2023 - Tobacco Reporter

Sampoerna Expands

Sampoerna plans to establish new factories for hand-rolled clove cigarettes (SKT) throughout Java, Indonesia, hiring tens of thousands of employees and creating multiplier effects for local communities, the company announced on its website.

This plan will be first realized with a new SKT production facility in Blitar City, East Java, and one in Tegal Regency, Central Java, with operations scheduled to commence in the first half of 2024.

“As a company that has been operating for 110 years in Indonesia, the new addition to Sampoerna’s SKT production facilities through an investment of up to IDR638 billion [$42 million] will strengthen Sampoerna’s SKT portfolio,” said Sampoerna President Director Vassilis Gkatzelis.

“With a total new workforce of tens of thousands of workers, directly and indirectly, we are optimistic that this action by Sampoerna will increase employment opportunities in the formal sector for the local community while creating a strong multiplier effect for economic development and becoming one of the growth drivers in those regions.”

Currently, Sampoerna operates four SKT manufacturing facilities in Surabaya, Malang and Probolinggo; two machine-made cigarette production facilities in Pasuruan and Karawang; and one smoke-free tobacco product manufacturing facility in Karawang, where the company manufactures Heets for Philip Morris International’s IQOS tobacco-heating product.

In addition, Sampoerna also partners with 38 third-party operators (TPO) across 28 regencies/cities in Java. Sampoerna currently has more than 76,000 direct and indirect employees, about 90 percent of whom are working in the SKT production facilities.

In addition to opening Sampoerna’s new SKT production facilities in Blitar City and Tegal Regency, there will be additional employment of tens of thousands of people in existing TPOs in East Java, Central Java, the Special Region of Yogyakarta, and West Java, as well as with the opening of five new TPOs in East Java and Central Java in the first half of 2024.

After a long period of decline, the SKT segment has started to recover in Indonesia, with the market share going up to around 27 percent until the third quarter of 2023. According to Sampoerna, this development has been driven in part by the government’s excise tax policy which, especially since 2021, which considers employment.

November 22, 2023

Tobacco Control Efforts Have Slowed: Report

Implementation of tobacco control policy measures required by the World Health Organization’s Framework Convention on Tobacco Control (FCTC) decelerated during the Covid-19 pandemic, according to new data acquired by the Global Tobacco Control Progress Hub.

The MPOWER tobacco control scorecard, which reports country-level implementation of key FCTC policy measures, reveals that two-thirds (68 percent) of 195 countries reported no improvement or a reduction in key policies to reduce tobacco use between 2020 and 2022, with one-third of countries (35 percent) reporting a decline. Only 32 percent of reporting countries reported an improvement.

The largest declines occurred in low-income countries and those located in the eastern Mediterranean and southeast Asia. However, the slowdown was observed around the globe.

“We are very concerned with the deceleration in the adoption of high-impact tobacco control policies,” said Joanna Cohen of the Institute for Global Tobacco Control at the Johns Hopkins Bloomberg School of Public Health in a statement.

“This disruption is very troubling, especially following 12 years of steady progress in implementing these policies. We urge all countries to redouble efforts to reduce tobacco use to make up for lost ground. We cannot allow this setback to further impair global efforts to curb the tobacco epidemic. Progress delayed is improved health denied.”

The news comes prior to an abbreviated summit of the FCTC treaty scheduled for later this week in Geneva. The treaty’s 10^th Conference of the Parties (COP10) is being convened virtually on Nov. 23 and Nov. 24, to be followed by a full session in early 2024.

“This slowdown is a wake-up call and we urge all countries to adopt strong measures to get tobacco control back on track and reignite global efforts to reduce tobacco use,” said Les Hagen of ASH Canada.

“The enactment of high-impact tobacco control policies was delayed during the Covid-19 pandemic, and we cannot allow the tobacco industry to take further advantage of the situation. This disturbing slowdown could have dire consequences for millions of people worldwide, especially if it is sustained. We urge all FCTC Parties to throttle up efforts to reduce tobacco use and bend the curve back to its previous trajectory.”

Introduced in 2003 by the WHO, the Framework Convention on Tobacco Control is the world’s only public health treaty. The treaty is credited with preventing millions of deaths resulting from tobacco use. Tobacco kills over eight million people annually worldwide, representing one of the leading causes of death and disease.

