Author: Staff Writer

E-Cig Sales Slumping in Convenience Stores

Photo: Juul Labs
Convenience store e-cigarette sales have slumped over the past 10 months in the United States, according to Nielsen. The segment has been in retreat since the Food and Drug Administration restricted flavors in cartridge-based e-cigarettes on Feb. 6, 2020.
Overall e-cigarette sales-volume growth has declined steadily since Nielsen’s Aug. 10, 2019, report, when it was up 60.2 percent year over year, according to a story in The Winston-Salem Journal. Nielsen does not track vape shop sales.
Top-selling Juul’s four-week dollar sales have dropped from a 50.2 percent increase in the Aug. 10, 2019, report to a 15.6 percent decline for the latest report. By comparison, Reynolds’ Vuse was up 87.3 percent in the latest report and NJoy down 31.5 percent.
Bonnie Herzog
Juul’s market share dropped from 54.3 percent in the previous report to 53.8 percent. It was at 55.1 percent a year ago. Vuse’s market share slipped from 28.5 percent to 28.1 percent, while No. 3 NJoy was unchanged at 5 percent, and Fontem Ventures’ Blu was unchanged at 3.6 percent.
Goldman Sachs analyst Bonnie Herzog observed increasing consumer demand for lower-priced traditional cigarettes during the pandemic, which she attributed to downtrading. That trend could be offset somewhat by the scheduled $600 federal stimulus payments to most Americans, which are expected to arrive in many households soon.
January 4, 2021
Study: Vaping Clouds Thinking

Photo: Kevinsphotos from Pixabay
Vaping can have a negative effect on memory, thinking skills and the ability to focus, particularly for young people, according to a recent study by researchers at the University of Rochester (New York) Medical Center.
“Our studies add to growing evidence that vaping should not be considered a safe alternative to tobacco smoking,” said Head researcher Dongmei Li.
The study is based on data analyzed from the over 886,000 participants involved in the Behavioral Risk Factor Surveillance System Survey and the more than 18,000 responses from the National Youth Tobacco Survey.
The researchers concluded that those who vaped or smoked cigarettes were more likely to struggle with cognitive function than those who had never smoked in any capacity. Also, the researchers noted that age played a large role in the participants’ cognitive abilities as they found that when participants were younger than 14 when they started vaping or smoking, they were even more likely to have cognitive struggles as adults.
“With the recent rise in teen vaping, this is very concerning and suggests that we need to intervene even earlier. Prevention programs that start in middle or high school might actually be too late,” Li added.
January 2, 2021
‘Smoke Locally’ Law Tabled in France

Photo: Olrat | Dreamstime.com
French Parliament member Bruno Fuchs recently introduced a draft bill proposing that cigarettes must be consumed in the same country that they were purchased. According to Fuchs, about one-third of the 54 billion cigarettes consumed in France were purchased abroad by either legal or illicit means.
Of primary concern are cigarettes purchased in Luxembourg by French travelers and brought home. The difference in price of a pack of cigarettes in France and Luxembourg is €3 ($3.68). If Fuchs’s measure is approved, France could generate about €2 billion in additional tax revenue.
January 2, 2021
Imperial Canada Opposes Lower Nicotine

Photo: Edna Rabago from Pixabay
Imperial Tobacco Canada has publicly stated its opposition to proposed regulations by Health Canada that would reduce the maximum nicotine level in vapor products to 20 mg/mL. Imperial noted that such a measure would hurt the government’s goal of reducing the national smoking prevalence rate to less than 5 percent by 2035.
“Health Canada recognizes the concept of offering reduced-risk products as a way to reduce exposure to the harmful chemicals caused by smoking,” said Imperial spokesperson Eric Gagnon. “In addition, it recognizes vaping as a less harmful alternative to smoking. It is unfortunate that the government is considering a measure that will hinder vaping products from reaching their full potential as a less harmful alternative to smoking.
“Capping nicotine levels at 20 mg/ml will mean that smokers will not be able to find a product that satisfies them, and many former smokers who now vape will go back to smoking. It could be debated whether or not the current cap of 66 mg/mL is appropriate. However, the proposed 20 mg/mL is too low and will not satisfy a portion of current Canadian vapers nor smokers seeking a less harmful alternative.”
Imperial stressed that it agrees with the government’s plans to prevent youth from using vapor products.
January 2, 2021
Vaping’s Achilles’ Heel

Blowing smoke: Newspapers often report lurid stories about vaping that turn out to have been misleading.
(Photo: Oleksandr Suhak | Dreamstime.com)
Calls continue for banning popular e-liquid flavors despite evidence that such measures are negative for public health.
By George Gay
As I start to write this piece, I’m under a lockdown imposed because of the spread of Covid-19 infections, which means I am not allowed to leave my house and garden except in limited circumstances. I’m not alone in this. Since Nov. 5, everybody in England has been subjected to restrictions on their movements, though the precise restrictions governing individuals vary. The lockdown is due to end on Dec. 2, a month or so before this story is due to be published, though it could be extended.
England is not alone in having to resort to national lockdowns, and, as in other countries, here there are groups of people, many of them comprising self-styled libertarians, who believe that it is unjustified and, in some cases, counterproductive, to restrict the rights of people to move about as they were free to do before lockdown legislation was introduced, or to require them to wear face coverings. But in England we have a particular issue that perhaps does not arise in many other countries. Our prime minister, who has ordered what is England’s second lockdown, is a self-styled libertarian. This means, I assume, that he is both not in favor of, and in favor of, the lockdown: that is, he is a libertarian and not a libertarian. No wonder he, his cabinet and advisers seem to have a problem acting coherently.
I think, however, that it is not difficult to see through these apparent contradictions. It is necessary only to understand that there is no such thing as a libertarian; only people who have libertarian views about certain—often pet—issues. For instance, a person might take a libertarian stance on smoking and drinking but oppose taking a libertarian line when it comes to allowing people to wander the land spreading contagion among their fellow citizens. Others, on the other hand, might believe that smoking and drinking should be banned while not agreeing with the idea of pandemic lockdowns.
One argument has it that citizens should be relied on to do the “right thing” when faced with circumstances such as a pandemic rather than being subjected to restrictions brought in on the back of new laws; but, in the real world, this wouldn’t work, at least not in the short term, as a pandemic is raging. But there is no doubt that people can and do do the “right thing,” though this usually occurs where they are making choices that largely affect only their own health rather than where they make choices that have wider implications. For instance, many smokers are making rational choices—doing the “right thing”—by switching to vaping—though only when they are not fed a diet of misinformation about the health effects of vaping and only when they can obtain vaping products that satisfy their needs, including in respect of flavors.
In any reasonable society, the threat posed to a nation’s health by smoking would mean that both of these conditions would be met, but I’m afraid often they are not. There are many people who, for a variety of reasons, would like to see the most popular and effective vaping flavors banned, something that would be likely to have significant negative consequences for the health of individuals and society at large. According to a recently published report, Use of e-cigarettes (vapes) among adults [those over 18] in Great Britain, which was based on data taken from an annual survey, Smokefree GB, carried out for Action on Smoking and Health by YouGov, in 2019 researchers asked current e-cigarette users what they would do if flavors were no longer available. In part, the findings were that about one in four would still try to get flavors and just under one in 10 would make their own e-liquid, neither of which options should be encouraged by responsible governments. The most worrying finding, however, must be that just under one in five said they would either smoke more or revert to smoking.
These findings are broadly in line with those of other surveys investigating the same issue. In releasing the results of a recent survey it carried out, the European Independent Vape Alliance (IEVA) highlighted two findings:
1) More than 80 percent of smokers who switched to e-cigarettes had completely stopped smoking.
2) About 65 percent of vapers in Europe used fruit or sweet liquids.
In further commenting on the results of the survey, in which more than 3,300 European e-cigarette users took part, the IEVA said the variety of flavors available seemed to be one of the most important factors in decisions about e-cigarette use. Forty percent of vapers used fruit-flavored e-liquids and 25 percent preferred other sweet flavors. Thirty-five percent chose to use tobacco-flavored e-liquids.
When the IEVA asked the participants how they would react if all e-liquid flavors except tobacco flavors were banned, 20 percent said they would switch to tobacco flavors. But 31 percent said they would buy e-liquid flavors on the black market while nine percent said they would start smoking again.
“Our survey confirms previous research that e-cigarette flavors are crucial for adult smokers,” said Dustin Dahlmann, president of the IEVA. “A flavor ban must be avoided at all costs because it would lead many vapers to buy unregulated products on the black market or to start smoking again. And this would endanger the great opportunity that many more smokers will stop smoking with the help of the e-cigarette.”

