Euromonitor’s latest insight on the Tobacco industry

World Tobacco

Euromonitor International‘s latest global Tobacco market research provides the latest insight on how the Tobacco industry performed in 2012 and identifies the key prospects through to 2017. The double whammy of continued global economic uncertainty and increasing tobacco control took its toll as the industry posted a year of weak growth, in which no region experienced volume increases with the solitary exception of Asia Pacific, itself bolstered by the cigarettes behemoth that is China. World cigarettes values, normally propelled by growing unit prices and consumer uptrading, also took a battering, unprecedentedly growing by the same amount as global illicit trade volumes. With the current debate surrounding the reduced risk credentials of non-combustible products such as electronic cigarettes and their classification (pharma vs tobacco), the industry finds itself at a crossroads, pursuing cigarette alternatives whilst maintaining its cash cow.

  • Worldwide, 5.8 trillion cigarettes were consumed in 2012, representing 0.19% growth on the previous year, though this was due to the effect of the world’s largest cigarettes market, China. Without China, the world witnessed a -1.7% decline in 2012 versus 2011.
  • Every region in the world, save for Asia Pacific, saw falls in cigarettes volume sales in 2012 (vs 2011), a decline expected to continue to 2017, with the sole exception of Middle East & Africa, which is expected to return to growth once political turmoil stabilises.
  • None of the BRIC markets registered cigarettes volume growth in 2012 (with the sole exception of China), a trend which will continue into 2017.
  • World cigarette value sales grew by almost the same amount in 2012 as global illicit trade volumes – at around 2.5% each. Values decreased in three regions – Western Europe, North America and Latin America – reflecting consumer down-trading.
  • Sales of premium cigarettes grew by nearly 10% globally in 2012, on the back of China’s double-digit premium growth, though this will not be sustained at the global level in the long term. For whilst China will grow its premium brands by nearly 30% over the next five years to 2017, world premium sales will register a 5% fall.
  • World RYO volumes conversely grew by 6% in 2012 (vs 2011), registering growth in all regions, particularly Eastern Europe where it saw double-digit growth. Growth will continue to 2017, albeit at a declining rate.
  • Sales of cigars and smokeless tobacco both saw volume declines of around 3% in 2012, affected by a combination of poor economic performance and declines in its major markets.

Source: Euromonitor International

The Tobacco Industry at a Crossroads – The Decline of Cigarettes and the Rise of Alternatives

burning20cigarettesEuromonitor International’s latest global tobacco market research shows world cigarette volumes have been kept afloat only by China, as global economic uncertainty and increasing tobacco control continues to take its toll. No region experienced volume increases in 2012 apart from Asia Pacific while world cigarettes values, normally propelled by growing unit prices and consumer upgrading, also took a battering, growing by only the same amount as global illicit trade volumes.

With the industry debating the reduced risk credentials of non-combustible products such as electronic cigarettes and their classification, the industry finds itself at a crossroads, pursuing cigarette alternatives while maintaining its cash cow. But can cigarette alternatives deliver? Does the slowdown in cigarette values suggest pricing strength is over? What is happening to innovation and premiumisation?

Euromonitor International’s webinar will aim to answer these questions while setting the global tobacco market in context, reviewing overall performance by region alongside country case studies, related trends in duty-paid volume sales, smoking populations and illicit penetration. Click this link to register for the webinar. Market performance will be reviewed against legislative changes, manufacturer strategies, and trends in product innovation, with a view to what the industry can expect to 2017.  Source: Euromonitor International

 

India’s Trade Challenges Unique Among the BRICs

In 2013, the prospects for trade for the BRIC economies (Brazil, Russia, India and China) will diverge. While the BRIC economies have been at the forefront of emerging market growth for the past decade, weaker export demand from the developed world since 2012 is impacting the trade balances of each BRIC country, reports Euromonitor International.

The widening trade deficit for India in particular, the only BRIC member in which imports outstrip exports, is threatening the country’s growth prospects for the year. India’s trade deficit widened in 2012 to 10.3% of GDP, as high oil prices further increased the cost of the country’s imports, while export growth slowed, leading the imbalance to worsen. This is compared to 2.9% surplus in China, 9.9% surplus in Russia and a 0.9% surplus in Brazil in 2012.  Both Russia and Brazil’s exports are buoyed significantly by primary resources, such as oil and gas. Euromonitor International expects India’s trade deficit to widen to 12.3% in 2013.

GREENEARTH INDIA 3India’s situation is unique. The country has not posted an annual trade surplus since at least 1977, primarily due to two key factors. First of all the country is highly dependent on imports of energy to maintain the country’s energy consumption. For example, the country imports 75.2% of the crude oil that it consumes, as a result, in 2012, imports of mineral fuels accounted for 33.9% of the country’s import bill. The rising costs of fossil fuels after 2010, as well as the low levels of energy efficiency have exacerbated India’s trade deficit issues;

Secondly, the economy’s external sector remains comparatively small in comparison with the other BRIC economies. The Indian economy has maintained growth through rising domestic spending and a burgeoning services sector, which in 2012 made up 53.4% of the economy. As a result, India’s exports made up just 15.7% of the country’s GDP in 2012, compared to 25.3% in China and 27.2% in Russia, Brazil is the exception with exports making up just 10.8% of GDP in the year;

However, over the majority of the period studied, the trade deficit has been offset by capital accumulation in India from FDI inflows into the country. Since 2006, a rapid acceleration in imports has led to a much larger trade deficit, while the financial crisis of 2007-2008 has meant FDI flows have tightened across the world. The trade deficit is therefore, a growing burden for India, as capital is diverted from India’s economy to fund rising import costs.

