Rationalizing Leaf Processing

Source from:  tobaccofarmquarterly.com March 2, 2007 03/06/2007

Forty of China's 63 tobacco threshing and redrying enterprises (TTRE) have 'reformed' their processes and are now limited liability enterprises funded by tobacco manufacturers and other commercial investors, according to a report by Allan Liao for Tobacco China Online. But Liao reports that while the reform process has brought benefits, it has also raised some new problems. China's annual leaf tobacco processing capacity far exceeded the quantity of tobacco bought in China, he said, so many TTREs could not obtain enough orders and were suffering from low productivity. Some were making a loss. This situation had led to some tobacco-growing regions 'tying-in' trade so as to compel cigarette factories to process the tobacco they purchased locally at designated local TTREs. And this in turn was negatively impacting fair competition. Other TTREs were indulging in cut-throat competition, illegally grabbing market shares by cutting processing fees to below those set by the state. There was also a problem of structural irrationality, wrote Liao. As the State Tobacco Monopoly Administration had shifted tobacco growing from unsuitable regions in the north to suitable regions in the south, some TTREs based in the north now had almost nothing to do. Also, while some tobacco-growing regions had a lot of TTREs, others had virtually none; so some cigarette factories had to have tobacco processed far away, while others did not, he added. Because of these problems, a small number of TTREs were making big losses and a more rational distribution was being developed through mergers and acquisitions. It was essential to accelerate the systemic reform of all remaining TTREs to enable them to become genuinely independent in the marketplace, with independent business accounting and responsibility for their own profits and losses. Enditem