Required Report - public distribution

**Date:** 5/13/2004

**GAIN Report Number:** MY4022

MY4022

**Malaysia**

**Tobacco and Products**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Bonnie Borris

U.S. Embassy, Kuala Lumpur

**Prepared by:**

Raymond Hoh

**Report Highlights:**

Tobacco has dropped from being America\'s second largest ag export item
in 2002 to the fifth largest ag export item to Malaysia in 2003. Due to
new import regulations, leaf imports plummeted in 2003. Outlook for leaf
imports in 2004 is even less promising in order to meet the GOM\'s new
requirement of using 70 percent domastic leaves. Post expects cigarette
output to drop 7 to 8% in 2003.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Kuala Lumpur \[MY1\]

\[MY\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Tobacco, Unmfg., Flue Cured: 4](#tobacco-unmfg.-flue-cured)

[Production 5](#production)

[Consumption 6](#consumption)

[Trade 7](#trade)

[Import Trade Matrix for Tobacco, Unmfg, Flue-Cured
10](#import-trade-matrix-for-tobacco-unmfg-flue-cured)

[Export Trade Matrix for Tobacco, Unmfg, Flue-Cured
11](#export-trade-matrix-for-tobacco-unmfg-flue-cured)

[Stocks 11](#stocks)

[Policy 11](#policy)

[Tobacco, Mfg., Cigarettes: 13](#tobacco-mfg.-cigarettes)

[Production 13](#production-1)

[Consumption 13](#consumption-1)

[Prices 14](#prices)

[Trade 15](#trade-1)

[Export Trade Matrix for Tobacco, Mfg, Cigarettes
21](#export-trade-matrix-for-tobacco-mfg-cigarettes)

[Import Trade Matrix for Tobacco, Mfg, Cigarettes
22](#import-trade-matrix-for-tobacco-mfg-cigarettes)

[Policy 22](#policy-1)

[Tobacco, Unmfg., Total: 24](#tobacco-unmfg.-total)

[Production 24](#production-2)

[Consumption 25](#consumption-2)

[Trade 25](#trade-2)

[Import Trade Matrix for Tobacco, Unmfg., Total
28](#import-trade-matrix-for-tobacco-unmfg.-total)

[Export Trade Matrix for Tobacco, Unmfg., Total
29](#export-trade-matrix-for-tobacco-unmfg.-total)

# Executive Summary

> Tobacco has dropped from being America's second largest ag export in
> 2002 to the fifth largest ag export item to Malaysia in 2003. Imports
> of U.S. flue-cured leaves plummeted from 13,170 in 2002 to 3,872 MT in
> 2003. Imports of burley from the US also fell from 10,185 MT in 2002
> to 1,276 MT in 2003. Mainly due the GOM's restriction on leaf imports
> and the GOM's new requirement of using 70 percent domestic leaves, US
> leaf exports are expected to dip even lower in 2004. In addition, the
> domestic cigarette market has not fully recovered from the hefty price
> increase in September 2003 following a hike in import tariff on
> cigarette and tobacco products.

Local output of flue-cured tobacco and burley rose to 11,691 MT and
1,835 MT respectively in 2003. The outlook for 2004 is bright with
flue-cured leaf output forecast at 11,880 MT, against a given quota of
13,200 MT. Domestic burley output is expected to reach 1,500 MT in 2004.

Domestic cigarette output rose by 4.8% in 2003 due to an increase in
domestic consumption as well as a jump in overseas demand for
cigarettes. With the restriction on leaf imports and limited local leaf
supply, Post expects cigarette output to drop in 2004. Imports of good
quality cigarettes are expected to increase to replace the short supply.

On Sept 24, 2004, Malaysia signed the WHO's Framework Convention on
Tobacco Control, a global initiative designed to reduce tobacco-related
deaths and diseases.

Exchange rates: Pegged at US\$1.00 = RM3.799 since 1998.

# Tobacco, Unmfg., Flue Cured:

+------------+----------+---------+--------+-------+---------+--------+
| **PSD      |          |         |        |       |         |        |
| Table**    |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| *          | **Ma     |         |        |       |         |        |
| *Country** | laysia** |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| **C        | **       |         |        |       | (       |        |
| ommodity** | Tobacco, |         |        |       | HA)(MT) |        |
|            | U        |         |        |       |         |        |
|            | nmfg.,** |         |        |       |         |        |
|            |          |         |        |       |         |        |
|            | **Flue   |         |        |       |         |        |
|            | Cured**  |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
|            | 2002     | Revised | 2003   | Est   | 2004    | Fo     |
|            |          |         |        | imate |         | recast |
+------------+----------+---------+--------+-------+---------+--------+
|            | USDA     | Post    | USDA   | Post  | USDA    | Post   |
|            | Official | E       | Of     | Est   | O       | Es     |
|            | \[Old\]  | stimate | ficial | imate | fficial | timate |
|            |          | \[New\] | \      | \[    | \[Old\] | \      |
|            |          |         | [Old\] | New\] |         | [New\] |
+------------+----------+---------+--------+-------+---------+--------+
| **Market   |          | 01/2002 |        | 01    |         | 0      |
| Year       |          |         |        | /2003 |         | 1/2004 |
| Begin**    |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| Area       | 0        | 14390   | 0      | 13037 | 0       | 13100  |
| Planted    |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| Beginning  | 0        | 19202   | 0      | 20982 | 0       | 20815  |
| Stocks     |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| Farm Sales | 0        | 11304   | 0      | 11691 | 0       | 11880  |
| Weight     |          |         |        |       |         |        |
| Prod       |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| Dry Weight | 0        | 10175   | 0      | 10520 | 0       | 10700  |
| Production |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| U.S. Leaf  | 0        | 13170   | 0      | 3872  | 0       | 3000   |
| Imports    |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| Other      | 0        | 9764    | 0      | 6488  | 0       | 2000   |
| Foreign    |          |         |        |       |         |        |
| Imports    |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| TOTAL      | 0        | 22934   | 0      | 10360 | 0       | 5000   |
| Imports    |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| TOTAL      | 0        | 52311   | 0      | 41862 | 0       | 36515  |
| SUPPLY     |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| Exports    | 0        | 879     | 0      | 347   | 0       | 300    |
+------------+----------+---------+--------+-------+---------+--------+
| Dom. Leaf  | 0        | 7450    | 0      | 10300 | 0       | 12500  |
| C          |          |         |        |       |         |        |
| onsumption |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| U.S. Leaf  | 0        | 13000   | 0      | 3900  | 0       | 3000   |
| Dom.       |          |         |        |       |         |        |
| Consum.    |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| Other      | 0        | 10000   | 0      | 6500  | 0       | 2000   |
| Foreign    |          |         |        |       |         |        |
| Consump.   |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| TOTAL Dom. | 0        | 30450   | 0      | 20700 | 0       | 17500  |
| C          |          |         |        |       |         |        |
| onsumption |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| TOTAL      | 0        | 31329   | 0      | 21047 | 0       | 17800  |
| Dis        |          |         |        |       |         |        |
| appearance |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| Ending     | 0        | 20982   | 0      | 20815 | 0       | 18715  |
| Stocks     |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+
| TOTAL      | 0        | 52311   | 0      | 41862 | 0       | 36515  |
| DI         |          |         |        |       |         |        |
| STRIBUTION |          |         |        |       |         |        |
+------------+----------+---------+--------+-------+---------+--------+