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Safe for hypocrisy
The evidence seems overwhelming that bans on popular e-liquid flavors would be negative in respect of public health. But there are a lot of people calling for such bans. The major problem here is that flavors are seen as vaping’s Achilles’ heel by those opposed to smokers switching from smoking to vaping. Flavors can be attacked on the grounds that they appeal to young people, and, because of the emotions elicited by the very mention of young people, these attacks hit home, no matter how feeble the evidential artillery is. People who are happy to sit alongside pavements with the engines of their motionless vehicles running and pumping out toxic fumes from exhaust pipes set at child-buggy height would be horrified at the thought that a young person might try vaping. As somebody almost once said, we have a tendency to make the world safe only for hypocrisy.
Another problem is one that stems from the fact that, as H.G. Wells was once said to have observed, a newspaper is a device incapable of distinguishing between a bicycle accident and the end of civilization. Newspapers often report lurid stories about vaping and, especially, e-liquids, that are based on “scientific” findings—stories that often turn out to have been misleading or plain wrong. Sometimes the science itself is flawed and sometimes the flaws are inserted in a newspaper’s attempt to try to simplify the science and its findings for a general audience. Often, this attempt at simplification does more harm than good, especially given that it will be based too on a need to make the bicycle accident look like the end of civilization.
An apparent example of how unhelpful science can be was pointed out recently in a story by Diane Caruana in the Vaping Post. Apparently, after reports appeared in the Italian press of vaping flavor presentations made by scientists from the U.S.’ Duke and Yale universities at a meeting of the European Respiratory Society, the National Association for United Vapers issued a statement that included a quote from Fabio Beatrice, director of the ENT department of the San Giovanni Bosco Hospital in Turin and the Nosocomio Anti-Smoking Center, who said that the study seemed to have been designed in such a way as to expose “predisposed subjects” to extreme situations to support a thesis. Studies such as these had the serious side effect of causing consumers to relapse into traditional cigarette addiction, he added.
At the same time, Caruana highlighted two “expert reactions” to the presentations. One from Jacob George, professor of cardiovascular medicine and therapeutics at the University of Dundee, included the following comment: “Data presented here is of in vitro cell work and not human clinical trials. Therefore any extrapolation to whole system human physiology is tenuous at best.” The other, by Nicholas Hopkinson, reader in respiratory medicine at Imperial College London, included the comment: “As there’s no information presented in these studies about relative concentrations compared to those seen in cigarette smoke, it is not clear what, if any, significance the findings have.”
What’s essential?
Of course, the Duke and Yale scientists will have their own take on their findings, and it is natural that people disagree on such subjects and how to approach them, which brings me back to the lockdown mentioned at the start of this piece. There was something typically waggish about the prime minister’s ordering that the lockdown should start on Nov. 5, the day that we in England commemorate the foiling of a 1605 plot to blow up the House of Lords and, with it, the then king. Here again was one of those disagreements in which a certain section of society felt that their rights were being trampled on: a dispute that became somewhat overblown—or not, as it turned out.
During this second lockdown, however, there is one thing that is common to everybody who is not infected with Covid-19: we can all leave the house for essential supplies—which, of course, raises the question, what is essential? I have some sympathy for those having to answer this question because, even just taking supermarkets, where do you draw the line? Since they sell food, do you allow them to open all their food aisles, or do you allow the vegetable aisle to open but not the aisle selling chocolate biscuits? After all, while a vegetable might be essential to sustaining you in a healthy physical state, a chocolate biscuit is not essential. Although, on the other hand, might a chocolate biscuit provide for your mental well-being as you start to climb the walls during your third week of lockdown?
Opening all the aisles, even those selling nonfood products, raises questions of fairness since some of the nonfood products will normally be available in specialist outlets that have been forced to close. But it is another anomaly that is relevant here. As things stand, it would be possible for me to head to the supermarket right now and buy a bottle of gin—and only a bottle of gin, which for most people could hardly be considered essential. Indeed, according to an advert I saw recently, I could go to the supermarket and buy a bottle of chocolate orange gin “packed with flavors of cocoa, silky vanilla, sweet orange and juniper.”
When did this start making sense? We, as a society, accept as a given that chocolate orange gin is an essential product at the same time that we are arguing the toss over whether people should be allowed to vape fruit-flavored e-liquids in order to allow them to quit smoking.
It’s at this point I become a semi-detached libertarian. I’m willing to stay at home if people in the know have determined that my doing so will help prevent the spread of Covid-19, but I want people to be able to buy chocolate orange gin and fruit flavored e-liquids if that is what they feel they need to get them through the day, whether we’re in the midst of a pandemic or not.
George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.

