The International Tobacco Growers Association (ITGA) recently released a report on the leaf situation in the 2016/2017 season.
ITGA reported that there are innumerable constraints that have had an impact this season. In Argentina, the impact of the cost of production factors (especially gas, electricity, and wages) already well known from previous seasons, continues to have an effect. Countries like Mozambique have also reported a generalized increase in production costs, with an emphasis on the 150 % fertilizer cost increase.
In regard to leaf quantities produced globally, Universal expects a reduction to 5.42 million tons (5.78 in 2015-2016), although an increase in production of FC Virginia is expected, amid fears that countries such as Brazil could provoke a new excess of supply, since, like China, this country still had inventories of previous seasons in 2016. Indeed, as reported by Afubra, the scenario points to productions in the range of 625.951 tons (with an estimated average price of US$2.90 per kilo) and 79,361 tons of burley (at US$2.70per kilo) in Brazil in 2017.
These fears are slightly lower in India where the Tobacco Board of India limits annual production, thereby minimizing the risk of overproduction, as this would lead to a reduction in average producer prices: this year’s authorized production reduction was approximately 20% over the previous year. However, India faces another issue: the lack of alternative crops and the fear that, by failing to produce tobacco in certain regions, the value of its reduction will be quickly absorbed by the other major producers of Virginia. Then, Indian producers would suffer the most, since world tobacco production might remain unchanged under these conditions.
Zambia, according to its minister of agriculture, reports an estimated decline in the value of tobacco exports of US$100 million (predicting that the quantities exported will reduce from 45,000 tons in 2016 to less than half, or 22,000 tons, in 2017). This fall will certainly impact a country where roughly 450,000 people are directly or indirectly related to tobacco production and whose average price as of June 6 was close to US$ 2.90 (Virginia) or US$1.69 (burley) per kilo.
Malawi prices are expected to be more generous (US$1.91 per kg) than last year’s (US$ 1.42 per kg), as the country’s tobacco regulator estimates demand at 151,000 tons, higher than supply (which is approximately 124,000 tons). Nevertheless, many of the constraints that have accompanied the prices volatility in Malawi will continue, in particular, the low net producer’s income. In Tanzania, by the second week of June average prices were around US$1.97 per pound.
In Indonesia, the government intends to restrict the import of tobacco products, which will be taxed at a rate of 200%. A similar phenomenon occurred in Thailand, which led the Philippines to file a complaint with the World Trade Organization.
Production in Zimbabwe (176,500 tons, valued at US$521.6 million by mid-July, slightly below the US$548.3 billion for the same period in the 2015-2016 marketing year) cannot be tackled without reference to the main problem that tobacco producers are facing in the country at the moment: the monetary crisis, marked by a lack of liquidity and which jeopardizes the payment of grower’s production. However, this does not seem to deter the increase in the area to be produced for the next marketing year, as by July 10 Zimbabwe’s producers have already acquired sufficient seed to produce 100,298 hectares (well over the 62,255 hectares in the previous year).As for the US, ITGA reports a 4% reduction in Virginia production area in 2017, in no way offset by the 1% increase in burley production area.