Blog - Tobacco Reporter

Philippines: Seized Cigarettes Destroyed

Seized fake cigarettes, raw materials and cigarette manufacturing machines were destroyed in a fire that affected three warehouses in Porac, Pampanga, Philippines, reports The Philippine Star. The items were worth about PHP4.8 billion ($86.8 million). The fire burned for 15 hours despite efforts from firefighters.

The Bureau of Customs and the Bureau of Internal Revenue had seized the destroyed items in raids across the country over the past several years. The warehouses were used as storage for what would later be used as evidence against suspects charged in court.

The warehouses are owned by Digama Waste Management Services and Greenleaf 88 Nonhazardous Waste Disposal.

May 3, 2023

Pakistan Expects Tax Hike to Boost Revenue

Pakistan’s government expects to collect PKR60 billion ($211.42 million) in additional revenue after increasing the federal excise duty on tobacco products, reports the Pakistan Observer.

The government dismissed concerns about black market sales.

The multinational tobacco industry has incorrectly claimed that illicit cigarettes make up 40 percent of the market, according to the government, which cited independent studies showing that illicit products only account for 18 percent of the market.

According to the Pakistan Observer, the industry is overstating the volume of illegal sales to put pressure on the government following the tax increase.

The implementation of a track-and-trace system has helped decrease illicit products, according to Malik Imran, country head of the Campaign for Tobacco-Free Kids. “Tentatively, we can say the volume is now negligible,” he said.

May 2, 2023

Zimbabwe Tobacco Sales Bring in Millions

Zimbabwe’s tobacco revenue has reached $258 million, 19 percent more than in the comparable 2022 period, reports NewsDay.

“Income/revenue to farmers increased by 19 percent from $216 million to $258 million this year owing to the tobacco value chain transformation strategy, which is currently in motion, and this is likely to increase the country’s chances of achieving the objectives of V30,” said John Basera, permanent secretary of Lands, Agriculture, Fisheries, Water and Rural Resettlement, referring to the government’s strategy to reduce poverty. “Tobacco output grew marginally by 1 percent from 211,100,219 kg produced during the 2020/2021 production season to 212,711,370 kg in the 2021/2022 season.”

Tobacco production is expected to increase by 9 percent from 212,703 tons.

Total deliveries were up by 18 percent to 86.14 million kg compared to 72.21 million kg in the same period last year while the average price firmed by 1 percent from $2.97 per kilogram in 2022 to $3 per kilogram in the same period this year.

May 2, 2023

Ban on Nonprescription Vape Imports

The Australian government announced that it will ban the importation of all nonprescription vaping products—including those that do not contain nicotine. The new legislation is billed as containing the most significant tobacco and vaping control measures in the country in a decade.

The announcement today clarifies last week’s announcement of a crackdown on illegal vaping. This time, the government said it would now include a total ban on nonprescription vaping products.

To tackle youth vaping, minimum quality standards for vapes will be introduced, including restricting flavors, colors and other ingredients. Vape products will require pharmaceutical-like packaging, and the allowed nicotine concentrations and volumes will be reduced.

All single-use, disposable vapes will be banned, according to The Guardian.

Speaking on ABC’s Q&A on Monday night, Australia’s health minister, Mark Butler, said that the tobacco industry was trying to create a “new generation of nicotine addicts” through vaping and that he was “determined to stamp out this public health menace.”

The move follows an inquiry into vaping reforms led by the drugs regulator, the Therapeutic Goods Administration, with submissions from health professional bodies, public health associations, individual health professionals and university researchers that overwhelmingly support tightening border controls.

Many public health experts and bodies suggested to the inquiry that border controls should also be placed on non-nicotine vaping products to prevent mislabeling and exploitation of import loopholes. It follows manufacturers falsely labeling products containing nicotine as “nicotine-free” to get around import restrictions, leaving children easily able to buy vapes, often unknowingly inhaling nicotine and becoming addicted.

The government will also work with states and territories to end vape sales in convenience stores and other retailers. Prescriptions for nicotine vaping products for smokers trying to quit tobacco will be made easier to obtain, with stronger standards around the vaping products that can be bought in pharmacies so people can be assured of the content of the products.

Butler said he will expand on the reforms in a speech to the National Press Club on Tuesday, where he is expected to say vaping has become “the biggest loophole in Australian history” and announce that the following Tuesday’s federal budget will include AUD234 million ($156.22 million) in funding for tobacco and vaping reforms, the biggest since plain packaging of tobacco products was introduced.

