Despite all the rosy projections for the cigar industry I have read and heard about for the last couple of years it looks like Cuba is going to cut back production by 30%.
Cash-short Cuba is slashing the amount of land devoted to growing its famous tobacco by more than 30 percent as the global recession and worldwide spread of smoking bans bite into sales of the country’s prized cigars.
Demand for Cuba’s cigars fell 3 percent in 2008 and earlier was reported down 15 percent in 2009 because of the recession and the smoking bans adopted in a growing number of places as a public health measure.
Cuba’s National Statistics Office, in a report posted on its web page (www.one.cu), said land to be planted with tobacco for next year’s crop had dropped to 49,000 acres (19,800 hectares), down from 70,000 acres (28,200 hectares), which was in turn less than 2008.
The theory from some of the cheerleaders in the cigar industry (Ahem, Cigar Aficionado) was that higher taxes and smoking bans would not affect premium cigar sales too much because, well, we will still buy expensive cigars despite all the roadblocks erected in front of us… just because we like premium cigars so much and our wallets are always full of money.
It is probably true that the Cubans are cutting back production of their lower level cigars; so Montecristo, Bolivar and Cohiba will not be affected as much – I’m guessing. It’s also true that the recession is having a significant impact on cigar sales. Actually, now that I think about it, according to Greg Mankiw’s blog:
The consumption of high-consumption households is more exposed to fluctuations in aggregate consumption and income than that of low-consumption households in the Consumer Expenditure (CEX) Survey.
Accompanying chart:[caption id="" align="aligncenter" width="400" caption="The exposure to aggregate consumption growth of households in the top 10 percent of the consumption distribution in the CEX is about five times that of households in the bottom 80 percent. Given real aggregate per capita consumption growth about 3 percentage points less than its historical mean during the past year, these figures predict that the ratio of consumption of the top 10 percent to the bottom 80 percent has fallen by about 15 percentage points (relative to trend)."][/caption]
Basically, what this graph shows is that during a downturn there is less cigar money; especially amongst the wealthier cigar smokers.
I don’t think it’s too controversial to claim that the goal of governments all over the world is to create a permanent recession in the tobacco industry. Through increased taxes and more aggressive smoking bans, governments are in the process of destroying the cigar industry. It will take time but, with small, incremental steps, governments all over the world are working overtime to make cigars too expensive even for the so-called wealthy people who smoke them.
Cuba cutting back tobacco acreage may turn out to be a reaction to the global recession. Or it could be a harbinger of more serious cutbacks to come.
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