## Production 

The local tobacco leaf sector improved in 2003. Better weather
conditions resulted in an increase in harvested area. Yield per
harvested hectare showed a 14 percent increase and the output of
flue-cured tobacco rose to 11,691 MT in 2003. The total value of the
2003 crop was estimated at US\$42 million compared to US\$41 million in
2002.

The outlook for 2004 is bright. No adverse weather conditions ware
reported. A small increase in harvested area and a slight improvement in
yields should push the flue-cured leaf output to 11,880 MT, against a
given quota of 13,200 MT.

The following table provides a comparison of the domestic production
quota and actual output of tobacco over the past ten years:

+--------------+------------------+---------------+-------------------+
| Year         | Production Quota | Actual Output | Actual/Quota      |
|              |                  |               |                   |
|              | (MT)             | (MT)          | (Percent +/-)     |
+--------------+------------------+---------------+-------------------+
| 1994         | 9,764            | 6,172         | -36.8             |
+--------------+------------------+---------------+-------------------+
| 1995         | 12,399           | 10,467        | -15.6             |
+--------------+------------------+---------------+-------------------+
| 1996         | 12,561           | 11,988        | \- 4.6            |
+--------------+------------------+---------------+-------------------+
| 1997         | 13,300           | 11,444        | -14.0             |
+--------------+------------------+---------------+-------------------+
| 1998         | 14,160           | 11,361        | -19.8             |
+--------------+------------------+---------------+-------------------+
| 1999         | 14,400           | 7,817         | -45.7             |
+--------------+------------------+---------------+-------------------+
| 2000         | 15,100           | 7,259         | -51.9             |
+--------------+------------------+---------------+-------------------+
| 2001         | 15,100           | 8,299         | -45.0             |
+--------------+------------------+---------------+-------------------+
| 2002         | 15,100           | 11,304        | -25.1             |
+--------------+------------------+---------------+-------------------+
| 2003         | 13,000           | 11,691        | -10.1             |
+--------------+------------------+---------------+-------------------+
| 2004 1/      | 13,200           | 11,880        | 10.0              |
+--------------+------------------+---------------+-------------------+

1/ Estimate

An increase in harvested area and average yield in CY2003 contributed to
the increase in leaf output. The following table provides a comparison
of output, area, and yields over the past 10 years.

  ----------- ----------- ----------- ----------- ----------- -----------
                          Area (HA)               Yield       
                                                  (KG/HA)     

  Year        Output (MT) Planted     Harvested   Planted     Harvested

  1994        6,172       10,219      6,871       603         898

  1995        10,467      10,525      9,889       994         1,058

  1996        11,988      10,982      10,431      1,092       1,149

  1997        11,444      10,790      10,148      1,060       1,127

  1998        11,361      14,200      11,739      800         968

  1999        7,817       18,522      8,328       422         1,065

  2000        7,259       15,764      9,129       460         795

  2001        8,299       15,972      8,863       520         936

  2002        11,304      14,390      11,936      786         947

  2003        11,691      13,037      10,879      897         1,075
  ----------- ----------- ----------- ----------- ----------- -----------

## Consumption

The sharp drop in domestic consumption of flue‑cured tobacco in 2003 was
largely due the difficulty in getting permits for the importation of raw
tobacco leaves. In addition, the domestic cigarette market has not fully
recovered from the hefty price increase in September 2003 following a
hike in import tariff on cigarette and tobacco products.

While tobacco manufacturers are keen to export more cut-fillers, GOM's
new requirement of using 70 percent domestic leaves is expected to
result in lower leaf consumption in 2004. The date of implementation was
on January 1^st^ 2004. With the further squeeze on imports of foreign
leaves, Post expects the domestic consumption of flue-cured leaves to
decline by 15 percent in 2004.

## Trade

Imports of U.S. flue-cured leaves plummeted from 13,170 in 2002 to 3,872
MT in 2003. The United States was still the top supplier, with a market
share of about 37 percent. As mentioned above, the main reason was the
difficulty in getting permits for the importation of raw tobacco leaves.
Imports of other foreign leaf also suffered the same fate.

The prospect in 2004 is even dimmer with the GOM imposing the new
requirement of using 70 percent domestic leaves in all domestically
manufactured cigarettes as well as in the manufacture of cigarettes and
tobacco products for export. Post expects imports to be halved in 2004.

