Tobacco prices surge on exports, hurt domestic buyers

By Rajendra Jadhav

MUMBAI (Reuters) - A global shortfall in tobacco output has boosted demand for the Indian leaf, pushing up prices in the domestic market to new records, hurting Indian cigarette makers and challenging the government's plan to cut acreage.

The average price of Flue Cured Virginia (FCV), a premier grade used for cigarette-making, has risen more than 50 percent to 71.37 rupees per kg, from 47.47 rupees a year ago.

"Internationally, the supply situation is not very comfortable. Especially Brazil, which is competing with India, there is shortage of 70 to 75 million kg," J Suresh Babu, chairman of the Tobacco Board, told Reuters.

Domestic FCV production is also expected to fall 6.5 percent in FY08 to 251,500 tonnes from 269,000 tonnes a year ago, due to adverse weather and unseasonal rains in mid-January, he said. Out of total output of FCV, India usually exports around 55 percent, while the domestic market consumes the rest.

Babu said in the year ending March 2008, tobacco exports are seen rising 11.39 percent to $425 million, from $381.54 million in 2006/07. India will export the same quantity in 2008/09 as exporters are buying actively, he said.

India is the second biggest producer of tobacco after China and the fourth-biggest exporter of unmanufactured tobacco.

"Domestic cigarette makers are facing problems due to higher (prices in the) international market. They can't import. So they have to buy, competing with exporters," said Bellam Kotaiah, president, Indian Tobacco Association.

ITC Ltd, a Kolkata based company, is a leading Indian buyer in the domestic market.