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Tobacco traveller--collection 2009--Turkey.

THE VALUE of the Turkish tobacco market is projected to increase by 8% in 2009, up from Turkish Lira (TL)18.596 billion (Euro 8.4 billion) in 2008 to TL 20.160 billion (Euro 9.1 billion) on the back of industry price increases and a rise in excise tax in June, according to British American Tobacco (BAT).

An estimated 22 million Turks smoke, with smoking prevalence at 39.6% of the population. An estimated 65% of men smoke and 35% of women smoke, according to BAT. Annual per capita consumption is estimated at 2,394 sticks, according to the World Health Organisation, with Turkey ranking seventh in the world in terms of annual cigarette consumption, according to Turkish daily newspaper Hurriyat.

While the value of the sector has grown, market size has contracted in terms of the number of sticks sold per year, from 109.6 billion sticks in 2008, to 106 billion sticks in 2009, according to BAT, a decrease of some 3%, attributed to the smoking ban in indoor public places that went into effect on July 19, 2009.

According to the country's Tobacco and Alcohol Market Regulatory Agency, or Tutun Mamulleri Ve Alkollu Ickiler Piyasasi Duzenleme Kurulu (TAPDK), there was a 27.6 million pack drop in tobacco sales in the two weeks following the ban. The ban was an extension of an initial ban in May 2008, which came just months after BAT beat off rivals to acquire the ailing state tobacco manufacturer Tekel for US$1.72 billion (Euro 1.16 billion). The successful bid saw BAT acquire the rights to Tekel's brands, six factories and two years' inventory of tobacco.

Philip Morris International (PMI) dominates the sector with a 43.2% market share, followed by BAT with 29.6%, Japan Tobacco International (JTI) with 19.1%, European Tobacco with 4%, and Imperial Tobacco with 3.7%, according to BAT. The top five selling brands in 2009 were Winston (JTI), Marlboro (PMI), Lark (PMI), Tekel 2001 (BAT), and Viceroy (BAT).

There are two components of government levies on cigarettes: VAT and Special Consumption Tax (SCT). Current VAT rate in Turkey is 18%, the equivalent of 15.25% of retail sales price, while SCT on cigarettes is calculated by applying the ad-valorem rate (58%) to retail sales price, provided that a minimum collectable excise is of TL 2.05 (Euro 0.92) per pack is achieved. Ad-valorem rates have remained constant since 2005, but as of June 2009, minimum collectable excise increased from TL 1.55 (Euro 0.70) per pack to TL 2.05, according to BAT.

In 2008, 135 billion cigarettes were produced in Turkey, according to TAPDK. Despite heightened competition, and the downturn in the wake of the first smoking ban, South Korean tobacco giant KT&G entered the Turkish market in 2008, opening a US$52 million (Euro 35 million) factory in Izmir that produces 2 billion sticks a year and exports 60% of production. In 2007, Imperial Tobacco started production at its US$73 million (Euro 49.2 million) Manisa factory, one of three Davidoff production facilities worldwide with an initial capacity of 10 billion sticks per year. In 2004, European Tobacco Turkey established a factory with an annual capacity of 8.5 billion sticks for brands Winner and Vigor.

All PMI brands are manufactured locally by the company's affiliate, Philsa (Philip Morris Sabanc? Sigara ve Tutunculuk) (NOTE--SPELLING IS CORRECT) at its factory in Torbali, near Izmir, also the location of JTI's factory. As PMI's fourth largest cigarette manufacturing centre worldwide, the factory produces 55 billion sticks per year, according to PMI.

Leaf Production

Turkey predominantly cultivates Oriental tobacco--Samsun and Basma--along with lesser amounts of Virginia and Burley, all grown in the Ege, Black Sea, and South/Southeast regions. In 2008, production of leaf tobacco reached approximately 100,000 tonnes, increasing 34.1% on 2007's figures, according to TAPDK. This year, the crop size is projected to only reach 80,000 to 90,000 tonnes, according to BAT, with Oriental tobacco accounting for 74 million tonnes. Over the past four years, production had been hit by high exchange rates that priced Turkish tobacco above other producing countries, a reduction in demand from buyers, and a lowering of contract quantities by former state tobacco manufacturer Tekel in line with market changes. This year, the drop in crop size was also due to 2008 being the last year that Tekel contracted tobacco production in the south and southeast of the country.

In 2006, tobacco production had dropped by 27.8% to 93,240 tonnes, and dropped further in 2007 due to inadequate rainfall, particularly in the Izmir region, which saw production slide by 45.9% to 40,000 tonnes. Tobacco production in general has declined in Turkey over the past decade, with the number of cultivators dropping by 49% from 1999 to 2004, according to Middle East Report, attributed to the introduction of contract farming under a 2002 tobacco law, which made livelihoods from tobacco farming hard to sustain due to the minimal returns. Turkey imports an estimated 75,000 to 80,000 tonnes of tobacco leaf per year, according to BAT.
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Author:Cochrane, Paul
Publication:International News
Date:Nov 1, 2009
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