European Leaf Perspectives

Source from:  TJI 01/24/2011

Antonio Abrunhosa, chief executive of the International Growers Association (ITGA), on the future of tobacco growing under the new regulatory framework of the European Union Common Agricultural Policy (CAP). European farmers are anxiously following the debates in Brussels and other European capitals over the reform of the CAP, which is to be completed by 2013. Tobacco growers are rather more anxious than other farmers as they are already going through the second reform in ten years and the third one is coming. The European tobacco grower pays per day, on average, what a Zimbabwean grower pays in a month. This does not include European social security costs, which are the highest in the world). In addition, around half of the costs of growing tobacco are for labour in Europe. It is thus obvious that tobacco in Europe has either to be subsidised or would have to fetch very high prices similar to those of Japanese tobacco. As a matter of fact, tobacco growing has been subsidised by the EU since the creation of the tobacco common market organisation (CMO) in 1970; this allowed companies for more than a decade to pay for European tobacco at levels similar to those of Tanzania or Uganda. From 2007 many European growers began receiving 40 to 100 per cent of their historical subsidy decoupled from production, which meant they received the subsidy without producing any tobacco. That led to varying drops in production, depending on the country. In Greece, for instance, production fell from 130,000 tonnes to little more than 22,000 tonnes, as the growers received 100 per cent decoupling. In 2010, a new system was set in place by which half of the historical subsidy goes to rural development, basically investment, supposedly in alternative crops, and the other half is decoupled from production and given to the grower. Everybody was expecting a huge fall in production with this new system but, surprisingly, in most of the producing areas, production has not fallen by much, mainly because there were no alternatives to tobacco, as almost all the other agriculture prices were depressed before the Russian fires. However, the main factor for this was the rising prices paid for European leaf, between USD 2 and 3 (EUR 1.43 and 2.15) per kg for Virginia and burley and a lot more for the best oriental leaf. The main growing countries have still managed to channel some government support for the tobacco growers, between EUR 0.20 and 0.80 per kg, not including investment support in the EU 15 and something more, but decreasing every year in Poland and Bulgaria. That made the difference, allowing growers to cover their costs. Nobody knows what kind of subsidies the next CAP will bring but there is no doubt that there will never be a return to the previous level of subsidies for tobacco, unless some national support is allowed or some tobacco-growing countries go the Swiss way, with a small percentage of the cigarette tax going to the growers. So the future of tobacco growing in Europe will depend completely on the growers' ability to cut costs and the companies' willingness to pay prices close to US levels. Of course, the euro/dollar and the dollar/real (Brazil) exchange rates will be important parts of the equation. And the stability of supply, technical control and absence of negative social impacts may also weigh on company decisions. Enditem