Author: Taco Tuinstra

  • Thriving Against the Odds

    Thriving Against the Odds

    Image: K

    Pondering the industry’s remarkable longevity as Tobacco Reporter celebrates its 150th anniversary.

    By George Gay

    Longevity is good, right? Most people probably want to live longer, or, out of fear, postpone death—at least until tomorrow. And, until quite recently, average life expectancy had been generally increasing and allowing most of us to outlive previous predictions. For instance, if I had lived to the average age predicted for people born in the year that I was born, I would have been dead about a dozen years ago. But, based on current predictions, I still have until the end of June this year—according to my calculations, June 29, to be precise.

    This makes me wonder what tobacco control people might mean when they declare that a smoker died “prematurely.” What standard are they comparing the smoker’s lifespan against? We aren’t born stamped with sell-by dates.

    I started to wonder about such matters when, in this, the 150th year of Tobacco Reporter, I was asked to write about longevity as it relates to the tobacco industry, and it occurred to me that there must be some relationship between the longevity of people, companies and industries, though I imagine that relationship is complex and becoming more so given the march of robotics, artificial intelligence and environmental breakdown. The pharmaceutical industry, for instance, is a product of people while the increasing longevity of those people is largely down to the drugs and other medical interventions developed by the industry, whose longevity, therefore, seems to be assured.

    A Hardy Lot

    But the longevity of the tobacco industry raises different issues because it is said to be “killing” the smokers who are its main customers, so the question arises as to why the industry has managed to survive and even thrive, especially during the past six decades or so when the risks of smoking have become widely known and the industry has had ranged against it governments, a huge tobacco control industry and much of the media.

    But let’s start with another, related question. Why have smokers continued with their habit in the face of massive disincentives? After all, the consumption of cigarettes has generally been described during the past six decades as everything from risky to deadly. Such consumption is said to constitute an addiction and to cause poverty and multiple diseases that “kill” about half or two-thirds of cigarette smokers, along with nonsmokers, a toll amounting to about 1 million lives a year and predicted to reach 1 billion during this century. It is said to be the major cause of “premature” and even “preventable” deaths worldwide and to cost societies much more than it contributes, both financially and emotionally. Carelessly discarded cigarettes and butts are blamed for fires and significant environmental damage while tobacco products have been degraded through regulation, and smoke is said to discolor and make everything it touches smelly. Smoking, and therefore smokers, have been “denormalized,” and, to cap it all, cigarettes are said by some to have no inherent value.

    And yet 1 billion smokers continue to smoke, and nonsmokers continue to take up smoking. Why? Is an eighth of the world’s population insane? Are these people recklessly obstinate, or do they not believe, or choose not to believe, the above? I don’t think so. I think the cause can be traced to tobacco control and the strategies that it has used, which have included the dissemination of misleading and ill-thought-out propaganda that has engendered in smokers a healthy skepticism. I don’t want to go through all of the questionable issues raised in the paragraph above, but it is worth pointing out that a lot of smokers would be rightly insulted by the claims that their smoking caused them to be poor and that cigarettes have no inherent value. In many cases, their impoverishment was caused by the life chances, or lack of them, they were handed at birth, and so cigarettes provide one of few pleasures available to them.

    And on that subject, it would be wrong to ignore the importance of the illegal trade in cigarettes in helping to keep smoking rates up in difficult times—in allowing smokers to continue with their habit when they cannot afford licit products. Governments, tobacco control and tobacco manufacturers have aligned to rail against this business, but once again, they have put forward some of the most crass and unconvincing arguments, blaming smokers but not those who impose taxes and price increases.

    Of course, tobacco control would claim that smoking continues because of nicotine addiction, though this cannot be a factor in nonsmokers taking up smoking. And it certainly cannot be the only reason because if it were, a type of automatic, generational stop-smoking system would kick in. In fact, I don’t believe that addiction is a very important factor, or at least it needn’t be. But, for whatever reasons, tobacco control has been at pains to medicalize smoking—to claim that smokers cannot quit without interventions by the medical profession working with the pharmaceutical industry or, more lately, with tobacco harm reduction advocates.

