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The demise of European tobaccos

As the European Union begins phasing out agricultural subsidies, the effects are being felt on the international tobacco leaf market.

World Leaf News

The phase-out of the subsidies begins this year, after it was adopted in 2003.

Feelings are mixed on how the phase-out will affect tobacco-product manufacturers. Some say it will cause a major inconvenience for manufacturers. Others say manufacturers will simply find other sources or change their blends to accommodate the drop.

Rainer Busch, shareholder and president of NewCo Services, a tobacco-services firm based in Rome, Italy, says the drop is of great concern. “The potential reduction in volume of approximately 140 million flue-cured Virginia and 80 million kilos of burley is significant for the global leaf market. The European tobaccos are in most of the major client brands, and it would not be an easy task for the blenders to find replacements for this volume. Medium- and lower-quality tobaccos are easier to replace with other filler markets, but the better-quality tobaccos will be more difficult to replace. The choices of acceptable tobaccos for the cigarette manufacturers are shrinking to [an alarmingly low level].”

He is also concerned about the loss of a politically stable leaf source. “Europe’s biggest advantage was the reliability of supply and the guarantee of international compliance and social standards, which in many other countries are not guaranteed.”

Antonio Abrunhosa, president of the International Tobacco Growers Association, says the effects of the phase-out are already being felt, as growers have begun abandoning tobacco production. “Many growers have already anticipated a possible reduction, and around one-third of the European production is already gone.”

Nikos Allamanis, president of the Federation of Greek Tobacco Processing Industries, breaks down the drop by region and country. “According to provisional information, the drop in the production of tobacco in Italy, Spain, France, Germany and Portugal will not exceed 18 percent on average in 2006 as compared to 2005. As these five countries were producing approximately 200,000 tons, the drop in production may be of the order of 35,000 tons.

“The [amount of] production in Belgium and Austria that will vanish is of the order of only 1,500 tons. In Greece, we expect in 2006 a production of approximately 27,000 tons, which is a drop of the order of 85,000 tons. This yields a total drop of the tobacco production in EU-15 of 121,500 tons or approximately 35 percent of the 2005 crop production.”

Looking at the big picture, this does not make a huge impact. “If we consider that world tobacco production is of the order of 5.5 million tons, the drop in European production represents 2 percent. This is a small percentage, taking into account that world production fluctuates at a higher rate from one year to another depending on weather and demand conditions,” Allamanis says.

While the drop in European tobacco may not be significant on the global market, there are particular varieties of tobacco that Europe offers that will be missed.

Oriental is the most significant, as there are fewer sourcing areas in the world for this type of tobacco. While oriental represents only a small portion of many blends, it is a key component of American-blend cigarettes. Many farmers will likely cease to produce certain types of orientals.

Asked if the drop will affect cigarette manufacturers, Allamanis says, “I am inclined to answer no. Or, if it does, they always have a good way of not showing it.”

—Brandy Brinson