What is Tobacco Trade Finance?

The tobacco industry is a substantial contributor to the economies of many countries and provides employment for millions of people around the world, including farmers, retailers and the processors and distributors in the tobacco supply chain. Transporting goods across borders can be inherently risky, with firms exposed to a number of financial, legal and logistical risks. Trade Finance Global can offer solutions which help mitigate these risks to ensure profitable trade transactions for the industry.

Tobacco Trade Finance

The global tobacco market is enormous, with recent conservative estimates (which exclude the Chinese market) valuing it at approximately $760bn. Of that total, over $680bn is generated by the sale of conventional cigarette products, with around 5,500bn cigarettes consumed annually by customers around the world. Whilst cigarette use in some mature markets is declining due to strict regulatory control and hefty excise duties, smaller economies are forecast to see steady consumption growth, from a total volume of 195 billion cigarettes in 2016 to around 220 billion by 2021. Moreover, the value of growth in heated tobacco sales over the same time period is predicted to double to around US$13.2 billion, which large growth in market shares in established global markets like Turkey and Japan.

For traders and distributors in the tobacco industry, these estimates suggest profitable opportunities exist for firms willing to invest in expanding their international trade ventures. However, traditional bank’s low tolerance for investment risk and their large capital requirements for commercial lending can make it hard for even established international traders to access financing. In contrast, Trade Finance Global provides a range of trade finance products which do not require large capital securities to guarantee loans. Instead, by connecting firms to a broad network of private finance sources, TFG can arrange lending to businesses on the basis of their business activities (such as their profitable accounts receivable). These finance products can unlock the working capital tobacco traders need to invest in the ventures described above and grow their revenues.

Products financed

Key tobacco products include:

Cigarettes
Cigars, cheroots and cigarillos
Other manufactured tobacco (such as chewing tobacco)
Unmanufactured tobacco
Vapour products and heated tobacco

Tobacco Producer – Finance Requirements

Your business has a proven trading history in the tobacco sector
Your business is creditworthy
Your proposed international venture is profitable

How the transaction works

TFG helps firms manage the inherent delays caused when goods and payments move over borders through the use of trade finance tools such as letters of credit or promissory notes. These tools allow TFG to provide conditional credit undertakings to the suppliers of the firm receiving trade finance, which ensures they are paid immediately upon fulfilment the terms of their contract (i.e. by by processing and dispatching the buyers goods receivable). This ensures buyers receive their goods quickly and in good condition. Once received, flexible repayment terms on the finance enable buyers to sell the goods receivable to business or customers before repayments are made, allowing them to generate profits from the venture before repaying the loan.

What is the SIC Code for Trade in Tobacco Products?

The manufacture of tobacco products is covered by a single SIC code – 12000.

However, the sale of tobacco products is divided across a series of SIC codes dependent on the business model of the seller and their primary customer.

46170	Agents involved in the sale of food, beverages and tobacco
46210	Wholesale of grain, unmanufactured tobacco, seeds and animal feeds
46350	Wholesale of tobacco products
46390	Non-specialised wholesale of food, beverages and tobacco
47110	Retail sale in non-specialised stores with food, beverages or tobacco predominating
47260	Retail sale of tobacco products in specialised stores
47810	Retail sale via stalls and markets of food, beverages and tobacco products

Full tariff schedules for a wide variety of tobacco products can all be found on gov.uk.

Case Study

Baker, Baked Goods Trade

A freight forwarder based in Dover imports high-quality tobacco products before selling them on through retained contracts with major retailers. After one requested a large volume of new heated tobacco products, they approached TFG to finance the import of the goods receivable, and repaid us from the profits once the contract was fulfilled.