TOBACCO INDUSTRY IN TURKEY

PREPARED BY

VESİLE KUTLU 2001431033

Z.BEYDA GÜNAL 2001431015

OUTLINETOBACCO INDUSTRY IN THE WORLD

The History of Tobacco in the World

Place of Tobacco in the World

TOBACCO INDUSTRY IN TURKEY

MARKET STRUCTURE

Domestic & Multinational Firms

Government Policies on Tobacco Industry

Production Planning

CONDUCT

Marketing

Based on Written Agreement

Based on Auctions

Foreign Trade

Pricing

PERFORMANCE

Comparisons of the Firms

CONCLUSION AND RECOMENDATIONS

TOBACCO INDUSTRY IN THE WORLD

The History of the Tobacco:

began with the discovery of America.

spreaded to Europe in 1518.

came to Turkey in 1601.

Place of Tobacco in the World

YearsPlanted

Field(hectar) Product.Stocks by Year

End Import Export Consum.

  Hectar Ton Ton Ton Ton Ton

1998 4.349.249 5.927.783 7.686.975 1.913.000 1.929.190 6.358.523

1999 4.214.625 5.974.272 7.179.751 2.025.813 2.070.601 6.435.708

2000 4.182.920 5.987.483 6.737.233 1.978.230 1.968.237 6.437.437

2001 3.950.561 5.583.084 5.851.155 2.082.786 2.107.479 6.444.469

2002 3.944.184 5.688.497 5.042.918 2.073.256 2.096.375 6.472.999

2003 4.053.838 5.785.000 6.673.095 2.424.474 2.088.600 6.631.054

Source:TEKEL

Planted Field Production Import

Consumption Export

The Production and

Consumption of Tobacco

World Tobacco Production and Seven Biggest Producers        

 1998

1999 2000 2001 2002

Countries % % % % %

China 33,9 35,13 36,23 35,77 34,8

India 9,65 9,84 10,01 9,49 10,11

Brasil 6,29 8,34 8,24 8,19 10,02

USA 10,1 8,83 6,82 7,17 6,55

Zimbabwe 3,25 0,63 3,52 3,08 3,03

Turkey 4,37 4,2 3,47 2,73 2,84

Indonesia 2,09 2,23 2,67 2,62 2,54

Others 30,2 30,8 29,09 30,94 30,12

Total 100 100 100 100 100Source:www.tutuneksper.org.tr

China produces 1.979.000 ton in 2002 with 34,8 % and takes the first place.

Turkey produces 161.310 ton with %2.84 production percentage and takes the 6th place within 5.688.490 total production.

TOBACCO INDUSTRY IN TURKEY

Because of the climate, land properties, inherent factors

of the country the amount of between 150.000 and 160.000

ton of tobacco lead country in the 6th rank among the countries

within a total amount of 6 million ton production.

Also, Turkey is the world's leader in oriental tobacco

production by producing % 35.73 of

production.

  1997 1998 1999 2000

  % change % change % change % change

Turkey 40.18 38,4 44,96 35,73

Greece 17,12 14,25 12,7 11,78

Bulgaria 3,29 5,7 5,08 9,3

Moldova 4,91 4,08 3,64 4,64

Macedonia 0 5,12 4,56 4,27

Kyzgsytan 3,83 5,12 4,56 4,27

China 3,02 3,41 3,04 3,56

Uzbekistan 4,43 4,22 3,76 3,32

Pakistan 2,13 2,41 2,15 2,42

Thailand 1,81 2,13 1,9 2,21

Iran 2,52 2,13 1,9 1,78

Italy 2,23 1,92 1,71 1,76

Others 14,53 11,09 10,03 14,97

Total 100 100 100 100

Turkey’s Place in Oriented Tobacco Production

The Share of the Export of Tobacco in Total Exports and Agricultural Products

Years

Exports of Agricultural

Exports of

Share of Tobacco Share of Tobacco in

Total Exports

Products Tobacco in Total ExportsExports of Agricultural

products

(Million $) (Million $)(Million

$) (%) (%)

1999 26.587 2.394 470 1,8 19,6

2000 27.775 1.973 373 1,3 18,9

2001 31.334 2.234 340 1,1 15,2

2002 36.059 2.079 385 1,1 18,5

2003 46.877 3.576 418 0,9 11,6

Source:TEKEL

The table below shows that, although the share of tobacco export in total export decreases it takes an important place in export of Agricultural products

The Productivity of Tobacco in Turkey

As the table below indicates the Productivity of Tobacco is high enough depending on planted Field and Production between the years.

