THE Zimbabwean tobacco selling season is scheduled to start this month. The trade is, however, forecasting lower volumes but higher quality than that of last year. Secure prices are also projected during the coming marketing season, and traders are anticipated to bring in over US$500 million to the market.
Esther Dzviti Mapungwana economist
On a global overview, trade developments have seen the tobacco sector come under global heightened scrutiny from regulatory bodies and the public, which has led to an enduring decline in volume sales.
According to BAT, cigarette volumes have been falling and this is largely due to increased regulation and changing societal attitudes. One reason for the decline of legal tobacco volumes is the continued rise in illicit product consumption. This is now estimated to account for 12% of the global tobacco market. A number of factors are driving the significant and growing illicit cigarette trade.
These include the fact that cigarettes remain a reliable source of tax revenue for governments worldwide, price differentials between markets, regulatory changes and broader macro-economic pressures. It is generally accepted that there is a direct correlation between steep, ad hoc increases in taxes and illicit sales.
“Beyond disruption to supply chains, analysts believe the short-term impact of Covid-19 on the tobacco industry will be relatively limited. It is likely that key cigarette volumes were only slightly lower than expected in 2020, in a number of markets globally.
This impact on volumes is expected to be felt unequally across geographies, with resilience seen across more developed markets while developing markets experience potentially greater numbers of consumers turning to the illicit market.
Production of the principal raw material — tobacco leaf — remains broadly diversified across a number of continents. The industry has proven adept at dealing with supply-side shocks”, stated BAT.
On the other hand a research report by Grand View gives a growth outlook with regards to profitability and sales volume in the sector. The research report states that the global tobacco market size was valued at US$932,11 billion in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 1,8% from 2021 to 2028.
It has been observed that the number of smokers has been rising at the global level. This trend is further propelled by the launch of new products, including various flavoured tobacco products such as clove cigarettes and menthol cigars.
These factors together are expected to drive the market over the next few years. Moreover, over the past few years, with consumers gradually inclining toward smoking alternatives, the introduction of innovative tobacco products in varied taste options has become imperative. As a result, manufacturers have focused on premium tobacco products produced with flue-cured tobacco and fine whole leaf.
“Cigarettes held the largest share of more than 75% in 2020. Over the past few years, the popularity of growing partying and pubbing culture among working-class populations has propelled the demand for various flavoured and unflavoured cigarettes across the globe,’ the report states.
“In addition to this, emerging economies such as India, Thailand and China are witnessing a decent rise in cigarette demand due to rising youngsters in these countries. The next-generation tobacco products segment is anticipated to be the fastest-growing segment with a CAGR of 2,8% from 2021 to 2028.”
The report further points out that: “Rising consumer preference for less harmful tobacco products over cigarettes can be attributed to the growing need to live a healthy lifestyle. This has driven the demand for the consumption of next-generation products in the tobacco sector.
“The North American market is gaining momentum and is anticipated to witness promising growth in the demand for next-generation products owing to the increasing consumer disposable income, rising number of product launches, and the availability of superior-quality products” the report says.
According to the report, the Middle East and Africa region is anticipated to be the fastest-growing regional market with a CAGR of 3% from 2021 to 2028.
The region has been witnessing consistent growth in the adoption of tobacco consumption. Egyptian adolescents make a significant proportion of this consumer segment. A significant factor contributing to the adoption of these products is the relatively low prices of tobacco products in Egypt.
“The rising consumer disposable income levels coupled with the wide availability of diverse product ranges, including cigarettes, snuff, shisha, etc, are augmenting the market for tobacco products in Africa,” the reports says.
“Apart from this, the growing consumer concerns towards the high prevalence of numerous respiratory disorders due to smoking tobacco have led to a gradual shift towards chewing-based product alternatives.
“Furthermore, the increasing popularity of smokeless tobacco that contains higher nicotine content in comparison to cigarettes is also propelling the market growth in Africa. Additionally, the rising penetration of numerous international players has led to the introduction of sophisticated products in the market,” the report states.
It points out that: “Several manufacturers are launching innovative flavours, such as saffron, apple, cinnamon, berry, etc, of tobacco products to attract a larger consumer base in the region.
“Besides this, the improving consumer living standards have led to the increasing per capita expenditures on premium and high-quality tobacco products, such as cigars and cigarillos. Looking forward, IMARC Group expects the Africa tobacco products market to continue its moderate growth during the next five years.”
While cigarette sales are expanding to new markets, industry market shares are consolidating and it is increasingly controlled by a few international companies.
In 2001, a little more than 43% of global market sales were controlled by the five leading transnational tobacco companies TTC. By 2017, 80,6% of the market was controlled by three TTCs. Over the last decade, the international cigarette market has been dominated by five companies: China National Tobacco Corporation, Philip Morris International, British American Tobacco, Japan Tobacco Inc. and Imperial Tobacco.
Back to our domestic market, according to FewsNet the 2020/21 tobacco season officially started in early September. In mid-September, the Tobacco Industry and Marketing Board (TIMB) reported an almost 60% decline in registered farmers compared to last year.
The reduction is mainly due to unfavourable payment arrangements during the 2019/20 season. Engagement in tobacco production, the main cash crop, will likely be lower than in recent years if the number of registered farmers remains below last year and average.
According to the 2021 National Budget Statement, the country has benefited from growth in tobacco production over the recent years, thereby contributing to foreign currency generation, income and jobs. This positive development has, however, come at a huge cost to the environment as most farmers depend on wood for curing tobacco.
Government designated Tobacco Levy to address environmental damages caused by tobacco farming activities.
“There is a need for inclusive stakeholder participation in planning and implementation of tree planting programmes so that the Fund can have an impact. In addition, efforts should be made for stakeholders in the industry to invest in improved tobacco curing technology, including the use of coal instead of woods”, the budget statement said.
A Study by R Chingosho at the University of Cape Town titled Tobacco farming and current debt status among smallholder farmers in Manicaland province, revealed that an overwhelming majority of contract farmers, particularly in the Manicaland region of the country, are unhappy with the returns that they get from producing tobacco.
“The policy implication of this study is that the government should intervene to improve the economic conditions of tobacco farmers. For example, imposing some ‘meaningful’ price control on tobacco leaf would allow farmers to get more revenue for their tobacco crops and would improve their chances of breaking out of the cycle of poverty.”
Mapungwana is a local independent economist and consultant. These weekly New Horizon articles are co-ordinated by Lovemore Kadenge, independent consultant, past president of the Zimbabwe Economics Society and past president of the Institute of Chartered Secretaries and Administrators in Zimbabwe. — email@example.com and mobile +263 772 382 852.