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May, 2008

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European Union
Cigarette Trade Changing

by John Parker

The EU continues to expand its economic prowess in the tobacco industry; snapshots of the business, nation by nation.

The share of total EU cigarette exports for Germany and the Netherlands combined declined from 56% in 2006 to 53% in 2007, as Poland’s share climbed from 9 to 11%. Cigarette exports increased significantly in 2007 from France, Portugal, and Latvia. Dramatic gains for cigarette exports from Lithuania and Austria during 2003–05 were followed by a slight decline in 2007. The movement of cigarettes and other consumer goods among the 27 members of the European Union is increasing with advantages of a free trade system.

The EU remained a large net exporter of 130.4 bn cigarettes in 2007. Most of the exports to countries outside the EU go to the Middle East and Africa. Italy and Spain combined accounted for about 36% of the 380 bn cigarettes imported by EU countries in 2007. Efforts by manufacturers in the EU to improve quality and export competitiveness means strong demand for US leaf tobacco for blending. The 57.4% ad valorem tariff has meant a steep reduction for sales of cigarettes from the United States to EU countries. An added reason for EU importers to buy US tobacco is the way quality has improved for cigarettes from Russia and Ukraine and their potential for sales to smokers in the EU.

The US dollar equivalent for the average price of cigarettes in specified EU countries moved higher in 2007. The average price for a pack of 20 cigarettes was equivalent to about $10 in the UK in 2007. In a number of EU countries the average price was in the range of $6 per pack of 20. The euro had a value of 82 US cents when it became the currency of 11 members in 2002, and the average value during late 2008 might be nearly double the 2002 rate. Use of the euro has apparently added to the intra-EU trade bonanza. The strength of the currencies still outside the euro zone varies. Quick and efficient banking contribute to trade flows and open borders save time in transportation. The UK, Denmark, and Sweden have strong currencies and the average price for cigarettes in those countries in terms of dollars is comparatively high. More smokers have shifted to roll-your-own cigarettes as retail prices climbed. That has tended to provide a downward pressure on cigarette sales in some countries. Higher taxes account for most of the increase in cigarette prices.

Total EU Cigarette Exports Increased In 2007: Total cigarette exports from the combined 27 countries of the European Union increased 7.2% in calendar 2007 to a peak of 510.5 bn pieces. Higher retail prices tended to cause a slowdown in sales in some countries. Most countries have placed more restrictions on where people may smoke. Limitations on where cigarettes can be advertised in many countries have been implemented. These restrictions and the rising cost of cigarettes left a different setting from that found several years ago.

German Cigarette Exporters Find Customers In Many Countries: Germany remained the leading EU cigarette exporter in 2007, but the 3% addition to 159 bn was relatively small compared with the galloping pace in several previous years. Exports of cigarettes from Germany to the new EU 12 increased sharply during 2004 and 2005. The pace of growth for sales to the new EU 12 slowed in 2007. Greater competition from Poland, Czech Republic and Latvia left less opportunity for further gains by German cigarette exports in some markets of East Europe. Poland, and Czech Republic had dramatic gains for cigarette exports to Hungary in 2007. Exports of cigarettes from Germany to some countries in the Middle East, Azerbaijan, and Japan were higher in 2007.

The Netherlands Exports Mostly To Nearby Markets: Exports from the Netherlands declined 1% to 112.3 bn pieces as high prices apparently caused more importers to seek less costly cigarettes. The average price of about 62 cents equivalent for cigarettes exported from the Netherlands in 2007 pushed the value to $3.5 bn. Dutch cigarette exports to France remained strong with the shipment of 30 bn pieces in 2007. Dutch cigarette exports to Germany, Belgium, Italy, and Spain help to provide premium brands for smokers in those countries. Dutch cigarette exports beyond the EU have been comparatively small.

