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 November 8, 2016.”
Source Zimbabwe: Zimbabwe Tobacco Association “Weekly FCV Report ”

3. Exchange Rates: EURO/US$ & EURO/Brazilian Real

4. 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

5. 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

6. US Flue-Cured Exports and Domestic Disappearance

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

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

9. 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

10. 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

11. US Tobacco Products Market
Cigarette consumption continues steady decline
Industry revenue declines at annual rate of 2.3% 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

12. Global Tobacco Manufacturing
Annual growth of 3.6% in VALUE of sales to $643.8 billion in 2015
From 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

13. 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

14. 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.

15. 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

16. “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

17. Some Take-Aways
Global surpluses, especially of flavor-style flue-cured, were reduced in 2016

18. 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

19. 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

20. 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

21. 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
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