Financial Daily from THE HINDU group of publications
Friday, Feb 08, 2002
Agri-Biz & Commodities
Steady decline in tobacco exports
Ch. Prashanth Reddy
HYDERABAD, Feb. 7
DOMESTIC tobacco exports are steadily declining even though its global consumption is increasing at a rate of 2 per cent per annum.
According to the Tobacco Board Chairman, Dr P. Dayachari, the share of tobacco in the country's total exports has declined from 0.85 per cent in 1991 to 0.44 per cent currently.
Despite lower farm prices, the country is unable to compete with China, which has emerged as the largest producer of tobacco in the world. China is exporting to the CIS countries either by rail or road and hence its transportation costs are less. On the other hand, India exports them by the sea route, which involves higher transportation costs.
Consequently, exports to the Russian federation have declined from 45,000 tonnes in 1991-92 to 14,000 tonnes today. Incidentally, the Russian federation alone consumes 360 billion cigarettes per annum accounting for 35,000 tonnes of tobacco.
Another reason for the declining exports for the CIS countries is that, unlike in the past, more than 60 per cent of the tobacco companies in these nations have gone into the hands of multinational companies, which are procuring the raw material from their own sources, Dr Dayachari said.
Besides, the Russian companies expect the Indian exporter to provide credit for an extensive period whereas the Government would not permit credit for more than 180 days in case of foreign currency and 45 days in case of rupee payment.
Nevertheless, the Tobacco Board Chairman said the situation in the global tobacco market was currently transforming and was now favourable to India. Brazilian export prices were almost at the level of the most expensive American tobacco prices. Zimbabwean prices have also been higher than the Brazilian prices.
Increasing cost of production and a significant amount of export cesses imposed on tobacco exports by the Governments of Zimbabwe and Malawi recently made their tobacco further expensive. At the same time, the newly opened East European and CIS markets are stated to be not in a position either to absorb high cost tobacco or cigarettes made with high conversion costs.
On the other hand, Dr Dayachari said, Indian tobacco had the advantage of low unit production cost. It has the low conversion cost of tobacco into cigarettes_about 80 cents for 1000 cigarettes compared to the cost of $ .5 in the UK and $4 in the US. The Tobacco Board has recommended a series of measures including more production of quality tobacco, identifying high productivity areas, release of new varieties and allowing foreign direct investments (FDIs) through joint ventures for leaf development.
The board also recommended that FDIs should be allowed in 100 per cent export oriented units or special economic zones for manufacture and export of cigarettes.
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