Malaysia exports/re-exports of flue-cured tobacco , mainly to Australia
and the Philippines, also experienced a significant drop in 2003.

Trade Trends

Import volumes and values of Unmanufactured Flue‑Cured Tobacco in CY2002
are provided below :

  ------ --------------------- ------------------- ------------------------
                               **2002 (Jan‑Dec)**  

                               **MT**              **Value (US\$)**

  1      U.S.A.                13,170              77,339,876

  2      Brazil                2,747               7,524,041

  3      Indonesia             2,020               5,805,635

  4      Thailand              1,586               4,541,709

  5      China                 709                 2,250,032

  6      Zimbabwe              528                 1,533,551

  7      Switzerland           508                 2,563,871

  8      Canada                263                 934,579

  9      India                 243                 487,492

  10     Spain                 178                 498,106

  11     Pakistan              169                 216,045

  12     Argentina             165                 515,033

  13     Philippines           129                 243,885

  14     Italy                 114                 517,008

  15     Vietnam               97                  259,755

  16     Turkey                86                  232,701

  17     Kenya                 74                  109,105

  18     U.A.E.                62                  72,704

  19     Australia             54                  143,709

  20     Malawi                21                  104,674

  21     Netherlands           5                   16,431

  22     Germany, FR           5                   33,673

         **\--Total**          **22,934**          **105,943,614**
  ------ --------------------- ------------------- ------------------------

Trade Trends

Import volumes and values of Unmanufactured Flue‑Cured Tobacco in CY2003
are provided below:

+-----+---------------------------+-----------------+------------------+
|     |                           | **2003          |                  |
|     |                           | (Jan-Dec)**     |                  |
|     |                           |                 |                  |
|     |                           | **Total**       |                  |
+-----+---------------------------+-----------------+------------------+
|     | Country                   | MT              | Value (US\$)     |
+-----+---------------------------+-----------------+------------------+
| 1   | U.S.A.                    | 3,872           | 28,851,057       |
+-----+---------------------------+-----------------+------------------+
| 2   | Indonesia                 | 1,510           | 4,765,186        |
+-----+---------------------------+-----------------+------------------+
| 3   | Brazil                    | 1,336           | 3,979,190        |
+-----+---------------------------+-----------------+------------------+
| 4   | Thailand                  | 530             | 1,693,710        |
+-----+---------------------------+-----------------+------------------+
| 5   | Vietnam                   | 503             | 1,339,954        |
+-----+---------------------------+-----------------+------------------+
| 6   | Switzerland               | 426             | 2,929,248        |
+-----+---------------------------+-----------------+------------------+
| 7   | China                     | 319             | 647,941          |
+-----+---------------------------+-----------------+------------------+
| 8   | India                     | 281             | 692,560          |
+-----+---------------------------+-----------------+------------------+
| 9   | Philippines               | 253             | 511,741          |
+-----+---------------------------+-----------------+------------------+
| 10  | Zimbabwe                  | 246             | 960,861          |
+-----+---------------------------+-----------------+------------------+
| 11  | Belgium                   | 231             | 1,677,487        |
+-----+---------------------------+-----------------+------------------+
| 12  | Pakistan                  | 210             | 315,421          |
+-----+---------------------------+-----------------+------------------+
| 13  | Australia                 | 152             | 551,945          |
+-----+---------------------------+-----------------+------------------+
| 14  | Canada                    | 141             | 707,349          |
+-----+---------------------------+-----------------+------------------+
| 15  | Italy                     | 82              | 353,618          |
+-----+---------------------------+-----------------+------------------+
| 16  | Cambodia                  | 79              | 140,699          |
+-----+---------------------------+-----------------+------------------+
| 17  | U.A.E.                    | 72              | 119,949          |
+-----+---------------------------+-----------------+------------------+
| 18  | Taiwan                    | 59              | 543,942          |
+-----+---------------------------+-----------------+------------------+
| 19  | Spain                     | 40              | 110,832          |
+-----+---------------------------+-----------------+------------------+
| 20  | Egypt                     | 10              | 24,207           |
+-----+---------------------------+-----------------+------------------+
| 21  | Germany, FR               | 8               | 61,765           |
+-----+---------------------------+-----------------+------------------+
|     | **\--Total**              | **10,360**      | **50,978,666**   |
+-----+---------------------------+-----------------+------------------+

##  Import Trade Matrix for Tobacco, Unmfg, Flue-Cured 

+-------------------+----------------+----------------+--------------+
| **Import Trade    |                |                |              |
| Matrix**          |                |                |              |
+-------------------+----------------+----------------+--------------+
| **Country**       | Malaysia       |                |              |
+-------------------+----------------+----------------+--------------+
| **Commodity**     | T              |                |              |
|                   | obacco,Unmfg., |                |              |
|                   |                |                |              |
|                   | Flue Cured     |                |              |
+-------------------+----------------+----------------+--------------+
| Time Period       | Jan-Dec        | Units:         | Metric Ton   |
+-------------------+----------------+----------------+--------------+
| Imports for:      | 2002           |                | **2003**     |
+-------------------+----------------+----------------+--------------+
| U.S.              | 13170          | U.S.           | 3872         |
+-------------------+----------------+----------------+--------------+
| Others            |                | Others         |              |
+-------------------+----------------+----------------+--------------+
| Brazil            | 2747           | Indonesia      | 1510         |
+-------------------+----------------+----------------+--------------+
| Indonesia         | 2020           | Brazil         | 1336         |
+-------------------+----------------+----------------+--------------+
| Thailand          | 1586           | Thailand       | 530          |
+-------------------+----------------+----------------+--------------+
| China             | 709            | Vietnam        | 503          |
+-------------------+----------------+----------------+--------------+
| Zimbabwe          | 528            | Switzerland    | 426          |
+-------------------+----------------+----------------+--------------+
| Switzerland       | 508            | China          | 319          |
+-------------------+----------------+----------------+--------------+
| Canada            | 263            | India          | 281          |
+-------------------+----------------+----------------+--------------+
| India             | 243            | Philippines    | 253          |
+-------------------+----------------+----------------+--------------+
| Spain             | 178            | Zimbabwe       | 246          |
+-------------------+----------------+----------------+--------------+
| Pakistan          | 169            | Belgium        | 231          |
+-------------------+----------------+----------------+--------------+
| Total for Others  | 8951           |                | 5635         |
+-------------------+----------------+----------------+--------------+
| Others not Listed | 813            |                | 853          |
+-------------------+----------------+----------------+--------------+
| Grand Total       | 22934          |                | 10360        |
+-------------------+----------------+----------------+--------------+

