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The Trade Numerologist: Not Going Up in Smoke

17 July 2018 John Miller

For centuries tobacco drove global trade and helped shape the modern world.

The plant, native to the Americas and sweet to smoke, was long the most valuable export by value from the New World to Europe. It fuelled modern globalization, and led to the establishment of the colonies that became the United States.

These days, tobacco is seen by most people in Europe and the US as too much of a health risk to consume. Less than 20% of Americans smoke, down from over 40% in the 1960s.

But, just like another dirty industry - coal - tobacco refuses to go. There are still roughly a billion smokers in the world, and lots of places where smoking is as regular as eating, where large ashtrays grace tables, and people puff away at desks and dinner tables. In Russia, the smoking rate is 59%; in China 47%; and in Indonesia, 76%, according to the latest figures from the World Health Organization.

The upshot: Tobacco is still part of a business worth almost a trillion dollars a year.

The main tobacco product in the world, and the one that is still the most traded, is cigarettes. Over five trillion are made every year, and they make up 90% of global tobacco production. Other forms include rolled products, cigars, cigarillos, smokeless tobacco, nicotine therapies, electric cigarettes and tobacco for pipes.

Tobacco companies have been successful in getting consumers to pay higher prices, putting a firm floor under their revenues, despite new rules cracking down on marketing and sales.

Global tobacco production has held steady at between six and eight million tons a year since 1990; 40% of that is manufactured in China.

To be sure, even without regulations, there are inherent restrictions to shipping cigarettes. The so-called "Big Five" tobacco companies -- US-based Phillip Morris, British American Tobacco, UK-based Imperial Brands, Japan Tobacco International and China Tobacco -- tend to make their cigarettes in the markets where they're selling them. That allows them to bypass high import tariffs - which average around 35%, according to the World Trade Organization, among the highest for any traded good.

Global trade is around $39 billion a year, only around one-twentieth the side of the total market. That's not including illegal trade in cigarettes. Tobacco companies estimate that a half-trillion cigarettes a year are sold illegally. It also does not include consumers in the world's biggest market -China - who buy almost all of their cigarettes from their state suppliers. Trade is dominated by European countries exporting excessive production they can't sell in their home markets.

World's top tobacco exporters, 2017

  • Germany $4.7 billion
  • Poland $3.4 billion
  • Netherlands $3.3 billion
  • US $2.2 billion
  • Brazil $2.1 billion
  • Belgium $1.8 billion
  • China $1.3 billon
  • South Korea $1.2 billion
  • Italy $1.1 billion
  • Indonesia $1.1 billion

Tobacco companies have taken advantage of Germany's export infrastructure, making cigarettes and other tobacco products in the country, and then exporting them all over the world, to areas including the Middle East and Eastern European countries like Poland and Romania.

Germany's top tobacco markets, 2017

  • Italy $700.7 million
  • Spain $633.4 million
  • Netherlands $312.9 million
  • Saudi Arabia $248.1 million
  • France $212.4 million
  • Poland $185.7 million
  • Belgium $126.9 million
  • UK $126.2 million
  • UAE $110.1 million
  • Romania $107.7 million

And their way of business is working: The Big Five tobacco companies generate over $140 billion a year in sales, with profits over $30 billion.

The biggest growth markets in global tobacco trade are in poorer countries. For example, the number of smokers in Indonesia is expected to increase to almost 100 million in 2025, from around 70 million, according to the WHO.

But they're likely to buy cheap, domestically-produced cigarettes. The biggest importers on the global trade markets are still rich nations, led by Japan.

World's top tobacco importers, 2017

  • Japan $4.7 billion
  • Germany $2.5 billion
  • Italy $2.4 billion
  • US $2.1 billion
  • France $2 billion
  • Spain $1.9 billion
  • Belgium $1.8 billion
  • China $1.7 billion
  • Netherlands $1.5 billion
  • Russia $938.2 million

And Japan, where the smoking rate is 19% and which produces a lot of its own cigarettes, gets most of its imported tobacco from Europe.

Japan's biggest tobacco suppliers, 2017

  • Italy $1.5 billion
  • South Korea $676.4 million
  • Lithuania $490.9 million
  • Switzerland $433.2 million
  • Ukraine $403.7 million
  • Poland $339.8 million
  • Serbia $250.4 million
  • US $176.6 million
  • Brazil $86.9 million
  • Romania $58.5 million

Of course, the most famous tobacco producer in the world might be Cuba. Its exports, almost entirely of cigars, have risen in each of the last three years.

Cuba tobacco exports

2012: $209.8 million

2013: $292.9 million

2014: $190.7 million

2015: $175.9 million

2016: $201.9 million

2017: $233.7 million

And they're going to trading hubs like Hong Kong and Switzerland.

Top buyers of tobacco from Cuba, 2017

  • Hong Kong $58.3 million
  • Switzerland $31.5 million
  • Spain $28.9 million
  • Germany $16.3 million
  • Belgium $7.8 million

On the other side of the spectrum, tobacco companies have been producing new smokeless tobacco products like vapor products and snus that are considered less risky than cigarettes and cigars. The total global market for those is worth around $15 billion a year, and growing, but it's still a fraction of the cigarette market.

Posted 17 July 2018 by John Miller, Guest Blogger

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