    And here we get a glimpse of why the tobacco industry—and many of the tobacco companies of which the industry is composed—has been so resilient in recent times: flexibility. With the launch of reduced-risk products, the aims of the industry in regard to cigarettes are in line with those of tobacco control, and even surpass them, I suspect, since it has a future beyond cigarettes whereas tobacco control has not. In other words, the tobacco industry has been subsumed, though not welcomed, into what has become the colossal tobacco control industry while still selling tobacco, mostly cigarettes. Some might call this sleight of hand rather than flexibility, but it has worked and does work.

    An Irrational World

    This is all well and good, but it doesn’t explain how the tobacco industry managed to survive and even prosper during the 50 years or so between the time when the risks of tobacco consumption loudly entered the public discourse and the time when the industry started out in the lower risk business. How can one explain why, when governments came to believe that huge numbers of lives and dollars were being lost to smoking, no serious, long-term attempt was ever made anywhere in the world to ban cigarette smoking?

    There is at least one powerful, specific reason for this, but firstly I think I should mention what I think is the most powerful general reason: the fact that we do not live in a rational world, something that gets forgotten and leads to much unnecessary anguish and disappointment. Remember, within the world of tobacco control, for instance, 5 percent equals no percent. And looking further afield, most of the damaging complaints leveled at the tobacco industry can also be leveled at other industries, including but not restricted to the alcohol, arms and automobile industries, and no serious, long-term efforts have ever been made to stop the sale of arms and automobiles nor the sale of alcohol in most of the world. I guess that if you are a glass-half-full sort of person, you might argue that there is a certain consistency to our irrationality, and perhaps that brings you comfort. Where this consistency breaks down, however, is in respect of the reactions to the damage caused by these products, which in the case of alcohol, arms and automobiles is largely to adopt a head-in-the-sand approach while in the case of tobacco, it is to heap opprobrium on smokers, tobacco companies and the industry.

    Why this discrimination? I’m running out of space here, so I shall have to answer that question briefly and perhaps without as much rigor as I would like to employ. The reason, in my view, is that many of those who govern us like to be driven around in big, polluting vehicles and are not adverse to touching the buttons in their arm rests to order the slaughter of innocent people, their own citizens and others, with technically advanced weaponry, but they are morally opposed to tobacco smoking. I should mention by way of explanation, perhaps, that they also like to drink.

    The Benefit of Bulk

    Beyond irrationality, the major reason why the tobacco industry was able to thrive was down to its size, the foundations of which were built up before the risks of smoking were widely known. Right from the start, it was able to acquire its raw materials at favorable rates while being able to increase the prices of the products made from that tobacco. It could afford the best scientists and lobbyists to support its causes, it could afford the best lawyers to defend it when needed and, anyway, the cost of any fines that were imposed could be passed onto smokers. Extraordinarily, even when the tobacco manufacturers went from denial to admitting that their products caused harm, there was little change.

    Crucially, its size meant that for a long time, the industry was able to argue that even if its products were harming smokers, it was providing work across the world, from the tobacco fields to the boardrooms. Millions were employed growing, selling, processing, transporting and manufacturing tobacco. And many others were employed in the businesses that fed into these activities, and others still in the wholesale, retail and advertising sectors.

    And even when the employment argument started to unwind in the face of such developments as wholesale company consolidations, globalization, the introduction of new technologies into tobacco fields and factories, and the ending of tobacco advertising and promotions, little changed because governments were hooked on tobacco taxes, and it was a lot easier and less costly not to rock the boat—to collect those taxes from two or three big, efficient manufacturers than from multiple small-sized and medium-sized players. It was another case where the manufacturers were able to align themselves with those who supposedly opposed them. It wasn’t and isn’t a loving relationship, more a marriage of convenience, but it worked and is still working.

