For the first time since 2010, there is expectation for cigarettemanufacturing to
soar in Brazil. The performance of the industry of the sector in 2017 could outstrip
the volume produced in 2016 if the average achieved by the national factories Jan-
uary through September 2017 also holds true for the months of October, Novem-
ber and December. The projection, taking into consideration the monthly average
of 231,923,495 packets of cigarettes, would make cigarette manufacturing go up
4.6%, to 2,783,081,940 packets, or 556,616,388,000 pieces.
In spite of a small decrease on the average of the past two quarters, expecta-
tions continue high. Nonetheless, this piece of news does not portray the uptrend
of the market, nor does it give rise to the expectation of a resumption of the pro-
duction volume for the next years or an increase of the number of smokers in the
Country. It is in fact, according to industry sources, a minor and circumstantial re-
alignment of the activity, which registered substantial reduction of 15.81%, from
3.16 billion packets to 2.66 billion packets, from2015 to 2016.
Thedropisassociatedtothreefactors:themainoneofthemisthesmallercropin
2016,whichmade thepriceof the rawmaterial goupand reducedsupply, paving the
way for the illicit trade, and one cigarette factory shut down. Exactly because of the
high costs, heavy tax burden and unfair competition fromthe illicit trade.
The 2017 reaction equally goes through the bigger harvest in the 2016/17 grow-
ing season, whichgeneratedhigher ending stocks, reduced theprices of the rawma-
terial and paved de way for shipments abroad. An example of this is the increase in
One-off
reaction
For the first time since 2010, in2017 the
national cigarettemarket could recover
market shares, after a sharpdecline in2016
cigarette sales. From 2015 to 2016, foreign sales
were down 38.7%, from 9.9 million packets to
6.07 million. But in 2017 the numbers, up to Sep-
tember, indicate a recovery of 509.8%, to 37.01
million packets. If themonthly average, achieved
until September, holds true, the current season
could reach 49.3million packets, whichwould be
a record in foreign sales in the decade. FromJan-
uary to September, Brazil exported 3.9% of the
cigarettesmanufactured in the Country.
Projectedprogress is
small and circumstantial,
according to analysts of
the sector
Inor Ag. Assmann
42
ONE-OFF
Even if cigarettemanufacturing inBrazil reacts
and achieves the projection of 2.78 billion pack-
ets, it will remain down 11.9% from2015.This is a
sign that consumption is on the decline and the
legal market continues losing ground to the illicit
trade. CarlosGalant, executivedirector at theBra-
zilian Tobacco Industry Association (Abifumo),
understands that several factors could have an
influence upon this market, including the size of
the crop, the ending stocks and the national and
international scenarios. “There are strictly one-
off causes which have reflections on the mar-
ket, from the growing stage to the exchange rate,
commercial and industrial strategies, the illicit
trade that interferes with the market. The trend
now registered portrays the moment. It does not
reflect the future panorama, which is very pessi-
misticwith regard to the volumes in the domestic
market”, he summarizes.
Galant maintains that the legal cigarette mar-
ket in Brazil should continue on its falling trajec-
tory in the medium and long run. “In spite of the
neatly organized sector, we are under pressure
from the unfair competition of the illicit trade,
which never stops soaring, and the intransigence
of the governments refusing to understand the
arguments of the sector in favor of the legal mar-
ket of cigarettes and keeping stricter control over
contraband and counterfeit cigarettes”, he ex-
plains. The official believes that the future of Bra-
zil’s cigarette manufacturing business goes man-
datorily throughadecisionby theSupremeCourt
on the use of additives. “The cards are on the ta-
ble. It is for theSupremeCourt todecide”, he says.