Years Planted Field (Hectar) Production(ton)  

1997 322,500 302,008  

1998 278,350 258,811  

1999 270,751 251,070  

2000 237,722 208,002  

2001 198,827 152,571  

2002 199,460 161,314  

2003

2004

193,000

168,548

148,216

129.000  

Source:www.tutuneksper.org.tr

Tobacco Production in 2003

Number of Producers Production(ton)

Aegean 145.407 95.987

Black Sea 59.681 21.737

Marmara 8.215 6.334

East 22.165 4.433

South East 98.293 19.725

Total 33.761 148.216 Source:www.tutuneksper.org.tr

MARKET STRUCTUREMARKET STRUCTURE

The most important and general good of tobacco is cigarette for producers.The market contains 2 types of firms:

2. 2. Multinational Firms

Philip Morris SA

Japan Tobacco International

British American Tobacco

1. 1. Domestic Firm

TEKEL

TEKEL

was established in 1939.

started to produce filter cigarettes in 1958.

began to firstly import at the end of the 1970s.

became “monopoly” in 1980by government owning .

after 1980 because of the inadequate tobacco supply government allowed foreign companies to export.

since 1991 Tobacco Industry became an “oligopoly market by entering the foreign firms.

has 7 factories distributed in many different cities.

The Products of the Firm

Tekel 2000, Tekel 2001, Samsun, Maltepe Yeni Harman, Meltem, Ballıca, Bafra, Bitlis, and Birinci

The Employment of the Firm:

2794427811

25847

28005

25954

26334

24500

25000

25500

26000

26500

27000

27500

28000

28500

1995 1996 1997 1998 1999 2000

Years

Nu

mb

er O

f E

mp

loy

ee

s

Revenues from Domestic Sales in in TEKELTEKEL

2.092.162.939

3.152.907.335

4.272.309.021

4.842.472.440

4.443.370.743

0

1.000.000.000

2.000.000.000

3.000.000.000

4.000.000.000

5.000.000.000

6.000.000.000

2000 2001 2002 2003 2004

Years

Reve

nues

At the end of 2000 it was 2.092.163 on average; it increased by 2 times to 4.443.371 on average at

the end of 2004.

It can be resulted that,TEKEL has an

important contribution to the economy of the

country which ca not be ignored.

Multinational Firms

Philip Morris SAPhilip Morris SA

was established in 1991 and started to operate in 1992.

owns 75 % Sabancı Holding has 25 % .

has a factory in the western part of Turkey with a total

investment of more than $200 million.

has capacity to produce 35 billion cigarettes per year.

has products Marlboro, Parliament, L&M and Chesterfield.

has the number of employees were 713 at the end of 2000.

Japan Tobacco InternationalJapan Tobacco International,,

was established in 1999 in Turkey.

became the third biggest cigarette producer in Turkey.

produces 13 million sticks of blended cigarettes per year.

has products Camel, Winston, Salem, Magna,

Monte Carlo and Aspen.

includes about 315 employees..

British American Tobacco,

formed a joint venture with TEKEL in January 1998

is invested in 2002 in Turkey.

has a critical strategy in the market share by

decreasing its cigarette prices in July 2004 caused

to other firms to discount their prices.

“Finding an effective way to enter the Turkish market, which is one of the largest in the world with total sales of some 100 billion cigarettes, has been one of British American Tobacco’s strategic priorities. This project provides us with an excellent opportunity for profitable growth.”

BAT Chairman Martin Broughton

GOVERMENT POLICIES IN TOBACCO INDUSTRY

Production PlanningProduction Planning

Legal RegulationsLegal Regulations

TaxesTaxes Tobacco Control Policies Tobacco Control Policies

PRODUCTION PLANNING Important points while making proper production planningImportant points while making proper production planning

The aim of production planning should be to encourage The aim of production planning should be to encourage domestic production.domestic production.The amount of production should be determined The amount of production should be determined according to the needs of cigarette sector. according to the needs of cigarette sector. The prices should be announced before the production The prices should be announced before the production begins.begins. Well- educated people should be involved in produciton Well- educated people should be involved in produciton planning.planning.

