China's Tobacco Industry Invests Heavily in Agriculture

12/18/2008

The tobacco industry of China has launched a large-scale campaign of investing heavily in the construction of infrastructure facilities for tobacco-growing regions, in the development of a modern tobacco agriculture that will involve an estimated 60 billion yuan (8.6 billion U.S. dollars) in total investment. Southwest China's Yunnan Province - the largest tobacco-producing region in China that accounts for 38 percent of the annual tobacco yield of the country - is the first covered by the campaign. In a recent interview with Chinese news media, Wen Ningjun, chief of the discipline inspection department of Yunnan Provincial Tobacco Monopoly Administration, said that over the past four years, the tobacco industry of Yunnan has invested 5.445 billion yuan (777.8 million U.S. dollars) in subsidies for the construction of infrastructure facilities in the province, which funded the construction of 737,600 projects of irrigation for 6.5124 million mu (434,160 hectares) of tobacco farmland, and the construction or technical transformation of 175,100 leaf tobacco curing barns covering 1.68 million mu (112,000 hectares) of tobacco farmland. In Guizhou Province - another major tobacco-producing region neighboring Yunnan, the investment in the construction of infrastructure facilities for tobacco production has already reached 8 billion yuan (1.14 billion U.S. dollars) - 5.6 billion yuan (800 million U.S. dollars) extended by the provincial tobacco industry, 1.2 billion yuan (170 million U.S. dollars) extended by the provincial government finance and 1.2 billion yuan (170 million U.S. dollars) extended by local farmers in the form of labor service. So far, 2.98 billion yuan (426 million U.S. dollars) has been invested in the construction of infrastructure facilities for tobacco production, said.Deng Zuchang, director of the Administrative Office of Guizhou Provincial Tobacco Monopoly Administration. In central China's Hubei Province, the Provincial Tobacco Monopoly Administration has formulated a package of general plans for investment in "basic tobacco farmland development, construction of support irrigation systems for tobacco production and leaf tobacco curing barns, development of mechanized farming paths, and production of farm machinery for tobacco production." It is planning to invest an extra 1.5 billion yuan (215 million U.S. dollars) in building 25,000 intensive curing barns and 146,000 standard air-curing workshops, developing 2,410 kilometers of mechanized farming paths, and purchasing 24,000 sets of agricultural general machinery and specialized machinery for tobacco production over the next three to five years. For southwest China's Sichuan Province, which is one of the six major tobacco-producing regions in China, it has invested a total of 1.6 billion yuan (229 million U.S. dollars) in building support irrigation systems for nearly 1.3 million mu (86,667 hectares) of tobacco farmland, developing 17,000 kilometers of farming paths, and technically transforming 16,000 intensive curing barns, 2,043 standard air-curing barns and 177 standard leaf tobacco purchase stations, according to Yang Xiaoqiu, deputy chief of the Administrative Office of Sichuan Provincial Tobacco Monopoly Administration. "Since 2005, the tobacco industry has been in a process of building infrastructure facilities for tobacco production in major tobacco-growing zones in 22 provincial-level regions across China," said Wu Jianzhi with the Leaf Tobacco Basis Office of the State Tobacco Monopoly Administration (STMA). It was reported that there are 35 million mu (2.33 million hectares) of basic tobacco farmland in China, scattered in more than 40,000 administrative villages in more than 4,400 townships of more than 580 counties across the country. However, tobacco-producing zones in China are mostly in regions inhabited by ethnic minorities, remote regions and poverty-stricken regions. Of the 592 national-level key poverty-alleviation counties, one-third grow tobacco. It is in such an environment that the campaign of heavy investment in the construction of infrastructure facilities for tobacco production has been unfolded in all the tobacco-growing regions across China. Wu Jianzhi said that from 2005 to 2008, the tobacco industry invested an estimated 20 billion yuan (2.86 billion U.S. dollars) in the form of cash in the construction of infrastructure facilities for tobacco production - 2.431 billion yuan (347 million U.S. dollars) in 2005, 4.335 billion yuan (619 million U.S. dollars) in 2006, 5.383 billion yuan (769 million U.S. dollars) in 2007 and 7.5 billion yuan (1.07 billion U.S. dollars) in 2008. Obviously, the investment was in a trend of year-on-year growth. Of the six major tobacco-producing regions, Yunnan has made the largest amount of investment totaling 5.125 billion yuan (732 million U.S. dollars). Guizhou comes the second, with an investment of 3.28 billion yuan (469 million U.S. dollars). Fujian takes the third place, with an investment of 2.118 billion yuan (303 million U.S. dollars). Sichuan is ranked the fourth, with an investment of 1.828 billion yuan (261 million U.S. dollars). Hunan is at the fourth place, with an investment of 1.543 billion yuan (220 million U.S. dollars). The figure for Henan is not available. However, the 20 billion yuan (2.86 