Poland Expanding Cigarette Exports To Markets In EU and The Middle East: Poland had a 41.6% rise in 2007 cigarette exports to 56.7 bn pieces. Poland’s cigarette exports increased 67% in value during 2007 to $637.8 mn in value. Multinational investments in Poland have provided cigarettes with improved quality and attractive packaging. Poland had dramatic gains for cigarette exports to a number of markets in the EU, Iraq, Arabian Peninsula, and North Africa recently. The attractive average export price of 22.5 cents per pack of 20 contributed to the boom for Polish exports. Poland’s share of cigarettes sold in Hungary increased sharply in 2007. Poland exported 2.5 bn cigarettes to Iraq in 2007.

French Cigarette Exports Up Sharply In 2007: France has a 63.1% increase in cigarette exports to 30.3 bn pieces, following comparatively flat exports during 2000–06. In addition to gains for deliveries to some other EU markets, French cigarette exports to Turkey and Iraq were much higher in 2007. France exports some cigarettes to a number of countries in Africa. Countries in the franc zone in Africa have advantages in currency conversion and banking when buying products in France.

United Kingdom’s Cigarette Exports Were Higher In The Past: During the 1990s cigarette exports from the United Kingdom were more than 100 bn pieces annually. This comparison causes the exports of 33.6 bn pieces in 2007 to appear modest. Much of the decline for UK cigarette exports in recent years has been because of reduced sales in Far East markets, especially Singapore and Hong Kong. Sales of cigarettes made from predominately flue-cured tobacco in the UK have not fared well in some other EU markets where blended cigarettes have gained a greater share.

Austria Has Busy Cigarette Trade With Bordering Markets: Austria’s upward movement for cigarette exports hit a snag in 2007 from so much rising competition, and declined a tenth to 25.7 bn pieces. Austria had a sharp rise for cigarette exports to neighboring countries during 2005 and 2006, but competition from some expanding exports by Czech Republic and Poland contributed to the 2007 dip. The arrangement for Austria to deliver 10 bn cigarettes to Germany continued in 2007. Czech Republic and Hungary are important markets. Deliveries of Austria’s cigarettes to Romania in 2007 were below the level recorded in some earlier years.

Portugal Expanded Cigarette Exports Beyond The EU In 2007: Greater output of improved brands contributed to Portugal’s 23.7% increase in cigarette exports to 14.8 bn pieces in 2007. Shipments from Portugal to North Africa, Turkey, and Spain contributed to the increase. Portugal’s cigarette manufacturers sharply increased purchases of US tobacco in 2007 as efforts to improve cigarette quality proceeded.

Denmark Specializes In Quality Brands: The various versions of the House of Prince brands are available in many stores in EU countries not far from Denmark. Exports of cigarettes from Denmark increased 1.7% in 2007 to 5.3 bn pieces in 2007. Denmark has been a steady importer of US flue-cured and burley tobacco.

Luxembourg’s Cigarette Exports Down A Tenth In 2007: Luxembourg is a net exporter of cigarettes as convenient trade with neighboring countries expands. Competition for exports to France contributed to the decline to 6.1 bn pieces in 2007. Imports of cigarettes were off 17% in 2007 to 3.3 bn pieces.

Czech Republic Exports Up 23% In 2007: Exports of cigarettes from Czech Republic had some highs and lows in the past. Before the boom in output from new factories of the multinationals changed the setting in Russia, exporters from Czech Republic made sales of premium brands from a modern factory east of Prague. After loss of the Russian market, Czech exporters increased sales in other countries of East Europe. Big gains for exports to Slovakia helped to boost Czech cigarette total exports in 2007 to 14.3 bn pieces.

Latvia’s Exports Made Rapid Gains In 2007: Latvia’s cigarette exports more than tripled in 2007, rising to 9.7 bn pieces. That was an increase of 379.7% over 2006. Latvia’s exports to Lithuania, Estonia, and Sweden did well in the recent year. Since Estonia no longer manufactures cigarettes, a share of the increased sales in Estonia come from Latvia.

