Insights into U.S. Flue-Cured Tobacco Production and Global Tobacco Manufacturing Trends
Explore the current state and future outlook of U.S. flue-cured tobacco production, global tobacco manufacturing trends, fluctuations in tobacco exports, and market insights from leading companies like Philip Morris and Reynolds American. Discover how the tobacco industry is evolving in response to changing consumer preferences and global economic shifts.
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U.S. Flue-Cured Tobacco Situation & Outlook TGANC 2017 Dr. Blake Brown Hugh C. Kiger Professor Agriculture & Resource Economics College of Agriculture & Life Sciences
Global Supply: U.S., Brazil and Zimbabwe Flue-Cured Tobacco Production 2500 2000 1500 1000 500 Zimbabwe US 0 2016E 2017P 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Brazil Source Brazil & U.S.: Universal Corporation. World Leaf Production as of November 8, 2016. Source Zimbabwe: Zimbabwe Tobacco Association Weekly FCV Report 26.07.2016
US Flue-Cured Exports and Domestic Disappearance 700 600 500 295.2 231 314.4 310.3 400 262.5 183 159.19 209.8 159.2 117.97 74.58 300 200 305 304 304 290.97 269 268 262 259 258 248 247 100 - 2005-20062006-20072007-20082008-20092009-20102010-20112011-20122012-20132013-20142014-20152015-2016 Exports Domestic Use
Global Tobacco Manufacturing Annual growth 2011-2015 of 3.6% in VALUE of sales to $643.8 billion in 2015 From 2016-2020 Value of sales expected to increase at an annual rate of 1.8% to $703.8 billion Continued volume declines in mature markets with growth in emerging markets Number of smoking age adults increases Increases in disposable income cause some smokers to trade up to premium tobacco products Source: IBISWorld
Philip Morris could stop making conventional cigarettes BBC News November 30, 2016 iQOS did well in test markets PM plans to introduce into additional markets
US Tobacco Products Market Cigarette consumption continues steady decline Industry revenue declines at annual rate of 2.3% 2012- 2016 to $37.6 billion Strong profit growth over last 5 years; $12.1 billion in profit estimated to account for 32.7% of revenue in 2016 Industry revenue expected to decline at an annual rate of 2.4% to $33.3 billion in 2021 Source: IBISWorld
Reynolds American (RAI) Earnings $12.00 $10.68 $10.00 $8.54 $8.47 $8.30 $8.20 $8.00 $6.00 $4.00 $3.20 $1.72 $2.00 $1.45 $1.41 $1.27 $0.00 2011 2012 2013 2014 2015 Net Income Revenue
Altria (MO) Earnings $20.00 $18.85 $17.95 $17.66 $17.51 $18.00 $17.11 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $5.23 $5.06 $4.52 $4.17 $3.38 $4.00 $2.00 $0.00 2011 2012 2013 2014 2015 Net Income Revenue
How does a declining industry have strong profit growth? Acquisition of profitable smokeless companies Aggressive consolidation Acquisition of other manufacturers Combining production facilities Reducing employment through consolidation of production
How does a declining industry have strong profit growth? Unprecedented pricing power
How does a declining industry have strong profit growth? Unprecedented pricing power an addictive product
How does a declining industry have strong profit growth? Unprecedented pricing power an addictive product by being one of the most heavily regulated industries in the world
So what can you take back to the farm? Consolidation That s what you ve been doing for years Is there more you can do ?
Cost for 200 acres % of Total PLANTS $ 48,000 6.7% FERLIZER & LIME $ 77,756 10.8% CHEMICALS $ 120,292 16.7% CURING FUEL $ 65,000 9.0% ELECTRICITY $ 25,280 3.5% OTHER $ 42,804 5.9% CROP INSURANCE TRACTOR, MACHINERY FUEL, LUBE, REPAIRS $ 24,000 3.3% $ 28,074 3.9% LABOR $ 246,238 34.2% INTEREST $ 12,454 1.7% LAND RENT $ 30,000 4.2% TOTAL VARIABLE COSTS $ 719,898
Labor Use in Tobacco Labor estimates for hand harvest Pre-harvest: 46 hours Harvest: Post Harvest: 115 hours total 60 hours 9 hours
Adverse Effect Wage Rates for North Carolina 2011 2012 2013 2014 2015 2016 2017 $9.30 $9.70 $9.68 $9.87 $10.32 $10.72 $11.27
So what can you take back to the farm? Consolidation Spreading overhead costs over more production Regulatory Compliance ...as a competitive advantage?
Some Take-Aways Exchange rates favored increased Brazilian production; 2017 Brazilian flue-cured production is up at over 1.4 billion pounds
Some Take-Aways Exchange rates favored increased Brazilian production; 2017 Brazilian flue-cured production is up at over 1.4 billion pounds Contracted pounds and production decline slightly in 2017
Some Take-Aways Exchange rates favored increased Brazilian production; Brazilian flue-cured production is up at over 1.4 billion pounds Contracted pounds and production decline in 2017 Despite continued reductions in cigarette consumption and increases in taxation and regulation, industry profits remain strong
Some Take-Aways Exchange rates favored increased Brazilian production; Brazilian flue-cured production is up at over 1.4 billion pounds Contracted pounds and production decline in 2017 Despite continued reductions in cigarette consumption and increases in taxation and regulation, industry profits remain strong Watch the heat-not-burn category
Some Take-Aways Exchange rates favored increased Brazilian production; Brazilian flue-cured production is up at over 1.4 billion pounds Contracted pounds and production decline in 2017 Despite continued reductions in cigarette consumption and increases in taxation and regulation, industry profits remain strong Watch the heat-not-burn category Opportunities for flavor style producers are in countries where smokers are expected to trade up to premium brand cigarettes
Some Take-Aways Exchange rates favored increased Brazilian production; Brazilian flue-cured production is up at over 1.4 billion pounds Contracted pounds and production decline slightly in 2017 Despite continued reductions in cigarette consumption and increases in taxation and regulation, industry profits remain strong Watch the heat-not-burn category Opportunities for flavor style producers are in countries where smokers are expected to trade up to premium brand cigarettes What is your competitive advantage? Quality Cost Compliance
Executive Farm Management Program for NC Sweet Potato and Tobacco Farmers Key Topics Strategic Planning Human Resource Management Financial Management Leading Change Risk Management Family Business Issues Assessing Markets Assessing and building key partnerships Strengthening your value proposition
