Tobacco acreage in India to shrink on falling demand

The country's tobacco exports dropped 9% in value terms from Rs 6,100 cr in 2013-14 to Rs 5,600 cr in 2014-15

Indian tobacco exports are expected to remain muted because of a fall in global demand and record supplies with all major exporting nations. The country's tobacco exports dropped 9 per cent in value terms from Rs 6,100 crore in 2013-14 to Rs 5,600 crore in 2014-15.

Offtake so far in auctions has been 58 million kg against 105 million kg last year. The Tobacco Board has prolonged auctions till the end of September in Andhra Pradesh, by when it expects traders to contract most of the 67 million kg of carry-over stock held by farmers.

In Andhra Pradesh, auctions of flue cured virgin (FCV) tobacco take place between January and July, and in Karnataka between September and February. Prices of FCV tobacco in India dropped 10 per cent to $1.71 per kg this year from $1.85 a year ago. There was also a 10 per cent fall in production to 280 million kg, but large carry-over stocks exerted their pressure on prices.

The Tobacco Board has decided to reduce the FCV crop size by one-third to 128 million kg from 172 million kg last year in this kharif season. Last year, the total FCV production was 276 million kg. Andhra Pradesh accounted for 62 per cent, or 172 million kg, and Karnataka for the remaining 104 million kg.

At a meeting last week, the board’s chairman, Gopal K, said it had reached an understanding with buyers for offloading excess stocks by September. A top official of the board told Business Standard the quantity contracted by the local tobacco industry was weak. “A leading tobacco player has reduced the contracted FCV quantity by almost half to 20 million kg, citing a fall in demand,” he said.

Global activity suggests no improvement in demand in the next crop season as well. “We could see continued reduction in crop size in all major exporting nations for the next two seasons,” the official added.

Tobacco is cultivated in the heavy black and northern light soils of Andhra Pradesh as a post-monsoon crop and as a monsoon crop in the light soils of Karnataka. It is also grown in Odisha and Maharashtra in small quantities.

According to data provided by the Tobacco Board, 8.16 million kg of tobacco had been sold at Rs 104.71 during July 4-10, against an average 3.02 million kg sold during the last 17 weeks. The average FCV price saw an appreciation of Rs 2 a kg, and Rs 5 a kg in the preferred north light soils FCV variety. “We should have acted early, in the last crop season itself, by cutting down the crop size.” said another board official who wished not to be named. According to him, Indian FCV tobacco must improve its flavour and weed out non-tobacco matter and pesticide residue to remain competitive in the global market.

In Brazil, the leading exporter, FCV tobacco prices dropped around 30 per cent to $2.52 per kg in 2015 from $3.60 in 2014. Production witnessed a 7 per cent cut to 570 million kg from 610 mn kg a year ago. In the US, production this year is expected to be 204 million kg against 227 mn kg in 2014. Of the global production of 4,281 million kg in 2015, China accounted for more than half at 2,250 million kg, and the market there is controlled by a state agency.

Tobacco Board officials said all major exporting nations were slashing their crop size. "This will help the market recover starting from the 2017-18 season," an official said.