120 billion in 1999, because of increased exports. Domestic consumption is expected to increase slightly to 31.6 billion pieces in 2000 from 30.7 billion in 1999. It is expected that over the long term, Dutch consumption of cigarettes will show a decrease due to a number of factors such as price increases through taxation, growing health concerns and limitations on advertising. Exports are expected to increase marginally to 106 billion pieces. Of the total cigarette production, more than 98 percent was exported to countries in the European Union, of which Italy and France are the most important markets.
Poland - An expected decline in tobacco area will be tempered to some extent by Polish farmers efforts to switch from dark to the preferred light tobacco varieties used to produce Western brand cigarettes. Efforts to switch to light tobacco varieties have been supported with technical assistance from some cigarette manufacturers. Increased production of Western brand cigarettes has led to a decline in cigarette imports from 549 million pieces in 1998 to 450 million pieces in 1999. Cigarette imports are expected to remain constant at 450 million pieces in 2000. Cigarette exports increased from 4.6 billion pieces in 1998 to 26.3 billion in the first nine months of 1999 including 22 billion pieces exported to Russia. Polandís restrictions on cigarette advertising and sharp excise tax increases on cigarette consumption are expected to cause a decrease in cigarette consumption from 68.7 billion pieces in 1999 to 68.5 billion pieces in 2000. Reduced export quantities and, to a lesser extent, lower domestic consumption are expected to result in a decrease in domestic cigarette production from 95 billion pieces in 1999 to 92 billion pieces in 2000.
Russia - Production of cigarettes are expected to increase to 273 billion pieces in 2000 from 163 billion in 1999, worsening the problem of overproduction and increasing stocks. Domestic cigarette consumption is forecast to increase to 287 billion pieces in 2000 up from 285 billion in 1999. Imports are expected to drop to 15 billion pieces in 2000 from 22 billion in 1999. Official cigarette exports also decreased. Sources report that smuggling of cigarettes still flourishes in Russia, especially to the Ukraine.
Turkey - Cigarette production is forecast at 128 billion pieces for 2000, up from 125 billion in 1999 due to increased domestic and export demand. Despite strict anti-smoking legislation, cigarette consumption is generally increasing two to three percent per year. Turkey is becoming a major export point for cigarettes due to its location and lower cost of production. The Gulf states and the neighboring Middle Eastern countries are the main destinations for Turkish exports.
China - Cigarette production fell to 1.67 trillion pieces in 1999. Most of the decline was accounted for by filterless cigarette production, which commands a 97-percent market share. Overall, cigarette sales totaled 1.67 trillion pieces in 1999. Production is forecast to remain steady during 2000. Cigarette production is heavily regulated and maximum production quotas are allocated to factories. Nonetheless, many plants produce beyond the quota. Counterfeit cigarette production also continues to be a problem, despite a government crackdown. The National Statistical Bureau (NSB) estimates that the average cigarette smoker in China smoked 15.5 cigarettes per day in 1999. According to NSB surveys, per capita cigarette consumption dropped by .6 percent per year from 1997 to 2000. The rate of decline is expected to accelerate from 2000 to 2010, dropping by 1.5 percent per year. Factory prices for cigarettes have remained constant, but market prices have dropped sharply over the past year. A general slowdown in consumer demand during 1999 is blamed for the drop. Demand is expected to recover in 2000, as the national economy appears to be making a recovery.
Spain - Cigarette production is declining reflecting increased cigarette imports which more than offset gains in exports. Despite relatively large tobacco crops produced under the umbrella of EU Council Regulation No. 2075/92, Spain is still highly dependent on imports of high quality leaf tobacco (70 percent of its needs in 1999). The Spanish cigarette market in 1999 remains practically unchanged from a year earlier. However, sales of American blend type cigarettes rose 3.3 percent to 66.6 billion pieces at the expense of dark cigarettes which declined to 23.3 billion pieces. Cigarette imports continue due to increased access and distribution of EU brands and lower duties on non-EU brands. Cigarette exports are expected to grow due to the Altadis groupís commitment to boost sales of the top Spanish brand, Fortuna, outside its domestic market.
Hong Kong - The 1999 cigarette market was characterized by shrinking domestic production due to the closure of manufacturing facilities of British-American Tobacco Company in September 1998. Cigarette production for 2000 is expected to remain flat because there are no signs that the Chinese and South East Asian economies will be able to support tremendous growth in the demand for cigarettes. Local production facilities are not likely to be expanded in the near future. Given the high awareness of the health threat posed by cigarette smoking, the domestic market is rather saturated. Any increase in future consumption levels may reflect the high smoking rate of new immigrants from mainland China. Hong Kong consumers prefer American blended cigarettes, with the most popular brand being Marlboro. The average tar and nicotine yield of the 95 best-selling cigarettes in Hong Kong is 11.6 milligrams and .90 milligrams per cigarette, respectively, representing a decrease of .8 mg in tar and .07 mg in nicotine as compared with the previous yearsí findings. This decreasing trend in tar and nicotine yields indicates that Hong Kong smokers are becoming more health conscious. Hong Kong imposes a duty on manufactured tobacco products, regardless of whether they are imported or locally manufactured at the following rates: $98.45 per 1,000 on cigarettes; and $126.74 per kg on cigars. New requirements for health warnings on tobacco products come into affect on July 16, 2000. For cigarettes, the new legislation requires the level of tar and nicotine in the cigarettes to be shown on each package.
