Tobacco-Producing Region Becomes Supplier to Big Tobacco Manufacturers

Source from:  Chongqing Evening News newspaper 11/18/2004

Chongqing City - a traditional tobacco-producing region in southwest China - is becoming a supplier of high-quality leaf tobacco to big Chinese tobacco manufacturers such as Shanghai Tobacco Group in east China. According to results of a meeting on leaf tobacco production and trade held in Chongqing on November 14, roughly 60 percent of the leaf tobacco to be produced in Chongqing in 2005 will be sold to other Chinese regions, and Chongqing City Tobacco Monopoly Administration will sign contracts with four large Chinese tobacco manufacturers including Shanghai Tobacco Group for the supply of leaf tobacco totaling 210,000 dan (10,500 tons). As a result, leaf tobacco produced in Chongqing will become a major raw material for the production of the famous Red Double Happiness brand cigarettes by Shanghai Tobacco Group and the highly competitive Baisha brand cigarettes by Changsha Cigarette Factory in south central China's Hunan Province in 2005. SIGNING OF BIG CONTRACTS In an address to the meeting on leaf tobacco production and trade, Deputy Director Li Enhua of Chongqing City Tobacco Monopoly Administration revealed that his administration, which doubles as the local tobacco company, will sign contracts with four large Chinese tobacco manufacturers, including Shanghai Tobacco Group, Hangzhou Cigarette Factory and Qingdao Cigarette Factory in east China, for the supply of leaf tobacco totaling 210,000 dan (10,500 tons) in 2005, which will account for 16 percent of the annual leaf tobacco production quota for the city in the year. Previously, Chongqing City Tobacco Monopoly Administration had already signed similar contracts with seven other large Chinese tobacco manufacturers including Changsha Cigarette Factory, Changde Cigarette Factory in south central China's Hunan Province and Jiangsu Provincial China Tobacco Industry Corporation in east China for the supply of leaf tobacco totaling 565,000 dan (28,250 tons) in 2005. Consequently, Chongqing City will supply 775,000 dan (38,750 tons) of leaf tobacco to other Chinese regions in 2005, which will account for 59.6 percent of its annual leaf tobacco production quota in the year. Presently, the leaf tobacco inventories in China can meet the demand of the Chinese tobacco manufacturers for cigarette production for at least three consecutive years. But Li said that along with the concentration of cigarette brands in the hands of a few powerful tobacco manufacturers, demand for high-quality leaf tobacco will keep increasing in China in the years to come. DEVELOPMENT OF HIGH-QUALITY TOBACCO PLANTATIONS Today, high-quality leaf tobacco is increasingly becoming a best-selling raw material for cigarette production in China. For Chongqing City Tobacco Monopoly Administration, the production of high-quality leaf tobacco is undoubtedly a fine business development opportunity. Therefore, Chongqing City has accelerated its pace in developing high-quality tobacco plantations, wishing to gain high returns from the sale of high-quality leaf tobacco on domestic markets in 2005. With a favorable climate condition for tobacco growing and capable of producing high-quality tobacco, Chongqing City is one of the largest tobacco-producing regions in China. The State Tobacco Monopoly Administration (STMA) has raised the annual leaf tobacco production quota for Chongqing City from 1.26 million dan (63,000 tons) in 2004 to 1.43 million dan (71,500 tons) in 2005, the seventh largest in the country. In an effort to further improve the quality of leaf tobacco produced in Chongqing, Chongqing City will invest 30 million yuan (3.6 million U.S. dollars) in improving infrastructure facilities for producing leaf tobacco, and will also invest 130 million yuan (15.6 million U.S. dollars) in a project to improve the tobacco varieties in the city. According to Li, the existing tobacco plantations in Chongqing are generally of a small scale and are scattered in 13 separate districts and counties. Besides, they produce leaf tobacco with big differences in quality. Presently, the proportion of high-quality leaf tobacco in the total leaf tobacco yield in Chongqing is slightly higher than 60 percent, compared with the proportion of 80 percent or higher in other tobacco-producing regions in China. So, Chongqing City is planning to introduce intensive farming in tobacco production, in order that the proportion of high-quality leaf tobacco will go up substantially. LEAF TOBACCO AND CIGARETTE PRICING As high-quality leaf tobacco often falls short of demand in China, Chongqing City Tobacco Monopoly Administration has decided to raise prices of leaf tobacco in 2005, but will not significantly change the pricing of cigarettes. Increases in prices of leaf tobacco have largely been driven by sharp increases in prices of farm produce in China so far in 2004. As a result, the cost of producing tobacco has risen. Results of a recent survey indicated that about 20 percent of the farmers in Chongqing no longer plan to grow tobacco while nearly 30 percent of them are adopting a wait-and-see attitude. Enditem