3.4 PROJECTIONS OF TRADE FLOWS

The volume of tobacco exports is projected to increase further but more slowly at about 0.8 percent per year in the baseline scenario and 0.6 percent in the policy scenario during the period 1998 to 2010. The volume of exports is expected to reach 2.2 million tonnes in the baseline scenario and 2.16 million tonnes in the policy scenario, up from 2 million tonnes in 1998 and 1.7 million tonnes in 1991. In the developed countries import requirements are expected to increase considerably while export availability declines. Conversely, in the developing countries export availabilities will expand more than import requirements.

3.4.1 Overall trade trends

Trade flows are determined by trends in demand and supply in trading countries and regions of the world, but also influenced by trade policies such as tariffs and non-tariff barriers, export promotion and domestic policy.

In projecting trade flows in the baseline and policy scenarios no changes were assumed other than those applied to supply and demand. That is, no change is assumed for trade policies in either the baseline or the policy scenarios.

Actual (1970 to 1998) and projected (2005 and 2010) export flows for the world in the two scenarios are presented in Figure 3.14 with details given in Table 3.8.

As shown in Table 3.8, world export availabilities in 2005 and 2010 are expected to increase very little from 1998 levels, to 2.2 million tonnes in both scenarios. Growth rates of export flows increased from 0.7 percent in the 1970s to 2.1 percent in the 1980s and 1990s and are projected to slow down again to less than 1 percent in the period to 2010.

Figure 3.14 Tobacco leaf exports, world, 1970-2010 (scenarios - baseline and policy) (dry weight)

Table 3.8 Export flows - actual and projected

(scenarios - baseline and policy) (dry weight)

Actual (1970 to 1998) and projected (2005 and 2010) imports for the world are presented in Figure 3.15 and Table 3.9. Consistent with export availability trends, import requirements, after strong growth in the period 1970 to 1998, are expected to slow down considerably in the period 1998 to 2010, being projected at about 2.2 million tonnes in 2010 in both scenarios.

The projected trade flows indicate that during the period to 2010 export availability in developed countries will remain about the same as in the late 1990s and will increase a little in the developing countries. Also, import requirements will remain about the same in both the developed and the developing countries. The projected trends in trade flows indicate world prices remaining stable or declining slightly in nominal terms, and therefore indicating a significant decline in real terms.

Figure 3.15 Tobacco leaf imports, world, 1970-2010 (scenarios - baseline and policy) (dry weight)

Table 3.9 Import flows - actual and projected

(scenarios - baseline and policy)

An important issue in the literature on tobacco control is the impact which trade liberalization might have on prices and in turn on production and consumption trends. A comprehensive policy of trade liberalization, according to the literature, would be expected to change world prices, production, consumption and trade flows for tobacco and would result in a lower world price for tobacco as the various supply controls that keep prices artificially high are removed and prices are determined by the market (Zhang, 2000).

However, price differences reflecting different demands for various kinds and qualities of tobacco would most probably continue even with trade liberalization. According to economic analysis and some provisional evidence available in the literature, in spite of lower world prices of tobacco as a result of trade liberalization, production and consumption at world level would change little, and the volume of trade would increase only slightly.

3.4.2 Prospects for tobacco trade in developed countries

Projections to 2010 of exports from developed countries are shown in Figure 3.16. Exports are projected to increase to just over 0.8 million tonnes in each scenario, returning to the all-time record level set in 1996.

Figure 3.16 Tobacco leaf exports, developed countries, 1970-2010 (scenarios - baseline and policy) (dry weight)

Projections of imports for developed countries are shown in Figure 3.17. Imports should continue to increase over the projection period to 2010 but at a much lower growth rate of 0.6 percent in the baseline scenario and 0.8 percent in the policy scenario, reaching an import level of just over 1.7 million tonnes in 2010, up from 1.6 million tonnes in 1998. Imports to developed countries do not share the volatility observed in exports.

Overall, in the developed countries as a group, import requirements exceed export availability in both scenarios, resulting in a trade deficit of about 0.9 million tonnes in 2010, slightly higher than the trade deficit observed in 1998 of 0.85 million tonnes. The trade balance would change little between the two scenarios, possibly because of offsetting effects of changing both the production support level and the consumption taxation level.

