Sin taxes had no effect on cigarette industry


Higher prices of cigarette products resulting from the imposition of sin tax reform bill have no significant effect on consumption, the National Tobacco Authority (NTA) said.

NTA Administrator Edgardo Zaragoza told reporters that despite the imposition of higher taxes on tobacco products, the cigarette manufacturing industry showed no signs of slowing down.

“There were concerns that a slight rise in taxes will be detrimental to the industry because of lower demand. But the industry continues to be stronger than it is,” Zaragoza said.

Tobacco industry stakeholders expressed belief that the possible slow down in domestic consumption in the coming years can be countered by the increasing demand for exports and import substitution.

To do this, however, the quality standards of local produce should be raised.

Jorge Struecker, leaf buying manager for Philip Morris Fortune Tobacco Corp., said that farmers also need to produce high-quality leaf for local cigarette manufacturers, which could possibly lower importation.

“Tobacco is still a crop to believe in and will and will be around for a long time. As quality is improved, we are trying to keep more Philippine tobacco. To sustain production, we need to increase production efficiency,” Struecker said.

On the other hand, tobacco growing and trading Universal Leaf Philippines Inc. said that Philippine-grown tobacco needs to be more competitive in the export market.

“We need to be competitive because we are not the only producer selling to cigarette manufacturers,” said Erwin Ang of Universal Leaf.

Amid concerns on the effect of higher sin tax to the tobacco industry, the NTA on Thursday approved the increase in the floor prices of tobacco variants for trading year 2014-2015.

Tobacco is the only industrial crop in the country that enjoys a minimum floor price support set by the government.

Floor price is the minimum price allowed by the government for the procurement of tobacco buyers from farmers. This is set based on the prevailing market conditions such as production cost, reasonable margin of profit for stakeholders and growing conditions.

The actual buying price, which is based on prevailing market prices, is usually higher than the minimum floor price.

The setting of the minimum floor price provides tobacco framers a guaranteed minimum return on investment of at least 25 percent for expenses.

For 2013, the NTA expects tobacco production to reach more than 70 million kilograms, a recovery from the production level of 65 million kilograms in 2012 as a result of unfavorable weather conditions.

In 2011, tobacco production reached 79 million kilograms, higher than the 2010 production level of 73 million kilograms.

Of the 70 million kilogram production for 2013, some 40 million kilos will be shipped to world market customers, while 30 million kilograms would supply the domestic market. Local cigarette manufacturers need at least 150 million kilograms of leaf for its blending requirement.

More tobacco needed

Zaragoza said that they are now working with local chief executives to come up with new areas planted for tobacco crop to help balance the trade, noting that the Philippines still imports majority of the blend requirement from other tobacco-producing nations.

He noted that a high quality of Burley leaf is now being grown in Isabela. In Claveria, Quezon province, production areas are being expanded and the quality of produce being imported.

Zaragoza said that tobacco exports, both manufactured and unmanufactured, are expected to be more or less the same as in 2012 which was placed at 73 million kilos valued at $188.85 million, up from 2011 production of 71 million kilos in 2011 valued at $339.20 million.

As of July 2013, production was placed at 40 million kilos valued at $188.85 million.


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