LEGAL REGULATIONS

TaxesTaxesBoth domestic and imported cigarettes are taxed in TurkeyBoth domestic and imported cigarettes are taxed in Turkey

The sum of VAT and Special Consumption Tax on The sum of VAT and Special Consumption Tax on

tobacco is 72.75 % of their selling price by 2004.tobacco is 72.75 % of their selling price by 2004.

25 % of Custom tax and the fund of 3 $/kg is charged on 25 % of Custom tax and the fund of 3 $/kg is charged on

imports in order to protect domestic producers.imports in order to protect domestic producers.

Tobacco Revenues as a Percentage of Goverment Revenues

Tobacco provides sustantial tax revenues to goverments Tobacco provides sustantial tax revenues to goverments especially in developing countriesespecially in developing countries

0%

2%

4%

6%

8%

10%

12%

14%

16%

More than 7%

Less than 4%

More than 4%Less than 6%

Source: WB and IMF database and WB calculation

Tobacco Control Policies In 1981, the warning “Harmful to Your Health” wasIn 1981, the warning “Harmful to Your Health” was

printed on cigarette packages. In 1996, a new law came printed on cigarette packages. In 1996, a new law came intointo

effect which includes the points as follows:effect which includes the points as follows:

The sale of tobacco products to people under the ageThe sale of tobacco products to people under the age

of 18 is forbiddenof 18 is forbidden Legal Warning : Harmful to Health should be printedLegal Warning : Harmful to Health should be printed

on all packages of tobacco productson all packages of tobacco products Smoking in health and education places, inSmoking in health and education places, in

transportation vechiles is forbiddentransportation vechiles is forbidden Making tobacco and tobacco products advertisementsMaking tobacco and tobacco products advertisements is forbidden is forbidden

CONDUCT

Marketing Process of TobaccoMarketing Process of Tobacco Based on AuctionsBased on Auctions Based on Written AgreementBased on Written Agreement

Foreign TradeForeign Trade Export of TobaccoExport of Tobacco Import of TobaccoImport of Tobacco

PricingPricing

The prices of tobacco produced are determined between the The prices of tobacco produced are determined between the

producers of tobacco products and tobacco producers producers of tobacco products and tobacco producers according to the according to the

Agreement of Purchase and Sale of Tobacco.Agreement of Purchase and Sale of Tobacco.

After the application of this method, supporting purchases of

tobacco are removed.

Since there is no guarantee to be bought the excess supply of

tobacco in producers’ hands, tobacco producers do not want to

production.

Based on Written Agreement

As it can be inferred from the table below the number of producers begin to decrease after the tobacco production is based on written agreement in 2002

Number of Producers by the Years  

  2001 2002 2003  2001-2003

 Number of

producersNumber of

producersNumber of

producers% change from

Aegean 246.168 193.691 145.407 -41

Black Sea 77.804 74.623 59.681 -23

Marmara 9228 8.588 5.327 -42

East 23.928 23.182 22.165 -07

South East 116.339 102.607 97.943 -16

Total 473.461 402.691 330.523 -30

Based on Auctions Tobacco produced are sold in tobacco sale centers The aim of this method is to provide an efficient market in which accurate prices are valid to encourage tobacco producers to produce in high quality

Some problems with this method after applying in 2003:

Tobacco producers which have written agreement were more succesful to sell their excess supply of tobacco that’s why they didn’t apply this method.

Prices offered to tobacco producers which have excess stocks without written agreement were low and they were exposed to 68 % loss in value.

