U.S. Flue-Cured Tobacco Situation & Outlook Dr. Blake Brown Hugh C. Kiger Professor Agriculture & Resource Economics College of Agriculture & Life Sciences
Global Supply: U.S., Brazil and Zimbabwe Flue-Cured Tobacco Production Source Brazil & U.S.: Universal Corporation. “World Leaf Production as of November 8, 2016.” Source Zimbabwe: Zimbabwe Tobacco Association “Weekly FCV Report 26.07.2016”
Exchange Rates: EURO/US$ & EURO/Brazilian Real
Flue-Cured Acres Harvested: 2012 2013 2014 2015 2016* US 206,000 228,800 232,000 218,300 214,000 NC 164,000 170,000 181,000 165,000 *October 2016 Forecast. USDA-NASS
Flue-Cured Production: (million pounds) 2012 2013 2014 2015 2016* US 473 454 557 468 460 NC 377 360 434 365 346 *USDA-NASS October 2016 Estimate
US Flue-Cured Exports and Domestic Disappearance
US Flue-Cured Domestic Disappearance and Imports for Consumption
U.S. Unmanufactured Exports of Flue-Cured Tobacco (stemmed) (lbs farm weight) Source: USDA-FAS
China’s Cigarette Market: Euromonitor International Forecast 2016 2017 2018 2019 2020 Sales of Cigarettes (bn sticks) 2,428.0 2,398.0 2,383.2 2,375.8 2,372.1 Sales Value of Cigarettes (CNY bn) 1,472.0 1,515.7 1,554.0 1,587.4 1,616.3 Source: Euromonitor International
China National Tobacco Corporation -financial performance Revenue $ billion Operating Profit 2012 167.5 20.2 2013 175.3 21.5 2014 197.2 24.2 2015 211.2 26.0 Source: IBISWorld
US Tobacco Products Market Cigarette consumption continues steady decline Industry revenue declines at annual rate of 2.3% 2012-2016 to $37.6 billion Strong profit growth over last 5 years; $12.1 billion in profit estimated to account for 32.7% of revenue in 2016 Industry revenue expected to decline at an annual rate of 2.4% to $33.3 billion in 2021 Source: IBISWorld
Global Tobacco Manufacturing Annual growth 2011-2015 of 3.6% in VALUE of sales to $643.8 billion in 2015 From 2016-2020 Value of sales expected to increase at an annual rate of 1.8% to $703.8 billion Continued volume declines in mature markets with growth in emerging markets Number of smoking age adults increases Increases in disposable income cause some smokers to trade up to premium tobacco products Source: IBISWorld
Share of Global Market by Manufacturer % of Global Tobacco Products Market China National Tobacco Corp 32.8% Philip Morris International Inc. 12.2% British American Tobacco PLC 10.6% Japan Tobacco Inc. 9.6% Imperial Tobacco Group PLC 5.0% Altria Group Inc. 3.9% Other 25.9% Source: IBISWorld
Some future vapour scenarios rated by likelihood The Future Some future vapour scenarios rated by likelihood FDA regulation lays waste to US market and allows tobacco companies to dominate market Widespread taxation impairs growth of e-cigarettes globally Significant liberalisation of cannabis legislation creates new front for vapour technology Reduced-risk becomes a ‘premium’ positioning slowing cannibalisation Technological leap which replicates the combustible experience and drives significant adoption Consumption of vapour products exceeds 30% of total tobacco consumption by 2030 85% 75% 60% 50% 33% 10% From: “GLOBAL TOBACCO KEY FINDINGS PART 2: VAPOUR PRODUCTS” Euromonitor International, PASSPORT.
2014: “heat-not-burn” products CONTAIN TOBACCO LEAF PMI introduces “Marlboro HeatSticks” in Japan and Italy $680 million invested in reduced-risk factory in Italy Reynolds American to introduce heat-not-burn product in Wisconsin in February 2015
“Philip Morris could stop making conventional cigarettes” BBC News November 30, 2016 iQOS did well in test markets…PM plans to introduce into additional markets
Some Take-Aways Global surpluses, especially of flavor-style flue-cured, were reduced in 2016
Some Take-Aways Global surpluses, especially of flavor-style flue-cured, were reduced in 2016 Exchange rates favored increased Brazilian production; 2017 Brazilian flue-cured production is up at around 1.4 billion pounds
Some Take-Aways Global surpluses, especially of flavor-style flue-cured, were reduced in 2016 Exchange rates favored increased Brazilian production; Brazilian flue-cured production is up at around 1.4 billion pounds Despite continued reductions in cigarette consumption and increases in taxation and regulation, industry profits remain strong
Some Take-Aways Global surpluses, especially of flavor-style flue-cured, were reduced in 2016 Exchange rates favored increased Brazilian production; Brazilian flue-cured production is up at around 1.4 billion pounds Despite continued reductions in cigarette consumption and increases in taxation and regulation, industry profits remain strong Watch the “heat-not-burn” category Opportunities for flavor style producers are in countries where smokers are expected to “trade up” to premium brand cigarettes www.tobaccogrowerportal.org
Executive Farm Management Program for NC Sweet Potato and Tobacco Farmers Key Topics Strategic Planning Human Resource Management Financial Management Leading Change Risk Management Family Business Issues Assessing Markets Assessing and building key partnerships Strengthening your value proposition February 5-10, 2017 December 10-15, 2017 www.tobaccogrowerportal.org Go to the Economics page