In 2022, the world economic growth rate has slowed significantly, geopolitical issues have become prominent, and tobacco control has become increasingly strict, and the world tobacco industry is seeking development in a complex and volatile environment. The overall tobacco consumption in the world (excluding mainland China, the same below) remained stable, legal cigarette sales declined slightly to 55.167 million boxes, illegal cigarette trade increased significantly, heated cigarette sales growth declined, and e-cigarette sales growth picked up. Tobacco production remained stable on the whole, with flue-cured tobacco output of 1.742 million tons (34.84 million cats). The output of Brazil and the United States declined more, and the overall price of tobacco leaf rose significantly, and the performance of the two major tobacco leaf companies improved accordingly.

Development environment

In 2022, factors such as repeated delays in the epidemic, escalating geopolitical conflicts, declining economic growth, and escalating tobacco control measures will superimpose each other, profoundly affecting the development of the world tobacco industry.

1. World economy

Economic growth has slowed sharply. In 2022, the world's three largest economies, the United States, China and the European Union, achieved GDP of 25.5 trillion US dollars, 18.1 trillion US dollars and 16.6 trillion US dollars respectively, with year-on-year growth of 2.1%, 3.0% and 3.5%, while in the same period of 2021, the GDP growth of the three major economies was 5.9%, 8.1% and 5.3%, respectively. In addition, due to the sharp depreciation of the exchange rate of non-US currencies against the US dollar in 2022, there were many countries and regions where GDP in local currency terms increased year-on-year while GDP in US dollar terms declined significantly year-on-year.

Inflation is hitting record highs. The U.S. inflation rate has continued to rise since March 2021 and peaked at 9.1% in June 2022, the highest in nearly four decades. Monthly inflation in the European Union soared from 5.6% in January to 11.5% in October, the highest on record. Inflation has worsened sharply in some emerging economies, including Turkey, Argentina, and Russia. High inflation hurts the purchasing power of ordinary people and further weakens the momentum of economic growth.

A rapid rate rise carries risks. High inflation has forced the world's major economies to keep raising interest rates aggressively against a backdrop of sluggish growth. The Federal Reserve and the European Central Bank have raised interest rates many times. The concentrated tightening policies implemented by advanced economies threaten the stability of the banking sector and the broader financial sector, which not only adversely affects their own economic development, but also makes the fundamentals of emerging market and developing economies more fragile, facing severe shocks such as sharp depreciation of their currencies, continuous capital outflows and financial market shocks.

2. Ukraine crisis

The cost of production and living has soared. Sharp fluctuations in world commodity prices, sharp increases in prices of energy and raw materials, and employees' demands for wage increases to cope with inflation have directly led to rising production and operation costs of enterprises, squeezing the profitability of enterprises. At the same time, the decrease in real disposable income of consumers and the deterioration of future expectations have also had a negative impact on enterprises in various industries, including tobacco.

Business continuity is disrupted. The war triggered by the Ukraine crisis has posed a direct threat to local production and business activities and personnel safety. Financial and economic sanctions have forced enterprises to adjust their business, disrupted the global industrial layout, and dealt another blow to the global supply chain that was hit hard by the epidemic in the early days.

The tobacco-related sanctions have a wide impact. The United States, the European Union, Switzerland, the United Kingdom and other countries have introduced various sanctions against Russia. Russia has also introduced some counter-measures, including restrictions on Russian exports of tobacco-related production equipment. Major multinational tobacco companies announced a temporary suspension of business in Russia after the outbreak of the crisis, and continued to review and assess operational risks and losses, including concerns about possible retaliatory actions in Russia, nationalization of foreign enterprises or assets and the possibility of legal action against employees, seeking to divest assets and businesses in Russia. The crisis in Ukraine has also led to a sharp rise in sales of illicit tobacco products in the region, with surveys suggesting that around a quarter of Russians have turned to illicit cigarette consumption.

