18i3_Crop Monitor
By International Tobacco Growers' Association
It is no longer just growers and associations seeking alternative crops to tobacco production. The industry itself has already surrendered to this transition.
In a troubled period marked by the rejection of the labeling of IQOS as a product that poses lower health risks than conventional cigarettes by the FDA Preliminary Committee. Alliance One recently acquired a majority stake on two Canadian cannabis producers and distributors’ equity.
In the meantime, a study by American researchers suggests the installation of photovoltaic panels as an alternative to growing tobacco.
On the one hand, this study reinforces the idea that the replacement of tobacco production and the allocation of human resources can be done by other means rather than agriculture, and ignores the importance this crop still represents in low-income countries, where the dimension of the plots or the absence of distribution infrastructures can make photovoltaic (or biomass production, as previously suggested) impossible.
Universal Leaf presented, on its latest update on February 6, the most recent estimates for green tobacco production: 5,244,000 tons worldwide. As usual, FCV production surpasses all the other tobacco types with 3,709,000 tons expected this year (of which, 1,750,000 tons coming from China). Universal puts burley volumes estimates around 591,000 tons. Overall, burley’s production increase over the previous year will not be enough to offset the estimated decline for Virginia in 2018.
We can’t ignore that, just like most of its peers, China, with a production at around the 1,750,000 tons, will continue to slow down its FCV tobacco production. Nonetheless, the average income of tobacco-growing households in China increased by 4% to US$7,700 last year.
Contrary to the variation in overall FCV production, oriental tobacco production volumes in the top-four producing countries of this type of tobacco saw a 14.2% increase in 2017, namely because of Turkey’s production increase.
The current season is already marked by several natural constraints. From drought in several regions of Africa (Malawi, Zambia and Zimbabwe particularly) and India, to the storms of hail and rain in Argentina, several factors contributed to growers reducing their optimism for this year’s crop and, with it, their estimates on produced volumes.
Brazil estimates a decrease of 7% in the volume of this season’s leaf because of gale in Vale do Rio Pardo and drought in the southern regions that surely will have impact on productivity. The estimated production volume is 685,000 tons.
Indonesia may come close to 200,000 tons this year, although it depends on future rainfall, which is usually not very pronounced from late April to early May. However, these figures will fall short of the 300,000 tons that the Indonesian industry needs, which will force the country to resort to imports.
At another level, this season’s price discussion has been more intense. After a long period of negotiations, which ended in a halt, the industry has increased by around 2% the price to pay to Brazilian producers compared to 2017 and prices already show an increase by 5% to US$2.86/kg. In Argentina, the Chambers and Cooperatives of Producers of Salta and Jujuy agreed an average increase of 23%, which will bring the reference price to US$2.66/kg.
In turn, with the start of the auctions in early March, Indian growers in Andhra Pradesh are expected to receive at least US$ 2.18/kg.
While the governments of Bangladesh and Azerbaijan are currently encouraging tobacco farmers through subsidies and/or the availability of fertilizers, the Ministry of Agriculture of Macedonia is preparing to compensate farmers who reduce the area under cultivation and find alternative crops.
Cigarette consumption will, according to several sources, continue to decline in terms of volumes. Wells Fargo estimates that this decrease will be 3.3% in the US.
Russia, a country with very high levels of consumption, saw cigarettes’ volumes sold by JT and PMI decrease by 5% and 9.1% respectively in 2017. Also, the decrease in PMI’s volumes in Ukraine in 2017 is relevant: 12%.
Faced with this widespread reduction in cigarette consumption, it is therefore not surprising that, like Alliance, ITC in India, is also preparing to diversify its portfolio, now advancing with investments for the fruit and vegetable segments.
Finally, a brief reference to the disparity in the risk assessment of new generation products. While organizations such as the American Cancer Society and Public Health England admit that they have not only lower health risks, but also a greater ability for conventional smokers to stop using cigarettes, a study in Italy points out that devices like IQOS can lead non-smokers to consume tobacco products. It is the new threat to regulation of this type of products.