The Global Tobacco Control Progress Hub is an independent public health treaty surveillance platform and it is a collaboration of ASH Canada and the Institute for Global Tobacco Control at the Johns Hopkins Bloomberg School of Public Health.

November 22, 2023

Farmers Demand Full U.S. Dollar Retention

Zimbabwean tobacco farmers have asked the government to allow them to retain 100 percent of their earnings in U.S. dollars in the upcoming selling season, reports The Herald.

The request comes after the Reserve Bank of Zimbabwe (RBZ) announced tobacco growers will be paid only 75 percent of their sale proceeds in foreign currency in the 2023-2024 season. The remaining 25 percent is to be settled in local currency at the prevailing interbank market rate.

This ratio is down from the 85/15 percent split that applied in the 2022-2023 season.

Zimbabwe Tobacco Growers Association (ZTGA) Chairman George Seremwe said tobacco farmers need to retain all of their earnings in foreign currency because their production cost, too, are foreign-currency based. Under the prevailing split, farmers struggle to turn a profit, according to Seremwe.

Zimbabwe Tobacco Association CEO Rodney Ambrose concurred. “Tobacco production costs are already 90 to 100 percent dollarized. Last season’s 85 percent retention assisted in improving growers’ viability, more so given the flattening out of farmers tobacco prices and increased costs of production,” he said.

“Contractors have lent out almost 100 percent of their loans in foreign currency to farmers, anything less than the current 85 percent retention will negatively impact on growers’ viability.”

“It’s unfortunate that 75/25 split portion reverses the gains made, we hope that the policy will change in February 2024,” said Tobacco Farmers Union Trust President Victor Mariranyika. “This previous season’s 85 percent retention was not enough for farmers, so we were looking forward to 100 percent foreign currency retention in the 2024 marketing season,” he said.

Under the Tobacco Value Chain Transformation Plan, Zimbabwe aims to sustainably produce 300 million kilograms of flue-cured tobacco by 2025. In 2023, the country’s farmers produced 296 million kg and earned $897 million.

A Nov. 10 report by the Tobacco Industry and Marketing Board (TIMB) shows the number registered tobacco growers declined by a quarter for the 2023-2024 season.

November 22, 2023

Pouches Do little to Curb Cravings: Study

Nicotine pouches do little to curb smokers’ nicotine cravings, according to a study by scientists at the Center for Tobacco Research at The Ohio State University Comprehensive Cancer Center—Arthur G. James Cancer Hospital and Richard J. Solove Research Institute.

The researchers evaluated whether nicotine pouches with different levels of nicotine concentration were more or less appealing to smokers.

They found that current smokers had a much greater spike of nicotine in their blood levels and much sharper relief from craving symptoms when smoking than when using both the low-dose and higher dose nicotine pouches. That spike of nicotine measurable in the blood occurs about five minutes after smoking, explained lead author Brittney Keller-Hamilton.

With nicotine pouches, it typically takes 30 minutes to an hour to hit peak effectiveness. The same is true for the decline in nicotine levels; it is a much more gradual decline as well for oral pouches.

Because of this, says Keller-Hamilton, it is reasonable to see how the craving for instant gratification of cigarette smoking is more appealing than oral nicotine pouches for individuals who are already experiencing nicotine addiction.

“Our challenge is to approach regulation of nicotine pouches to limit their appeal among young people while making them more appealing to adult smokers who would see health benefits by switching from cigarettes—which have the most severe health impacts with long-term use—to nicotine pouches,” said Keller-Hamilton in a statement.

November 21, 2023

KT&G Recognized for Carbon Neutrality

KT&G’s Yeongju factory has been recognized by South Korea’s Ministry of Trade, Industry and Energy for its commitment to achieving carbon neutrality.

Since 2020, the Yeongju plant has actively engaged in reducing greenhouse gases through continuous investment in equipment and improvements in manufacturing processes, successfully cutting down 437 tons of oil equivalent over three years. Moreover, the plant participates in the energy saving technology information exchange program, contributing to greenhouse gas reduction policies and leading carbon reduction activities through ongoing education and promotional efforts.

In 2021, the Yeongju plant acquired ISO 50001 (energy management system) certification. Last year, the plant was selected as an exemplary site under the Korea Energy Agency’s voluntary energy efficiency goal program.