Although there are challenges for India’s external sector in 2013, the economy has seen very high trade growth, the fastest of the BRIC economies. Between 2007 and 2012, exports increased by 103.6% in US$ terms, while imports increased by 123.2%. Growth will continue in 2013, with 15.2% increase in exports and a 22.2% increase in imports. The rapid growth is a result of a burgeoning middle class and the development of export industries in the country. The long term prospects for India remain bright as a result, as the growing population and continued economic development offer considerable opportunities for investment. However, the trade deficit will continue to drag on economic growth until investor confidence in India returns. Source: Euromonitor International

The Top 5 Largest Economies in 2020

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), International Financial Statistics (IFS)Note: Purchasing Power Parity has been used as this is a method of measuring the relative purchasing power of different countries' currencies over the same types of goods and services, thus allowing a more accurate comparison of living standards.

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), International Financial Statistics (IFS)Note: Purchasing Power Parity has been used as this is a method of measuring the relative purchasing power of different countries’ currencies over the same types of goods and services, thus allowing a more accurate comparison of living standards.

By 2020, three of the world’s five largest economies will be emerging countries, accounting for 30.4% of global GDP in PPP terms. Advanced economies are being displaced by emerging market superpowers, notably the BRIC countries, which has been accelerated by the seismic effects of the global economic downturn of 2008-2009. Euromonitor International predicts that China will become the world’s largest economy in PPP terms in 2017.

Additionally, Russia will overtake Germany as the fifth largest economy in 2016. These shifts will influence global politics, business environments and investment flows while consumer markets in developing countries will rise in importance as the middle class expands.

1. China: Set to become world’s largest economy in 2017

A large manufacturing base, cheap labour costs, the world’s largest population and economies of scale have resulted in unprecedented economic growth in China. Although growth is slowing, the delayed recovery in advanced economies from the global economic downturn means China will overtake the USA as the world’s biggest economy in 2017, and account for 19.0% of global GDP in PPP terms by 2020. Challenges loom large, however, including rising labour costs, pollution, a potential real estate bubble and rapid ageing arising from the government’s one child policy. Euromonitor predicts that China’s working age population (aged 15-64) will decline from 2014.

2. USA: End of the American dream?

The USA will lose its position as the world’s number one economy in 2017. In 1990, the USA accounted for a quarter of global GDP in PPP terms but we forecast this to plummet to 16.0% by 2020. The country was where the global financial crisis began in 2008 and it has failed to recover to its potential while also slipping in global competitiveness rankings. Although the government avoided the “fiscal cliff” in 2012, one of the biggest challenges remains a budget deficit reduction strategy, without the ensuing political gridlock. Nevertheless, the USA retains advantages, namely as the world’s largest consumer market and a leader of technological innovation.

3. India: Demographic dividend to benefit country beyond 2020

India overtook Japan as the world’s third largest economy in PPP terms in 2011 and its demographic advantage means the country could become the world’s biggest economy in the coming decades. India has a young population where it is benefitting from its demographic dividend (when there are more people of working age and the proportion of the child population declines). Euromonitor forecasts that India will become the world’s largest population by 2025 and that its working-age population will increase by 11.6% in 2013-2020 compared to -3.1% in China. However, India lags in major indicators including educational attainment and infrastructure development.

4. Japan: Paying the price for decades of economic stagnation

Structural problems beset Japan, with decades of weak economic growth and deflation while it has totalled the highest proportion of public debt in the world at 235% of GDP in 2012. Although the country has not yet suffered a eurozone-style sovereign debt crisis, as the majority of its debt is domestically-owned, an increase of foreign debt could trigger a Japanese debt crisis. It has the oldest population globally (mean age of 44.7 in 2012) and a shrinking labour force which will add considerable strain on government finances, while a strong currency makes its exports uncompetitive. Yet Japan’s location within Asia means it can take advantage of cheaper production costs in the region and growing demand for its high-tech products from a burgeoning Asian middle class. Like the USA, it is a global technological leader, giving it a competitive edge over its emerging neighbours.

5. Russia: Overtakes Germany as fifth largest economy in 2016

Russia will become the world’s fifth largest economy in 2016 in PPP terms, driven by its energy sector, as one of the top oil and natural gas producers worldwide. It also offers potential in its rapidly expanding consumer market, which Euromonitor forecasts will be the ninth largest globally in real terms in 2020. Its accession to the World Trade Organisation in August 2012 further cements its integration into the global economy. The lack of economic diversification and modernisation remain key long-term challenges with government policy aiming to tackle this, for example, by investing in the Skolkovo Innovation Centre Project, Russia’s equivalent to Silicon Valley. Corruption, state control and bureaucracy also hamper the business environment in Russia. Like elsewhere in Eastern Europe, the Russian working-age population is in decline (-4.5% in 2013-2020) despite a short-term baby boom, which will pose a demographic challenge to sustaining non-oil economic growth. Source: Euromonitor.com