TOBACCO INDUSTRY IN TURKEY

1. TOBACCO INDUSTRY IN TURKEY PREPARED BY VESİLE KUTLU 2001431033 Z.BEYDA GÜNAL 2001431015

2. OUTLINE TOBACCO INDUSTRY IN THE WORLD The History of Tobacco in the World Place of Tobacco in the World TOBACCO INDUSTRY IN TURKEY MARKET STRUCTURE Domestic & Multinational Firms Government Policies on Tobacco Industry Production Planning CONDUCT Marketing Based on Written Agreement Based on Auctions Foreign Trade Pricing PERFORMANCE Comparisons of the Firms CONCLUSION AND RECOMENDATIONS

3. TOBACCO INDUSTRY IN THE WORLD The History of the Tobacco: • began with the discovery of America. • spreaded to Europe in 1518. • came to Turkey in 1601.

4. Place of Tobacco in the World Source:TEKEL Import Production Planted Field Export Consumption

5. The Production and Consumption of Tobacco Source:www.tutuneksper.org.tr China produces 1.979.000 ton in 2002 with 34,8 % and takes the first place. Turkey produces 161.310 ton with %2.84 production percentage and takes the 6th place within 5.688.490 total production.

6. TOBACCO INDUSTRY IN TURKEY • Because of the climate, land properties, inherent factors of the country the amount of between 150.000 and 160.000 ton of tobacco lead country in the 6thrank among the countries within a total amount of 6 million ton production. • Also, Turkey is theworld's leader in oriental tobacco production by producing % 35.73 of production.

7. Turkey’s Place in Oriented Tobacco Production

8. The Share of the Export of Tobacco in Total Exports and Agricultural Products The table below shows that, although the share of tobacco export in total export decreases it takes an important place in export of Agricultural products Source:TEKEL

9. The Productivity of Tobacco in Turkey As the table below indicates the Productivity of Tobacco is high enough depending on planted Field and Production between the years. Source:www.tutuneksper.org.tr

10. Tobacco Production in 2003 Source:www.tutuneksper.org.tr

11. MARKET STRUCTURE The most important and general good of tobacco is cigarette for producers.The market contains 2 types of firms: 1. Domestic Firm • TEKEL 2. Multinational Firms • Philip Morris SA • Japan Tobacco International • British American Tobacco

12. TEKEL • was established in 1939. • started to produce filter cigarettes in 1958. • began to firstly import at the end of the 1970s. • became “monopoly” in 1980by government owning . • after 1980 because of the inadequate tobacco supply government allowed foreign companies to export. • since 1991 Tobacco Industry became an “oligopoly market by entering the foreign firms. • has 7 factories distributed in many different cities.

13. The Products of the Firm Tekel 2000, Tekel 2001, Samsun, Maltepe Yeni Harman, Meltem,Ballıca, Bafra,Bitlis, and Birinci The Employment of the Firm:

14. Revenues from Domestic Sales in TEKEL At the end of 2000 it was 2.092.163 on average; it increased by 2 times to 4.443.371 on average at the end of 2004. It can be resulted that,TEKEL has an important contribution to the economy of the country which ca not be ignored.

15. Multinational Firms Philip Morris SA • was established in 1991 and started to operate in 1992. • owns 75 % Sabancı Holding has 25 % . • has a factory in the western part of Turkeywith a total investmentof more than$200 million. • has capacity to produce 35 billion cigarettes per year. • has products Marlboro, Parliament, L&M and Chesterfield. • has the number of employees were 713 at the end of 2000.

16. Japan Tobacco International, • was established in 1999 in Turkey. • became the third biggest cigarette producer in Turkey. • produces 13 million sticks of blended cigarettes per year. • has products Camel, Winston, Salem, Magna, Monte Carlo and Aspen. • includes about 315 employees.

17. British American Tobacco, • formed a joint venture with TEKEL in January 1998 • is invested in 2002 in Turkey. • has a critical strategy in the market share bydecreasing its cigarette prices in July 2004 caused to other firms to discount their prices.

18. “Finding an effective way to enter the Turkish market, which is one of the largest in the world with total sales of some 100 billion cigarettes, has been one of British American Tobacco’s strategic priorities. This project provides us with an excellent opportunity for profitable growth.” BAT Chairman Martin Broughton

19. GOVERMENT POLICIES IN TOBACCO INDUSTRY Production Planning Legal Regulations • Taxes • Tobacco Control Policies

20. PRODUCTION PLANNING Important points while making proper production planning • The aim of production planning should be to encourage domestic production. • The amount of production should be determined according to the needs of cigarette sector. • The prices should be announced before the production begins. • Well- educated people should be involved in produciton planning.

