AMITY INTERNATIONAL BUSINESS

SCHOOL

PRESENTATION ON TOBACCO INDUSTRY

SRK TOBACCO PVT. LTD.

 History of Tobacco
 Tobacco cultivation has a history of about 8000
years.
 Europeans introduced to tobacco when
Columbus landed in America in 1492.
 Portuguese traders introduced tobacco in India
during 1600. Tobacco became a valuable
commodity in barter trade and its use spread
rapidly.
 Gradually tobacco got assimilated into the
cultural rituals and social fabric due to presumed
medicinal and actually addictive properties
attributed to it.
 Approximately 7 million tons of tobacco is produced globally each
year.

Approximately one-third of the total annual production is exported.

Tobacco is the seventh largest cash crop of the 50 states in the US.

Asia leads the global industry with 2/3 of the world’s total production,
with the U.S. making up the majority of the worlds remaining production
making them a global leader behind China

Tobacco is the most heavily taxed of any consumer product by percent

of retail price.

Nearly 70% of world tobacco is produced in the following six

countries: China (4,904 mil. lbs.), India (1,312 mil. lbs.), Brazil (1,137 mil.
lbs.), United States (801 mil. lbs.), Indonesia(319 mil. lbs.), and Turkey
(313 mil. lbs.).
 Types of tobacco use in India
 Smoked forms of tobacco use
 Bidis, Cigarettes, Cigars, Cheroots, Dhumti,
Pipe, Hooklis, Chillum, Hookah.

 Smokeless forms of tobacco use

 Paan (betel quid) with tobacco, Paan masala
with tobacco


Tobacco, areca nut and slaked lime
preparations, Mainpuri tobacco, Mawa, Khaini,
chewing tobacco, snus, gutkha

 - Tobacco products for application: Mishri, Gul,

Bajjar, Lal dantmanjan, Gudhaku, Creamy
snuff, Tobacco water, Nicotine chewing gum.
 Roles of the major player in the
market
USDA-ASCS, United States Department of Agriculture, Agricultural Stabilization and Conservation Service

Federal Crop Insurance Corporation (FCIC)

Stabilization Cooperative (Co-op)

Grower, the farmer who grows and cures tobacco

Warehouse, the place where the farmers' tobacco is usually sold at auction.

Dealer, an individual who acts as a speculator by buying and reselling tobacco

Processor

Manufacturer
International trade scenario of
tobacco

Production

Consumption

Exports

Imports
 Production
Top Tobacco Producing Nations (2005)

1.China ... 2.64 million tonnes (39.6% of world total 6.7 million
tonnes)
2.India ... 0.64 million tonnes (9.6%)
3.Brazil ... 0.55 million tonnes (8.3%)
4.United States ...0.47 million tonnes (7%)
5.European Union ... 0.31 million tonnes (4.6%)
6.Turkey ... 0.23 million tonnes (3.5%)
7.Zimbabwe ... 0.22 million tonnes (3.3%)
8.Indonesia ... 0.14 million tonnes (2.2%)
9.Malawi ... 0.12 million tonnes (1.8%)
10.Russia ... 0.09 million tonnes (1.4%)

Developing nations generated about 79% of global tobacco

production in 2000. According to the FAO, developing
countries will account for 87% of world tobacco by 2010.
China is projected to remain the world's largest tobacco
producer.
 Consumption
Top Tobacco Consuming Nations (2005)

1.China ... 2.66 million tonnes (38% of world total 7 million tonnes)
2.European Union ... 0.71 million tonnes (10.2%)
3.India ... 0.52 million tonnes (7.4%)
4.Russia ... 0.44 million tonnes (6.4%)
5.United States ... 0.43 million tonnes (6.2%)
6.Brazil ... 0.23 million tonnes (3.3%)
7.Japan ... 0.18 million tonnes (2.6%)
8.Indonesia ... 0.17 million tonnes (2.4%)
9.Turkey ... 0.14 million tonnes (2%)
10.Pakistan ... 0.10 million tonnes (1.4%)
 Exports

World tobacco leaf exports from 1998-2000 averaged

1.98 million tonnes per year which the FAO expects
to grow by 1% to 2.2 million by 2010.