Lithuania’s Upward Trend Through 2006 Followed By A Slight Decline In 2007: Lithuania was able to develop markets for cigarette exports to some countries in the Middle East, in addition to larger sales to some of the other new 12 members of the EU. Exports of cigarettes from Lithuania were down a tenth to 12 bn pieces in 2007. Competition from both the EU and CIS exporters apparently contributed to Lithuania’s focus on increasing cigarette exports to the Middle East.

Bulgaria Had A Rebound For Cigarette Exports In 2007: The peak for Bulgaria’s cigarettes tended to drift downward after trade agreements with state trading firms in Moscow ended in the early 1990s. Bulgaria’s cigarette exports had been over 45 bn pieces about two decades ago, but were down to 2.6 bn pieces in 2006, before rebounding 67% to 4.3 bn pieces in 2007. Many of the imports of Greek cigarettes are transported on to other countries. Customs reports for Bulgaria counted 3.8 bn cigarettes as imports in 2007, compared with 1.1 bn in 2006.

Malta’s Trade Up: Malta exports of cigarettes increased in 2007, compared with only token shipments in 2006. The more open economic policy of Libya provided a growing nearby market for exports of various products from Malta. Imports of cigarettes into Malta were 628 mn pieces in 2007, providing the favorite brands for some smokers.

Slovenia’s Cigarette Exports Diminished: In a competitive setting some participants may leave the scene. Exports of cigarettes from Slovenia fell from 2 bn pieces in 2006 to only 48 mn pieces in 2007. Cigarette imports into Slovenia fell 2% to 4.7 bn in 2007, arrivals from Austria remained important. Imports of cigarettes into Slovenia declined 2% in 2007 to 3.8 bn.

Cigarette Exports From Some EU Members Were Higher In The Past: In contrast to the remarkable gains for cigarette exports by Germany, France and Poland recently, exports from the UK declined to a low point in 2006, before large shipments to Ireland contributed to a rebound in 2007. With possibly the highest world retail price for cigarettes and a loss of previously important Far East customers. UK cigarette exports fell from $913 mn in 2005 to $300.2 mn in 2007.

Belgium’s cigarette exports rebounded 42.5% to 2.3 bn in 2007as the average price declined from earlier peaks. The average export price for Belgian cigarettes was 70% higher in 2005 than price reported for German exports, and nearly five times greater than the average price for cigarette exports from Greece. Traders and smokers in the EU apparently made a close watch on prices and quality of cigarettes marketed in the last three years.

Net Value For German Cigarette Traded Up In 2007: German cigarette exports reached a peak of $3.478 bn in 2007, compared with $3 bn in 2006, as cigarette imports declined from $595.6 mn in 2006 to $558.1 mn in 2007. That meant a net export value of $420 mn in 2007, compared with $401 mn in 2006. Dramatic gains were made for exports to Spain and much of East Europe during 2004–06, but the pace of expansion slowed in 2007.

By 2006, total US cigarette exports had declined to about $1.2 bn. A decade ago, the United States was the leading world exporter of cigarettes. During 2008, German cigarette exports may have a value about four times the US value. US cigarette exports to the EU had been in the range of $2 bn annually a decade ago, but loss of the Antwerp trade pushed the value to a low of $9.2 mn in 2005, followed by a rebound to $11.3 mn in 2006.

The average price for German cigarette exports rose to 43 cents per pack of 20 in 2007. In addition to the interesting opportunities found by German cigarette manufacturers in other EU markets and beyond, concern about the downward drift in domestic sales and the shift to roll-your-own by more smokers has been obvious. Reported cigarette imports into Germany were up 1% to 29.4 bn pieces, and some economists have estimated that uncounted imports may be not far behind that level. The average reported price for cigarettes imported into Germany declined 7% to 38 cents per pack of 20 in 2007.

Multinationals dominate the manufacture of cigarettes in Germany. Philip Morris accounts for about 40% of the production, and BAT 24%. Imperial Tobacco through the purchase of Reemstra accounts for about 23% of output. The share of output for Japan Tobacco International had declined to less than 4% by 2006.