21. LEGAL REGULATIONS Taxes Both domestic and imported cigarettes are taxed in Turkey • The sum of VAT and Special Consumption Tax on tobacco is 72.75 % of their selling price by 2004. • 25 % of Custom tax and the fund of 3 $/kg is charged on imports in order to protect domestic producers.

22. Tobacco Revenues as a Percentage of Goverment Revenues Tobacco provides sustantial tax revenues to goverments especially in developing countries

23. Tobacco Control Policies In 1981, the warning “Harmful to Your Health” was printed on cigarette packages. In 1996, a new law came into effect which includes the points as follows: • The sale of tobacco products to people under the age of 18 is forbidden • Legal Warning : Harmful to Health should be printed on all packages of tobacco products • Smoking in health and education places, in transportation vechiles is forbidden • Making tobacco and tobacco products advertisements • is forbidden

24. CONDUCT Marketing Process of Tobacco • Based on Auctions • Based on Written Agreement Foreign Trade • Export of Tobacco • Import of Tobacco Pricing

25. Based on Written Agreement • The prices of tobacco produced are determined between the producers of tobacco products and tobacco producers according to the Agreement of Purchase and Sale of Tobacco. • After the application of this method, supporting purchases of tobacco are removed. • Since there is no guarantee to be bought the excess supply of tobacco in producers’ hands, tobacco producers do not want to production.

26. As it can be inferred from the table below the number of producers begin to decrease after the tobacco production is based on written agreement in 2002

27. Based on Auctions • Tobacco produced are sold in tobacco sale centers • The aim of this method is to provide an efficient market in which accurate prices are valid to encourage tobacco producers to produce in high quality Some problems with this method after applying in 2003: • Tobacco producers which have written agreement were more succesful to sell their excess supply of tobacco that’s why they didn’t apply this method. • Prices offered to tobacco producers which have excess stocks without written agreement were low and they were exposed to 68 % loss in value.

28. Export of TobaccoMajor importers of Turkish Tobacco are United States, Canada France, Switzerland and GermanyTurkey exports 55 % of tobacco produced in each year of Turkey

29. Export of TobaccoAs it can be inferred from the table, there are fluctuations in both quantity and value of exports. Although the amount exported in 2003 is more than that of in 2001, its value in 2001 is greater because of valuable foreign exchange

30. The Amount of Tobacco Exported both Domestic and Private Companies between the Periods 1995-2001The increase in exports of private sector may stem from their growing share intobacco market

31. Import of TobaccoAfter 1990s Turkey begins to import tobacco because of the demad for American blend cigarettes, now has 2.3 % share in world’s tobacco imports. It mainly imports from United States, Switzerland, France, Canada, and South Africa

32. PricingIn the past the prices of purchases supporting tobacco were in line with inflation rate but in the last years they are lower than inflation rate

33. Performance • Market Share of Existing Firms • Employment Level in Existing Firms

34. Market Share of Existing FirmsMarket share is an important criterion in order to measure the performance of existing firms in industry. From 1999 to 2005 the market share of firms has changed. By the years the share of Tekel becomes small and the share of Philsa is growing

35. Comparison of Market Share between Existing Firms in TurkeyIn 2002, BAT enters the industry and market share of it is growing by the years. In 2005, BAT has 5 % share and Philsa is the second biggest company in the industry.

36. Comparison of Employment Level of Existing Firms in Turkey Althoughthe market share of private companies is incraesing, the number of people hired by them is not hihg enough compared to Tekel which hires 96 % of people working in tobacco industry.

37. ConclusionWhy Tobacco Industry in Turkey has an important contribuiton on economy? • Constitutes significant share of goverment revenues • Increases GDP by the means of exports • Brings hard currency through trade • Creates job opportunities in both production and valuation processes

38. Recomendations • Proper Poduction Planning In order to reach equilibrium among production, and consumption, stocks, it is necessary to have a proper production planning. • Cooperatives Among Producers The requirements of agreement made between tobacco producers and trades are determined by only traders. Producers should build cooperatives in order to represent all producers and protect their rights against the other parties.

39. Questions?