January 1, 2021
The Contortionists

Photo: Kolozov | Dreamstime.com
Committing to the FCTC objectives while manufacturing cigarettes requires extraordinary moral acrobatics.
By Stefanie Rossel
Since entering into force in 2005, the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC) has suffered from an inherent, difficult-to-reconcile conflict: While the treaty requires signatories “to protect present and future generations from the devastating health, social, environmental and economic consequences of tobacco consumption and exposure,” 17 of its 182 member states own at least 10 percent of a tobacco company.
Eight countries—China, Iran, Iraq, Lebanon, Syria, Vietnam, Thailand and Tunisia—own 100 percent of at least one tobacco company. Together, these states control almost 50 percent of the global tobacco industry by volume. In Algeria, Bangladesh, Egypt, India, Japan, Laos, Malawi, Moldova and Yemen, governments own between 13 percent and 91 percent of tobacco companies (Cuba’s tobacco industry is around 75 percent state-owned, but the country has declined to sign the FCTC).
Daniel Malan
“It is not unlawful to sign a convention that requires you to oppose something that you also support, but it is unethical,” says Daniel Malan, assistant professor in business ethics at Trinity Business School, Trinity College Dublin. “Imagine an international convention against drug trafficking that allows some organs of state to be involved in the activities that it tries to prevent.”
During the 2020 Global Tobacco & Nicotine Forum, Malan presented a study, “Contradictions and Conflicts,” highlighting the issue. The conflict, he states, is one reason that at 0.25 percentage point per year, the decline of global cigarette consumption since 2000 has been disappointing.
FCTC Article 5.3, Malan argues, follows a flawed logic: It requires parties to protect their policies against the commercial and vested interests of the tobacco industry. If a party has a vested interest in the form of a state-owned tobacco company (SOTC), it is obliged to follow Article 7.2 and ensure that any investment in the tobacco industry does not prevent it from fully implementing the FCTC. To achieve this, however, such a party must protect its policies against the commercial and vested interests of the tobacco industry—which is where the circular argument comes to its close: The government cannot have an investment in tobacco.
Since its inception, Article 5.3 has become a public health dogma, considered so important that it has been enriched with implementation guidelines, handbooks and “toolkits” as well as a knowledge hub in Thailand. But even in their most recent version, published in September 2018, the recommendations for governments with SOTCs remain vague. The WHO also fails to address the issue in its reports on the “global tobacco pandemic.” The 2019 edition, Malan notes, makes more than 20 references to companies such as Philip Morris International and British American Tobacco, each of which holds 14 percent of the world’s cigarette market but never mentions the China National Tobacco Corp. (CNTC), which with a global market share of 44 percent is by far the world’s largest tobacco company.

With a global market share of 44 percent, the China National Tobacco Corp. is the world’s largest tobacco company by a wide margin. (Photo: Taco Tuinstra)
Ethically undesirable, economically viable
Why the FCTC was shaped that way is anybody’s guess, but an international treaty excluding countries representing only half of the globe’s smoking population would have looked feeble. “Perhaps that conflict wasn’t a priority in the bigger picture,” speculates Malan. “Or they wouldn’t want to alienate governments and exclude China as the biggest one. It’s a Catch-22 situation.”
There is evidence that the WHO is aware of that contradiction; in 2015, the director of the WHO’s regional offices in the Philippines in Tobacco Control commented on a study of the subject published by Scott L. Hogg and others from the College of Medicine and Veterinary Medicine of the University of Edinburgh. However, the WHO declined an interview request by Tobacco Reporter.
Arguing that from an ethical viewpoint it is undesirable for governments to be invested in tobacco, Malan looks at the business case, i.e., whether it makes commercial sense for governments to own tobacco companies. Most of the 17 tobacco-invested FCTC members can be classified as middle income. Japan, of course, is high income and Malawi is low income.
Due to the sheer size of its tobacco industry, China is an outlier in the group. According to 2019 WHO data, the country generates $200.4 billion from tobacco tax. Malan believes that actual figure is around 30 percent higher because the WHO estimate excludes excise duties, value-added taxes and import duties, among other taxes. China is followed by Japan ($17.78 billion), India ($2.87 billion), Bangladesh ($2.65 billion), Egypt ($2.36 billion), Algeria ($2.11 billion) and Thailand ($2.1 billion).
In Bangladesh (0.97 percent), Egypt (0.94 percent), Algeria (1.22 percent), Tunisia (1.08 percent) and Moldova (0.93 percent), tobacco tax accounts for at least 1 percent of the gross domestic product (GDP), according to WHO data from 2019. With 1.47 percent of its GDP, China again leads the group.
Malan also investigates how the 17 countries with tobacco monopolies have implemented FCTC rules. FCTC signatories are required to report biannually to the WHO on their progress. In the most recent round of country submissions, Algeria, China, Japan and Moldova failed to provide updates on the headway they made implementing Article 5.3.

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Different paths
So how could the conflict in the FCTC be resolved? A rewording of Article 5.3 is unlikely because changes to the FCTC require agreement from all parties, including those with state-owned tobacco companies. Whether the subject will be brought up during the next FCTC Conference of the Parties (COP9) in November 2021 remains to be seen.
For his 2015 research, Hogg investigated whether tobacco industry ownership represents a conflict of interest or an opportunity for tobacco control. Hogg offers three perspectives on the conflict of interests. In an “intrinsic or fundamental conflict,” governments relying on the income from tobacco companies will be less inclined to implement tobacco control policy. While in such cases privatization of SOTCs may appear as the most appropriate policy response, past SOTC privatizations, Hogg argues, have resulted in these companies being more successful businesses, thus doing a disservice to tobacco control efforts.
The “institutionally mediated conflict” relates to the tension created by the dual responsibility of managing a state-owned company and implementing tobacco control policies at the same time. China, where the State Tobacco Monopoly Administration (STMA) is responsible for industry-related aspects as well as coordinating the implementation of the FCTC, is an example of such a conflict. The dispute could be potentially mediated by institutional arrangements, such as a firewall between different government institutions, an approach for which Thailand is often praised as a best-practice example (the country is nevertheless expected to fail the WHO’s voluntary target of a 30 percent relative reduction in smoking by 2025).
A third, less prominent perspective, which Hogg calls “interest alignment,” suggests that governments owning tobacco companies radically alter their approach, allowing public health interest to override the commercial interest to advance tobacco control.
In his report, Malan highlights another potential pathway for change, a pragmatic option that he calls “shift gear.” It entails an acknowledgement of the existing conflicts of interest and a commitment to manage them. This would allow governments to make decisions without considering short-term financial performance as publicly traded companies must do. They could potentially transform the tobacco industry by being more innovative, Malan says, for example by focusing on tobacco harm reduction (THR). At the time the FCTC was created, THR was an underdeveloped area extending only to nicotine-replacement therapy and snus, but 15 years on, there are a large variety of electronic nicotine-delivery systems (ENDS) and other reduced-risk products, such as new oral nicotine, available.
Eleven of the 17 FCTC signatories with SOTCs permit sales of e-cigarettes containing nicotine. Japan allows only sales of nicotine-free e-cigarettes. Five of these countries ban e-cigarettes; China prohibits online sales. Given the WHO’s anti-THR attitude, it’s surprising that there aren’t more bans. “For the WHO, it is difficult to acknowledge that something less harmful that could have a positive impact could come out of the tobacco industry,” says Malan. Massive funding from “philanthrocapitalists,” such as Michael Bloomberg and Bill Gates, sustain the WHO’s anti-THR stance (see “Uphill Struggle,” Tobacco Reporter, December 2020).