“KT&G aims to go beyond mere numerical improvements, linking our value chain to tackle climate change and lead in reducing greenhouse gases,” KT&G wrote in a statement. “We will continue to generate tangible ESG results and engage in diverse activities connected to sustainability.”

November 21, 2023

JT Complains About Eastern’s Dominance

Japan Tobacco International has complained to the Egyptian Competition Authority (ECA) about Eastern Co.’s dominance of the domestic cigarette market, reports Daily News Egypt.

The complaint allegedly involves JTI’s Gold Coast brand, which competes in Egypt’s low-priced cigarette segment. Recent tax amendments have made it costly for JTI to import the cigarette from Turkiye, where it used to be produced.

JTI has reportedly been trying to get Gold Coast produced by Eastern Co., which has a monopoly on domestic cigarette production, and included it in the contract between the two parties, which will expire in mid-2024. However, the two parties have not yet reached a final agreement, and JTI has stopped selling its Gold Coast brand until the negotiations with Eastern Co. are completed.

While the state-owned Eastern Co. continues to dominate the Egyptian tobacco market, its position has weakened in recent years.

In September 2022, United Tobacco Co. (UTC) started manufacturing cigarettes in Egypt, ending Eastern Co.’s decades-old monopoly. UTC is jointly owned by Eastern Co. and Philip Morris International.

The tax amendments also allowed the cigarette companies to increase the prices of their products after the crisis that hit the cigarette market in Egypt amid a shortage in supply.

Earlier this month, Global Investment Holding Co. of the United Arab Emirates completed its acquisition of a 30 percent stake in Eastern Co.

November 21, 2023

Serving the Spice Islands

Hertz Flavors celebrates its first year of operating in Indonesia.

By Taco Tuinstra

Visiting Indonesia is a multisensory experience. Breathtaking landscapes, bustling traffic and a spicy cuisine will keep the traveler’s eyes, ears and taste buds working overtime. And for the nose, there is the sweet scent of clove tobacco. Kretek cigarettes are almost as synonymous with Indonesia as the country’s ancient temples and majestic volcanoes.

Contrary to the situation in many other countries, tobacco remains unabatedly popular throughout the archipelago, with a substantial share of the adult population lighting up frequently. Indonesia is also a leading producer of leaf tobacco and cigarettes. In 2022, the country’s tobacco growers harvested 225.58 million kg of leaf, and its cigarette companies purchased excise stamps for more than 330 billion sticks, according to the Ministry of Agriculture and the association of white cigarette producers in Indonesia, Gaprindo, respectively (the country also struggles with a sizable illicit market). Vapor and tobacco-heating products have been making steady inroads too lately, especially in urban areas.

Against such a backdrop, it is hardly surprising that industry suppliers have been lining up to set up shop in the country, either to be in closer proximity to domestic manufacturers or to supply international customers—or both. The leading tobacco equipment manufacturers and leaf merchants have been present for some time, and others continue joining their ranks. In June 2022, for example, Smoore Technology, a prominent atomization company serving the global vape market, inaugurated a factory in Malang to supplement its manufacturing base in China (see “Peace of Mind,” Tobacco Reporter, June 2022).

The prevalence of kretek cigarettes, with their complex blends, makes Indonesia an attractive destination, especially for flavor houses. Kretek cigarettes typically contain casings and top flavors with elements such as fruitiness, sweetness, sourness and spiciness. The products on the market are characterized by highly characterizing flavors and strong pack and stick smells along with sophisticated smoke streams. The virtually unlimited combinations of flavors on the market, in combination with Indonesian smokers’ receptiveness to new experiences, makes Indonesia a flavorist’s paradise.

Alert to opportunity, Hertz Flavors of Germany last year inaugurated a $5 million state-of-the-art factory in Mojokerto, East Java, located at only 40 km, or one hour’s drive, from the port of Surabaya and in close proximity to the majority of cigarette manufacturers in Indonesia.

According to Ferdinand Baturusa, president director of Hertz Flavors Makmur Indonesia, the decision to build a local facility was a no-brainer. “The popularity of kretek, both domestically and internationally, has made Indonesia the second biggest market for tobacco flavors in the world—clearly a location we want to be present in,” he says.

