MEDIUM TERM EXPORT STRATEGY 2002-2007 FOR TOBACCO AND TOBACCO PRODUCTS

India is currently the world’s 2nd largest producer of tobacco next to China. Indian tobacco is exported to more than 80 countries spread over all the continents. The tobacco industry provides employment to 25 million people. Of the total exports of tobacco items form the country, unmanufactured tobacco accounts for80% to 85% and the manufactured tobacco products account for 20% to 25%. Of the unmanufactured tobacco exports Flue Cured Virginia tobacco is the single largest item accounting for 75% to 80% of the tobacco exports. The other varieties exported are Burley, HDBRG, Natu, DWFC, Top leaf and Jutty – all are cigarette tobaccos. Non-cigarette tobaccos exported are Lalchopadia, Judi, Rustica for chewing purposes and bidi tobacco in small quantities. The export of non-cigarette tobaccos is at levels of 8-10%. Contrary to international trend, India’s tobacco production is dominated by non-cigarette tobaccos.

Indian tobacco exports have not registered a steady growth. Our flue cured tobacco exports, the major exportable variety have also declined significantly while the competitors could excel.

Currently the situation in the global tobacco market is transforming into a favourable market environment for tobacco exports due to several reasons. Brazilian export prices have almost leveled the most expensive American tobacco prices. Zimbabwean farm prices have also seen higher the Brazilian prices. Increasing cost of production and the significant amount of export cesses imposed on tobacco exports by the Governments of Zimbabwe and Malawi recently made their tobaccos further expensive.

The newly opened East European and CIS markets are not in a position either to absorb high cost tobaccos or cigarettes made with high conversion cost. Phasing out of farm subsidies by European Union will further enhance price competitiveness of Indian tobacco. Under these circumstances, India can become a major player in the Indian tobacco market if it can harness the emerging opportunities and enhances its exports to the major import markets.

The advantages for Indian tobacco are a low unit production cost; average export prices of Indian FCV tobacco are more competitive than that of Brazil, USA, Zimbabwe; low conversion costs of tobacco into cigarettes of 0.80 US $/1000 pieces in 1999 in Indian compared to 3.50 in UK and 4.0 in USA; low to medium nicotines to suit the current requirement of world markets; anticipated decline in production in China, USA, Zimbabwe, EU in the next five years due to declining consumption in USA & EU, government controls to restrict production in China, phasing out of Agri subsidies by EU and Land invasions & Land acquisition in Zimbabwe i.e. change of tobacco farms from White farmers to Native farmer; and phasing out of Agricultural subsidies in European Union and Argentina; etc.

There is a need to examine the adoption of the following strategies:

Production front:

Expanding production of quality tobacco (semi flavourful/flavourful tobaccos) of FCV and Burley types in the soil regions of AP and KK.

Identifying high productivity areas in the central and northern black cotton soil region and sustaining cultivation to meet the demand from the price sensitive/price responsive importers from CIS countries.

Release of new varieties with higher yield potential and with low to medium nicotine levels to suit the changing demand pattern in the international markets.

Allowing FDI through joint ventures with multinational leaf tobacco merchants /cigarette manufacturers to go for contract farming in new areas to generate additional exports.

To undertake special projects of financing the cost of digging/building small water ponds in the Southern light soil region of AP (where per hectare yields are very poor) with a view to give life saving irrigation with the stored water to enhance productivity and quality of the leaf, schemes for supplying inputs like fertilizer, coal briquettes at subsidized cost to the tobacco farmers, schemes to bring down curing cost and transportation, development programs in the production of light soil burley/oriental/dark western fire cured tobacco, schemes to help in the use of Malathion for control of mosquitoes in the light soil burley areas to avoid DDT residue problems, initiating efforts for semi mechanization of tobacco cultivation in AP & KK through introduction of leaf stitching machines, tobacco planters, etc.

Production presented in the Auction floors:

To introduce standardized packing material for wrapping tobacco in bales as in Zimbabwe.

Offering well-graded product on the floors to ensure speedy sales, reduce post auction expenses & handling losses and reduce shipping delays through enforcing compulsory grading of tobacco by farmers in the licensed commercial /community grading centres.

Export front:

Tobacco trade delegations and publicizing Indian tobacco and tobacco products through international tobacco exhibition.

Allowing FDI in 100% or special economic zones for export of cigarettes.

Pursuing with the Govt. of USA at highest level for allocation of separate quota for India under its Tariff Rate Quota (TRQ) Regime.

Negotiations at the highest political level with Japanese counterparts for the reentry of Japanese tobacco companies into Indian tobacco market.

Negotiating with China for importing Indian tobacco regularly.

Permitting exporters to pay admissible commissions (at least up to 5%) for their rupee exports to Russia in hard currency.

Entering into long term contract with Russia for import of 45,000 tons to 50,000 tons of tobacco every year for next 5 years under debt repayment route.

Undertaking propaganda for Indian tobacco and obtaining market situation report of Russian market and financial status of each cigarette factory by entering into a cooperation agreement with TABAKPROM, Moscow, an association of Russian cigarette factories.

In Exim Bank Credit line, inclusion of tobacco also as an item for export to countries likes Egypt, Iraq, and Algeria.

Encouraging Indian cigarette manufacturers to set up joint ventures in overseas markets viz., East Europe, CIS countries, Myanmar, Vietnam, for manufacture of cigarette which would result in increased tobacco export to these countries.

Pursuing with the Governments of Tunisia and Morocco to enhance their tobacco imports from India highlighting their huge trade balances in their favour.

Pursuing with the Governments of Romania, Bulgaria to extend further tariff concession under Globalised System of Trade Preferences (GSTP) for Indian tobacco.

Tying up tobacco exports to Egypt with imports of crude fertilizers, cotton etc

Helping cigarette exporters to undertake brand promotion by extending financial assistance.