Cigarette Imports Into Spain Down 1% In 2007: Cigarette imports into Spain declined 1% in 2007 to 60.8 bn pieces from the peak of 61.4 bn pieces in 2006. The average import price rose to 46.5 cents per pack of 20 and the value for cigarette imports climbed 21.9% to $1.4 bn. This was a change from the way imports increased nearly a fourth in 2005 to 57.7 bn pieces.

The share of Spain’s cigarette imports coming from Germany was over 60% during 2004–07. Spanish smokers greatly increased purchases of imported German cigarettes in the late 1990s. Despite progress with arrangements to improve the quality of cigarettes manufactured in Spain, demand for German cigarettes remained strong. During 2003, German cigarette exports to Spain were 31 billion pieces. Shipments moved up to 35 bn pieces in 2007.

Spain’s cigarette exports declined 2.4% to 10.3 bn pieces in 2007. Algeria and Morocco were significant markets. The average price for cigarette exports from Spain increased a sixth to 29.4 cents per pack of 20 in 2007.

Italy Importing More Cigarettes: Imports of cigarettes into Italy remained flat at 75.7 bn pieces in 2007, but higher prices pushed the value to $2.7 bn. Germany, Netherlands, and Austria are major suppliers of Italian cigarette imports. Italy is a competitive market where about a fourth of the cigarettes imported are from Germany. The Netherlands, Austria, and France have also had interesting gains in exports of cigarettes to Italy. Increased output of quality cigarettes by manufacturers in Italy has not stemmed the tide of imports as more EU countries seek to get a share of the large Italian market.

French Cigarette Imports Down In 2007: Imports of cigarettes into France declined 3% to 48.5 bn pieces valued at $1.85 bn in 2007, for an average price of 76.3 cents per pack of 20. France had net imports of 18.2 bn cigarettes in 2007, compared with net imports of 31.4 bn in 2006. France was the fifth leading customer for German cigarette exports in 2005, with the delivery of 18.6 bn pieces - double the 2003 level.

Dutch Cigarette Imports Declined 40.4% In 2007: Imports of cigarettes reported by the Netherlands declined 40.4% in 2007 to 14.6 bn pieces, compared with 24.6 bn in 2006. The average price for Dutch cigarette imports dropped 2% to 33.5 cents per pack of 20 in 2007. Cigarettes manufactured in the Netherlands are usually more costly than a number of brands delivered from Germany or Luxembourg. Dutch purchases of cigarettes manufactured in Germany were remarkably steady in the range of 7 bn pieces annually during 2002–07. The Netherlands imports a larger share of the cigarettes purchased by smokers at convenient markets in grocery stores, tobacco shops, and stores located at places where petroleum is sold.

Finland’s Cigarette Imports Up Slightly In 2007: Cigarette imports into Finland increased 2.6 to 5.4 bn pieces valued at $136.5 mn in 2007. Finland’s fascinating business related to the inexpensive boat trips to Estonia appears to have contributed to a rebound for German cigarette sales to wholesale traders in Finland in the last several years. It appears that Estonia has become an extended market for Finnish wholesalers since 2004. Also, Finnish traders have extra business related to much greater use of ports in Finland for unloading cargo for placement on trucks making deliveries to Russia. The average retail price for cigarettes in Finland was equivalent to about $6 per pack of 20 in 2007. That was about double the retail price in Estonia, and far above the prices in Russia.

Danish Cigarette Imports More Than Doubled In 2007: Cigarette imports by Denmark rose 240% to 4.5 bn pieces valued at $78.6 mn in 2007. The average price for Danish cigarette imports increased 2.3% in 2007 to 34.9 cents per pack. Danish purchases of cigarettes made in Germany showed a sharp upward trend in recent years.