    Enduring Legacy

    One other factor that should be mentioned here is tradition, which must exist in some sort of relationship to longevity and which has bound smokers together in a sense of camaraderie, whether, as 60 years ago, in majority groupings at social events or more lately as minorities huddled together outside pubs. The cigarette was able to lay claim to being a traditional product also because, with the advent of ever more advanced machinery, it became, leaving aside its risky aspect, an almost perfect product, one that was refined but remained largely the same for decades. You could argue, and certainly I would, that cigarettes started to lose the respectability that tradition bestows when regulations were introduced to degrade these products and their packaging and when consolidated manufacturers, chasing profits and presumably in thrall to the idea that cigarettes had become simply nicotine-delivery systems, reduced the range of products on offer, especially in respect of taste.

    Of course, it is true to say that tobacco had never aspired to the sorts of appellation and vintage certifications that wine boasts, and now it would not be allowed to, but for a long while, there was a hint of such quality assurances in phrases such as: “It’s the tobacco that counts.” So it is unsurprising that, arguably, until the arrival of unconscionable levels of taxes, generic products and the oddly named “value” cigarettes, brand loyalty among cigarette smokers must have been just about the highest of any consumer group. Indeed, in another example of how governments have helped tobacco manufacturers, or at least individual manufacturers, a type of brand loyalty has presumably picked up again in recent years in those countries where retailers are required to keep cigarettes under lock and key.

    Additionally, cigarettes scored heavily in the sorts of ritualistic activities that surround much tradition. In fact, even now, the industry is at pains to try to keep some of the ritualistic traditions alive in lower risk products. It is interesting, too, that despite the “denormalization” of smoking, officially, tobacco remains a solid part of the fabric of society. In a recent story on consumer price indices, a writer noted, with some surprise, that the U.K. Office of National Statistics still tracked, among other things, four different packs of cigarettes and rolling tobacco—along with e-cigarettes.

    But enough of all this backwards looking stuff. What about the future? Well, I guess that tobacco control will continue with its often ludicrous strategies because of its failure to understand smokers, and governments will continue to rip off smokers because they can while they both take their time coming round to the view that abstinence doesn’t work and tobacco harm reduction does. Meanwhile, tobacco manufacturers will likely retain their alignments, all the while motoring on, at first being driven by hybrid tobacco and nicotine businesses before moving on to cleaner, nicotine fuels alone.

    Or will they? The premature death of tobacco and, especially, cigarettes has been predicted for as long as I can remember, and they ain’t dead yet. Indeed, perhaps this is one area where talk of a preventable death is not so dumb. Perhaps tobacco products have a lot of life left in them, especially since, as seems increasingly likely, populations become more stressed as the world is plunged into forever wars and environmental catastrophe by those morally opposed to smoking.

  • Shisha Ban Overturned

    Shisha Ban Overturned

    Image: mehaniq41

    Kenya’s ban on shisha is unlawful, a Mombasa court ruled, reports The Star.  

    In overturning the measure, Shanzu Law Courts Senior Principal Magistrate Joe Mkutu noted that Kenya’s health cabinet secretary had failed to submit the regulations to Parliament for approval as stipulated in a 2018 High Court directive.

    As a result of the ruling, the magistrate ordered the immediate release of 48 individuals arrested and charged for selling and smoking shisha in January 2024.

    Since December 2023, the National Authority for the Campaign Against Alcohol and Drug Abuse arrested more than 60 people in separate club raids in Nairobi and Mombasa.

    The operations have also resulted in the confiscation of a substantial quantity of shisha paraphernalia, including shisha bongs and charcoal pipes.

    Shisha smoking was outlawed in 2017. The ban covered the use, import, manufacture, sale, promotion and distribution of the product based on health concerns.

  • PTC Disputes Tax Underpayment Charge

    PTC Disputes Tax Underpayment Charge

    Image: alexlmx

    Pakistan Tobacco Co. (PTC) is disputing allegations that legitimate tobacco companies are shortchanging the country’s tax collector, reports the Associated Press of Pakistan.

    Earlier this year, an Islamabad-based think tank presented figures showing that Pakistan’s national exchequer collected PKR567 billion ($20.4 billion) less from the tobacco industry than it was entitled to.

