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April,
2008

Premium Imports Recover

By E. EDWARD HOYT III

Imports of premium cigars were up 7.8 percent in 2007, following a 5.6 percent dip in 2006. Economic woes could take a toll in 2008, however, as the spector of recession looms.

An estimated total of 335.2 million hand-made premium cigars were imported into the United States in 2007, an increase of 7.8 percent from 311 million cigar in 2006, according to the Washington-based trade group the Cigar Association of America (CAA). The volumes rivaled imports for the year 1998 (see 12-year historical chart, page 54).

Cigars enter the country under one of eight different tariff categories; all “premium” cigars enter under the highest category known as Class H - those valued at 23˘ or more per stick. However, some machine-made cigars from the Dominican Republic and Honduras are included in this category, so the CAA’s estimates include adjustments made using manufacturer-supplied data.

Compared to 1999, the year when premium cigar imports fell to their lowest recent level following the peak of the “cigar boom,” hand-rolled cigars are ahead by 35 percent. However, imports are 327 percent larger than the market was in 1977 when an estimated 78 million premium cigars were imported.

The “big three” supplier nations - the Dominican Republic, Honduras, and Nicaragua - accounted for 98.3 percent of all the hand-made cigar imports. After witnessing a 13 percent drop in 2006, the market-leading Dominican Republic posted a 4 percent gain in premium shipments to the U.S. to 178 million cigars, or 53 percent of the total.

Honduras shipped 84.6 million premiums to the states, an increase of 5 percent, representing its second-highest yearly total ever next to the industry peak “boom” year of 1997.

Third-ranking Nicaragua continues to gain ground by significant strides, narrowing the gap with second-place Honduras. It posted the largest increase among the top three regions last year - a 23 percent jump to an all-time record high of 69.3 million premium cigars. In all, Nicaragua accounted for 21 percent of hand-made imports, up from 18 percent in 2006.

The remaining 1.7 percent of all premium cigar imports came from as many as 23 other nations, although additional machine-made cigars are likely included in some of those nation’s individual totals. Each accounted for less than one-half of one percent of premium imports. The Bahamas regained its fourth place ranking, which it briefly held in 2005, thanks to a volume surge of 97 percent to 1.49 million cigars last year, up from 757,000 in 2006. Mexico, once a dominant force in the U.S., showed perhaps its first sign of recovery as its 10-year slide bottomed out in 2006, with premium imports to the U.S. growing by 23 percent last year to 1.36 million.

Each of the remaining producing countries represented less than 1 million sticks, or under one-tenth of one percent of total premium imports. Included within this tiny percentages, however, are some interesting boutique manufacturers as well as major foreign producers with underdeveloped U.S. markets.

The Philippines held sixth place at 676,000 premium cigars, an increase of 45 percent from 466,000 in 2006. Switzerland, according to U.S. census data, shipped 521,000 premium cigars, Germany 515, 000, Belgium 493,000, and Spain 135,000, although a lack of known hand-rolled products attributable to some of these nations raises additional government classification questions.

On the other hand, other notable supplier nations that currently, or have in the past, produced hand-rolled cigars include Ecuador, which posted a 460 percent increase in 2007 to 84,000 cigars; Indonesia, which saw imports to the U.S. plunge by 533 percent to 58,000; and Costa Rica, whose shipments fell by 84 percent to 50,000 cigars last year.

Brazil also lost ground in the U.S. premium market, shipping 138 percent fewer cigars last year or 49,000 total. Recently, Brazilian cigars have entered turbulent waters in the U.S., as the country’s leading producer - Menendez Amerino & Cia - and the former U.S. distributor of its brands - Brazil Cigars & Tobacco LLC - have entered a legal battle over U.S. rights to the Dona Flor, Alonso Menendez, and Aquarius brands. Menendez Amerino is pursuing a new distributor while Brazil Cigars & Tobacco is simultaneously pursuing a new manufacturer, all for the same brands.

Jamaica, which was once home to a significant portion of General Cigar Co.’s Macanudo production, shipped 18,000 premiums to the U.S. last year, down 54 percent from 39,000 the year before.

The total declared (wholesale) value of premium cigars was $315.5 million.

NON-PREMIUM LARGE CIGARS
What the CAA identifies as hand-made premium cigars from import data actually represent only 28 percent of the total 1.2 billion cigars imported to the U.S. last year: approximately 476.8 million or 40 percent were non-premium large cigars, and the remaining 311.2 million or 26 percent were “little cigars,” defined as as those weighing 1.36 kg. or less per 1,000 sticks.

The Dominican Republic dominated the non-premium large cigar category, having shipped 341.6 million such cigars to the U.S. last year. Columbia was ranked second with 62.7 million, but the CAA notes that because of their low unit value, it appears that many or most of these may actually be little cigars or cigarettes. Other top suppliers of non-premium large cigars to the U.S. in 2007 were Nicaragua with 18.6 million; India, 18.1 million; Honduras, 13.1 million, Netherlands, 9.9 million; Switzerland 4.1 million, and Belgium, 2.6 million. The total declared (wholesale) value of non-premium large cigars was $69.98 million.

LITTLE CIGARS
Little cigars are another category entirely under cigar imports, separated out by weight, and may encompass both small machine-made cigarillos as well as the filter-tipped cigarette-like product, so-called “brown cigarettes.”

Of the 311.2 million little cigars imported to the U.S. in 2007, 122.8 million came from India, or 39 percent, followed by Brazil with 58.1 million or 19 percent of imports. Imports of these products have surged over the past decade - 311.2 million last year, compared to 33.5 million in 1997. The total declared (wholesale) value of little cigars was $11.4 million.



SMOKESHOP - April, 2008