Tobacco firm sees up to 15% decline

PROSPECTS for the local tobacco industry have become dimmer with legislated tax hikes aggravating the weakening of demand for cigarette products amid the slow economy, according to a tobacco executive.

In a chance interview, Philip Morris Philippines Manufacturing, Inc. president Chris Nelson said the total industry could go down by 10% to 15% this year, pointing out that the increase in excise taxes in January has hampered demand for tobacco products. The company is the local arm of cigarette maker Philip Morris International.

“If you look at the total market, it is already off by 30% [in the first half] … The impact is sharper at the start of the year but tends to moderate over time,” Mr. Nelson said.

Price increases for the Philip Morris and Marlboro brands following the increase in excise taxes and the weak economy resulted in a drop in consumption, he said.

In January, the tax rates for all types of tobacco products were hiked by 6% while the rates for alcohol items were increased by 8%, under Republic Act 9334 passed in 2004.

The law mandates tax increases on all types of alcohol and tobacco products beginning January 2005 and every two years thereafter until 2011, to discourage people from patronizing the so-called “sin products.”

Taxes for these products will increase by the same rates in 2011 but will no longer be adjusted thereafter, regardless of the price movements in the market.

Mr. Nelson said 82 billion to 84 billion cigarette sticks would be sold this year, compared with the more than 90 billion sticks that the industry managed to sell last year.

Mr. Nelson said Philip Morris, which corners around 30% of the market and is considered a premium brand, is also under pressure from local brands like Lucio C. Tan’s Fortune tobacco.

“What is more important is that the market is understandingly weak because of the global economy and the price increases,” he said.

Philip Morris Philippines has no expansion plans as of the moment but will continue to develop and invest in existing facilities, he added.

Last month, Philip Morris Philippines leased more property at the Subic free port to accommodate a new P1-billion tobacco leaf warehouse as part of a strategy to quadruple storage capacity to 24,000 tons.

Philip Morris signed a 50-year lease agreement with the free port authority last week, increasing its total land area to 49,279 square meters from its current 9,600-square-meter warehouse. The new climate-controlled warehouse will hold leaves for processing in the firm’s Philippine, Malaysian, and Indonesian factories.

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