##  

## Export Trade Matrix for Tobacco, Unmfg, Flue-Cured

+------------------+---------------+----------------+----------------+
| **Export Trade   |               |                |                |
| Matrix**         |               |                |                |
+------------------+---------------+----------------+----------------+
| **Country**      | Malaysia      |                |                |
+------------------+---------------+----------------+----------------+
| **Commodity**    | Tobacco,      |                |                |
|                  | Unmfg.,       |                |                |
|                  |               |                |                |
|                  | Flue Cured    |                |                |
+------------------+---------------+----------------+----------------+
| Time Period      | Jan-Dec       | Units:         | Metric Ton     |
+------------------+---------------+----------------+----------------+
| Exports for:     | 2002          |                | **2003**       |
+------------------+---------------+----------------+----------------+
| U.S.             |               | U.S.           |                |
+------------------+---------------+----------------+----------------+
| Others           |               | Others         |                |
+------------------+---------------+----------------+----------------+
| Australia        | 835           | Australia      | 112            |
+------------------+---------------+----------------+----------------+
| Paraguay         | 23            | Philippines    | 106            |
+------------------+---------------+----------------+----------------+
| Philippines      | 21            | Belgium        | 99             |
+------------------+---------------+----------------+----------------+
|                  |               | Thailand       | 18             |
+------------------+---------------+----------------+----------------+
|                  |               | China          | 10             |
+------------------+---------------+----------------+----------------+
|                  |               | Germany FR     | 2              |
+------------------+---------------+----------------+----------------+
|                  |               |                |                |
+------------------+---------------+----------------+----------------+
|                  |               |                |                |
+------------------+---------------+----------------+----------------+
|                  |               |                |                |
+------------------+---------------+----------------+----------------+
|                  |               |                |                |
+------------------+---------------+----------------+----------------+
| Total for Others | 879           |                | 347            |
+------------------+---------------+----------------+----------------+
| Others not       |               |                |                |
| Listed           |               |                |                |
+------------------+---------------+----------------+----------------+
| Grand Total      | 879           |                | 347            |
+------------------+---------------+----------------+----------------+

## Stocks

While there is a slight increase in the volume of local leaves in
storage for the 'maturing' process, manufacturers are working down
stocks during 2003. The stock level should continue to drop in 2004 with
the tight supply of foreign leaves.

## Policy

Production policy

In order to prepare the farmers to face the eventual removal of tariff
protection under the ASEAN Free Trade Area (AFTA) in 2010, the GOM
restructured the tobacco industry. Since January 1, 2004, tobacco
manufacturers are required to use 70 percent domestic leaves in all
domestically manufactured cigarettes as well as in the manufacture of
cigarettes and tobacco products for export.

In addition, the manufacturers will bear the cost of a special incentive
of RM2.00 for every kg of tobacco produced by the tobacco curers and
grower-curers. It is estimated that the exercise may cost the
manufacturers up to RM30 million (US\$7.9 million). Presently, the
tobacco industry generates an annual income of US\$53 million for some
100,000 people in the rural sector.

Tariff Changes

Import duties on imported tobacco leaves remain unchanged since Jan 1,
2002.

Non‑Tariff Barriers

All imports of flue‑cured or Virginia tobacco must be approved by the
Ministry of Primary Industries (MPI). While MPI has been quite lenient
in granting permits in the past, at least one cigarette manufacturer has
voiced difficulties in getting the requested volume in 2003. The
industry is also concerned with the new requirements on the usage of
local leaf in the manufacture of cigarettes/cut-fillers for the export
market.

Competitor Activities

Most competitor countries do little in the way of market promotion but
use lower prices as a selling point.

# Tobacco, Mfg., Cigarettes:

  --------------- -------------- ---------- ---------- ---------- ---------- ----------
  **PSD Table**                                                              

  **Country**     **Malaysia**                                               

  **Commodity**   **Tobacco,                                      (MIL PCS)  
                  Mfg.,                                                      
                  Cigarettes**                                               

                  2002           Revised    2003       Estimate   2004       Forecast

                  USDA Official  Post       USDA       Post       USDA       Post
                  \[Old\]        Estimate   Official   Estimate   Official   Estimate
                                 \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  **Market Year                  01/2002               01/2003               01/2004
  Begin**                                                                    

  Filter          23500          23500      25300      24620      0          22770
  Production                                                                 

  Non-Filter      2600           2600       2800       2740       0          2530
  Production                                                                 

  TOTAL           26100          26100      28100      27360      0          25300
  Production                                                                 

  Imports         1657           1657       1400       2028       0          2500

  TOTAL SUPPLY    27757          27757      29500      29388      0          27800

  Exports         6925           6925       8000       7811       0          6000

  Domestic        20832          20832      21500      21577      0          21800
  Consumption                                                                

  TOTAL           27757          27757      29500      29388      0          27800
  DISTRIBUTION                                                               
  --------------- -------------- ---------- ---------- ---------- ---------- ----------

## Production

The Malaysian cigarette industry is dominated by British American
Tobacco (M) Bhd (BAT) which accounts for 70 percent of the Malaysian
cigarette market. JT International (the former R.J. Reynolds Tobacco
Company Bhd) and Philip Morris share the remaining 30 percent.