Sweden’s Cigarette Imports Down A Tenth In 2007: Imports of cigarettes reported by Sweden declined a tenth to 6.7 bn pieces valued at $146.7 mn in 2007, as the average price per pack rose 17.5% to 43.6 cents per pack. Sweden’s revenue officials observed some years ago that when cigarette taxes get too high, smokers find alternatives to regular stores. Some smokers were taking trips to Denmark, Latvia, or Estonia partly for making cigarette purchases. As the domestic retail price was sharply reduced because of lower taxes, the revenue collected from taxes went up. Sweden has an interesting border trade with Norway in cigarettes. In addition to collecting more revenue with the lower taxes, the lower retail prices in Sweden attracted more customers from Norway shopping in border areas. Apparently many of those sales were not counted in the reported exports of 174 mn cigarettes from Sweden in 2007.

UK Cigarette Imports Down In 2007: Reported cigarette imports into the UK declined 31.4% to 4.3 bn pieces, valued at $351.7 mn in 2007. There is a concern that many shipments of cigarettes made through the Channel tunnel are not counted or taxed appropriately. It has been difficult for the UK smokers to have very high retail prices for cigarettes in the range of $9 per pack of 20 in recent years. The high prices tend to contribute to efforts by smokers to find cigarettes where the high taxes have been eluded. Taxes account for over 80% of the retail price for cigarettes distributed through appropriate channels.

The difficult setting in the UK has caused Imperial to focus on investments in other countries to offset sagging sales at home. Imperial had about 45.5% of the UK market for cigarettes in 2006, about 2% greater than its 2005 share. Lambert & Butler manufactured by Imperial accounted for 15.5% of UK cigarette sales during 2006, and Richmond was the second leading brand with 14.9% of sales. Imperial’s profit is likely to be higher in 2008 than the $1 bn reported during in 2006. The price for Imperial on the New York Stock exchange has been relatively stable recently.

Ireland’s Cigarette Imports Quadrupled In 2007: Imports of cigarettes reported by Ireland zoomed upward to 9.3 bn valued at $72.6 mn in 2007, compared with 2.1 bn in 2006. The average price for imports declined from 53.4 cents per pack in 2006 to 15.6 cents per pack in 2007. Arrivals delivered from UK exporters to Irish trades accounted for much of the 2007 increase.

Hungarian Cigarette Trade Changing With Free Trade Setting: Hungary reported an increase of about 80% for cigarette exports in 2007 to 3.85 bn pieces, valued at $125.6 mn. Reported cigarette imports declined to 455 mn pieces, and some of the large Polish deliveries may have been for transit traders making deliveries to Serbia.

Romanian Imports Down, Cigarette Export Up: Investments by the company with headquarters in British Virgin Islands in Romania apparently meant a change in the country’s cigarette trade. During 2004–06, Romania had been an importer of about 8 bn cigarettes annually, with large arrivals from Germany and Austria. Cigarette imports into Romania declined to less than 1 bn pieces in 2007. Cigarette exports reported by Romania rose from a low level in 2006 to 988 mn pieces in 2007, valued at $182.8 mn.

Cigarette Imports By Cyprus Increased In 2007: Efforts to portray a certain focus contributed to a reduction in the transit trade through Cyprus for US origin cigarettes during the late 1990s. Imports of cigarettes into Cyprus rose 5.7% to 1.9 bn pieces valued at $46.6 mn for an average price of 48.5 cents per pack of 20 in 2007. Exports of cigarettes from Cyprus were off just 1% to 907 mn in 2007.

Slovakia’s Cigarette Imports Up Sharply: Imports of cigarettes reported by Slovakia increased 251.8% to nearly 12 bn pieces valued at $216.6 mn in 2007. The average price for cigarettes into Slovakia rose 54.7% in 2007 to 36.5 cents per pack of 20. Arrangement for special trade between Czech Republic and Slovakia remained even after the former Czechoslovakia separated in 1993. Then in 2004 both countries joined the EU. Their currencies have shown strength recently.

Tobacco International - May, 2008

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