China, Brazil Deepen Tobacco Ties

Source from:  China Daily  10/08/2014

China Tobacco International Brazil (CTIB) will invest $20 million next year in the joint-venture China Brasil Tabaco (CBT) in Rio Grande do Sul, a southern state of Brazil, said Ye Hai, vice-president of CTIB on Sept 30.

Ye told China Daily that the total investment will reach $40 million for the construction of CBT's office, warehouses and factories. Santa Cruz do Sul and Venancio Aires, two large cities in Rio Grande do Sul, are competing for the final location of CBT.

"We have gained support from local agricultural and industrial associations because the projects will create more job opportunities and tax income. The decision will be made with the consideration of tax policies and land prices. The construction of warehouses will be the first step," said Ye.

CTIB formed CBT in 2012 together with Alliance One International, a large tobacco enterprise from the United States, with CTIB acquiring 51 percent of the venture by an initial investment of more than $10 million.

"Joint-venture can help us reach enough tobacco growers in Brazil to guarantee the importation," said Ye. According to the agreement, Alliance One International transferred 6,039 tobacco growers to CBT with the acquisition ability of 25,000 tons of raw material each year.

CBT now ranks as the fourth-largest tobacco company in Brazil with an annual increase of several thousand tons of tobacco leaves importation and contributes about $8 million in taxes each year, according to CTIB.

The joint-venture aims to promote the production of quality tobacco leaves to supply the Chinese market, which is the world's largest and fastest growing market of tobacco. The company hires 110 local employees for the daily operation and another 1,500 during periods of harvest, sorting and drying.

"We aim to realize complete localization because it is much easier for local employees to communicate with tobacco growers, there is no cultural difference or language barrier," Ye said.

CTIB, a subsidiary of China Tobacco International (CTI), entered Brazil in 2002 and started to import tobacco leaves from local retailers in 2009. With years of development, Brazil has become China's second-largest tobacco sourcing market with an export volume accumulated to 25,770 tons from 2010 to 2014.

According to a trade data report released by World Trade Daily recently, China produced 40 percent of the world's total tobacco in 2012. While Brazil, as the second-largest producer, owns 27 percent of the world market by value and is the world's largest tobacco exporter.

"Brazil has obvious advantages in the tobacco industry because of its large production and stable quality, so we do not need to change the formula of our products too often. Moreover, the local policy is also stable, which can reduce the risks of running companies here," said Ye.

CTI has four international sourcing markets for tobacco leaves in the world, including Brazil and Argentina in Latin America. However, due to the unstable economic environment and continuous inflation in Argentina, CTI is reducing the importation from this country.

Brazil is now China's second-largest international sourcing market of tobacco leaves, occupies 35 percent of China's total imports. Enditem