Figure 3.17 Tobacco Leaf Imports, Developed Countries, 1970-2010 (scenarios - baseline and policy) (dry weight)

3.4.3 Prospects for tobacco trade in developing countries

China

China's tobacco and cigarette trade flows are relatively low when compared to production and consumption levels in the past decades and the situation is expected to remain the same in the period to 2010. During the 1980s tobacco exports amounted to about 30 000 tonnes or a little more than 1 percent of production. Exports, however, increased steadily during the 1990s and reached over 110 000 tonnes in 1998. Exports are projected to increase modestly in the period to 2010 and reach 120 000 to 125 000 tonnes (see Figure 3.18)

Figure 3.18 Tobacco leaf exports, China, 1970-2010 (scenarios - baseline and policy) (dry weight)

China's imports were volatile during the 1980s and the 1990s. It is not certain whether the observed decline in imports in China in the late 1990s is a structural change in the industry or a result of a temporary increase in domestic production, since the industry is state managed. The level of imports is projected to remain stable at just over 1 percent of production in the period to 2010.

Figure 3.19 Tobacco leaf imports, China, 1970-2010 (scenarios - baseline and policy) (dry weight)

Overall, market developments seem to have little impact on trade in China, because exports and imports of both tobacco leaf and cigarettes are managed by the government. Furthermore, China's recent admission to WTO is not expected to have a significant impact on cigarette imports, because even after cutting tariffs, the price of imported cigarettes is still much higher than any domestic products. Overall, China is expected to increase its exports slightly while maintaining its level of imports during the period to 2010.

Other developing countries

Exports from other developing countries - with the exception of China, mainly Brazil, Zimbabwe, Malawi, India and Turkey - are projected to increase from 1.15 million tonnes in 1998 to 1.25 million tonnes in 2010 under both scenarios, as shown in Figure 3.20.

Figure 3.20 Tobacco leaf exports, developing countries, 1970-2010 (scenarios - baseline and policy) (dry weight)

Imports to developing countries with the exception of China are projected to increase from a little less than 400 000 tonnes to about 430 000 tonnes in 2010, thus increasing at about 0.9 percent per year, as shown in Figure 3.21.

Brazil is by far the world's largest exporter with 320 000 tonnes of exports in 1998, far more than the United States, the second major exporter, with 210 000 tonnes. Exports from Brazil are projected to increase further to about 330 000 tonnes in 2010.

Zimbabwe is the largest producer of tobacco leaf in Africa and the world's fourth largest producer of flue-cured tobacco after China, Brazil and the United States. Exports are projected to increase to about 220 000 tonnes in 2010, an annual increase between 1998 and 2010 of about 2.2 percent.

Figure 3.21 Tobacco leaf imports, developing countries, 1970-2010 (scenarios - baseline and policy) (dry weight)

In the event of a global contraction in demand it is expected that Zimbabwe will strengthen its position relative to other exporting countries because it can reduce production costs because of its efficiency in production.

Malawi is expected to increase its exports from 113 000 tonnes in 1998 to over 150 000 tonnes in 2010, an increase of 2.8 percent per year. However, tobacco exports from Malawi have shown considerable variability from year to year, due to variable production levels.

In the event of a reduction in world tobacco demand, Malawi might be expected to compete favourably with other tobacco-exporting countries, given its demonstrated ability to expand its industry during the past two decades.

India is a significant exporter of tobacco (over 100 000 tonnes in 1998) and is expected to consolidate its position in the period to 2010. India's exports are expected to grow further, reaching 110 000 to 120 000 tonnes in 2010, or with an annual growth rate of about 0.9 or 1.6 percent in the baseline and the policy scenarios respectively. The labour intensive nature of the crop and the low cost of production confer a significant comparative advantage to India.

Turkey is the major supplier of oriental tobacco to the world market in and the only exporter in the Near East region. Turkey's production and exports are almost entirely of the oriental type, although 3 percent of total production of Virginia and burley. Turkey's exports are expected to increase in the period to 2010 from present levels of 150 000 tonnes.