 |
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| Trends: | 97  |
1H98
|
2H98
 |
99?
|
|
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| $ Important Listed Companies | ||||
| Souza Cruz (British American Tobacco Group) | ||||
| Other Relevant Companies | ||||
| Philip Morris, Cibrasa, Cabofriense, Sudan and Santini | ||||
| O The Brazilian Industry | ||||
| The
Brazilian cigarette industry is virtually monopolized by Souza Cruz (with an 85% market
share), followed by Philip Morris (15%). Production and sales, as in the alcoholic
beverage sector, are heavily taxed. Ninety percent of raw-material supplies (tobacco leaf) comes from small-scale growers in the South, which agree on a harvest price with the industry. The processing facilities operate for only six months of the year, during the harvest season, and are closed for maintenance in the remainder; consequently, output indices are highly seasonal. The tobacco harvest runs from November to February and sales from January to June. Tobacco production has outpaced cigarette-industry demand (around 300,000 t p.a.) and the surplus is exported, mostly to the EU (50%) and the USA (30%). Shipments of tobacco and cigarettes account for around 3% of the country’s total exports. |
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| m The Global Industry | ||||
| Brazil is the world’s 4th largest tobacco producer (after China, the USA and India) and has headed the export rankings since 1993 (followed by the USA and Zimbabwe). Paraguay and Belgium are the leading customers. The latter country sells on Brazilian cigarettes to Eastern Europe and part of the volume sent to Paraguay returns to Brazil as contraband. Cigarette exports bring in half as much as tobacco shipments and account for 30% of national output. | ||||
| I Attention! | ||||
| With inflation likely to move up, the cigarette manufacturers may once again be able to take advantage of inflationary income, which had come to a virtual standstill since economic stabilization. On the other hand, if the country declares a moratorium, such earnings will he hit hard. | ||||
| L Outlook | ||||
 |
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Source: Secex |
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| Given
the increase in US smoking restrictions, American makers are likely to initiate an export
drive. Brazilian manufacturers will probably face a reduction in global demand,
particularly from countries in Asia and Eastern Europe (the final destination of Belgian
purchases), as well as a floundering home market. In addition to reduced consumption
growth provoked by the recession, the local industry will also have to confront tighter
anti-smoking measures and an increase in the number of law suits brought against the
producers. We therefore expect 1999 output to drop by 16% to 135 billion units, mainly due to the hefty 56% slump in exports (despite the devaluation). In Latin America and the Caribbean, the slide can be explained by increased export tariffs and in Russia by the economic crisis. Consequently, a good deal of exports which once returned to the country as contraband will probably be incorporated into domestic sales, which we expect to move up by 18% (103 billion units), although still below the levels experienced in the 80’s. Mounting unemployment and the decline in the bulk of wages should ensure that the cheaper brands are the most sought-after. |
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