Domestic cigarette output rose by 4.8% in 2003 due to increase in
domestic consumption as well as a jump in overseas demand for
cigarettes. The 2004 lookout for cigarette manufacturing is less
promising with the restriction on leaf imports and limited local leaf
supply. Post expects cigarette output to drop in 2004.

## Consumption

In 2003, the top 4 brands sold in the country were Dunhill, Marlboro,
Salem and Benson & Hedges. The cigarette companies have again expressed
concern that high excise duty encourages smuggling of non-duty paid
cigarettes into the country. The non-duty paid (contra-bands and
counterfeit) cigarettes make up roughly 20-25 percent of the total
cigarette market. Reportedly, the GOM is losing about US\$263 million in
taxes due to such activities. The manufacturers are working with the GOM
to require all cigarette packs sold in the country to feature a visible
security marking in order to stem out the illegal cigarettes.

The estimate for cigarette consumption is only slightly higher in this
current year despite the sharp hike in cigarette price. Post expects
only one percent growth in the domestic consumption of cigarettes in
2004.

Younger Malaysians prefer to smoke American‑blended cigarettes. With
about half of the population below age 25, the demand for these
cigarettes should continue to climb. The local market share for
American‑blend cigarettes has expanded from 38 percent in 1998 to close
to 54 percent in 2003. Marlboro has overtaken Salem as the current
leading American‑blended cigarette brand. Other good sellers include
Camel, Winston, Kent, Lucky Strike and Peter Stuyvesant. In the straight
Virginia or English‑blend segment, Dunhill and Benson & Hedges are the
top brands.

## Prices

Following the hike in import duties on cigarettes and tobacco products,
local manufacturers increased the cigarette price by RM0.40 to 0.70
(US\$0.11 to 0.18) per packet of 20. (The previous price increase was in
Oct, 2001). Some representative cigarette prices are as follows (RM per
pack of 20):

  --------------------------------------------- -------------------------
  Cigarette Representatives                     Prices

  Benson (sp. Filter)                           RM5.40

  Rothmans International                        RM5.60

  Pall Mall Kings                               RM5.70

  Mild Seven King Size                          RM5.40

  Lucky Strike                                  RM5.60

  Dunhill King Size                             RM5.40

  Player's Gold Leaf 100\'s                     RM4.00

  Peter Stuyvesant King Size                    RM5.40

  SE 555 Kings                                  RM5.40

  Kent Kings                                    RM5.40

  Marlboro King Size                            RM5.40

  Salem King Size                               RM5.40

  Camel (Regular)                               RM5.60
  --------------------------------------------- -------------------------

## Trade

Imports of cigarettes rose 22 percent in 2003. Imports from China
recorded substantial gains while imports of premium brands from
Switzerland and Singapore also showed record increases. In general, very
high Malaysian tariffs restrict imports of cigarettes for the local
market. For example, a popular Japanese brand amongst the Japanese
expatriates living in Malaysia is being produced in Malaysia instead of
being imported from Japan. However, with the restriction on the imports
tobacco leaf, post expects cigarettes imports to show big increases in
the near term. Imports of American and European cigarettes are destined
for the higher-priced specialty shops. Imports of 'kretek' cigarettes
from Indonesia also recorded a small increase.

Imports of cigarettes by volume and value in CY2002 are listed below:

  ------- ---------------------- -------------------- -------------------
                                 **2002 (Jan‑Dec)**   

                                 **MT**               **Value (US\$)**

  1       U.S.A.                 57                   904,116

  2       China                  445                  8,869,298

  3       Hong Kong              309                  5,546,492

  4       Indonesia              266                  3,548,670

  5       Philippines            113                  1,511,820

  6       Singapore              104                  1,796,987

  7       Japan                  100                  1,353,482

  8       U.K.                   75                   799,391

  9       Switzerland            69                   1,781,079

  10      Germany                59                   1,522,502

  11      South Africa           54                   751,556

  12      Thailand               4                    60,036

  13      Vietnam                1                    6,563

          **Total**              **1,657**            **28,451,991**
  ------- ---------------------- -------------------- -------------------

Imports of cigarettes by volume and value in CY2003 are listed below:

  ---- --------------------------- -------------------- ------------------
                                   **2003 (Jan-Dec)**   

                                   **MT**               **Value (US\$)**

  1    U.S.A.                      23                   422,592

  2    China                       609                  11,805,833

  3    Hong Kong                   276                  5,264,521

  4    Indonesia                   270                  4,280,361

  5    Switzerland                 214                  5,981,454

  6    Singapore                   184                  3,544,989

  7    Japan                       87                   1,419,483

  8    U.A.E.                      69                   1,404,414

  9    U.K.                        68                   940,320

  10   Philippines                 57                   455,737

  11   Mexico                      29                   564,399

  12   Iran                        29                   159,542

  13   Taiwan                      21                   447,839

  14   South Africa                17                   446,275

  15   Cyprus                      15                   102,497

  16   Chile                       15                   359,477

  17   Germany                     12                   310,259

  18   Mauritius                   12                   241,324

  19   Thailand                    9                    176,062

  20   Solomon Islands             5                    69,539

  21   Romania                     4                    19,155

  22   Vietnam                     2                    47,295

       **\--Total:**               **2,028**            **38,463,366**
  ---- --------------------------- -------------------- ------------------

Exports of cigarettes rose 13 percent to 7,811 MT in 2003 primarily due
to a sharp increase in demand from Singapore, Hong Kong and Taiwan. Post
expects cigarette exports to decline to 6,000 MT in 2004 due a smaller
supply of imported leaves.

