The Global Tobacco Industry Faces Huge Challenges

The global tobacco industry has faced great challenges in recent years, with rising production costs, but the global demand for tobacco(heated tabak) remains strong, so there are still opportunities for growers.

International tobacco growers face challenges

In the Americas, Africa, Asia, Europe and the Middle East, rising production costs have been a top economic concern and have been a particular concern over the past two to three marketing seasons. Other underlying factors such as inflation, rising prices of key commodities and rising international tensions make the situation worse, making global supply chains even more challenging.

In Brazil, for example, production costs are rising by more than 30% a year; In Zimbabwe, the proportion is more than 20 per cent. In most of the leading tobacco producing and exporting countries, production costs have been increasing at double-digit rates.

In addition, the Russia-Ukraine war has affected the supply and price of fertilizer, and the large-scale humanitarian disaster is also highly problematic in the broader agricultural sector. Many African and low-income markets are highly dependent on agricultural imports from Russia and Ukraine; The United Nations stressed the importance of wheat at the beginning of the conflict.

At the same time, a worsening geopolitical situation could lead to more trade barriers in tobacco and other commodities. At the same time, inflationary pressures have increased widespread expectations of a prolonged crisis. There is a consensus that cigarette consumption has peaked in the long term and is declining along with tobacco. New alternatives, such as heated tobacco products(tobacco heatsticks supplier), contain less tobacco per cartridge than traditional cigarettes, while e-cigarettes(herbal heatsticks manufacturer) do not require tobacco at all. The EU Supply Chain Due Diligence Law will impose additional requirements on every step of the production process.

Production cost increase

Driven by growth in the United States, Brazil and Zimbabwe, FCV flue-cured tobacco production recovered slightly to 1.73 billion kg in 2021. In 2022, FCV crops excluding China were again in short supply, falling to 1.64 billion kg. Brazil, for example, produced 60 million kilograms less last season than it did in 2021. In 2023, major markets are expected to increase production, which could lead to an increase in global supply.

In 2022, Zimbabwe's production fell by 3% to just over 200 million kg due to drought and delayed rainy season, still higher than expected. However, production costs are rising faster than tobacco prices and are likely to continue to rise next year. The viability of farmers has been greatly reduced in the last two years. In the future, pricing will remain a key factor in determining whether farmers will stick to growing tobacco. Notably, the Zimbabwean government has set an ambitious target of stimulating production to 300 million kg by 2025. Given the way the market is going, that simply doesn't seem possible.

In the United States, production costs have put tremendous pressure on growers, and more and more people are switching to other crops. Labour, energy and fertiliser costs have accelerated the process. The year 2022 is considered the most expensive crop to be grown in the history of the United States. In 2023, U.S. producers expect demand to increase, but production costs will not decrease.

Burley tobacco production fell from 407 million kg in 2021 to 360 million kg in 2022 and is expected to rebound to 460 million kg by 2023.

Production of flavored tobacco fell from 154 million kg in 2020 to 119 million kg in 2021 and stagnated at 117 million kg in 2022. Production of dark dried tobacco increased from 108 million kg in 2021 to 113 million kg a year later. For both crops, 2023 is not yet estimated.

Opportunities under challenges

Despite these challenges, there are opportunities for tobacco growers. Globally, tobacco leaf has been in short supply since the end of 2020, an issue openly discussed by tobacco leaf and international manufacturers. Some of these companies have the lowest inventories in their recent history. The problem of inadequate supply of burley tobacco is particularly acute. For example, Malawi, one of the main markets for the variety, has a very short supply of burley in 2022. As a result, price growth is expected to exceed production cost growth. Another factor is a further decline in the base of global tobacco growers as growing tobacco becomes more challenging.

There are many potential threats, but stable producers who are well prepared will benefit from the demand for their products. Many tobacco growers have been in the business for generations. They have diversified cultivation, stable channels and partners, and rich planning experience. In the face of the shortage and high demand for tobacco leaves, this undoubtedly means that it is very possible to achieve high-quality production. Unfortunately, in some cases, diversification is not easy. It's not just about time and money, it's also about market opportunities. In some countries, tobacco is the best choice. Smallholder farmers often receive the least support; They don't have the capacity or the time to protect against all threats. Therefore, the support of all stakeholders in the industry is crucial. Smallholder farmers must not be treated only as suppliers of low-cost production.

Most tobacco farmers are very resilient. For decades, they have worked in an environment of strict compliance with regulations. Nevertheless, it remains essential to have the support and genuine understanding of local and international authorities and to participate in the dialogue that will determine their future. Moreover, the needs of tobacco growers are often no different from those of farmers who care about other field crops.

Tobacco growers need government support

One way to help growers is through diversification efforts, especially in markets that rely heavily on tobacco. Article 17 of the World Health Organization's Framework Convention on Tobacco Control urges member states to find viable alternatives for tobacco growers, but little tangible results have been achieved in this regard. ITGA has placed Article 17 at the centre of its 2023 efforts to ensure that the issue is taken seriously at the Conference of the Parties to the Framework Convention on Tobacco Control in Panama at the end of November this year. The group urged stakeholders to remember that millions of people's livelihoods depend on tobacco growers.

Tobacco-growing countries also need assistance on issues such as deforestation, which has been a major issue, especially in Africa. Finding and funding alternative fuel sources that are more environmentally sustainable is critical. A number of projects are underway in the area. Last November, ITGA organized a campaign to raise awareness about deforestation in Zimbabwe's three main tobacco-growing regions. The project will be expanded to other regions by the end of the year.

Water management is also an area that should be prioritized. For example, Brazil, one of the major international tobacco markets, has very low water storage. In the coming years, water conservation will be on the agenda. Adding to the pressing social issues that tobacco growers often face, such as poverty, lack of opportunities for young people, child Labour and inadequate healthcare, the industry still needs a lot of attention.