ITGA Leaf Overview
March and April were the beginning of the tobacco marketing season in Africa. Growers flocked to the tobacco auction floors and contract markets with hopes of receiving high grades on the tobacco that they had spent the year caring for. However, this hope was often met with developments that were out of the hands of tobacco growers.
International Tobacco Growers Association
In Zimbabwe, the 2018-19 marketing season has been far from regular. Many problems are occurring in the country. Monetary policy problems have gravely affected tobacco sales in the markets. Leaf dealers lament that the inflation rate since the RTGS dollar was introduced is posing serious difficulties on the commercialization of tobacco. The confusion generated from payment systems and changing retention rates has even caused farmers to withdraw their crops in protest. As such, and according to data from the Zimbabwe Tobacco Association (ZTA), interested parties need to be aware that every single mistake will impact farmers’ decision of continuing to grow tobacco or switching to other crops.
On the topic of diversification, the Malawi tobacco marketing season was opened by the Tanzanian president, who urged Malawi to find alternative production that can work as a cash crop so that the country’s ability to obtain foreign currency is not jeopardized. Malawi’s president announced that leaf buyers will be prohibited from growing tobacco leaf to force dealers to buy the crop from the farmers instead of producing their own.
Tanzania was the latest African country to start the tobacco marketing season. After four years of decreasing tobacco production volumes, tobacco volume will be up this year. The crop continues to be a leading source of foreign exchange for the country, only behind cashew-nuts.
South Africa Revenue Service (SARS) took to the matter following years of the industry urging the authorities to address the illicit cigarette trade situation. After placing inspectors in all of the manufacturing facilities in the country, the SARS earned an extra US$41 million of tobacco excise tax in one month. Tax collection estimates for the full year are estimated at US$1.6 billion. Following the success of the previous measures, track and trace systems are also to be introduced. To further contain the illicit market, which was reaching an enormous size, British American Tobacco (BAT) plans to leave the market.
Across the Atlantic Ocean, in Brazil, the marketing season is 45% through, as per the latest available figures. Overall, the quality of the crop has decreased this year and for that fact, payments are below 2018’s level, leaving tobacco growers’ expectations of higher prices unfulfilled. Brazil’s government caused quite a stir when the minister of Justice and Public Security announced that a study was being undertaken to address the illicit cigarette situation in the country. One of the measures proposed is to lower taxes to make illicit cigarettes less appealing.
Price negotiations between tobacco cooperatives of Jujuy and Salta (Argentina), leaf dealers, tobacco firms, and state/federal authorities have finally ended with an agreement being reached. The Virginia B1F class, which serves as the standard, will be sold at ARS 87.63 or US$1.93 (at the current exchange rate of ARS 1= US$0.022) representing a 65% increase compared with the previous year.
In the US, data from the US Department of Agriculture (USDA) revealed that in 2018 tobacco area fell by 16%, nationwide. The decrease is easily explained by several tobacco growers switching to hemp production, or at least complementing tobacco production with hemp. Kentucky is the state in which this is most visible. Due to several pilot projects having been approved for quite some time the state is on the vanguard of hemp production.
The US Food and Drugs Administration (FDA) approved the Pre-Market Tobacco Product Application (PMTA) for PMI’s IQOS device, meaning that Altria will be able to start selling the product in the US. The company has already planned the launch of the product. It would be useful to remember that the introduction of this product in Japan completely changed the paradigm of cigarette consumption and accelerated the reduction of the volumes of combustible units. Due to this, everyone in the industry will be eagerly awaiting Altria’s future quarterly results. How will heated tobacco be accepted by US consumers? And how will the vaping market be affected? These are questions resting on everyone’s minds. Remembering that with this approval, in the US Altria holds the leading vaping device, and IQOS, the first heated tobacco product to enter the US market. Since the Introduction of IQOS in Japan in late 2014, cigarette sales have decreased around 30% (see figure 1).
In 2018, China saw a rise in tobacco sales, with the numbers reaching 2,375 billion pieces from a total of 2,368.9 billion pieces in 2017. Production of cigarettes was down to 2,335.62 billion pieces, so the 40 billion difference between sales and production provided an opportunity to reduce cigarette stocks. Leaf imports fell US$146 million, with the most important partners (quantity) being: Zimbabwe, Brazil, US, Zambia, and Argentina. In the first quarter of 2019, Japan increased tobacco leaf imports by 68.5% compared to the same period of 2018.
Indian farmers from Andhra Pradesh are demanding that a bailout package consisting of a minimum price is set for them to breakeven. The marketing season ended in Karnataka where 85,000 tons of Flue Cured Virginia were sold at an average price of US$2.05 per kg.
According to the World Health Organization, the Middle East and Africa region is predicted to have a population of 180 million smokers by 2025. That represents a 40% increase compared to 2010. This region is the one where the tobacco industry is focusing its activities as it contains markets with the most expansion potential. In response, several African countries have been introducing legislation, thus creating national tobacco control regulations. The latest examples are Uganda and Nigeria. Regarding plain packaging, Canada announced the final rules and the measure will be in effect until November of the current year. The lawsuits against the Canadian tobacco industry by 10 provinces are important, as they claim US$375 billion from the companies. However, analysts expect a similar outcome to what was reached in the US.
The year 2019 is proving to be one of many challenges and difficulties for tobacco growers worldwide. The next few months will bring important developments to all the stakeholders in the tobacco industry, and the growers, as the cornerstone of the sector, will be looking on attentively.