Exports of cigarettes by volume and value in CY2002 are listed below:

  --------- ------------------------ ------------------- -----------------
                                     **2002 (Jan‑Dec)**  

                                     **MT**              **Value (US\$)**

  1         U.S.A.                   290                 1,895,028

  2         Singapore                1,585               36,852,268

  3         Hong Kong                1,243               16,223,936

  4         Taiwan                   1,070               9,565,769

  5         Philippines              624                 12,419,870

  6         Thailand                 481                 6,343,652

  7         Indonesia                393                 2,574,989

  8         Brunei                   297                 8,108,304

  9         Iran                     169                 747,551

  10        Vietnam                  91                  2,261,927

  11        Cambodia                 88                  925,694

  12        Japan                    83                  855,973

  13        U. A. Emirates           66                  401,079

  14        Kuwait                   48                  308,364

  15        Maldives                 39                  379,619

  16        Moldova                  36                  353,067

  17        Loa, PDR                 29                  285,592

  18        Panama                   29                  176,464

  19        Nepal                    23                  209,464

  20        China                    22                  306,182

  21        South Africa             21                  122,210

  22        United Kingdom           18                  234,832

  23        Benin                    18                  83,042

  24        Australia                15                  253,597

  25        Germany                  11                  44,934

  26        Chile                    10                  64,409

  27        Jordan                   10                  77,502

  28        Kenya                    9                   54,158

  29        Saudi Arabia             9                   59,041

  30        Ireland                  8                   92,029

  31        Netherlands              8                   72,702

  32        Uruguay                  7                   40,106

  33        Greece                   7                   35,543

  34        Romania                  5                   35,117

  35        Congo                    4                   42,351

  36        India                    4                   50,415

  37        Pakistan                 4                   16,363

  38        Mauritius                2                   20,964

  39        Korea Rep.               2                   22,030

  40        Burma                    2                   36,134

  41        Others                   49                  747,307

            **\--Total**             **6,925**           **103,399,580**
  --------- ------------------------ ------------------- -----------------

Exports of cigarettes by volume and value in CY2003 are listed below:

  ---- ----------------------------- ------------------- ------------------
                                     **2003 (Jan-Dec)**  

                                     MT                  **Value (US\$)**

  1    U.S.A.                        202                 1,627,687

  2    Singapore                     1,970               41,587,569

  3    Hong Kong                     1,654               16,571,323

  4    Taiwan                        1,554               11,681,179

  5    Philippines                   641                 10,549,097

  6    Thailand                      369                 6,388,320

  7    Brunei                        304                 9,625,751

  8    Iran                          267                 1,407,287

  9    Vietnam                       103                 2,950,281

  10   Indonesia                     95                  1,866,890

  11   U.A. Emirates                 75                  434,268

  12   Maldives                      66                  602,398

  13   China                         60                  864,936

  14   Benin                         56                  196,672

  15   United Kingdom                55                  844,079

  16   Saudi Arabia                  45                  317,543

  17   Japan                         38                  506,081

  18   Australia                     37                  520,884

  19   Germany                       34                  215,073

  20   Panama                        22                  137,945

  21   India                         21                  189,805

  22   Cambodia                      17                  229,889

  23   Kuwait                        16                  114,230

  24   New Zealand                   14                  82,033

  25   Italy                         13                  207,552

  26   Nepal                         13                  103,288

  27   Belize                        10                  188,496

  28   Djibouti                      9                   53,766

  29   Greece                        9                   35,204

  30   Kenya                         9                   54,142

  31   Loa, PDR                      8                   82,768

  32   Nigeria                       4                   23,769

  33   Puerto Rico (U.S.)            3                   21,055

  34   Switzerland                   3                   1,621

  35   Korea Rep.                    3                   58,959

  36   France                        3                   41,195

  37   Fiji                          1                   42,752

  38   Burma                         1                   15,011

  39   Bangladesh                    1                   5,136

  40   Netherlands                   1                   9,755

  41   Others                        7                   245,630

       **\--Total**                  **7,811**           **110,701,317**
  ---- ----------------------------- ------------------- ------------------

## Export Trade Matrix for Tobacco, Mfg, Cigarettes 

  -------------------- ----------------- ----------------- ----------------
  **Export Trade                                           
  Matrix**                                                 

  **Country**          Malaysia                            

  **Commodity**        Tobacco, Mfg.,                      
                       Cigarettes                          

  Time Period          Jan-Dec           Units:            Metric Ton

  Exports for:         2002                                **2003**

  U.S.                 290               U.S.              202

  Others                                 Others            

  Singapore            1585              Singapore         1970

  Hong Kong            1243              Hong Kong         1654

  Taiwan               1070              Taiwan            1554

  Philippines          624               Philippines       641

  Thailand             481               Thailand          369

  Indonesia            393               Brunei            304

  Brunei               297               Iran              267

  Iran                 169               Vietnam           103

  Vietnam              91                Indonesia         95

  Cambodia             88                U.A. Emirates     75

  Total for Others     6041                                7032

  Others not Listed    594                                 577

  Grand Total          6925                                7811
  -------------------- ----------------- ----------------- ----------------

## Import Trade Matrix for Tobacco, Mfg, Cigarettes

  ------------------- ------------------- ----------------- --------------
  **Import Trade                                            
  Matrix**                                                  

  **Country**         Malaysia                              

  **Commodity**       Tobacco, Mfg.,                        
                      Cigarettes                            

  Time Period         Jan-Dec             Units:            Metric Ton

  Imports for:        2002                                  **2003**

  U.S.                57                  U.S.              23

  Others                                  Others            

  China               445                 China             609

  Hong Kong           309                 Hong Kong         276

  Indonesia           266                 Indonesia         270

  Philippines         113                 Switzerland       214

  Singapore           104                 Singapore         184

  Japan               100                 Japan             87

  United Kingdom      75                  U.A. Emarates     69

  Switzerland         69                  United Kingdom    68

  Germany             59                  Philippines       57

  South Africa        54                  Mexico            29

  Total for Others    1594                                  1863

  Others not Listed   6                                     142

  Grand Total         1657                                  2028
  ------------------- ------------------- ----------------- --------------

## Policy

Marketing Policy

On Sept 24, 2004, Malaysia signed the WHO's Framework Convention on
Tobacco Control, a global initiative designed to reduce tobacco-related
deaths and diseases. With immediate effect, all forms of cigarette
advertising will not be allowed with an exception for advertising in a
few sports such as the Formula One racing which will be permitted until
2006.