(3) Tobacco regulation

World Health Organization. In 2022, the number of parties to the Framework Convention on Tobacco Control will remain unchanged at 182, covering more than 90% of the world's population. The Protocol to Eliminate Illicit Trade in Tobacco Products was ratified by Moldova and Paraguay, bringing the number of Parties to 66. The Investment Fund, established by the last COP decision, is operational and administered by the World Bank as a trustee, with interest earned to support Parties' tobacco control activities. Linking tobacco consumption to environmental protection, the theme of the 35th World No Tobacco Day is "Tobacco threatens the Environment", urging governments to be wary of tobacco companies' high-profile promotion of sustainable development and ESG ranking certification. By holding a third of Medicago's shares, Infmo International violated the policy of the World Health Organization, which refused to include Medicago's tobacco-plant-based COVID-19 vaccine on its list of emergency approved uses. However, the WHO also said that after the tobacco industry tries to move into other product categories, it may need to re-evaluate its policies and discuss how to respond to the general trend of tobacco industry investment in health.

World Customs Organization. The new customs code for tobacco products will come into force on January 1, 2022. As of December 2022, 94 of the 160 Parties to the WCO Harmonized Regime Convention, including the European Union and the United States, have notified the WCO that they have implemented the 2022 harmonized Regime to create new dedicated customs codes for new tobacco and nicotine-containing products.

America. In 2022, tobacco regulation in the United States is taking place amid various controversies and lawsuits. The court declared the rule unconstitutional in December 2022 after repeatedly ordering delays in implementing the inclusion of graphic health warnings on cigarette packages. The judge said there was no evidence that such graphic warnings reduced smoking, and the Food and Drug Administration (FDA) may appeal the decision to a federal appeals court. The FDA was given the authority to regulate synthetic nicotine, and synthetic nicotine products without marketing authorization cannot continue to be marketed in the United States after July 13, 2022. The FDA reinforces the taste ban by issuing proposed product standards for menthol in cigarettes and flavor characteristics in cigars that would prohibit the sale of menthol cigarettes and flavored cigars in the United States. The FDA plans to determine maximum nicotine levels for combustible tobacco products such as cigarettes, reducing nicotine levels to "minimal or non-addictive" levels.

The European Union. Advance the revision of regulatory laws. The European Commission is revising the Tobacco Excise Duty Directive (TED), which may include the definition and tax treatment of new types of tobacco and nicotine-containing products, including heated cigarettes, e-cigarettes and nicotine packs, with the proposal expected to be adopted by the European Commission in the first half of 2023 and by the Council in 2024 after several delays. Preparations are also under way for the revision of the Tobacco Products Directive (TPD), which is expected to be adopted in 2025. On 23 November 2022, the European Commission issued an authorisation directive, which must be applied by all EU Member States from 23 October 2023, banning the use of special flavours in heated cigarettes in the EU, which will affect a significant proportion of new tobacco products currently sold in the EU.

Other. For example, in 2022 New Zealand passed a smoke-free environment legislation amendment for smoke-free tobacco products (i.e. combustible tobacco products). Japan's ruling party has finalized the outline of a new tax reform. Mexico bans the import and export of heated cigarettes and e-cigarettes; Promulgating regulations for the implementation of the Tobacco Control Law.

All types of tobacco products

In 2022, as the control of the novel coronavirus epidemic tends to be relaxed, social and economic life is gradually returning to the right track, and tobacco consumption is generally stable. Euromonitor International forecast data show that the world's cigarette sales have declined slightly, the growth rate of heated cigarette sales has declined, and the growth rate of e-cigarette sales has rebounded.

(1) Cigarettes

In 2022, the world's legal cigarette sales failed to continue the stable trend of the previous year, re-entering the downward track, and the illegal cigarette trade has risen again.

The sales volume of legal cigarettes in the world was 55.167 million boxes, down 1.1% year-on-year; Sales were $536.67 billion, up 3.7% from a year earlier. In terms of countries and regions, there are 16 countries with legal cigarette sales exceeding one million boxes, accounting for 60.2% of the world's cigarette sales, with Indonesia, the United States and Russia ranking the top three. There are 15 countries with sales of more than 10 billion US dollars, accounting for 66.5% of the world's cigarette sales, with the United States, Indonesia and Germany ranking the top three.

