1. U.S. Flue-Cured Tobacco Situation & Outlook Dr. Blake Brown Hugh C. Kiger Professor Agriculture & Resource Economics College of Agriculture & Life Sciences

2. Global Supply: U.S., Brazil and Zimbabwe Flue-Cured Tobacco Production Source Brazil & U.S.: Universal Corporation. “World Leaf Production as of Aug 4, 2016.” Source Zimbabwe: Zimbabwe Tobacco Association “Weekly FCV Report 26.07.2016”

3. “The combination of lower crop production and expected reduced plantings should result in a largely balanced global leaf market in fiscal 2017.” Davenport & Company, LLC. November 6, 2015

5. Brazil & US Burley & Flue-Cured Production and Average Farm Price ProductionPrice Brazil20141.565 billion pounds$1.39/pound 20151.433 billion pounds$1.24/pound US2014725 million pounds$2.00/pound 2015571 million pounds$1.88/pound Sources: Afubra, USDA-NASS

6. Flue-Cured Acres Harvested: 20122013201420152016* US206,000228,800232,000218,300214,000 NC164,000170,000181,000170,000165,000 USDA-NASS Crop Estimates *August 2016 Forecast. USDA-NASS

7. Flue-Cured Production: (million pounds) 20122013201420152016* US473454557468476 NC NC377360434365363 * *USDA-NASS August 2016 Estimate

8. US Flue-Cured Exports and Domestic Disappearance

9. U.S. Unmanufactured Exports of Flue-Cured Tobacco (stemmed) (lbs farm weight) Source: USDA-FAS

10. China: Tobacco Use 2% decline in sales volume in 2015, but increase in value of sales Increase in wholesale excise taxes of 5-11% in 2015 Minimum smoking age of 18 Advertising restrictions and bans Bans/restrictions on smoking in public places and restaurants and bars Few regulations on vaping/e-cigarettes State Tobacco Monopoly Administration “is encouraging innovation of other tobacco products…” Source: Euromonitor International

11. China’s Cigarette Market: 2010-2015 20112012201320142015 Number of Smokers (million) 265.09267.8270.5273.1299.8 Sales of Cigarettes (bn sticks) 2,406.22,461.62,490.52,549.52,489.5 Sales Value of Cigarettes (CNY bn) 1,042.11,155.71,269.41,359.01,422.3 Source: Euromonitor International

12. China’s Cigarette Market: Euromonitor International Forecast 20162017201820192020 Sales of Cigarettes (bn sticks) 2,428.02,398.02,383.22,375.82,372.1 Sales Value of Cigarettes (CNY bn) 1,472.01,515.71,554.01,587.41,616.3 Source: Euromonitor International

13. China National Tobacco Corporation -financial performance Revenue $ billion Operating Profit $ billion 2012 167.520.2 2013 175.321.5 2014 197.224.2 2015 211.226.0 Source: IBISWorld

14. 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

15. US Flue-Cured Domestic Disappearance and Imports for Consumption

16. 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

17. Global Revenue from Tobacco Products by Region (2014) % of Global Tobacco Revenue North Asia35.0% Europe27.3% North America16.5% India & Central Asia5.7% Africa & Middle East5.6% South America5.5% South East Asia2.4% Oceania2.0% Source: IBISWorld

18. Share of Global Market by Manufacturer % of Global Tobacco Products Market China National Tobacco Corp32.8% Philip Morris International Inc.12.2% British American Tobacco PLC10.6% Japan Tobacco Inc.9.6% Imperial Tobacco Group PLC5.0% Altria Group Inc.3.9% Other25.9% Source: IBISWorld

19. Global overview of e-cigarette regulation 2016 LEGISLATION Banned from sale Banned from sale and use Medicinal-only ‘As tobacco’ ‘Consumer goods/mixed/no specific regulation From: “GLOBAL TOBACCO KEY FINDINGS PART 2: VAPOUR PRODUCTS” Euromonitor International, PASSPORT.

20. Some future vapour scenarios rated by likelihood THE FUTURE 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% 50% 33% 10% 60% From: “GLOBAL TOBACCO KEY FINDINGS PART 2: VAPOUR PRODUCTS” Euromonitor International, PASSPORT.

21. Some Take-Aways Global surpluses are reduced, especially flavor style flue-cured, bringing leaf supply & demand into balance

22. Some Take-Aways Global surpluses are reduced, especially flavor style flue-cured, bringing leaf supply & demand into balance Exchange rates favors increased Brazilian production, with the US remaining near or below 2016 levels

23. Some Take-Aways Global surpluses are reduced, especially flavor style flue-cured, bringing leaf supply & demand into balance Exchange rates favors increased Brazilian production, with the US remaining near or below 2016 levels Despite continued reductions in cigarette consumption and increases in taxation and regulation, industry profits remain strong

24. Some Take-Aways Global surpluses are reduced, especially flavor style flue-cured, bringing leaf supply & demand into balance Exchange rates favors increased Brazilian production, with the US remaining near or below 2016 levels Despite continued reductions in cigarette consumption and increases in taxation and regulation, industry profits remain strong Opportunities for flavor style producers are in countries where smokers are expected to “trade up” to premium brand cigarettes

25. Quality is the strategic advantage of U.S. flue-cured producers