Tobacco continues to play a prominent role in Chinese social interactions. (Photo: Tobacco Reporter acrhive)
The case of China
Due to its sheer size, China represents the greatest opportunity to resolving the conflict of interest—and the greatest challenge. According to the most recent available WHO data—from 2014—the negative effects of tobacco consumption cost the country $57 billion. They are dwarfed, however, by the value of China’s tobacco industry, which is estimated at at least $14 trillion.
“In my view, it’s unlikely to see the Chinese government to change its stance towards tobacco control to a significant degree in the near future, although they have implemented some tobacco control policies,” says Amei Zhang, China analyst at TMA. “The major reason is that the Chinese tobacco sector has maintained its monopoly system for making huge fiscal contributions that the central government has highly depended on over the past decades.”
Besides, tobacco continues to play a prominent role in Chinese social interactions. Zhang cites a 2006 study comparing smoking behavior across 22 countries. Uniquely among the surveyed cultures, 40 percent of Chinese smokers reported carrying two packs of cigarettes with them—one for themselves and the other for social uses. “As you can imagine, cigarettes for socialized purpose are more expensive,” says Zhang.
Zhang doesn’t see any signs that Thailand, where two separate authorities oversee tobacco control and tobacco manufacture, could become a role model for China. “The STMA and the CNTC are two agencies with one set of people. The tobacco authority may be the only authority in China that has not been separated from the enterprise yet,” she explains.
In 2007, China established the Inter-Ministerial Coordination Leading Group for the Implementation of the Framework Convention on Tobacco Control. The group originally comprised eight government institutions: the Development and Reform Commission; the Ministry of Health; the Ministry of Foreign Affairs; the Ministry of Finance; the General Administration of Customs; the State Administration for Industry and Commerce; the General Administration of Quality Supervision, Inspection and Quarantine; and the State Tobacco Monopoly Administration.
“This arrangement has received fierce criticism from tobacco control people,” says Zhang. “Tobacco control experts suggest that the tobacco industry’s interference with tobacco control must be eliminated and that the tobacco industry should separate the administration from the enterprise; they suggested that the composition of the inter-ministerial coordination leading group for the implementation of the FCTC should be adjusted, and when CNTC and STMA still combine, the STMA should withdraw from the coordination mechanism for the eight ministries and commissions on tobacco control compliance.”
Yet, more than a decade later, the STMA is still on the tobacco control leading group. “This means that those who produce and sell cigarettes will still participate in tobacco control,” says Zhang. She is more optimistic about THR. The Chinese government encourages its affiliated tobacco companies to produce less harmful cigarettes, Chinese herb cigarettes and heat-not-burn products, but at the same time it bans the online sale of vapor products.

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Wanted: an FCTC update
To cut the FCTC’s Gordian knot, Malan acknowledges that there is no one-size-fits-all option. “China is very different from any other country in its state control, centralized planning and looking ahead 30 [years] to 50 years,” he says. “What might be more pragmatic could be a plan that doesn’t fit exactly into the FCTC but fits their plans.”
The shift from combustible cigarettes to reduced-harm products, he argues, will ultimately be determined by consumer preferences. “First and foremost, consumers need accurate and reliable information to be able to make informed decisions,” says Malan. “This seems more likely in advanced democracies like Japan. However, the impact of long-term centralized planning could also be positive in terms of tobacco control, provided that responsible decisions are made. Behavior change will always depend on both carrots and sticks, and it is difficult to make general recommendations when the contexts are radically different.”
To move forward, he suggests that a neutral body establish a platform acceptable to public health advocates to invite potentially objective organizations willing to discuss. The aim should be to create a group of interested stakeholders who could then put together a paper ahead of COP9 to put forward amendments to the FCTC. “If it’s a solid proposal from independent agents, it will be hard to ignore. I believe that there should be an effort to amend the FCTC to reflect a new context. If there is sufficient commitment from all stakeholders, this is not unthinkable. But it will require pragmatism from all, and the creation of a negotiating platform acceptable to all, which will not be easy.”
Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.

January 1, 2021
Reinforcing Resilience

Photo: Taco Tuinstra
During its general meeting, ITGA debated tobacco growers’ challenges in the wake of the Covid-19 pandemic and a deepening economic crisis.
By Stefanie Rossel
Antonio Abrunhosa
Superlatives were close at hand when describing 2020. Speaking at the International Tobacco Growers Association’s (ITGA) “issues day” on Nov. 24, ITGA Chief Executive Antonio Abrunhosa called it the worst year since World War II. Robin Lowe, Malawi’s minister of agriculture, spoke of “the worst economic crisis in a hundred years.”
Covid-19 presented new challenges to tobacco farmers, who before the pandemic were already juggling issues such as good agricultural practices (GAP), proper use of agrochemicals, child labor prevention and the struggle against deforestation.
As tobacco farmers’ only global voice, ITGA’s mission is to defend leaf growers worldwide. The organization makes sure that there are markets for leaf tobacco and that they work. It supports growers in negotiations with buyers and protects farmers against overregulation.
More challenges loom already. For example, the World Health Organization Framework Convention on Tobacco Control’s (FCTC) next Conference of the Parties, COP9, which will take place in November 2021, is likely to look closely at the environmental impact of tobacco production.

Global tobacco production declined steeply in 2020
(Photo: Silversun)
Volatile market
Ivan Genov
Global tobacco production experienced a steep decline in 2020. Farmers harvested an estimated 4.91 billion kg of green leaf this year compared to 5.13 billion kg of green leaf in 2019, according to Ivan Genov, tobacco industry expert at ITGA. Flue-cured Virginia (FCV), which accounts for 80 percent or 3.49 billion green leaf kg (2020 estimate), was the main driver of the decrease, with most impact coming from Africa and the Middle East. However, production of all other tobacco types declined too. Combined with the rising cost of inputs, the pandemic created a volatile situation, Genov said. Volumes are expected to recover slightly, to 4.95 billion kg of green leaf in 2021.
China, which accounts for around 50 percent of global FVC production, has stabilized its production since 2018, a trend expected to continue during 2020 and 2021. Production in these two years is expected to reach 1.74 billion kg. Brazil turned out to be the main beneficiary of the trade war between the U.S. and China, whereas many U.S. growers filed bankruptcy.
Unlike for FCV, where average leaf prices were lower in 2020 than in the previous year, prices for burley remained relatively stable. Production in 2020 amounted to an estimated 483 million green leaf kg, down from 548 million green leaf kg in 2019. Oriental production reached an estimated 157 million green leaf kg last year as opposed to 164 million green leaf kg in 2019. Dark-air-cured tobacco was the only variety to see a rise in production, up from 122 million green leaf kg in 2019 to an estimated 126 million green leaf kg in 2020.
Brazil earns the most from leaf tobacco, generating $2.05 billion from tobacco leaf exports in 2019. At the other end of the scale, Tanzania earned $67 million from its tobacco sales. With the difference between costs and revenue razor-thin, profiting from FCV or burley cultivation is a difficult task, Genov noted.
Covid-19-related travel restrictions created shortages of tobacco-farming inputs and migrant laborers, who often also struggled to secure visas, Genov said in a joint presentation with Shane MacGuill, senior head of tobacco research at Euromonitor International. In many countries, including Argentina, Brazil, India, Malawi, Zambia and Zimbabwe, the marketing season was delayed, briefly interrupted or it began with additional protective measures. Growers were prohibited from attending sales and many international leaf dealers were unable to visit auctions. The industry also struggled with a lack of long-term leaf storage facilities. What’s more, lower tobacco consumption caused demand for leaf to decrease. Countries that did not deem tobacco an essential business often closed sales points, leading to an abrupt decline in demand for legal cigarettes and a flourishing illicit trade. Manufacturing facilities in some markets were forced to close, decreasing production and inventories.