Hong Kongís imports are expected to increase slightly to 25 billion pieces from 24 billion in 1999. The U.S. was the largest cigarette supplying country followed by Belgium, China, and Malaysia, respectively. Exports are forecast to increase slightly to 26.5 billion pieces from 25 billion in 1999. Major export markets include China, Philippines and Vietnam.
Indonesia - Total cigarette production is expected to increase in 2000 to 228.6 billion pieces from around 219.7 billion from 1999. Indonesians are expected to consume 211.3 billion pieces in 2000, up from 202.8 billion pieces in 1999. Imports are forecast to increase to 140 million pieces from 121 billion in 1999. Most of the imported cigarettes come from Batam, a free trade area in Indonesia. Cigarette exports are expected to rebound slightly in 2000 to reach 17.5 billion pieces, from 16.99 billion in 1999. Most of the cigarette exports are low-priced clove cigarettes with major destinations to Cambodia (51%), Malaysia (22%), and Thailand (19%). Multinational cigarette makers in Indonesia typically do not export their locally produced world brands as a matter of individual company policy. Government regulations in 1999 led to new excise taxes and price guidelines which increased prices significantly.
United Kingdom - The UK is expected to produce 150 billion cigarettes in 2000 down from 155 billion in 1999. This may be attributed to reduced domestic demand due to high tax policies and anti-smoking campaigns, and lower export demand due to the appreciation of the pound relative to the ECU/Euro and to the dollar. Around two thirds of the cigarettes produced will be exported.
Taiwan - Cigarette production for 2000 is expected to drop by 9 percent to 20.7 billion pieces. Cigarette consumption continues to rise in early 2000. The Department of Health (DOH) made a proposal to the Executive Yuan (EY) that the Tobacco Hazard Prevention Act (THPA) be amended. DOH proposed amendments call for increasing fines for violations of cigarette advertising regulations and for selling cigarettes to teenagers; expanding smoke-free zones to include all high schools, primary schools and amusement parks; separating smoking and nonsmoking areas in restaurants with physical barriers; and providing nonprofit anti-smoking organizations the right to report any THPA violations to DOH. The proposed amendments were approved by the EY on May 11, 2000 and are currently awaiting Legislative Yuan approval. .
Cigarette exports are projected to increase to 70 million pieces in 2000, up from 51 million in 1999. Cigarette imports are expected to reach about 20 million pieces and take about 50 percent of market share in 2000. Currently, importers pay a monopoly tax of NTD 830 per thousand cigarettes. After the new tobacco and alcohol tax bill is implemented, the monopoly tax will be replaced by a 27-percent tariff and an excise tax of NTD 590 per thousand pieces.
Thailand - Cigarette production is expected to decline in 2000 by 5 percent to 32.8 billion pieces. Filter production is likely to account for 98.5 percent of total cigarette production. Contraband cigarette production and consumption has increased significantly due to the low price of contrabanded cigarettes compared to legal brands. Overall cigarette consumption (including inventories) in 2000 is forecast to remain unchanged from 1999's level, as increased sales of foreign cigarettes and contraband cigarettes are offset by decreased Thailand Tobacco Monopolyís (TTM) cigarette sales. TTM seems to continue losing market share in cigarette sales to foreign-brand and contraband sales, due to less competitive prices and a poor distribution system. Total cigarette imports (including illegal imports) are forecast to increase further in 2000 in line with an anticipation of rising foreign cigarette sales. TTMís cigarette exports also rose in recent years, but trade sources believe that a portion of the exports were smuggled and sold in provinces along the Thai boarders. Cigarette exports are forecast to drop in 2000 due to increased smuggling control. Local and foreign cigarettes are subject to the same excise tax rate (71.5%), VAT(7%), and a municipal tax. In addition, importers must pay on import duties ranging from 10-60 percent, depending on the country of origin.
South Africa - Cigarette production and use is slowing due to increased taxes and strict labeling requirements. Stricter anti-tobacco legislation is expected to be passed this year which will limit advertising and restrict smoking areas. Tar and nicotine limits will also be decreased. Sales of US cigarettes in the market are declining as more US cigarettes are produced locally, opening up the door for expanded US leaf tobacco exports.