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52 tobaccoasia -25 0 25 50 75 100 % growth 2007-2012 Volume Price Australasia Latin America Eastern Europe Asia Pacific China North America Middle East and Africa Western Europe World The research results clearly show that sales volumes for cigarettes were strongly declining worldwide during that period, except in Asia Pacific and China, where volumes grew health- ily. At the same time, the average pack price increased in every single region, with Australasia experiencing the highest increase of roughly 80% during the covered 5-year period. Production cost a main factor for price increases But it would be wrong to attribute average pack price increases to a rise in government taxes alone. They are also due to the previously mentioned shift towards more expensive premium brands. A considerable proportion of the higher price for a pack of premium cigarettes is contributed by their often rather in- novative, high-tech filter plugs. While many of the raw materi- als contained in them may not be much different from what is used in standard filters, it is the complex processes involved in manufacturing them that have the greatest impact on cost – and which naturally have to be passed on to the tobacco company customers. "The net cost [for specialty filters] rise exponentially, be- cause you suddenly have to go from one single production pro- cess [to make mono acetates] to three or even more machines [to produce specialty filters]," explained Nensey. "Production time will be much longer, the manpower needed increases, gen- eral overheads will be higher, wastage goes up, and there, of course, will also be a lot more quality checks, for in specialty filters you must check every level of the manufacturing process, as well as every filter component and the final product. All of that influences the price." But for the sake of satisfying consum- er demand, tobacco firms appear to be fully accepting of that. Nensey offered a tongue-in-cheek allegory: "If the customers decided they want to drive a Mercedes instead of a Toyota, they are prepared to pay the higher cost." On the other hand, for the filter manufacturers themselves, switching an ever increasing proportion of their production output to specialty filters primarily means investments in new machinery, appropriate quality control instruments and last, but not least, human resources. "You may have the machines, the equipment, the controls, but if you lack the work force, it'll all just be a waste of money and time," Nensey pointed out. Difficult years ahead? Yet Nensey predicts that the years ahead could prove to be rather tough for many filter companies, primarily because of in- creasing competition paired with problems in maintaining cur- rent production volumes. "Expansion and keeping your volumes up is going to be very difficult not only for us but for all filter manufacturers, as more and more new competitors are starting up," he said. Additionally, a number of tobacco firms have either resorted to manufacturing filters themselves or are contemplating to do so in the near future, their decision being aided by the avail- ability of easier-to-operate machines that don't require as much expertise or a great learning curve as in the past. "With more competition coming in and more of our customers turning to self-manufacturing, the established filter companies are pretty much sandwiched in... and that is worrying us, of course." But at the end of the day, for companies like Nensey's Filters Pakistan (Pvt.) Ltd. and other major players the increasing de- mand for specialty filters might just be the saving grace that will help them maintain their continued operations and ensure their profits. After all, for cigarette companies it only appears viable to manufacture filters as long as they stick to mono acetates at considerable output volumes, as that is the only scenario where they might be able to save 2-3% of their overall cost, if at all. This prospect might not be enticing enough for a good lot among, them given the tremendous investments required for machinery, personnel and training, and especially when it comes to much more complex specialty filters. "I say 'leave it to the pros'... There is a reason why a lot of the multinationals continue to outsource their filter production," Nensey said. Filter manufacturers that are adaptable, investment-savvy, and also keep on their toes by tracking crucial future developments in the tobacco market, might therefore not face nearly as bleak a future as pointed out by some of the more pessimistic industry sources. Instead, they just might emerge stronger and readier to handle most challenges with comparatively few problems. Average pack price and volume growth by region, 2007-2012 Source: Euromonitor International 2012 A production line at Essentra's new Dubai plant