Japan Tobacco proposes solicitation of tobacco growers who volunteer to cease cultivation in effort to secure stable supply and demand balance, foster lead growers

TOKYO , August 1, 2011 (press release) – Japan Tobacco Inc. (JT) (TSE: 2914) stated today that the Leaf Tobacco Deliberative Council*, chaired by Yoshio Kobayashi, announced its determination to solicit Japanese leaf tobacco growers who volunteer to cease cultivation when surveying individual growers’ requests for cultivation in preparation for the 2012 leaf tobacco contracts. This was in response to a proposal submitted by JT earlier in the day. The council’s determination was aligned with JT’s proposal.

The total sales volume of the Japanese domestic tobacco business decreased by nearly 20 percent following the price hike due to an unprecedented excise tax increase in October 2010. This took place amid declining demand in recent years due to the aging of society, growing awareness of the health risks associated with smoking, and tightening of smoking-related regulations.

In light of these circumstances, JT has made the proposal to solicit growers who volunteer to cease cultivation, with the aim to foster lead growers, build the foundation for the growers who will assume future domestic leaf tobacco cultivation without anxiety, and secure a stable supply-demand balance.

JT will summarize each grower’s intent regarding cultivation upon consultation and in cooperation with the growers’ unions in accordance with this determination. Based on the survey results, JT will then submit its proposal on cultivation areas and prices** for

2012 leaf tobacco to the next Leaf Tobacco Deliberative Council scheduled for autumn.

*The Leaf Tobacco Deliberative Council confers on important matters concerning the cultivation and purchase of domestically grown leaf tobacco in response to inquiries by JT representatives. The council consists of no more than 11 members, appointed by JT with the approval of the Minister of Finance from among representatives of domestic leaf tobacco growers and academic appointees.

**JT is obliged to negotiate contracts with domestic leaf tobacco growers under the Tobacco Business Law to determine the total area used for tobacco cultivation and tobacco leaf prices based on type and quality. JT is also required to purchase the entire usable domestic tobacco crop. Contracts stipulate the area to be cultivated and the prices of leaf tobacco for the subsequent year, and in this regard JT respects the opinion of the leaf Tobacco Deliberative Council.

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Japan Tobacco Inc. is a leading international tobacco product company. Its products are sold in over 120 countries and its internationally recognized cigarette brands include Winston, Camel, Mild Seven and Benson & Hedges. With diversified operations, JT is also actively present in pharmaceuticals and foods. The company’s adjusted net sales excluding tax(*) were ¥1.946 trillion (US$23,415 million(**)) in the fiscal year ended March 31, 2011.

* Adjusted net sales excluding tax on a consolidated basis do not include revenue from the imported tobacco, domestic duty free, the China Division and other peripheral businesses in the Japanese domestic tobacco business. Nor does it include revenue from distribution, contract manufacturing and other peripheral businesses in the international tobacco business.

**Translated at the rate of ¥83.15 per $1, as of March 31, 2011

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