Tobacco Industry - bankrupt but promising

Year by year, numerous anti-smoking campaigns are carried out all over the world. However the number of smokers does not decrease, on the contrary, it grows. Moldova is not an exception. A recent study shows that the rate of mortality from illnesses caused by consumption of tobacco products in the Republic of Moldova is 2.2 times higher than in Europe and makes up 864 persons per 100,000, while the share of smokers at present makes up 46%. Even sadder is the fact that the rate of tobacco consumption among children of up to 10 years of age and adolescents is very high. Thus, according to national studies carried out among pupils aged 13-15, at present 24% of boys and 10% of girls smoke.

It would seem that the high number of smokers is produced by the well-developed tobacco industry. Since, for instance, high consumption of wine products is explained by the fact that Moldova is one of the largest producers of wine. Still, unlike the wine industry, tobacco branch is far from being successful among producers. Within the last years, the number of farmers willing to plant tobacco has decreased significantly, and the lands intended for tobacco growing has gradually become smaller. As a consequence, tobacco fermentation factories, which in the soviet period used to be quite popular, now either use 10% of their capacities, or have already totally ceased their activity, e.g. Floresti, Falesti, Orhei and Cupcini, Floresti.

The unwillingness of Moldovan farmers to get involved in tobacco growing has a simple explanation: low price for tobacco, hard work to grow it, lack of harvesting machinery.

Petru Tarita, Interim Director of "Moldova-Tutun": "Starting with 2006, tobacco farmers have received subventions from the state. 3 million MDL have been allocated for this purpose in 2007. However, although it has been planned to found larger plantations than in the previous years, spring frosts and the drought that followed have led to significant decrease of future crop. As a consequence, in the current year, the total dry tobacco crop has made up 3.1 thousand tons, almost two times less than in 2006, with an average harvest of one ton per hectare", says Petru Tarita.

Besides state subventions, tobacco processors have been also trying to convince farmers to plant more tobacco recently. Thus, tobacco industry is among the few where tobacco processors sign agreements for future crop in advance. In 2007, tobacco purchasing and processing enterprises have offered tobacco growers advance payments in the amount of 30-40% of the contracted production cost. Among those there was the largest tobacco processor, Industrial Complex "Tutun-CTC", which contracted 3.5 thousand tons of tobacco in spring and allocated 6 million MDL for this purpose. However, the scarce crop upset the plans of the largest producer of Moldovan cigarettes, which managed to procure only half of the raw material contracted in spring. And if for the current year there are stocks from previous harvests, 2008 may affect the cigarette production industry. For, raw material shall be imported, and traditionally import tobacco is more expensive than the local one. As a consequence, prices for Moldovan cigarettes could increase. However, for the moment, 'Tutun-CTC" does not confirm this fact.

* Sergiu Cojocaru, Head of Marketing Department of "Tutun-CTC": "Although we will resort to import because we are not going to manage to purchase the necessary quantity of tobacco on the internal market, the prices for our production shall not go up. If we do that, we risk going bankrupt, because the internal market will be flooded by cheap import cigarettes. Someone already is importing cigarettes for 3 MDL per pack. At the moment, we hold the share of 42% on the local market of cigarette consumption. In the current year, we shall produce approximately 5 billion pieces, a small part of which is exported to Ukraine and Romania."

However, even if Industrial Complex "Tutun-CTC" has decided not to raise prices for its production, these will increase by 10% starting with 1 January 2008 anyway. The increase is conditioned by amendments to the Tax Code and application of excise tax for local and imported cigarettes with filter calculated from the highest retail price instead of the price declared at the customs or by the local manufacturer.

And although smoking is seriously damaging health, and the number of those who give up tobacco consumption is much lower than that of those who practice it, the government has deservedly named tobacco industry a strategic branch for investment on the part of economic entities. "The strategic importance of tobacco industry in national economy is conditioned by the high level of profitability and incomes to the state budget, by maintenance and creation of workplaces in rural areas", describes the Strategy. The fact that there have been practically no investments in this field, while the needs amount to hundreds of million MDL is another thing. At present, "Moldova-Tutun" Agency in cooperation with tobacco processors make efforts to convince producers to extend areas intended for tobacco growing.

Petru Tarita: "At the moment, Moldovan tobacco is demanded on the external market in large amounts (around 15-20 thousand tons), including by world-known transnational companies, which will lead to the increase of selling price on the external market and, correspondingly, of the purchasing price on the internal market. In these conditions, it is necessary to produce more tobacco. The government is willing to maintain and, if needed, to increase subventions for tobacco farmers. In 2007, 3 million MDL have been allocated for this purpose. Tobacco purchasing enterprises are ready to sign long-term agreements with producers and help them financially and technically. Moreover, Moldova has sufficient quantities of qualitative and assortment seeds with a high productivity potential.

Certainly, the intention of the government to develop a branch that used to be extremely profitable in the soviet period is grounded, especially since export demand is quite high. On the other hand, each person has the right to choose whether to smoke or not. And as long as the number of those who do is sufficiently large in Moldova and abroad, tobacco industry is worth being developed.