Cigarette production on a decline

Amid shrinking manufacturing, the tobacco sector is also facing a decline in cigarette production over the last year. On the positive side, it could mean that Pakistanis have smoked less tobacco in the turbulent year 2022 and beyond – thus lower demand and lower production.

While the second statement is a little hard to believe, the date fromdata from the Pakistan Bureau of Statistics (PBS) show that the total production of cigarettes in the formal sector stood at 11.74 billion sticks in 1QCY23, down by 24 percent year-on-year (3.7 billion lower than 1QCY22). Cigarette production in 1QCY23 was also one of the weakest at least since 1QFY18 barring FY20 when the cigarette production stood at the same level as that in the similar period in the ongoing year. Not only that; cigarettes sticks manufactured in the formal sector was down by 9 percent in 1QCY23 versus the 4QCY22.On average, monthly production in 1QCY23 stood at 3.9 billion sticks with weakest volumes in March 2023, which is below the monthly capacity of over 5 billion plus sticks.

The tobacco manufacturing industry is the single largest contributor to the Federal Board of Revenue’s (FBR) Federal Excise Duty (FED) collection with a 37 percent share in FY22. Three back-to-back FED hikes in 2022 and 2023 so far has been a key factor in the decline in industry’s output. Although the decline in tobaccos output is a positive news from the public health perspective, the tobacco players in the formal sector have raised alarm bells over the high FED. Rather than actually decreasing cigarette smoking among the masses, the higher FED and hence higher prices have led to a shift of consumption to the illicit and smuggled sector; or other alternatives. With the recent tax and duty hike on tobacco, the market share of smuggled cigarettes has reportedly touched an all-time high.

With May 2023 cigarette production drastically down, the 11 month data clubbing for FY23 shows output down by 27 percent year-on-year. The two key formal sector player - the two MNCs with a market share of around 60 percent have witnessed a fall in sales volumes. Meanwhile, measures to curb smuggling and stop trade of illicit cigarettes remain futile.