Some cigarette markets remained surprisingly robust during the pandemic.
(Photo: JTI)
Impact on generations
Shane Macguill
“Covid-19 is a multigenerational financial crisis,” MacGuill said. “We saw a 5 percent loss in the gross domestic product (GDP) globally this year and expect downtrading in tobacco products over the next years.” The pandemic could also drive additional restrictions on tobacco as Covid-19 has broadened support for large-scale coordinated actions on health issues. In many markets, governments will likely increase tobacco taxes to help pay for their responses to Covid-19. MacGuill anticipates this trend to extend to vapor products in some markets.
While there was downward pressure on cigarette volumes during the pandemic, some markets remained surprisingly robust, according to Euromonitor. Consumers bought 5.06 trillion cigarettes in 2020; excluding China, they purchased 2.75 trillion units, representing a decline of 3.7 percent compared to 2019 (-5.6 percent excluding China). The global cigarette market value stood at $692 billion in 2020, a decline of 0.1 percent over 2019, or 0.3 percent excluding China. Illicit cigarette trade stood at 12 percent outside of China in 2020, according to Euromonitor. It is anticipated to rise to almost 16 percent by 2024.
While combustible cigarette volume and value will likely decline further in the next five years, Euromonitor predicts a rise in vapor products value, especially for closed systems and heated-tobacco products. Modern oral products, by contrast, are expected to gain momentum as people spend more time in private settings. The category was worth $800 million globally in 2020, MacGuill said, and is forecast to grow by 8 percent to 2025.
MacGuill expects demand for new substances and natural actives to increase. Global cannabis sales, which stood at $35 billion in 2020, will reach $95 billion by 2025, according to Euromonitor.
Hemp as the savior?
William Snell
William Snell, co-director of the Kentucky Agricultural leadership program, investigated the potential of hemp as an alternative for tobacco growers to help offset declines in demand for their original crop. The value of tobacco production in Kentucky fell from $980 million in 1992 to $230 million in 2020. For tobacco farmers, the switch to hemp should be a relatively smooth one as they have experience with a similar production model, an established infrastructure and are familiar with producing a labor-intensive crop subject to strict government oversight.
The 2018 U.S. Farm Bill approved commercial hemp production nationwide. Total returns above variable costs per acre for hemp production amounted to $20,283, which was higher than that for tobacco cultivation. Farmers in Kentucky and other states substantially increased their hemp crops, which resulted in overproduction by 2019. Growers faced processing challenges, investors exited the business or went bankrupt and prices fell by around 75 percent.
The prospects for 2021 are bleak as the industry still struggles with unsold stocks and adjusts to regulatory changes. Going forward, Snell expects hemp growers to face challenges similar to those in tobacco, including regulatory uncertainty, a trend toward contracting and consolidation.

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Making farming more efficient
Lea Scott, vice president of agronomy services at Universal Leaf, called for tobacco growers to diversify to sustain their operations. Diversification, he said, could even include nonfarming activities, such as opening a Bed and Breakfast. Before diversifying, however, growers should carefully examine environmental conditions, skills and resource requirements, among other factors.
To enhance tobacco farmers’ livelihoods, British American Tobacco (BAT) has set up its “Thrive” program, which includes 250,000 growers and covers more than 80 percent of the company’s leaf purchases. In addition to focusing on natural resources, the program aims to protect human rights in optimizing farm profitability and ensure farmers’ health and safety. In 2019, BAT commissioned independent climate change impact assessments in ten countries to support its farmers in increasing their resilience to climate change.
Gary Foote, head of global sustainability at Alliance One, advised participants in the conference on the correct use of crop-protective agents, and Rodrigo Tessera, head of business at Kilimo, presented his company’s project on irrigation efficiency. By 2030, half of the world population will live in regions with severe water scarcity, and two-thirds of the world population could be under stress conditions.
Average global irrigation efficiency currently stands at 59 percent, wasting 20 trillion liters of water each year. Kilimo has developed a tool that can measure, reduce and exchange the potable water used in the field on a global scale with the help of small satellites and weather stations. Through its “irrigation academy,” the company has trained more than 5,000 smallholder farmers online. In 2019, it helped save more than 19 billion liters of water.
The future of agriculture is digital, and it can save farmers a lot of money, believes e-agriculture company Agrivi. CEO Matija Zulj explained how its software solutions for the agricultural value chain can contribute to managing the supply chain more efficiently and sustainably.

The tobacco industry remains strongly committed to preventing child labor in its supply chains.
(Photo: TacoTuinstra)
Eliminating child labor
As became clear during the issues day, the tobacco industry remains strongly committed to the fight against child labor. Regulators, too, are cracking down. In early 2021, the European Union (EU) will present a legislative proposal on mandatory human rights and environmental due diligence in supply chains, which is expected to be implemented in mid-2021 to late 2021 and will also apply to non-EU companies conducting business in the EU.
Supply chain due diligence is an ongoing improvement and risk management process. In the past decades, there has been an increasing global focus on human rights and the environment, which reached its tipping point with the U.N. Guiding Principles on Business and Human Rights in 2011.
In 2015, the United Nations introduced its Sustainable Development Goals (SDG), which must be met by 2030. Meanwhile, many countries, such as Germany, France and the Netherlands, have implemented national laws to make sure processes are in place. Companies must demonstrate that a certain degree of due diligence has been implemented, for example. Tobacco companies cannot import cigarettes into, for example, the Netherlands, if there are underage workers in their supply chains.
Established in 2000, the Eliminating Child Labor in Tobacco Foundation (ECLT) is a platform for coordinated action, uniting the main players in the industry to accelerate progress against child labor in areas where tobacco is grown. Led by Karima Jambulatova, ECLT’s executive director, the organization has been extending its reach to other crops to prevent child labor displacement between crops and sectors. The goal is to eliminate child labor not only in tobacco but in all agriculture.

Photo: Silversun
Challenges to tobacco growing
During its issues day, ITGA also provided an overview of the situation in various leaf-growing regions. Mayiwepi Jiti, president of the Zimbabwe Integrated Commercial Farmers Union (ICFU), described the most pressing issues for her country. Zimbabwe has committed itself to the UN SDG to end child labor, respect the rights of workers and ensure workplace health and safety. Compliance with these practices, however, also increases growers’ cost.
The requirements hit an agricultural economy with mostly small-scale farmers who already face a decline in the production area from last year’s growing season. The Tobacco Marketing and Industry Board (TIMB) expects farmers to plant 150,000 ha of tobacco in the 2020–2021 season.
While school is compulsory, it is not cost-free. Many small-scale farmers cannot afford hiring labor and often rely on family instead. Underfunding leads to labor issues, while there is a lack of care for the farming communities. Profits for farmers are slim, whereas corruption is widespread. While Covid-19 has given Zimbabwe’s tobacco industry some insights on keeping children from auction floors, Jiti said, clean water and proper housing for growers should be made mandatory.
Heliodoro Campos Castillo, manager of the National Tobacco Fund in Colombia (Fedetabaco), related a tale of tobacco growers’ resilience in his country. Tobacco cultivation in Colombia decreased from 9,589 ha in 2011 to 3,550 ha in 2019.
Previously, the Colombian industry comprised small companies with established links to local communities. After multinationals started entering the market in 2006, many farmers had trouble adapting to the new systems and left the sector. Between 2011 and 2019, Fedetabaco initiated programs to improve housing conditions, food safety and the supply chain. Investments were financed by municipalities, the tobacco industry and institutions. In 2019, Philip Morris International (PMI) left the country; BAT will follow in 2021. PMI’s exit meant that 1,340 families lost the ability to cultivate tobacco, leading to an economic impact of $4 million. With support of the Department of Agriculture, famers were encouraged to diversify into crops such as lemons, manioc and corn.
The EU is home to 250,000 tobacco growers, families and seasonal workers, most of whom are in economically less-developed regions, explained Parszem Noworyta, secretary general of UNITAB, the international union of tobacco producers, explained. Tobacco cultivation secures farmers’ income as the regions where it is grown are often unsuitable for other crop or nonagricultural activities.
Throughout the EU, leaf tobacco production decreased significantly between 2009 and 2019. Reasons included higher production costs compared to countries outside Europe, the pressure on the tobacco industry and changes in multinationals’ purchasing policies, which involved reducing orders for European tobacco.
According to Noworyta, there are additional threats ahead, including illicit trade, regulation and EU resistance to financial support for tobacco growers. Meanwhile, the parties to the FCTC are talking about nicotine levels, alternatives to tobacco growing, and sustainability, among other topics, without involving the sector in the discussions.
Stabilizing tobacco cultivation and stopping the downward trend hence remains a struggle, according to Noworyta. Growers need to adapt to the market. One opportunity is seen in smokeless tobacco products. For UNITAB, Noworyta concluded, being a proactive force playing an important part in the debates of international and European organizations is vital to secure the future of European tobacco cultivation.

Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.

January 1, 2021
The Oriental Express

Photos courtesy of Nikos Tzoumas
Years of hard work and investment are rewarded with a new oriental tobacco harvester.
By George Gay
Historically, classical oriental tobacco (COT) production has been associated with tradition, which, looked at from one viewpoint, was epitomized by the often-exquisite packaging of the relatively tiny leaves of the highest quality tobaccos while, looked at from another direction, it was personified by the huge amount of labor that went into forming such presentations—such works of art.
Of course, while such traditions encompassed values that transcended the field of economic activities, many of them could not survive the shifts in business priorities that gathered pace, especially during the final quarter of the 20th century. Consequently, changes were gradually introduced to the way that COTs were produced so as to conform to new marketplace and social realities while safeguarding the essentials: the unique tastes and aromas that these tobaccos imparted to the smoker.
But even with such changes having gathered pace during the past 10 years or so, it is somewhat surprising to learn that two major developments in the field of COTs came to fruition in 2020, a year that most businesses and industries, including the tobacco industry, were glad to see the back of.
Nikos Tzoumas, managing director of Missirian and president of the Hellenic Inter-professional Organization, told me in November that, after nine years of hard work and substantial investments by his company, VIT SA, and Philip Morris International (PMI), a second model of the HMO-2020-2R oriental tobacco harvesting machine was ready for the market.
The new harvester had been tested and trialed during the summer of 2020 when it was used to harvest crops in four stalk positions, Tzoumas said. With only two people, the machine proved capable of harvesting eight hectares of oriental tobacco during a season—up to 12 tons of cured oriental tobacco, which is a far cry from traditional harvesting in which teams of hired labor and family members have to undertake back-breaking work in high temperatures to bring in the tobacco by hand. Little wonder, then, that Tzoumas said farmers, especially younger ones, were eager to embrace such new technology.

Meanwhile, the curing of the leaves, which, with the advent of mechanical harvesting, caused a bottleneck in the process, has been sped up with the use of a system initiated and supported by PMI over a number of years. The harvested tobacco is placed by hand in long gauze “socks” through which the air can pass and which can be hung in the shade in an otherwise traditional way. Apart from the speed of the new process, it has the advantage of doing away with the strings on which the tobacco was previously threaded and hung and which could end up as nontobacco-related material, a bane of the manufacturing process.
Gauze curing
Another 2020 marker saw the arrival of a new pure line of Basma seed, the fruition of a project initiated by Missirian in 2013 and co-financed by PMI. Tzoumas said the aim of the project had been to develop a new Basma variety that could provide higher yields than were obtainable with existing varieties while retaining the stable, desirable agronomic and quality characteristics of Basma.
The project was undertaken by the Centre for Research & Technology Hellas at the Institute of Applied Biosciences in Thessaloniki under professors Panagiotis Madesis and Eirini Nianiou-Obeidat. They used conventional plant breeding techniques and molecular markers but without producing genetically modified plants. And, after eight years of work, the project was concluded with the researchers having developed the F10 lines with the requested specifications. The new seed is expected to deliver a 20 percent increase in farmers’ yields with quality maintained.
An application has been made to the Greek Ministry of Agriculture for registration of the new genotypes.

Turning to more immediate matters, the marketing of 2020-grown oriental tobaccos started in November and is due to end next month or in March. From what could be estimated at the end of November, Greece had produced 8,500 tons of Basma, down 20 percent from the 10,600 tons grown during 2019, along with 4,500 tons of Katerini, down 12 percent from 2019’s 5,100 tons. North Macedonia was estimated to have grown 27,000 tons of Prilep, up 3 percent from the 26,200 grown the previous year; and Bulgaria was estimated to have produced 5,000 tons of Krumovgrad, the same amount as was grown last year, 500 tons of Katerini, down 38 percent from the 800 tons of 2019, and 600 tons of Basma, up 50 percent from the 400 tons of 2019.
Farmer yields were described as favorable in all growing areas, and estimated production is generally in line with contracted quantities, except in North Macedonia, where 2020’s estimate of 27,000 tons was 17 percent above the contracted 23,000 tons. The quality of the 2020 crops was described as medium, with Basma quality better than that of the 2019 crop, Katerini quality being about the same, and the quality of the Prilep and Krumovgrad crops being lower.
Demand seems to be weaker than it was last year, especially for A grades.
George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.

January 1, 2021
Promoting Inclusiveness

Photo: Tobacco Reporter archive
Turkey instructs cigarette makers to use more local leaf
By George Gay
According to the Local Tobacco Inclusion in Tobacco Products law that came into force in October, tobacco manufacturers in Turkey will have to achieve, within four years, a 30 percent inclusion rate of locally produced leaf tobacco within their Turkish market cigarettes.
Currently, the manufacturing industry is estimated to use about 12 percent local leaf, mostly made up of classical oriental tobaccos (COTs) such as Izmir, Samsun and Basma. But while the increases in inclusion rates—17 percent this year, 21 percent in 2022, 25 percent in 2023 and 30 percent in 2023—might at first glance appear to be an opportunity for the COT industry, in reality, the limitations imposed by cost and blend-composition factors will mean that very little, if any, of the increased local demand will be made up of COTs. Additionally, the increased local demand is expected to be met in part by the diversion of tobacco previously earmarked for overseas production centers.
In any case, the requirement to increase local content is expected to see a rise in the inclusion in local cigarettes of sun-cured Virginia tobacco, of which Turkey currently grows about 1,500 tons to 2,000 tons annually but which, under the new requirements, could be expanded to an annual crop of about 15,000 tons. While this type of tobacco does not attract the sorts of prices paid for COTs, manufacturers are likely to meet both blend and cost challenges in including it, partly because an established local illicit cut-rag manufacturing industry uses this type (along with some COTs and imported tobacco) and, without the inconvenience of having to pay taxes, is in a good position to compete for the volumes available.

