AlpValleys Regional Profile 2004

Tobacco industry statistics from 2004

Summary

Tobacco growing in the North East occurs mainly around Myrtleford and along the river valleys of the Ovens, King and Kiewa Rivers. The Tobacco Cooperative of Victoria operates Australia’s only threshing plant in Myrtleford.

The industry has significant value to the region (approximately $24 million per annum in GVP) through both production and employment. The industry in the North East is undergoing significant change as domestic consumption falls, new industries begin to occupy land where tobacco was once gown and tighter smoking regulations are implemented. On a more positive note the North East has become the main tobacco growing region of Australia.

North East Region	1996 – 97 AG Census	2000 – 01 AG Census	2001 – 02 AG Survey	2003 – 03 AG Survey
Gross value of production	$24,765,924	$22,883,796	$24,256,039
Production volume (kg)	4,127,654	3,509,785	3,790,006	3,938,970
Total area of production	1,665.2	1,329	1,418.5	1,405
Contribution to Victorian GVP of commodity	99.7%	100%
Contribution to Australian GVP of commodity	46.2%	22.3%
Estimated number of farms	114	111	115	121

Source: ABS Agricultural Census 1997 and 2001, Agricultural Survey 2002 and 2003

Current production for the 2003-2004 year is approximately at 3.8 million kilograms following average production between 3.7-3.9 million kg per year for the last few years. Gross value of production is $23-25 million per annum average. There are currently 135 growers. The closing price for 2003 was $6.579/kilogram.

Tobacco industry overview

Detail	Comments
Product description	North East Victoria represents the only tobacco growing region in Victoria.
Main season	Main activity is primarily from November through to June.
Industry associations	Tobacco Growers of Victoria (TGV), Tobacco co-op.
Domestic market information	Main purchaser of the product is cigarette manufacturers.
Export market information	Tobacco growers surveyed stated that none of their tobacco was exported.

Location of the Tobacco industry within AlpValleys region

2001 Ag Census	% of GVP		% of production volume		% of farms for commodity
2001 Ag Census	North East Region	Victoria	North East Region	Victoria	North East Region	Victoria
Alpine Shire	70.3%	70.3%	66.2%	66.0%	61%	60%
Wangaratta (RC)	29.7%	29.7%	32.6%	32.5%	37%	36.52%

Source: ABS Agricultural Census - 2001

Projected Tobacco industry growth

With a large number of laws and regulations impacting on the tobacco industry, it is subjected to a highly controlled, regulatory environment. Contracts with Phillip Morris and British American Tobacco Australia are current until 2007 with static growth throughout this period. North East Victorian growers continue to have a medium term contract, with both manufacturers, to grow around four million kilos a year.

Source	Indicator	Comments
(ABS) AG Census and survey data	Growth in production volume 1997 to 2001	Production declined by 15% over the period from 1997 to 2001, although the data from the Agriculture surveys for 2001-02 and 2002-03 indicate that production has stabilised at the 2001 level.
Surveys	Current profitability	Was reported as very low.
	5 year business plans	No change for those surveyed.
	5 year business outlook	Was reported as poor.
	Business planning / budgeting	Planning was undertaken by one tobacco grower, for 1 year in advance.
	Age of producers	Those surveyed fell within the age bracket 50 to 59 years.
	Capital expenditure 2002-03 financial year	Ranged from between 80% and 90% of gross income, and ranged from between $100,000 and $300,000.

Tobacco industry labour requirements

Tobacco farming is a significant employer in the Alpine Shire, with up to 270 families attributing income to the growing of tobacco. During the harvesting season each farm employs on average 5 persons, including members of the grower’s family.

The seasonal employment period is between February and early May, with casual and itinerant workers providing this labour. At the peak of season approximately 680-700 persons are employed as labour on tobacco farms.

As this tobacco is manufactured domestically there is a resultant multiplier effect on employment and manufacturing investment.

Detail
Full time and part time staff was employed by tobacco growers surveyed, with no casual employment required. Each farm required 2-5 full time employees, and 2-3 part time staff.
Areas of indirect employment	Suppliers, transport providers, buyers - cigarette manufacturers.
Labour market issues	None stated

Tobacco industry marketing activities

Marketing is not a requirement for tobacco growers due to their produce being directly purchased by cigarette manufacturers. No value adding is required either.

Growers have no on farm marketing for tobacco, and business planning is heavily linked to shares. Tobacco growers in Victoria are all shareholders of the Tobacco Cooperative of Victoria (TCV), and can produce for sale an amount of tobacco, which equates with the number of shares held. The Tobacco Cooperative of Victoria does not market tobacco.

Tobacco industry strategic advantages and opportunities

The level of the Australian dollar and improvement in leaf quality has assisted the competitive position.
Consolidation of North East Victoria as the major production region for tobacco in Australia.
Suitable microclimate, particularly soil type and water availability at critical growing periods.
Access to transport infrastructure, the availability of a green leaf threshing plant and cost of storage for tobacco is significantly cheaper in Myrtleford than in a metropolitan location.
With tobacco being manufactured domestically there is a follow on multiplier effect on employment and manufacturing investment within the region.
One of the last research projects funded by the Tobacco Research Development Corporation (TRDC), before its incorporation into Horticulture Australia Limited (HAL) and which has received ongoing funding for the 2002/03 financial year, is a study evaluating the potential non-smoking uses of tobacco leaf grown in Northern Queensland. This project has the potential to deliver long-term markets for tobacco growers in North East Victoria.

Tobacco industry strategic disadvantages and impediments to growth

Government taxes on tobacco.
With Australian tobacco consumption still declining and a reduction in manufacturing companies’ sourcing local tobacco, North East Victoria production has consolidated. Contributing to the consumption decline will be the introduction of the States tighter smoking regulations within public places from 2007.
Rationalisation among manufacturers as well as the growing industry is occurring at an increasing rate. There are now only two Australian manufacturers operating in Australia, Philip Morris and British American Tobacco Australasia.
The continuing need to provide high quality tobacco to manufacturers requires increasingly greater capital and resource inputs to make sure tobacco leaf meets exacting quality requirements.
Adjustment pressures from deregulation of the tobacco industry have seen new horticultural enterprises developing in the traditional tobacco growing areas. Restructuring and deregulation has reduced the number of tobacco producers in NE river valleys from 194 to 135.