[Intl-tobacco] Malaysia: Import duty move to prepare tobacco industry for Afta

[Robert Weissman]

Import duty move to prepare tobacco industry for Afta

by ADELINE PAUL RAJ
Source: NSTP e-Media (my), 2002-01-21

MALAYSIA’S  decision to lower
the duty on imported tobacco leaves is seen by industry observers as
a preparatory move to comply with the Asean Free Trade Area (Afta)
requirement that duties be reduced to between 0-5 per cent of total
imported tobacco value come 2010.

Under the revised rates, cigarette makers have to pay RM40 a kg
instead of RM50 a kg, besides the fixed rate of 5 per cent on the
import value of tobacco leaves.

The new rates, effective January 1, will affect the country’s three
biggest cigarette makers — British American Tobacco Malaysia Bhd
(BAT) which commands 70 per cent of the market, JT International Bhd
and Philip Morris (M) Sdn Bhd.

“The move can be seen as the Government paving the way to meet the
requirements of Afta,” the Confederation of Malaysian Tobacco
Manufacturers’ chief executive Shaik Abbas Ibrahim told Business
Times.

An analyst with a foreign research house agreed, adding that the
move also puts pressure on local tobacco farmers to be more
productive and cost-competitive in the next eight years before the
market is opened up to outside players in 2010.

Malaysian tobacco leaves, principally grown in the northern states
of Kelantan and Terengganu, are priced higher than its neighbouring
countries. The analyst said local tobacco leaves are priced at about
RM17 a kg.

Cigarette makers are believed to source about 70 per cent of their
tobacco leaf requirements from Malaysia, while the rest is imported
from

countries such as Thailand, Indonesia, Brazil and India.

Last year was a particularly bad year for the local tobacco crop
because of adverse weather conditions which led to the industry
forking out some RM22.5 million as subsidies to tobacco farmers to
help with their replanting scheme, among other things.

It is still too early to tell if another spate of bad weather this
year may render local tobacco yield insufficient for cigarette
makers, thus forcing them to have to import more.

Analysts said that any savings cigarette makers may have got because
of the lower import duties, may likely be channelled back to local
tobacco farmers as a further subsidy.

“Tobacco companies could end up having to buy more imported tobacco
leaves... so that offsets whatever positive gains they may have
had,” said an analyst with a foreign research firm.

In fact, BAT, in confirming the revised duties to the media last
week, said that the reduction “should be seen in the context of
other additional leaf costs that may be incurred during the year, so
there may not be an overall cost-saving”.

Analyst Lucius Chong of ABN AMRO Research said the savings were
“negligible”, given that cigarette makers will have to import more
tobacco leaves this year.

He estimates cigarette makers to import some 4,900 tonnes of tobacco
leaves this year compared with 4,800 last year. Of that, he forecast
BAT alone to import some 3,600 tonnes compared with 3,400 tonnes
last year.

However, barring any additional leaf costs this year, another
analyst expects BAT and JTI’s earnings to be boosted by 4 per cent
and 6 per cent respectively.

Multex Global Estimates’ consensus of 25 research firms forecast
BAT’s net profit for the full year to December 31 2001 at RM592
million. For the nine months so far, it made RM462.7 million.

BAT and JTI closed unchanged at RM34.50 and RM4.40 respectively
lastw Friday.