Meanwhile, producing a bigger sun-cured Virginia crop that is of the required quality and that can be sold for a reasonable price will require dealers and manufacturers to invest in processing and agronomy. The tobacco traditionally grown in the east and southeast of the country was originally cultivated from Virginia seed that, because of the way it was cultivated, adapted to local conditions and produced what became known as a semi-oriental tobacco. The risk of this happening in the future is said to be high unless new seed is introduced and growers are supported in, and compensated for, introducing good agronomic practices. Historically, it is said, growers had little interest in producing quality leaf, preferring instead to concentrate on yields since, for political reasons, they were well compensated for doing so.
Whatever is the extent of the increase in demand that is generated by the new law, it comes at an interesting time because there are supply-side challenges that have been raised by labor issues and the difficulties encountered in introducing mechanization on COT farms—difficulties to do with, on the one hand, the need to overcome farm terrain obstacles and, on the other, the need to finance the necessary investments. Not unreasonably, farmers are not willing to continue growing tobacco unless the returns are, in their eyes, sufficient.
For the time being and the near future, such issues will not be overwhelming because the devaluation of the Turkish lira—down by 40 percent against the U.S. dollar in 2020—will take some of the pressure off grower returns. Additionally, an official inflation rate of 15 percent might allow grower premiums to be paid. But relying on the devaluation of the lira as a long-term strategy would be fraught.

Turning away from local supply issues to those to do with international demand, one factor in the future success or otherwise of Turkish COTs can be examined through the lens of the consumption of American-blend (AB) cigarettes worldwide. Looking at TMA cigarette consumption data, I found 36 countries where, in 2019, AB cigarettes accounted for 50 percent or more of their overall cigarette consumption. Of those 36 countries, 31 countries recorded decreases in the consumption of AB cigarettes between 2015 and 2019, a period that saw falls in the total (all blends) consumption of cigarettes in 28 countries. And looking at the 10 top countries for AB cigarette volume consumption in 2019, the average decline in such consumption between 2015 and 2019 was 10.8 percent compared with 9.6 percent in the case of all types of cigarette consumption in those 10 countries.
On the face of it, this does not look good for the future of Turkish and, indeed, other COTs. But care has to be taken here. Although the above figures give a snapshot of what is going on, it would take a lot of delving to obtain an accurate picture. For one thing, the term “AB cigarette” is used by the tobacco industry fairly loosely, and the inclusion rates of COTs differ widely—down, in fact, to zero—from region to region, country to country and brand to brand within countries.
Given all of the above, it is probably no surprise that Turkey’s estimated volumes of 2020-grown COTs are expected to meet the firm local demand and the less-than-firm overseas demand. The country is thought to have produced about 40,000 tons of Izmir; 4,350 tons of Basma; and 3,500 tons of Samsun along with 10,500 tons of Izmir East (Adiyaman); 3,000 tons of sun-cured Virginia; and 3,000 tons of other types. Overall, Turkey’s crops are thought to be average to above average in quality—slightly better than those of 2019.

But let me digress for a moment. In examining the demand for AB cigarettes, I went looking for those countries with markets with relatively high levels of AB cigarettes to discover whether AB cigarette consumption had declined between 2015 and 2019, but one of the most interesting aspects of the exercise turned out to concern one of the countries where such consumption had risen: Turkey.
According to the TMA figures, Turkey’s American-blend cigarette consumption rose by 0.5 percent between 2015 and 2019. Such an increase will not have set the COT industry alight, but there is something interesting here because Turkey is often in the news for its anti-smoking policies. And yet, it is one of only five countries within my sample of 36 countries where AB cigarette sales rose. In fact, it gets more odd. Turkey’s all blends cigarette consumption between 2015 and 2019 increased by 15.2 percent.
And it gets more odd still. A story on May 31 on the online news site, Ahval, mentioned how the country’s president, Recep Tayyip Erdogan, was a fierce opponent of tobacco smoking and had “long waged anti-smoking campaigns in Turkey.” But despite the fact that the main thrust of the story concerned how Turkey had recorded its highest-ever cigarette consumption in 2019, 119.7 billion, there was no pause to consider whether the anti-smoking strategy might need revisiting, revising and reinvigorating. —G.G.

The author would like to thank Frederick de Cramer, doyen on the Turkish tobacco industry, for his input into the leaf tobacco information and data included in this piece.
Expanding Latakia tobacco production and marketing
Frederick de Cramer, who for many years has been heavily involved in the Turkish oriental tobacco business, has, through his consultancy, Cramer Tobacco, linked with ASTAB in a joint venture (JV) partnership, which aims, among other things, to expand ASTAB’s Latakia tobacco production and marketing.
The JV is using high-quality Izmir leaf and curing it in the traditional Latakia way in barns filled with smoke from burning shrubs that are found only in Turkey and some neighboring countries, a process that gives the tobacco its distinctive aroma.
De Cramer told Tobacco Reporter that this tobacco was highly sought after, especially for inclusion in pipe tobacco blends but also in some other product types.
To satisfy the demand from existing customers, who are mainly based in Scandinavia and the U.S., the JV is planning to increase capacity, in part by investing in new barns. But it is focusing, too, on new customers that have been unable to source Latakia tobacco and have been using mainly artificial flavorings instead.
ASTAB, which was founded in 2007 in Izmir by Haldun Babacan and Selcuk karagozler, was successful in automating the oriental tobacco curing system known as the Vento system and, in doing so, expanded the Izmir crop by more than 10,000 tons in the East Adiyaman area.
De Cramer and ASTAB’s Latakia operations will be the subject of a report in Tobacco Reporter’s February 2021 issue. —G.G.
George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.

January 1, 2021
Rolling With the Punches

Photos courtesy of Kavex, Silversun, NewCo and Leaf Only
Independent leaf merchants have managed to adapt to this year’s unprecedented conditions.
By Stefanie Rossel
Although analysts have rated the tobacco industry “resilient” and “recession-proof” many times, the sector couldn’t avoid being affected by the Covid-19 pandemic. The leaf-growing segment, especially, saw disruptions, with auctions being suspended or interrupted in key markets. Travel restrictions led to shortages of agricultural inputs and seasonal workers. Growers were not allowed to be present during the sales process while international leaf dealers couldn’t attend the auctions. For many independent leaf merchants, the unparalleled situation brought about new challenges. Nonetheless, they managed to find positives in the experience.
With the 2020 Chinese New Year falling at the end of January, Kohltrade of Brazil had scheduled its business travel to start in mid-February. “Then the pandemic began, and in March, we started working from home with the factory closed for three weeks,” relates Kohltrade General Manager Hardy Kohl Jr. “During this period, we had a lot of uncertainty and insecurity about what the rest of the year would be like; how long would it take,” he continues. “After these eight months, we tried to adapt. Business trips and trade shows did not happen; we did not have buyers visiting us. We focused and invested more in remote contacts, business intelligence, video conferencing, and at the end, we will finish the year with a performance a little higher than 2019. What we think is almost good!”
Rainer Busch, managing director and owner of NewCo Global, says that despite the circumstances, business has gone well for his company. “We are fortunate to have our colleagues in the origins to be in touch with the source and factories,” he says. NewCo is present in 16 tobacco origins through marketing agreements with nonmultinational factories. “With no one able to travel to the origins and customers, I felt we were not being punished and disadvantaged,” says Busch. “There was more time for follow-up and brainstorming new ideas. For the future, I take with me that travel can be reduced. We have also invested in better virtual communication, which is very useful and saves some travel.”