    “It is important to note that this figure is incorrect, misleading and detached from ground realities,” PTC wrote in a press release. “The only loss incurred to the government of Pakistan by the tobacco industry is because of tax evasion of illicit manufacturers as the legitimate industry pays all applicable duties and taxes.”

    Contrary to the report’s suggestion, the legitimate tobacco industry has significantly contributed to the national exchequer, paying PKR148 billion in fiscal year 2021-2022 and PKR173 billion in 2022-2023, according to PTC.

    The company highlighted that the government recently recognized PTC as one of Pakistan’s top tax-paying entities. It emphasized importance of a level playing field for the legitimate sector, which is currently undermined by the illicit sector.

  • Job Ads Suggest IQOS Debut in Austin

    Job Ads Suggest IQOS Debut in Austin

    Image: Alexander

    The resolution of an IP dispute with BAT has removed a major hurdle to selling the product in the U.S. 

    Philip Morris International is preparing to launch its IQOS heated-tobacco device in Austin, Texas, USA, reports U.S. News. The city will be a testing ground for PMI’s re-entry into the United States after the company resolved an intellectual property dispute with British American Tobacco that had prompted the International Trade Commission to ban imports of IQOS in the United States.

    PMI previously announced that it planned to launch IQOS in four cities in two U.S. states beginning with one city in the second quarter before a larger rollout in 2025. The company did not, however, release details.

    According to U.S. News, LinkedIn job advertisements suggest that PMI is planning to launch the product in Austin. The advertisements were posted this month and include positions such as field sales representatives, territory managers and retail sales advisors.

     

    The U.S. would be a significant market for IQOS. Euromonitor estimates that total U.S. nicotine sales excluding nicotine-replacement therapies were $143.6 billion in 2022. Cigarettes accounted for the majority of sales, but Euromonitor predicts that their value will drop by 30 percent by 2027 and the value of smoking alternatives such as e-cigarettes and nicotine pouches, will increase by 36 percent in the same period.

     

    Investors are waiting to see if PMI can create a heated-tobacco market in the U.S., where vaping is dominant.

    According to Brett Cooper, managing partner and analyst at equity research firm Consumer Edge, Texas offers an interesting trial market due to broad demographics. He noted that diverse cities like Austin, Houston and Dallas provide access to a wide range of consumer groups.

     

    U.S. Centers for Disease Control and Prevention data shows that tobacco taxes in Texas are relatively low, with the excise tax rate on a pack of cigarettes standing at $1.41 in September 2023.

    In January, Texas introduced new e-cigarette laws, banning products that resemble food or that include symbols or celebrities targeted at minors or that depict cartoon-like fictional characters.

    PMI believes IQOS can capture a 10 percent share of the U.S. tobacco and heated-tobacco unit volume by 2030.

     

  • Tobacco Stakeholders Debate Forestry in Brazil

    Tobacco Stakeholders Debate Forestry in Brazil

    Photo: Taco Tuinstra

    Stakeholders highlighted tobacco industry initiatives to preserve Brazil’s native forests and achieve energy self-sufficiency at the Expoagro Afubra 2024 fair in Rio Pardo, Rio Grande do Sul, Brazil, on March 22.

    SindiTabaco technical advisor Fernanda Viana Bender presented a number of projects designed to promote forest sustainability in tobacco farming in partnership with the Federal University of Santa Maria (UFSM).

    The program aims to cultivate trees to meet tobacco farmers’ fuel requirements while preserving native forests. At 22 demonstration units in Rio Grande do Sul, the UFSM research team, led by Jorge Antonio de Farias, is testing the management of fast-growing trees.

    While the programs provide stakeholders with valuable knowledge, Bender says there is still much to learn. “We need to develop a way of thinking that forest production is a tobacco farmer’s business,” she was quoted as saying on SindiTabaco’s website. “Without wood, there is no tobacco curing. However, beyond the demand by the sector, farmers could also get organized to diversify with forest production, thus earning extra income,” she argued.