The volume of illegal cigarette trade in the world was 7.883 million boxes, up 8.7 percent year-on-year. Countries where illegal cigarette trade exceeded 500,000 cartons were Brazil (1.106 million cartons), Pakistan (710,000 cartons), Russia (580,000 cartons), Indonesia (555,000 cartons), and India (527,000 cartons). Some 12.5% of the world's cigarette consumption is illegal, with illegal cigarettes accounting for more than half of local cigarette consumption in Ecuador (65.8%), Malaysia (59.9%), Uganda (59.2%), Peru (51.3%) and Bosnia and Herzegovina (50.8%).

(2) Cigars

In 2022, sales of different types of cigars diverged.

World sales of regular cigars reached 12.24 billion units, an increase of 2.9%. Sales of $19.46 billion, an increase of 8.0%. The United States is the largest consumer of regular cigars, accounting for 86.2% and 68.6% of the world's sales and sales, respectively. The top three companies in terms of global sales are Imperial Brands (23.4%), Swisher International Group (21.3%), and Altria Group (15.9%).

World micro cigar sales of 21.93 billion units, down 17.9%; Sales were $7.03 billion, down 5.4% from a year earlier. Japan, the world's largest consumer of micro cigars, raised its tax burden on micro cigars to the same level as cigarettes in 2022, leading to a sharp decline in sales, with its sales volume and sales falling 42.3% and 29.3%, respectively, accounting for 29.5% and 22.0% of the world's sales volume and sales. The top three companies in terms of global sales are Japan Tobacco (22.6 percent), British American Tobacco (13.1 percent), and Scandinavian Tobacco Group (8.3 percent).

(3) Electronic cigarettes

In 2022, the growth of e-cigarettes will accelerate. World e-cigarette sales were 23.65 billion US dollars, an increase of 20.0%. In terms of classification, sales of open e-cigarettes and refillable liquid cigarettes totaled 8.72 billion US dollars, an increase of 8.1%. Sales of enclosed e-cigarettes were $14.93 billion, an increase of 28.2%, of which the proportion of change-bomb e-cigarettes and disposable e-cigarettes were 82.9% and 17.1%, respectively, and disposable e-cigarette sales were $2.55 billion, an increase of nearly double. From the market point of view, the United States, the United Kingdom, Canada ranked the top three e-cigarette sales, respectively, $9.0.0 billion, $5.03 billion, $1.98 billion. From the perspective of enterprises, British American Tobacco, JUUL Labs and Fog core Technology ranked among the top three in the world, accounting for 17.4%, 14.4% and 8.9% of the world's e-cigarette sales, respectively.

(4) Heating cigarettes

In 2022, the sales volume of heated cigarettes was 33.38 billion US dollars, an increase of 15.8%, of which the sales volume of heated cigarettes was 0.3 million, with sales of 2.09 billion US dollars, and the sales volume of heated cigarettes was 2.756 million boxes, with sales of 31.28 billion US dollars. In terms of market, Japan, Italy and Russia ranked the top three in the world, with sales of $12.77 billion, $4.11 billion and $2.54 billion, respectively. The growth rate of Japan's heated cigarettes has been slowing down, and the proportion of the world's heated cigarettes sales has declined year by year, from more than 80% before 2017 to 38.3% in 2022. From the perspective of enterprises, Philip Morris International maintains a dominant position, followed by British American Tobacco and Japan Tobacco, and the three companies account for 71.4%, 15.5% and 4.3% of the world heated cigarette market, respectively.

(5) Other tobacco products

Nicotine bags (or modern oral tobacco) are the fastest growing new tobacco product in recent years, with 10.65 billion bags sold in 2022, an increase of 56.1%. Sales of 5.33 billion US dollars, an increase of 77.7%, but in the world's tobacco products sales accounted for less than 1%, the market is mainly concentrated in the United States and Sweden, Norway, Denmark and other Nordic regions. Traditional oral cigarettes remained basically stable, with sales of 121,000 tons and sales of 13.95 billion US dollars. Hand cigarettes and pipe cigarettes maintained low growth, with sales of 104,000 tons (about 2.958 million boxes of cigarettes) and 146,000 tons, an increase of 1.9% and 2.5%, and sales of 34.39 billion US dollars and 7.93 billion US dollars, respectively, an increase of 6.6% and 8.7%.

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