Dora Gleoudis
Business also continued smoothly for Nicos Gleoudis Kavex, which focuses on Greek oriental tobacco varieties, and JEB International Tobacco of Danville, Virginia, USA, which specializes in selecting, shipping, processing and storing all tobacco varieties and runs a 2,000-acre farm in North Carolina. For Austrian leaf dealer Silver Sun, which is active mostly in Bulgaria, only personal interactions remained an issue. “Our business is very much person-related, and many things cannot be communicated just over the telephone or by video conference,” says Franz Szoncsitz, director at Silver Sun. Holding a sizeable stock of tobaccos from South America, Africa, the Far East and Europe in its Bulgarian warehouses for its European customers, his company has been unaffected by the long-term storage problems that analysts had identified as a potential concern during the Covid-19 crisis. “Although we had to stay in a so-called home office for a certain time, logistics worked, and we did not face any difficulties from this side,” says Szoncsitz.
Obviously, ample storage space is helpful when vessels were delayed or rerouted. Nevertheless, logistics remain an issue. Border restrictions, along with shortages of trucks and containers, result in unpredictable freight rates, according to Busch. “Obviously, this is a serious problem for companies working with small margins as an increase in transportation costs could easily cut margins by 50 percent,” he says.
Kohl notes his company’s main problems were logistics, expensive freight and sending samples for customer evaluation. “We also had difficulties in finding space on vessels, port congestion and shipping delays,” he says. The company is working to minimize the impact on customers of such disruptions by absorbing increased costs and anticipating shipments to avoid delivery delays, among other measures. “Advance planning is essential,” he says.

Franz Szoncsitz
Focus on the customer
Rainer Busch
Global tobacco leaf production experienced a significant decrease in 2020, declining from 5.13 billion kg of green leaf in 2019 to an estimated 4.91 billion kg in 2020. The drop impacted all tobacco varieties except dark air-cured. Analysts are slightly optimistic that production will pick up again in 2021, forecasting a crop of 4.95 billion kg of green leaf amid further challenges.
“I fully expect larger crops from all major supply origins in 2021,” says Jay Barker, founder of JEB International Tobacco. “With that said, I personally think global supply/demand is in good shape.”
According to Busch, certain types of tobacco remain in oversupply. “This year, we definitely have a surplus of high-nicotine tobacco. As a result, we lack medium-[quality] to high-quality nicotine tobacco products.” However, a shortage of tobacco could benefit companies such as NewCo, according to Busch. With access to a broad global portfolio, Newco can help customers find the right tobacco for their needs, he says.
“Due to weather conditions and labor shortages, tobaccos produced in Greece—Basma, Katerini, FCV [flue-cured Virginia] and burley—are shorter in quantity but better in quality compared to the 2019 crop,” observes Dora Gleoudis, managing director of Nicos Gleoudis Kavex. “Prilep of North Macedonia is about the same as 2019 crop quantity-wise but lower in quality. It is too early to make any prediction for the 2021 crop, but a further small decline of the tobacco production in the Balkan area is possible.”
To increase sales, suppliers should focus on the market rather than on production, according to Kohl “Our focus is to meet our customers’ demand—and, believe me, they have very different demands,” he says. “What some love, others hate, and we need to be on top of this. The major challenge in the pandemic situation is how to be close to them without the eye-to-eye contact.” Kohl expects 2021 to be even more difficult than 2020. “On the one hand, the quality seems to be better than 2020, but I expect that the worldwide economy will be in a more difficult situation,” he says. “The market in general seems to me unbalanced between supply and demand.”
Because tobacco is an agricultural product grown under natural atmospheric conditions, it is difficult to predict both the final production volume and quality at the time of transplanting, according to Szoncsitz. That means supply and demand seldom match.
“Comparing the figures some 40 years ago with the ones of the last couple of years, the amplitudes got smaller and smaller, which is a good sign in getting more stability for everybody in the chain,” he says. After losing market share to international companies, SilverSun stopped contracting with farmers. “As a small dealer, the global decrease or increase of leaf production does not significantly affect us,” says Szoncsitz.

Uncertain times
More detrimental than the tobacco surplus has been the continuing decline in cigarette consumption. For leaf merchants, it can be difficult to discern the annual requirements of their customers. “On the other hand, dealers are signing early each year cultivation contracts with their farmers,” says Gleoudis. “We feel it is unfair what happens lately: customers undertaking commitments toward their dealers much later—i.e., at a time when dealers have already undertaken their obligations towards their growers. This policy can create uncommitted stocks as well as financial difficulties to the dealers.”
“In my opinion, the biggest issues we are facing as leaf dealers are the cigarette consumption decline and the consolidation of manufacturers,” says Barker. “It’s a double whammy that directly affects a leaf dealers’ bottom line. The only way to survive is [to] tighten your belt and deliver superior product and customer service.”
Given the developments in the tobacco landscape in recent years and the long-term economic effects of the Covid-19 pandemic, the future remains uncertain.
The key, according to Kohl, is knowing how to deal with competition, the restrictions on face-to-face contacts and reduced margins. “There was euphoria in 2020 after the end of the lockdowns to meet the repressed demands and logistic difficulties of this period,” he says. “Now we see that we have second, third and who knows how many waves of infection coming. Governments will have to pay the bill for emergency support, and this bill will come due in 2021. How long will it take to get a vaccine? How efficient will it be? What will the world unemployment numbers be at the end of this? Those questions are still open.”
Busch is more confident. “Consumption is likely to increase during the pandemic, which is a positive aspect,” he says. “Consumption may change from normal cigarettes to making or rolling your own products; the home office will have its effect. Less tourism means fewer cigarette purchases in duty-free shops and fewer takeaways from tourist countries where cigarettes are cheaper. Thankfully, our industry in general is one of the industries less affected and damaged by the pandemic.”
Unforeseen opportunity
Could a pandemic also have a positive side? John Wallace, principal at Leaf Only, would say so. Established in 2009 and based in Connecticut, USA, his company has chosen a different business model of supplying raw tobacco: The company caters to both the wholesale and retail leaf market, supplying a large variety of tobacco leaves, including cigar wrappers, binders and fillers as well as unprocessed cigarette tobacco and pipe and hookah tobacco.
“It was really strange, actually,” says Wallace, referring to when the coronavirus broke out. “In April, May, June and July, we saw record sales—even to the point where we could not fulfill orders due to lack of staff. It was as if our business nearly doubled in a matter of a few weeks. Since then, it has leveled off, and we are almost back to normal, but it was definitely a wild ride! If I had to guess, I think people might have been panic buying for whatever reason. Thinking things would be harder to obtain or that prices would go up dramatically? Not too sure.”

Importing leaf from certain countries had been challenging, however. “In some cases, it still is,” says Wallace. “We’ve been waiting on a container from India since June, for example. It is finally supposed to arrive in the next couple of weeks, but it should never take so long. As far as I know, most of the delay was due to Covid-19 restrictions and issues with various countries and shipping agencies. Sourcing here in the USA has remained unphased, which is really great for us since that is most of what we sell.”
For 2021, he forecasts a return to a more steady and predictable business. “I think it now more depends on the growing season, leaf quality and the overall market economics rather than outside factors such as Covid-19. Hopefully, it ends up being a good year.” —S.R.
Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.

January 1, 2021