    Farias identified a number of challenges to achieving those goals. “As the farmers possess small farms, land availability is one of the problems that make it difficult to plant trees, and the same holds true for the transport logistics of the production,” he observed.

    “At the same time, we witness a sector extremely concerned with the supply of wood of legal origin while the farmers strongly demand wood. The solution goes through the creation of cooperatives or associations capable of articulating this market, and the tobacco sector could be a protagonist in this process. The forest component should become an integral part, when it comes to establishing a rural property, as an alternative source of income,” said Farias.

  • Zimbabwe: Auction Prices Hit Record High

    Zimbabwe: Auction Prices Hit Record High

    Photo: Taco Tuinstra

    Tobacco prices on Zimbabwe’s auction floors hit a record high of $5.05 per kilogram, the highest price in 10 years. The previous high was $4.99 per kilogram.

    The increase comes primarily from “freed-funded” tobacco, which is grown by individual farmers and accounts for 7 percent of the total crop, according to The Herald.

    The remainder of the tobacco crop is funded under contract schemes that are mainly sponsored by foreign companies.

    Auction prices have increased 26 percent year-over-year while contract prices have increased 13 percent, according to the Tobacco Industry and Marketing Board. The auction floor price increase has reignited calls for an increase in local financing for tobacco growing.

    “The continued reliance on contract farming after two decades suggests there might be deeper issues with the model itself,” said Tobias Musara, a Harare-based development economist. “Ideally, a few seasons of participation should equip the farmers for self-sufficiency. This dependence on contract financing needs to be addressed to ensure long-term benefits for our local farmers.”

    Contract farming began around 2004, a few years after the government confiscated commercial farms and distributed the land among smallholder growers.

  • KT&G Appoints Bang as President and CEO

    KT&G Appoints Bang as President and CEO

    Kyung-man Bang (Photo: KT&G)

    KT&G Corp. appointed Kyung-man Bang as its president, CEO and representative director.

    Despite opposition from some shareholders, Bang was elected president with overwhelming support during KT&G’s annual meeting on March 28, according to the company. The election of CEO and outside director was conducted jointly through combined cumulative voting as per shareholder request, with the aim of protecting minority shareholder rights.

    “I am deeply grateful to the shareholders for entrusting me with the honorable opportunity to serve the company as CEO, and to the employees for their tireless work and dedication across both domestic and international business arenas,” said Bang.

    “We are committed to achieving our vision of becoming a global top-tier company by taking a leap forward and leveraging our three core business areas—overseas combustibles, next-generation products and health-functional food—as the cornerstone for growth. We will also put our best effort to enhance corporate value and to establish a strong foundation of trust with stakeholders by sharing our profits with various stakeholders.”

    Furthermore, Bang introduced his “T-O-P strategy,” a new business approach designed to help KT&G achieve its vision of becoming a top player. According to Bang, “T-O-P” stands for “trust,” “origin” and “professionalism.”

    It aims to demonstrate KT&G’s commitment to enhancing stakeholders’ trust with proactive engagement, establishing an undisputed “origin” with a first-mover approach and securing global expertise and professionalism through performance and growth.

    Bang encouraged employees to build upon KT&G’s legacy of persevering through numerous crises and to aspire to new heights of success by taking on new and daring challenges.

    Since joining Korea Tobacco and Ginseng (KT&G’s predecessor) in 1998, Kyung-man Bang has held various management positions at the company, including roles such as managing director of brand management, executive managing director of global headquarters, executive managing director of strategy and planning headquarters, and chief business officer.

    As managing director of brand management, Bang helped KT&G solidify its leadership position in the domestic market by launching ESSE Change, which has become a leading brand. Moreover, during his tenure as executive managing director of global headquarters, Bang expanded KT&G’s overseas market presence to more than 100 countries and delivered an unprecedented KRW1 trillion in overseas sales by developing tailored brand portfolios for each market and accelerating market expansion efforts.

    As chief operating officer, Bang has played a pivotal role in executing the company’s mid-term to long-term growth strategy that focuses on three core business areas. He has made significant contributions to expanding the direct business model for the company’s overseas combustibles business, driving rapid growth in the next-generation product business, and establishing localized value chains for overseas health-functional food business.

