China Wants Control Over Acreage Volumes

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By Allen Liao

The tobacco-growing regions in China are trying to exercise control over both the tobacco acreage and sales volume in response to the general plan set out by the State Tobacco Monopoly Administration (STMA). In early 2014, STMA – the regulator of China’s tobacco industry – unveiled its general plan to reduce production and supply of leaf tobacco over the next three years to a more manageable level.

In the context of this plan, the year 2015 becomes a crucial. Whether the tobacco industry will succeed in actively and effectively reducing both the tobacco acreage and the leaf tobacco sales volume during this period will ultimately decide whether leaf tobacco production in China will remain stable in 2016 and beyond.

In 2015, the scale of leaf tobacco production in China continues to decline from last year, with acreage and sales volumes to be limited to 16.18 million mu (1.08 million hectares) and 46.02 million dan (2.301 million tons) respectively, down 3 million mu (200,000 hectares) and 2 million dan (100,000 tons) from 2014. This actually means that this year will be a severe challenge to the tobacco-growing regions nationwide.

Objectively speaking, control over both the tobacco acreage and leaf tobacco sales volume is intended to solve the major problem in China’s tobacco trade of a significant imbalance between supply and demand.

Since the outbreak of the “raw materials crisis” in the late 1990s, STMA has been highly prudent when it comes to leaf tobacco production. Yet, along with vigorous development of cigarette brands over recent years, tobacco manufacturers, in an effort to gain enough advantage in the market over their competition, produced too much.

Tobacco manufacturers established exclusive high-quality leaf tobacco production and supply bases in favorable tobacco-growing regions, which has greatly contributed to increasing their already sufficient reserves of raw materials. As a result, some tobacco manufacturers ended up completely divorced from reality over time, with their planned demand for raw materials exceeding the actual demand, making any preexisting imbalance between supply and demand all the more serious. Moreover, promotion of modern tobacco agriculture has also played a role in arousing the enthusiasm of farmers to grow more tobacco, further exacerbating the problem.

Leaf tobacco inventories held by tobacco manufacturers have remained high, turning out to be a major barrier to sustainable healthy development of the tobacco industry.

The target of the general planning by STMA calls for reduced production and supply of leaf tobacco, as well as reducing existing inventories in the next three years. Throughout this process, the pace in transformation of leaf tobacco production and marketing has increased. The goal of this transformation is quite clear – to introduce market forces into leaf tobacco production based on real demand.

Just like the market-oriented reform launched in the field of cigarette marketing, control measures over tobacco growing are set to get rid of the old model of development incrementally.

In a certain sense, “control” is a means and a process. To introduce the market-oriented way of thinking in tobacco reform is a way to adjust and control tobacco production and marketing, which will be in favor of comprehensively promoting the capacity of accurate adjustment and control of raw materials production, thus to form a healthy and standard pattern of the chain of the tobacco industry.

While “control” is implemented, “stability” should also be maintained.

Both the management and the staff of the tobacco monopoly administrations in the tobacco-growing regions nationwide strongly feel that while it is very difficult to develop new tobacco-growing zones, getting existing tobacco-growing zones to shrink and degenerate will be difficult.

Tobacco growing takes a lot of hard work, a great deal of time, and involves big risks. In regions with a relatively developed economy, the amount of income from growing a mu (0.067 hectare) of tobacco is about 1,000 yuan (US$162) – a moderate level of income for farmers, on par with growing vegetables or raising pigs. Even in former revolutionary base areas, areas inhabited by ethnic minorities, remote areas, and poverty-stricken areas, farmers are much less enthusiastic about growing tobacco as a result of steady improvement of conditions for agricultural production. Under conditions, any lack of control over both the tobacco acreage and leaf tobacco sales volume will result in a series of chain reactions.

Obviously, the core of the question about the extent to which both the tobacco acreage and leaf tobacco sales volumes should be controlled  lies in stability – stability of income for tobacco growers and stability of human resources for tobacco growing. Some tobacco-growing regions have managed to implement innovative control measures for both the tobacco acreage and leaf tobacco sales volume, adopting the measures while taking into account the local realities, scientific planning, and adoption of rotation of tobacco with other crops in designated areas. Such measures did not only succeed in realizing an overall reduction of tobacco acreage, but also effectively promoted the enthusiasm of tobacco growers and ensured adequate human resources for tobacco growing.

 In reality, “strict control over the scale of tobacco production and firm observation of the red line” does not mean simple controls over scale, but will also bring many opportunities to transform and upgrade leaf tobacco production in China.

Many sources within the tobacco monopoly administrations in tobacco-growing areas say that although “strict control over the scale of tobacco production and firm observation of the red line” level by level is definitely important, what will be paramount is to redefine the concept of leaf tobacco production, realize a qualitative shift in efficiency, and develop the core competitiveness of leaf tobacco.

Since 2014, tobacco-growing regions in China have devoted more time and energy to improving the quality of their leaf tobacco products in an effort to comprehensively improve quality and efficiency.

Last year, tobacco-growing regions nationwide made great strides in implementing the general plan by tightening control over leaf tobacco production at its source and bringing the whole process of tobacco production under effective control. They attach great importance to assessing their own performance, which results in sustained, steady, and healthy development of leaf tobacco production in China.

As the year 2015 is the second year of implementing the general plan for reduced production and supply of leaf tobacco in the planned three-year period, STMA has proposed that top priority be given to continued strict control over acreage and sales volumes while developing tobacco production and marketing. Under the leadership of STMA, the tobacco-growing regions across China are redoubling their efforts to improve quality and efficiency in leaf tobacco production, and keep consolidating their base to guarantee supply of leaf tobacco for various cigarette brands and income increase for tobacco growers.