Today developing nations are responsible for almost

65% of global tobacco exports, while developed
countries account for the remainder. Of the
countries below, the domestic economies of
Zimbabwe and Malawi depend most heavily on
tobacco exports to the rest of the world.
Top Tobacco Leaf Exporting Nations

1.European Union ... 18.1% of world total

2.Brazil ... 16.6%
3.United States ... 9.9%
4.Zimbabwe ... 9.1%
5.Turkey ... 6.5%
6.China ... 5.6%
7.India ... 5.5%
8.Malawi ... 5.3%
9.Russia ... 3.9%
10.Other European countries ... 2.0%

Because cigarette manufacturers have developed new processing

technologies that use lower-quality tobacco leaves, developing countries
are more competitive and can increase their shares of the world tobacco
market. Regardless of superior tobacco quality, higher production costs
mean that tobacco exports from developed countries like the U.S. cost
twice as much as tobacco shipped from developing nations.
 Imports
IMPORTS 1992 1994 1996 1998

WORLD TOTAL 1949148 1922939 1907846 2011341

RUSSIAN 148000 184900 200900 264670

FEDERATION

GERMANY 235855 222080 222591 260510

UNITED STATES 326454 306838 246762 241065

UNITED KINGDOM 166027 157689 149756 137183

JAPAN 85634 90469 101442 98920

NETHERLANDS 97368 105358 84813 84860

INDIAN ASPECT
Indian trade scenario of tobacco
Tobacco occupies a prime place in the Indian economy
on account of its considerable contribution to the
agricultural, industrial and export sectors.

India is the third largest producer and eighth largest

exporter of tobacco and tobacco product in the world

In 2000-2001, the contribution of tobacco to the Indian

economy was to the extent of Rs 81.820 million, which
accounted for about 12% of the total excise collections.
 Production Trend in India
India’s share in the world tobacco production was 10.2% in
2000.

While India's share in the world's area under tobacco crop

has risen from 9% to 11% in the last 3 decades, its share
in production has inched up from 9% to 10%.

Of the 200 million tobacco consumers in India, only 13%

consume it in the form of cigarettes, while 54% consume it
in the form of beedi and the rest in raw/gutka forms.

India is the only country where the bulk of production

consists of numerous non-smoking types of tobacco. The
presence of a strong domestic demand for beedi,hookah,
chewing and snuff tobacco necessitates the cultivation of
non-cigarette types of tobacco to a relatively large extent.
Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Bihar and
Tamil Nadu are the major tobacco producing states in India.

Around 65% of India’s production comes from Andhra Pradesh

(34%),Gujarat (22%) and Karnataka (11%).

Tobacco being a labour intensive crop provides employment to

more than 60 lakhs people who are engaged in the farming
curing, redrying, packaging, grading, manufacturing distribution,
export and retailing activities. The bidi industry which provides
employment to around 44.00 lakhs essentially unskilled rural
folks mostly women is also arresting the influx of rural labour to
urban centres.
Consumption Trend in India
India is one of the biggest tobacco markets in the world, ranking forth
in total tobacco consumption behind only the markets of China and the
United States.

However, the per capita consumption in the country is 0.9 kg

compared to the world average of 1.8 kg.

Tobacco usage in India is contrary to world trends since chewing

tobacco and beedi are the dominant forms of tobacco consumption,
whereas internationally, cigarette is the dominant form of tobacco use.

The use of tobacco and its various products appears to have declined
in the rural and urban populations of India over the period from 1987-
1988 to 1999-.2000. This trend in decline in consumption is faster
among the urban population.
 India’s Export

From 1951 to 2001, there was an increase in the production by 130%, in excise
revenue By 31,614%, in export revenue by 5823% and in consumption by 92%
•Tobacco has been a traditional export item for India. However,
the share of tobacco exports in India's total exports witnessed a
declining trend from 1974-1975(2.5%) to 2002-2003(0.4%).

•The declining share of tobacco exports to total exports is

basically due to the sharp fall in the export share of
unmanufactured tobacco.

•The rise in the popularity of cigarettes opened the

market for Indian tobacco in the UK, Japan, the USSR,
Egypt, Italy, China and Bulgaria.

•According to data available in 2001,Russia (27%), the UK

(10%), Yemen (9%),Germany (8%), the Netherlands (6%)
and Belgium (5%) are the major markets for Indian
unmanufactured tobacco.

•Russia, Belgium, Germany, Nepal and Singapore are the

major importers of tobacco from India.
• Due to the global increase in tobacco prices, India's export
earnings have gone up by over 58 times from Rs 152
million in the beginning of the 1950s to Rs 8834 million.

In spite of India having a comparative advantage over

leading tobacco producing countries in terms of low cost of
production, farm price and conversion cost, it has not
emerged as a leading exporter.

This is mainly due to low productivity and quality as

compared to Zimbabwe, Brazil, the USA, etc.

Though India has explored new markets, its share in the

world market has declined.
 MARKET SHARE
ITC is the leading companies in the Indian tobacco
market, holding a 72% share of the market's volume.
Godfrey Philips accounts for a further 12% of the
market's volume.
 Market Volume
The Indian tobacco market grew by 1.1% in 2006 to
reach a volume of 99.1 billion sticks. The compound
annual growth rate of the market volume in the period
2002-2006 was 2.6%.
•Assets such as experienced farming
community confers a significant competitive
advantage for India.

