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October, 2007

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Central America’s Free Regional Trade Influences Cigarette Business

By John Parker

A closer look at the regional numbers gives the international market reasons to hope
and reasons to be wary.

Central America has a rapidly growing population. It was estimated at about 42 mn in the summer of 2007. The seven countries are Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. Domestic cigarette output provides most of the cigarettes sold in each of the seven countries. BAT is the leading manufacturer of cigarettes in the area. US cigarette exports to Central America have been few, but sales of US tobacco for use by some manufacturers of tobacco products in Central America rose to a peak of $20 mn in 2006. US imports of cigars from Nicaragua and Honduras increased sharply in the recent year. Total US imports of leaf tobacco from Central America doubled in 2006, reaching $20.4 mn, US imports of tobacco products from Central America rose to a peak of $112.4 mn. Compared with $97.8 mn in 2005.

Cigarette Output Shows Upward Trend In Central America: Estimated cigarette output in Central America may be in the range of 20 bn pieces in 2007, compared with about 18 bn pieces in 2003. BAT is the leading manufacturer of cigarettes in the area. Cigarette output in Honduras was estimated about 7 bn pieces in 2005, and production for 2007 has advanced further. Guatemala is the second largest cigarette producer and exporter in Central America. Panama’s cigarette output had peaked at 3.6 bn pieces in 2004, but declined slightly in 2005. More smokers are finding cigarettes at relatively low prices stores in the Panama Canal area.

Nicaragua had an upward trend for cigarette output in the recent decade and production averaged about 3.4 bn pieces annually during 2004–06. El Salvador’s cigarette output increased from 889 mn pieces in 2003 to about 1.5 bn pieces by 2006. Costa Rica’s cigarette output in 2006 was in the range of 530 mn pieces, compared with 240 mn pieces in 2003. The smallest cigarette manufacturer in the region is Belize, with output of about 120 mn pieces in 2006.

Cigarette Imports Into Central America Reached A Peak In 2004: Imports of cigarettes into Central America declined from a peak of 8.5 bn pieces in 2004 to about 7 bn pieces by 2005, but rebounded in 2006. Reduced imports from Colombia accounted for most of the 2005 decline. Honduras replaced Colombia as the leading supplier of imported cigarettes in the last several years. Nicaragua’s cigarette imports averaged about 2.2 bn pieces during 2004–06, compared with 2.07 bn pieces during 2003.

Panama reported imports of 2.446 bn cigarettes in 2004, valued at $25 mn, but imports declined in 2005 as more smokers found attractive prices in some shops near the Panama Canal. Output of cigarettes in Panama averaged about 3.5 bn pieces annually during 2004–06. Per capita cigarette purchases among the adult population in Panama have been estimated at about 2,200 annually. That is a level about four times the estimate for per capita sales in other countries of Central America.

Imports of cigarettes into Costa Rica increased 8.7% to 1.285 bn pieces. Output of cigarettes in Costa Rica averaged about 450 mn pieces during 2004–06, providing only about a third of the cigarettes sold. Per capita cigarette sales in Costa Rica were estimated at about 607 for 2005.

Guatemala’s cigarette imports declined from 1 bn pieces in 2003 to 709 mn pieces in 2004 and remained flat in 2005. Total cigarette imports rebounded in 2006 because of larger arrivals from Mexico. Per capita cigarette sales to adults in Guatemala declined from about 554 in 2003 to an estimated 459 in 2005.

El Salvador’s reported cigarette imports declined 56.3% in 2005 to 708 mn pieces. Cigarette output in El Salvador averaged about 1.4 bn pieces during 2004–06, compared with about 880 mn pieces during 2001–03. El Salvador has only token cigarette exports. Many workers with employment in the United States bring cartons of cigarettes with them when returning home for a vacation or in between jobs. El Salvador had the lowest per capita cigarette consumption in Central America in 2005, when it was estimated at 455 for the year.

Honduras Is The Leading Cigarette Exporter In Central America: Cigarette exports from Honduras averaged about 78 mn pieces annually during 1999–01, before the boom in shipments to 4.7 bn pieces in 2002. Honduras has a continuation of cigarette shipments exceeding 4.2 bn pieces annually during 2003–06. Arrangements through the Central American Free Trade Area provided an opportunity for Honduras to have much larger cigarette exports to other countries in the group. China is a significant supplier of imported cigarettes into the region because of the comparatively low price and business activities with firms operating in the Panama Canal.

Managers of the three cigarette factories in Honduras have arranged significant imports of leaf tobacco for blending in recent years as their cigarette exports flourished. Farmers in Honduras have found a favorable domestic market for their crops of flue-cured and burley tobacco.

Panama’s cigarette exports declined to 413 mn pieces in 2005, compared with 1.2 bn pieces in 2004. Some passengers from boats passing through the Panama Canal shop for cigarettes while passing through the area and this adds to demand in Panama, causing per capita sales to rank far above other countries in the region. US cigarette imports from Panama reached 6.5 mn pieces in 2006, compared with no deliveries in 2005.

Cigarette exports from Guatemala doubled in 2004, reaching 1.745 bn pieces, before dropping 22.5% in 2005. About a third of Guatemala’s cigarette output was exported during 2004–06. Guatemala supplies some cigarettes to traders in Mexico and Belize. BAT and Philip Morris have cigarette factories in Guatemala City.

Costa Rica reported exports of 14 mn cigarettes in 2004 and 9 mn in 2005. Cruise ships with foreign tourists stop at ports of Costa Rica. They buy some items for use in their voyage around the area. Costa Rica has a thriving tourist business, assisted by interesting tropical forests in parks and international organizations.

Cigarette imports into Belize fluctuated widely in recent years, ranging from a peak of 35 mn pieces in 2004 to 20 mn pieces in 2005. More imports from Mexico arrived in recent years. Sales of cigarettes to foreign tourists are likely to rise in the future. Cigarette output in Belize increased in recent years, and averaged about 109 mn pieces annually during 2004–06.

Tobacco International - October, 2007

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