With an annual production capacity of 1 million kg, depending on product mix and complexity, the Indonesian plant has significantly boosted Hertz Flavors’ global footprint. The company also manufactures flavors in Hamburg and operates a sales and innovation center in Dubai under the name Flavoriq, which focuses on the vaping market. In addition, it maintains a significant international presence through agents and partnerships.

Baturusa says the Surabaya plant underscores Hertz Flavors’ dedication to upholding top-notch standards in its operations. The facility has been certified ISO 9001 and HACCP in recognition of its systematic approach to quality management and the safety of its products, respectively. ”This accomplishment sets us up to enter the marketplace and provide the best products and services to our Indonesian customers,” says Baturusa.

Aside from following best industry practices, Hertz Flavors adheres to strict internal quality and compliance standards. “We use our knowledge from almost 70 years of our experience to develop products according to international regulations and with a focus on performance and risk reduction,” says Baturusa, adding that Hertz Flavors will also accommodate individual customers’ preferences.

Constructing a factory in a new country 11,000 km away from its home base naturally presented a considerable challenge for a medium-sized firm like Hertz Flavors, but with the help of its skilled and knowledgeable local team, the company successfully navigated the obstacles. Local authorities, too, accommodated the project. Baturusa says he is encouraged by Indonesia’s commitment to reforming the investment climate to make it a safe and attractive destination for businesses looking to set up shop in the country.

In addition to strengthening Hertz Flavors’ global capacity, the investment has boosted the local economy. The Indonesian plant currently has a workforce of more than 30 people with a variety of geographic and educational backgrounds. According to Baturusa, Indonesia’s young and capable workforce, combined with the country’s improving global profile, represents considerable competitive strengths internationally. “As [a] German-speaking Indonesian with a university degree from Berlin, I personally think that this German-Indonesian culture fusion is a great mix,” he says.

The skills and diversity of its Indonesian team will serve Hertz Flavors well as it caters to Indonesian smokers’ discerning palettes. According to Baturusa, current local tobacco trends include fruity and minty flavors (delivered with or without capsules) along with apple, grapes and mango. Tea-flavored products, too, have a wide following in Indonesia as do cigarettes that taste like traditional local sweets, such as ludou and taro (sweet potato).

In cooperation with its vape specialists at Flavoriq, Hertz Flavors is also developing innovative flavors for Indonesia’s vape segment, which has grown considerably in recent years. “Together, we also create customized flavors for this unique market and exclusive solutions for our local customers,” says Baturusa. “Depending on demand, our Indonesian factory manufactures these products also locally.”

Buoyed by the success of its first year in Indonesia, Hertz Flavors is keen to keep growing. For the time being, it intends to focus on domestic sales. “Our main priority is currently the Indonesian market,” says Baturusa. “Indonesia is one of the largest and most vital and innovative tobacco markets worldwide, and we strive to fulfill the necessities and desires of Indonesian customers and cigarette producers. Our commitment is to produce excellent flavors for tobacco and adjacent products and items that comply with the Indonesian market’s exceptional tastes and requirements, resulting in our expanding achievements in this important market.”

The greatest challenge, according to Baturusa, will be to maintain and improve product quality while ensuring a supply of high-quality raw materials. “Maintaining consumer trust and meeting industry standards depends heavily on product quality,” he says. “In addition, managing raw material resources for tobacco and flavoring ingredients is a significant challenge. In particular, raw material availability and pricing are critical. Manufacturers must uphold stringent quality controls throughout their supply chains while devising innovative solutions to overcome these hurdles.”

Dedication will be the key. Continued success, says Baturusa, will require leading innovation, staying ahead of trends and attracting the best people. It also involves looking beyond immediate corporate considerations, as Hertz is adamant that its growth will not come at the expense of the environment. “We feel responsible for the sparing use of resources on our planet and for preserving an intact environment—for present and future generations,” says Baturusa. “Our company takes a long-term view in all its activities to ensure the sustainability of our business. We believe in long-lasting partnerships, superior quality and first-class customer service.”

Taco Tuinstra is Tobacco Reporter’s editorial director. Based in Raleigh, North Carolina, USA, he coordinates the work of staff writers and contributors. On his watch, Tobacco Reporter has won several awards for editorial excellence. Since joining the magazine in 1997, Taco has visited more than 75 countries to meet industry representatives in their markets and to report tobacco news firsthand.