Export of Tobacco Major importers of Turkish Tobacco are United States, Canada France,

Switzerland and GermanyTurkey exports 55 % of tobacco produced in each year

The Distribution of Tobacco Exports of Turkey 2001 % share of exports

USA30%

Europe38%

I.S.Association

10%

Others22%

of Turkeyof Turkey

Export of Tobacco

As it can be inferred from the table, there are fluctuations in both quantity and value of exports. Although the amount exported in 2003 is more than that of in

2001, its value in 2001 is greater because of valuable foreign exchange

Exports of Tobacco of Turkey between the Period of 1999-2003

Years Quantity Value  

  (ton) Million $  

1999 115.34 470

2000 100.194 373

2001 95.7 340

2002 88.849 280

2003 107.870 325

The Amount of Tobacco Exported both Domestic and Private Companies between the Periods 1995-2001

The increase in exports of private sector may stem from their growing share in

tobacco market

The Amounts of Tobacco Exported by Domestic and Private Companies

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

180.000

Years

To

n TEKEL

PRIVATE SECTOR

TOTAL

Import of Tobacco After 1990s Turkey begins to import tobacco because of the demad for

American blend cigarettes, now has 2.3 % share in world’s tobacco imports. It mainly imports from United States, Switzerland, France, Canada, and South

Africa

The Imports of Tobacco of Turkey

Years Quantity(ton) Value (Million $)

1999 48,846 248

2000 62,195 308

2001 50,113 243

2002 55,75 278

2003 54,666 273

Pricing In the past the prices of purchases supporting tobacco were in line

with inflation rate but in the last years they are lower than inflation rate

Tobacco Prices By Years      

YearsPrcieTL/kg Increase % TEFE by Year End Exchange Rate $ Begining Price $/kg

1990 15.000 36 49 2.491,30  5,10

1991 35.100 134 59 5.120,74  6,80

1992 46.000 31 61 9.079,80  5,07

1993 71.000 54 60 17.663,56  4,01

1994 142.000 100 150 41.030,00  3,46

1995 250.000 66 76 63.981,00  3,91

1996 500.000 100 85 117.521,00  4,25

1997 900.000 80 91 233.350,00  3,86

1998 1.400.000 56 54 360.136,00  3,89

1999 1.750.000 25 63 574.816,00  3,04

2000 2.200.000 26 33 950.870,00  2,31

2001 3.000.000 36 89 1.345.000,00  2,20

2002 4.296.000 43 35 1.655.000,00  2,59

Performance

Market Share of Existing FirmsMarket Share of Existing Firms Employment Level in Existing FirmsEmployment Level in Existing Firms

Market Share of Existing FirmsMarket share is an important criterion in order to measure the performance of existing firms in industry. From 1999 to 2005 the market share of firms has

changed. By the years the share of Tekel becomes small and the share of Philsa is growing

Market Shares of Domestic and Private Companies by the period of 1999-2005  

Producer 1999 2000 2001 2002 2003 2004 2005

TEKEL 70,2 69,8 68,7 61 52,4 47 42

PHILSA 22,7 22,9 21,04 27,4 35,8 37 40

JTI 7,1 7,3 9,9 11,6 10,3 11 13

BAT - - - 0,1 1,5 4 5

Comparison of Market Share between Existing Firms in Turkey

In 2002, BAT enters the industry and market share of it is growing by the years. In 2005, BAT has 5 % share and Philsa is the second biggest company in the industry.

Comparison of Employment Level of Existing Firms in Turkey

Although the market share of private companies is incraesing, the number of people hired by them is not hihg enough compared to Tekel which hires 96 %

of people working in tobacco industry.

Employment in Domestic and Private Companies

  1998 1999 2000  

Tekel 28.005 25.954 26.334  

Philsa 715 710 713  

JTI - 306 314  

Total 28.720 27.070 27.361  

ConclusionWhy Tobacco Industry in Turkey has an important

contribuiton on economy?

Constitutes significant share of goverment Constitutes significant share of goverment revenuesrevenuesIncreases GDP by the means of exportsIncreases GDP by the means of exports Brings hard currency through tradeBrings hard currency through trade Creates job opportunities in both production Creates job opportunities in both production and valuation processesand valuation processes

Recomendations

Proper Poduction PlanningProper Poduction Planning In order to reach equilibrium among production, In order to reach equilibrium among production, and and

consumption, consumption, stocks, it is necessary to have a proper production stocks, it is necessary to have a proper production planning.planning.

Cooperatives Among ProducersCooperatives Among ProducersTThe requirements ofhe requirements of agreement agreement made between tobacco producers made between tobacco producers and tradesand trades are determined by only traders. are determined by only traders. Producers should build Producers should build cooperatives in order to represent all producers and protect their cooperatives in order to represent all producers and protect their

rights against the other parties.rights against the other parties.