Tariff Changes

Effective Sep 12, 2003, the import and excise duties on cigarettes and
other tobacco products have been increased by 20% from RM216 (US\$56.84)
/kg to RM259 (US\$68.16) /kg and RM48 (US\$12.63) /kg to RM58
(US\$15.26) /kg, respectively.

Import Requirements

All cigarette packages are required by the GOM to carry the warning:
Amaran Kementerian Kesihatan Malaysia‑merokok membahayakan kesihatan
(\"Warning by the Malaysian Ministry of Health‑smoking endangers
health\"). Labels must also state that the levels of tar and nicotine
are below the allowable maximum levels. Where the container is a packet
which is a rectangular block in shape, the words shall be placed on
either side panel of the packet. The words shall be in block letters of
not less than 3mm in height and in the same color and background as the
name of the brand. If the words appear on a label, the label shall be
securely affixed to the container. This rule applies to imported as well
as domestically manufactured cigarettes.

# Tobacco, Unmfg., Total:

  --------------- -------------- ---------- ---------- ---------- ---------- ----------
  **PSD Table**                                                              

  **Country**     **Malaysia**                                               

  **Commodity**   **Tobacco,                                      (HA)(MT)   
                  Unmfg.,                                                    
                  Total**                                                    

                  2002           Revised    2003       Estimate   2004       Forecast

                  USDA Official  Post       USDA       Post       USDA       Post
                  \[Old\]        Estimate   Official   Estimate   Official   Estimate
                                 \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]

  **Market Year                  01/2002               08/1901               01/2004
  Begin**                                                                    

  Area Planted    14390          15579      11000      14345      0          14500

  Beginning       19202          20658      21135      22606      20135      21910
  Stocks                                                                     

  Farm Sales      11468          13012      12000      13526      0          13850
  Weight Prod                                                                

  Dry Weight      10320          11710      10800      12175      0          12470
  Production                                                                 

  U.S. Leaf       13170          23355      11000      5148       0          4000
  Imports                                                                    

  Other Foreign   9764           16320      8000       12014      0          6000
  Imports                                                                    

  TOTAL Imports   22934          39675      19000      17162      0          10000

  TOTAL SUPPLY    52456          72043      50935      51943      20135      44380

  Exports         871            1277       700        1071       0          1000

  Dom. Leaf       7450           8430       10300      11800      0          12800
  Consumption                                                                

  U.S. Leaf Dom.  13000          23180      12000      5148       0          4000
  Consum.                                                                    

  Other Foreign   10000          16550      7800       12014      0          6000
  Consump.                                                                   

  TOTAL Dom.      30450          48160      30100      28962      0          22800
  Consumption                                                                

  TOTAL           31321          49437      30800      30033      0          23800
  Disappearance                                                              

  Ending Stocks   21135          22606      20135      21910      0          20580

  TOTAL           52456          72043      50935      51943      0          44380
  DISTRIBUTION                                                               
  --------------- -------------- ---------- ---------- ---------- ---------- ----------

## Production

The state of Sabah in East Malaysia remains the main burley growing area
in Malaysia followed by the states of Kelantan and Perlis in the
Peninsula. Total area rose from 1,189 hectares in 2002 to 1,308 hectares
in 2003. Domestic burley output rose to 1,835 MT in 2003, reflecting an
increase in planted area. Yield per hectare dropped from 1,437 kg/ha in
2002 to 1,403 kg/ha in 2003. For 2004, farmers plan to increase planted
area and Post expects domestic burley output to increase to 1,400 MT.

Summary for area and production for Flue-cured and Burley

  -------------- -------------- -------------- -------------- --------------
  Year           2001           2002           2003           2004 1/

  AREA                                                        
  (Hectares)                                                  

  Flue-Cured     15,972         14,390         13,037         13,100

  Burley         832            1,189          1,308          1,400

  \--TOTAL       16,804         15,579         14,345         14,500
  -------------- -------------- -------------- -------------- --------------

  -------------- -------------- -------------- -------------- --------------
  Year           2001           2002           2003           2004 1/

  PRODUCTION                                                  
  (Metric Tons)                                               

  Flue-Cured     8,299          11,304         11,691         11,880

  Burley         1,096          1,708          1,835          1,970

  \--TOTAL:      9,395          13,012         13,526         13.850
  -------------- -------------- -------------- -------------- --------------

1/ Estimate

## Consumption

As in the flue-cured sector, the requirement of using 70 percent of
domestic tobacco leaf will affect the decline in burley usage in the
near term.

## Trade

Imports of burley and oriental dropped sharply from 16,471 MT in 2002 to
6,802 MT in 2003 largely due to the restrictions on imports. Imports
from the US fell from 10,185 MT in 2002 to 1,276 MT in 2003. Burley and
oriental imports are expected to continue to decline in 2004.

In 2003, Malaysia exported/re-exported 724 MT of burley, mainly to
Australia, Thailand and the Philippines.