November 21, 2023

Brazil Busts Fake Cigarette Network

Brazil’s Federal Police cracked down on a criminal network trafficking fake Paraguayan cigarette brands in Minas Gerais state, according to the Organized Crime and Corruption Reporting Project (OCCRP). Law enforcement agents reportedly issued multiple arrest warrants and froze more than $4 million in assets.

The suspects face charges of smuggling, counterfeiting, human trafficking, slave labor, forgery, misuse of machinery, crime against consumer relations, crime against trademark registrations and money laundering.

Led by a businessman from Sao Paulo, the organization forced Paraguayan nationals to make the cigarettes in hidden factories. The group reportedly picked up workers in Paraguay, blindfolded them, and drove them east across the border into Brazil, where they were held under surveillance inside the factories for several months. Their telephones were confiscated and they had no contact with the outside world.

The workers produced counterfeit versions of Paraguayan brands, such as the Tabesa’s TE, Eight and Palermo. Once finished, the cigarettes were transported in trucks, hidden behind shoes.

Paraguay is a major contraband hub in South America. More than 97 percent of cigarettes produced in Paraguay end up in countries such as Brazil. The business is also entangled with money laundering, political corruption and criminal gang activities.

In March of this year, the OCCRP reported on the rescue of 19 Paraguayans trapped in an illegal cigarette factory in Rio de Janeiro. Brazil rescued 918 people working as slaves in the first three months of this year.

November 20, 2023

Finland: Smoke-Free Tax Plans Draw Fire

The Finnish government’s recent proposal to increase taxes on nicotine pouches and vape liquids has drawn criticism from the World Vapers’ Alliance (WVA). The current plan would increase the price of one nicotine pouch box by approximately €2.50 ($2.74).

This move, which aims to bring smokeless nicotine products under tobacco taxation, is a significant step backwards in harm reduction efforts, according to the consumer group.

“Finland’s plan to increase taxes on less harmful nicotine alternatives is deeply concerning. Not only does this reduce the price differential between deadly cigarettes and safer alternatives, but it also directly undermines public health goals. By making products like nicotine pouches and vape liquids more expensive, we risk discouraging smokers from switching to these less harmful alternatives,” said WVA Director Michael Landl in a statement.

The proposal, which seeks to amend the law on tobacco taxation, will encompass smoke-free nicotine products, including nicotine pouches and vape liquids. The WVA warns that such tax increases will disproportionately impact low-income groups, who statistically exhibit higher smoking rates.

“Imposing higher taxes on harm reduction products hits the most vulnerable groups the hardest. These are the same groups with the highest smoking rates. Instead of providing them with affordable alternatives to quit smoking, the government is pushing them back to the more harmful habit. This move by the Finnish government is a step in the wrong direction that ignores public health benefits and deepens social inequalities,” said Landl.

The WVA suggested that the Finnish lawmakers don’t need to look far for successful examples of harm reduction. Sweden is on track to become the first smoke-free country because of its progressive harm reduction policies. Earlier this year, Sweden announced a program of lowering tax on snus and nicotine pouches while significantly raising cigarette tax.

November 20, 2023

Thailand Asked to Embrace Alternatives

The director of ENDS Cigarette Smoke Thailand (ECST) has asked the Thai government to pass legislation that encourages smokers to switch to less-harmful methods of nicotine consumption, reports The Inquirer.

Asa Saligupta believes that Thailand’s current restrictions on smoking alternatives are pushing these products underground, resulting in an unregulated market that deprives the government of revenues and forces consumers to keep smoking.

Thailand banned on vapes and other electronic nicotine delivery systems in 2014, resulting in the arrest of local vapers and foreign tourists. Saligupta says the measure has discouraged smokers from switching to potentially less harmful innovative products.

According to Saligupta, Thailand should follow the lead of the Philippines, which passed a law that recognizes tobacco harm reduction as a legitimate tool in the campaign against smoking.

Republic Act 11900, or the Vaporized Nicotine and Non-Nicotine Products Regulation Act, became law in 2022. The Vape Law regulates the importation, sale, packaging, distribution, use and communication of vaporized nicotine and non-nicotine products and novel tobacco products such as electronic cigarettes and heated tobacco products.

Thailand’s vaping regulations are among the strictest in Asia.

November 20, 2023

Year: 2023

Hertz Flavors celebrates its first year of operating in Indonesia.