India Tobacco Exports may Rise to Record $600 mln

Source from:  Most Popular - Business By Rajendra Jadhav MUMBAI, June 26  06/27/2008

India is likely to export a record $600 million of tobacco in 2008/09, as a shortfall in global output boosted demand and pushed up prices to new highs, a senior official said. "Prices have risen about 70 percent from last year and importers are buying at these levels also. At this price, exports will touch $ 600 million ," J Suresh Babu, chairman of the Tobacco Board, told Reuters on Thursday. In the year ending March 2008, tobacco exports rose 32 percent to $503 million, he said. The average price of Flue Cured Virginia , a premier grade used for cigarette-making, has risen more than 78 percent to 84.67 rupees per kg, from 47.47 rupees a year ago. A shortfall in other main producing countries like Brazil has pushed up prices, which will sustain at these levels until global production rises, Babu said. India is the second biggest producer of tobacco after China and the fourth-biggest exporter of unmanufactured tobacco. However, rising exports and higher prices are hurting Indian cigarette makers like Kolkata based ITC Ltd , the biggest cigarette maker in the country, and Godfrey Phillips India Ltd. . "They have to buy at higher prices along with the exporters. There cost of cigarette manufacturing will go up," Bellam Kotaiah, president, Indian Tobacco Association, said. He said multinationals like British American Tobacco , Japan Tobacco Inc. <2914.T>, Philip Morris International, Imperial Tobacco Plc are buying Indian leaf at much higher prices compared to last year. Out of total output of FCV, India usually exports around 55 percent, while the domestic market consumes the rest. HIGHER ACREAGE "Farmers are happy with these prices, they may grow more tobacco this year," Kotaiah said. The Tobacco Board fixes crop size for FCV every year, but farmers often violate rules and cultivate the leaf on a larger area. The board has set a crop size of 260 million kg for FY09. "There may be slight increase in the acreage due to higher prices. But there is no need to increase it. Prices will fall if production will rise. Present crop size is ideal for industry and farmers," Babu said. However, the southern state of Karnataka, the second biggest producer of FCV, hasn't received enough rainfall this season delaying the cultivation process, Babu said. The federal government is trying to reduce area under the crop in sync with developed countries to cut tobacco consumption in the country. Enditem