Imports volumes and value of Total Unmanufactured Tobacco CY2002 are
provided below:

  ------ --------------------- -------------------- -----------------------
                               **Jan ‑Dec 2002**    

                               **MT**               **Value (US\$)**

  1      U.S.A.                23,355               141,664,716

  2      Thailand              3,605                11,924,222

  3      Brazil                3,006                8,552,500

  4      Indonesia             2,770                7,561,009

  5      Switzerland           1,271                9,565,197

  6      Turkey                1,245                5,772,628

  7      China                 1,192                3,754,968

  8      Malawi                745                  2,485,557

  9      Zimbabwe              528                  1,533,551

  10     Canada                263                  934,579

  11     India                 243                  487,492

  12     Spain                 198                  557,522

  13     Italy                 191                  998,366

  14     Argentina             182                  575,160

  15     Pakistan              169                  216,045

  16     Germany, FR           143                  541,589

  17     Philippines           129                  243,885

  18     Vietnam               117                  311,422

  19     Greece                112                  812,475

  20     Kenya                 74                   109,105

  21     U.A.E.                62                   72,704

  22     Australia             54                   143,709

  23     Netherlands           18                   69,891

  24     France                2                    4,519

         **\--Total**          **39,675**           **198,892,810**
  ------ --------------------- -------------------- -----------------------

Imports volumes and value of Total Unmanufactured Tobacco CY2003 are
provided below:

+---+--------------------------+---------------+----------------------+
|   |                          | #########     |                      |
|   |                          | Jan -Dec 2003 |                      |
+---+--------------------------+---------------+----------------------+
|   |                          | ####### MT    | **Value (US\$)**     |
+---+--------------------------+---------------+----------------------+
| 1 | U.S.A.                   | 5,148         | 39,191,815           |
+---+--------------------------+---------------+----------------------+
| 2 | Indonesia                | 2,298         | 7,335,765            |
+---+--------------------------+---------------+----------------------+
| 3 | Brazil                   | 1,840         | 5,675,729            |
+---+--------------------------+---------------+----------------------+
| 4 | Thailand                 | 1,666         | 6,075,186            |
+---+--------------------------+---------------+----------------------+
| 5 | Turkey                   | 1,117         | 4,155,374            |
+---+--------------------------+---------------+----------------------+
| 6 | China                    | 1,019         | 4,031,354            |
+---+--------------------------+---------------+----------------------+
| 7 | Switzerland              | 674           | 4,999,986            |
+---+--------------------------+---------------+----------------------+
| 8 | Belgium                  | 567           | 4,446,279            |
+---+--------------------------+---------------+----------------------+
| 9 | Vietnam                  | 503           | 1,339,954            |
+---+--------------------------+---------------+----------------------+
| 1 | Philippines              | 464           | 1,192,428            |
| 0 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 1 | India                    | 281           | 692,560              |
| 1 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 1 | Zimbabwe                 | 247           | 965,223              |
| 2 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 1 | Pakistan                 | 210           | 315,421              |
| 3 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 1 | Greece                   | 168           | 1,366,119            |
| 4 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 1 | Australia                | 154           | 564,477              |
| 5 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 1 | Italy                    | 143           | 738,880              |
| 6 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 1 | Canada                   | 141           | 707,349              |
| 7 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 1 | Germany, FR              | 104           | 736,556              |
| 8 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 1 | British Virgin Islands   | 86            | 274,408              |
| 9 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 2 | Cambodia                 | 79            | 140,699              |
| 0 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 2 | U.A.E.                   | 72            | 119,949              |
| 1 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 2 | Taiwan                   | 59            | 543,942              |
| 2 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 2 | Argentina                | 43            | 135,582              |
| 3 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 2 | Spain                    | 40            | 110,832              |
| 4 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 2 | Montenegro               | 13            | 40,596               |
| 5 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 2 | Egypt                    | 10            | 24,207               |
| 6 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 2 | Bulgaria                 | 10            | 56,280               |
| 7 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 2 | Mexico                   | 3             | 18,016               |
| 8 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
| 2 | Singapore                | 1             | 29,909               |
| 9 |                          |               |                      |
+---+--------------------------+---------------+----------------------+
|   | **\--Total**             | **17,162**    | **86,024,877**       |
+---+--------------------------+---------------+----------------------+

## Import Trade Matrix for Tobacco, Unmfg., Total

  ------------------- ----------------- ----------------- ----------------
  **Import Trade                                          
  Matrix**                                                

  **Country**         Malaysia                            

  **Commodity**       Tobacco, Unmfg.,                    
                      Total                               

  Time Period         Jan-Dec           Units:            Metric Ton

  Imports for:        2002                                **2003**

  U.S.                23355             U.S.              5148

  Others                                Others            

  Thailand            3605              Indonesia         2298

  Brazil              3006              Brazil            1840

  Indonesia           2770              Thailand          1666

  Switzerland         1271              Turkey            1117

  Turkey              1245              China             1019

  China               1192              Switzerland       674

  Malawi              745               Belgium           567

  Zimbabwe            528               Vietnam           503

  Canada              263               Philippines       464

  India               243               India             281

  Total for Others    14868                               10429

  Others not Listed   1452                                1585

  Grand Total         39675                               17162
  ------------------- ----------------- ----------------- ----------------

## Export Trade Matrix for Tobacco, Unmfg., Total 

  ------------------- ----------------- ----------------- ----------------
  **Export Trade                                          
  Matrix**                                                

  **Country**         Malaysia                            

  **Commodity**       Tobacco, Unmfg.,                    
                      Total                               

  Time Period         Jan-Dec           Units:            Metric Ton

  Exports for:        2002                                **2003**

  U.S.                                  U.S.               

  Others                                Others            

  Australia           1125              Australia         394

  Vietnam             74                Thailand          282

  Philippines         31                Philippines       172

  Singapore           24                Belgium           158

  Paraguay            23                Singapore         50

                                        China             11

                                        United Kingdom    2

                                        Germany FR        2

                                                           

                                                           

  Total for Others    1277                                1071

  Others not Listed                                        

  Grand Total         1277                                1071
  ------------------- ----------------- ----------------- ----------------