•With an increase in the world import

requirements translating in to a rise in export
potential, Indian Tobacco industry is
presented with significant opportunities to
consolidate and extent its position in the
global market.
 Indian government policies and
institution for promotion of trade
for the tobacco industry
 Introduction
Government intervention influences the production and
trade of most of the world's unmanufactured tobacco.

In some nations, government intervention is pervasive

and weighs heavily in most production and trade
decisions. High levels of intervention often involve
domestic subsidies, trade barriers, legal restrictions, or
agricultural production and export taxes.

In contrast, government intervention in some nations is

minimal and has little or no influence on tobacco
producers and traders.
Government interventions in support of the
industry can broadly be classified into:

(i) Institutional and regulatory support;

(ii) Price and market support;
(iii) Export promotion;
(iv) Research and development (R&D);
and
(v) Direct fertilizer and credit subsidies.
 Tobacco Board
In India, direct intervention was provided through
Government-controlled tobacco trade, domestic price
supports, and minimum export prices through a state
trading corporation known as the Tobacco Board.

Provides training to farmers, study tours, on farm trials,

Integrated post management, Integrated nutrient
management , energy conservation and post harvest
product hygiene to insure product integrity.
 Model Project Area scheme

To develop market oriented production base through good

agricultural practices.

Tobacco Quality Circles

Concept adopted from improvement of yields and enhancement of

quality of tobacco with involvement of front line farmers.

Tray Seedlings

Seedlings are grown in soil free plant based medium which will
prevent soil borne diseases.
Central Tobacco Research Institute
Organization of Indian council of Agriculture
Located in Rajahmundry district in southern
state of Andhra Pradesh.
Objectives include high yielding cultivars of
tobacco, quality up gradation thereby
improving farmers economies and tobacco
exports.
VISHESH KRISHI AND GRAM UDYOG YOJANA
(VKGUY)

Objective of VKGUY is to promote exports of :

(i) Agricultural Produce and their value added

products;
(ii) Minor Forest Produce and their value added
variants;
(iii) Gram Udyog Products;
(iv) Forest Based Products; and
(v) Other Products, as notified from time to time.
 AEZ-Agri Export Zone
Promoting greater exports of fresh and processed
agricultural produce from the country.

All aspects of agriculture such as production,

research, development, extension, post harvest
management and marketing are addressed in a
focused manner for successful implementation
 International trade agreements
Potential to interfere with and undermine sound tobacco
control policy measures, including:

Warning labels
Ingredient disclosure requirements
Bans on misleading descriptors ("light," "mild," "low")
Tobacco tariff and tax policy
Cigarette content regulation
Advertising and marketing restrictions
Clean indoor air rules
Restrictions on retail distribution networks for tobacco
products
 Multilateral treaties
WTO multilateral agreements

Trade in all tobacco, raw or manufactured, is regulated primarily under the

agreements in Annex 1A to the Marrakesh Agreement
The WTO multilateral agreements significantly expanded global trade in
tobacco products by mandating sizable reductions in tariff and non-tariff
barriers to trade in tobacco products
The new WTO regime has led to the elimination of legislation that
required that all cigarettes produced in the United States contain at
least 75% domestically grown tobacco.
It has also led to the elimination of or reduction in tariff and non-tariff
barriers to trade in tobacco and tobacco products in numerous other
countries.
NAFTA

Created the opportunity for significantly increased tobacco

trade in North America.

NAFTA is a comprehensive trade agreement that calls for

dramatic market opening through the elimination of all tariff
and non-tariff barriers to trade between Canada, Mexico,
and the United States.

The agreement has significant implications for the United

States and its tobacco trade in the region.\
European Union

EU has addressed the production and use of

tobacco within the European Community.

The EU has heavily subsidized tobacco products

pursuant to its Common Agricultural Policy,
promoting the sale of tobacco at ‘giveaway’
prices in Northern Africa and Eastern Europe.

One example of these initiatives is the recently

adopted directive that requires all EU member
states to ban almost all tobacco advertising by
2006
SWOT ANALYSIS
STRENGTH
Technology
Resources availability
Social trends
Economic trends
Customer needs

WEAKNESSES
Tobacco smuggling
Tobacco related diseases
Wasted wealth and resources and labour
OPPURTUNITIES
High quality products
Focus on new regulations
Employment

THREATS
Litigation
Government sanctions
dwindling market
 CONCLUSION
Growth of industry in developing countries

Tobacco companies should take their

responsibility as market leaders seriously
QUERIES?