billion U.S. dollars) does not mean an end of investment. STMA Director-General Jiang Chengkang said that over the next four years, the tobacco industry will make an additional 40 billion yuan (5.72 billion U.S. dollar) investment - 10 billion yuan (1.43 billion U.S. dollars) per year - in full-scale construction of support infrastructure facilities for tobacco farmland, including irrigation systems, farming paths, curing barns and mechanization. Jiang said that the 40 billion yuan (5.72 billion U.S. dollars) will be fully raised by the tobacco industry itself. With the 20 billion yuan (2.86 billion U.S. dollars) of existing investment taken into account, the total investment in the construction of infrastructure facilities for tobacco production will reach a high of 60 billion yuan (8.58 billion U.S. dollars). STRENGTHENING OF INVESTMENT IN UPPER ENDS “Intensification of investment in the construction of infrastructure facilities for tobacco production over the past few years has contributed to greatly improving conditions for leaf tobacco production in China,” a leader of the STMA said. It is not difficult to understand that the move of China's tobacco industry - which is still under government monopoly - to invest heavily in upper ends is not only meant to support the development of a modern tobacco agriculture, but is also, more significantly, an important approach for strengthening the industrial chain for it at upper ends. It was reported that because of particularity of the tobacco industry, all processes of tobacco production, from the development of seedlings, planting, leaf tobacco purchase and processing to the sale of cigarettes, depend on specific planning. In particular, tobacco companies enter into cooperation with tobacco growers in the form of signing contracts, in order to guarantee the supply of raw materials for cigarette factories at the lower ends. Official statistics provided by the STMA indicate that as a result of heavy investment in the construction of infrastructure facilities for tobacco production at upper ends over the past four years, 17.29 million mu (1.15 million hectares) of tobacco crops in 2008 are expected to generate 33 billion yuan (4.71 billion U.S. dollars) in output value, with the unit output value expected to reach 1,900 yuan (271 U.S. dollars) per mu (per 0.067 hectare), which is higher than 2002 by one time, and three times higher than 1998. In reality, the fundamental structural reform of China's tobacco industry since 2001 has contributed to making higher requirements for tobacco growing and production at upper ends. In as early as January 2006, the STMA announced a plan to develop 10 large tobacco manufacturing enterprise groups in China, starting a new round of major restructuring of the tobacco industry. According to the reform plan of the STMA, the reform of the tobacco industry will put the 500 billion yuan (72 billion U.S. dollars) worth of its assets at the disposal of China National Tobacco Corporation. On the basis of this, around 10 large tobacco manufacturing enterprise groups will be established in China through corporate merger and acquisition, and efforts will be made to develop 10 existing cigarette brands into big competitive cigarette brands. The 44 existing cigarette-making enterprises in China will be systemically converted into some 10 large tobacco manufacturing enterprise groups. For leading tobacco manufacturing enterprises, they will be first of all required to have an annual cigarette production capacity of 3 million cases (150 billion cigarettes). In November 2008, the STMA approved the merger of Hongyun and Honghe Tobacco Groups to form the new Hongyun Honghe Group, whose annual cigarette production capacity and sales volume will top 4 million cases (200 billion cigarettes). So far, the fundamental structural reform of China's tobacco industry has entered a crucial stage. The tobacco manufacturing enterprise groups involved in the process of merger and acquisition are all making preparations for possible enlargement of the annual cigarette production capacity. For example, both Hongyun Honghe Group and Hongta Group in Yunnan have unveiled their plans to significantly enlarge their annual cigarette production capacity. It is estimated that the annual cigarette sales volume of Hongyun Honghe Group on the domestic market will reach 4.7 million cases (235 billion cigarettes). Hongyun Honghe Group has announced a plan to enlarge its annual cigarette production capacity by reducing the annual output of low-grade cigarettes and reserving the annual cigarette production quotas left unfilled for the production of high-grade cigarettes, in order to realize the target of increasing the single-brand annual cigarette output to over 2 million cases (100 billion cigarettes). Likewise, Hongta Group has also said that it will strive to increase its annual cigarette output to 5 million cases (250 billion cigarettes) in 2009. The supply of high quality raw materials will be the most essential requirement for realization of plans for enlarging the annual cigarette production capacity. "After efforts were made to strengthen the construction of infrastructure facilities for tobacco production, both the quality and quantity of leaf tobacco have been promoted to a significantly higher level," said Zhang Renjia, an official with the tobacco industry of China. Enditem