    During the annual meeting, shareholders also approved the appointment of Dong-hwan Shon and Sang-wook Kwak as outside directors, with Kwak also serving as an audit committee member. “We are fully dedicated to driving the company’s growth and enhancing shareholder value, with the newly formed board of directors leading the change at the forefront,” the company wrote in a press release.

  • 22nd Century Reports Quarterly Results

    22nd Century Reports Quarterly Results

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    22nd Century Group reported net revenues of $7.4 million for the quarter that ended Dec. 21, 2023, down from net revenues of $10 million in the comparable 2022 quarter. Gross loss for the fourth quarter was $7.8 million compared with a gross loss of $100,000 in the prior-year period. The loss included a one-time charge of $7.9 million for certain inventory write-down adjustments.

    During the quarter, 22nd Century exited its hemp/cannabis operations to fully focus on tobacco harm reduction and contract manufacturing activities. The company substantially reduced operating costs through efficiency initiatives and the hemp/cannabis business sale. It also began new initiatives to increase sales, improve gross margin and increase operating profit in 2024. Moreover, the company started developing new customer engagement strategies to drive additional sales growth for its VLN low-nicotine cigarettes, which have been authorized by the U.S. Food and Drug Administration.

    “Our turnaround is progressing rapidly after restructuring a significant portion of the business over the last 120 days as part of our mandate to produce stronger future financial results,” said 22nd Century chairman and CEO Larry Firestone in a statement. “Most importantly, cash use has declined rapidly, from a peak run rate of approximately $15 million a quarter last year to less than $4 million projected in the first quarter of 2024, with continued sequential improvement expected in each quarter throughout 2024 as we move further from prior-period cash obligations.”

    Firestone said the company now has two primary areas of focus that both directly pertain to its tobacco market assets. “In the short-term, we will evaluate and profitably grow our contract manufacturing business to cover our operating expenses and mission-critical initiatives around 22nd Century’s very low-nicotine content cigarette technology,” he said. “We will also invest in and grow the VLN brand through sales, customer awareness and capitalizing on a positive regulatory and social environment. With success in these efforts, we believe that 22nd Century can break even by the first quarter 2025.”

  • Knesset Approves Graphic Warnings

    Knesset Approves Graphic Warnings

    Photo: LevT

    Lawmakers voted to require graphic health warnings on tobacco packs in Israel, reports The Times of Israel.

    The new requirement is an amendment to the existing law outlawing advertising and limiting the marketing of tobacco products.

    Failure to print the warnings will be considered a criminal offense under the legislation.

  • Singapore Vaping up Despite Ban

    Singapore Vaping up Despite Ban

    Photo: Kalyakan

    Singaporeans are smoking less but vaping more, reports The Straits Times, citing research by Milieu Insight.

    The average number of cigarettes smoked per week fell from 72 sticks in the third quarter of 2021 to 56 in the fourth quarter of 2023.

    Over the same period, consumption of alternative products like e-cigarettes and vaporizers increased from 3.9 percent to 5.2 percent of the population.

    Milieu Insight attributes the gradual decline in cigarettes smoked per week observed since the second quarter of 2022 in part to an increase in proportion of occasional smokers as compared to regular smokers over this period.

    Conducted from Dec. 16 to Dec. 29, 2023, the survey found that the proportion of occasional smokers had increased by 1.2 percentage points to 3.2 percent, from the third quarter of 2021 to the last quarter of 2023. There was also an increase in the number of former smokers over the same period.

    Vaporizers and e-cigarettes have been outlawed in Singapore. Among the reasons cited for their vaping, respondents said they wanted to reduce secondhand smoke and lessen their consumption of traditional cigarettes. The World Health Organization, however, has rejected the products as a cessation aid.

    In December 2023, Singapore’s Ministry of Health and the Health Sciences Authority announced that they were stepping up enforcement and education efforts against vaping to prevent it from gaining a foothold in Singapore.