May 2, 2023

22nd Century Signs Deal with Old Pal

22nd Century announced its second exclusive license, manufacturing and distribution agreement in the hemp/cannabis industry, signed with Old Pal, a consumer company started in California and now operating in eight U.S. states.

“Old Pal is the second leading consumer hemp/cannabis brand to adopt 22nd Century’s innovative strategic license, manufacturing and distribution agreement. This model enables brands to focus on product development, customer engagement and marketing while we provide expansive access to mass market channels urgently seeking new, high-margin, high-velocity products to meet growing consumer demand,” said James A. Mish, CEO of 22nd Century.

Initially launched in California in 2018, Old Pal gained recognition for its nostalgic branding. In addition, Old Pal’s continuously growing line of apparel, accessories and home goods has firmly established it as a prominent cultural figure in the world of cannabis, according to 22nd Century.

The exclusive license with 22nd Century covers Old Pal branded non-delta-9 THC, hemp-derived cannabinoid consumer products and accessories. Similar to 22nd Century’s first single-source integrated production, sales and distribution agreement in hemp/cannabis, signed with Cookies, the Old Pal agreement will leverage 22nd Century’s formulation, ingredient and manufacturing infrastructure plus the company’s turn-key sales and distribution platform for alternative consumer products in a complete go-to-market solution.

Combined, the company estimates that its agreements with Cookies and Old Pal represent more than $140 million in revenue opportunity with attractive margins over the terms of the contracts. 22nd Century is now advancing its initial mass market retail efforts for these products across the United States, leveraging a network of more than 200 wholesale distributors. The company continues to pursue additional exclusive license opportunities with industry brands interested in its innovative integrated solution.

May 2, 2023

JT Reports ‘Solid’ First-Quarter Results

Japan Tobacco (JT) reported revenue of ¥665.3 billion ($4.86 billion) in the first quarter of 2023, up 14.4 percent over the comparable 2022 quarter.

Core revenue at constant currency exchange rates increased by 6.2 percent to ¥594.6 billion. Adjusted operating profit at constant exchange rates increased by 5.1 percent to ¥204.7 billion. On a reported basis, adjusted operating profit increased by 14.6 percent to ¥223.4 billion. Operating profit increased by 15.7 percent to ¥206.4 billion. Profit increased by 16.6 percent to ¥144.7 billion.

“JT Group delivered solid results in the first quarter, building on the positive momentum across its businesses,” said Masamichi Terabatake, president and CEO of JT. “Robust pricing in the tobacco business continued to drive the strong performance of the group.

“In line with our plan to increase our presence in HTS (heated-tobacco sticks) and establish the foundations for JT Group’s future earnings growth, we successfully launched Ploom X in Italy and Lithuania in April after an encouraging rollout in the U.K. We are making good progress for additional international launches, with a rollout in Portugal planned for mid-May.

“Guided by the group’s management principle, which is to pursue the 4S model, and considering the recently announced JT Group Purpose, we will continue to take all necessary decisions to address operational uncertainties, such as regulatory changes, economic instabilities and volatile foreign exchange rates.”

May 2, 2023

As Smoking Declines, More Adults Switching

U.S. cigarette smoking dropped to another all-time low last year, with one in 9 adults saying they were current smokers, according to government survey data released April 27. Meanwhile, electronic cigarette use rose, to about one in 17 adults.

The preliminary findings from the U.S. Centers for Disease Control and Prevention (CDC) are based on survey responses from more than 27,000 adults.

Last year, the percentage of adult smokers dropped to about 11 percent, down from about 12.5 percent in 2020 and 2021. The survey findings are sometimes revised after further analysis, and the CDC is expected to release final 2021 data soon.

E-cigarette use rose to nearly 6 percent last year, from about 4.5 percent the year before, according to survey data.

May 1, 2023

Bangladesh Urged Against Interference

Bangladesh should monitor the tobacco industry’s attempts to influence the formulation and implementation of graphic health warnings, according to a new study in the British Medical Journal’s Tobacco Control, reports United News of Bangladesh.

The study, “Tobacco Industry Interference to Undermine the Development and Implementation of Graphic Health Warnings in Bangladesh,” examines the tobacco industry’s efforts to “delay and weaken” the implementation of graphic health warnings in Bangladesh.

The Bangladesh Cigarette Manufacturers’ Association was the most active industry actor in “interfering” with the process, according to the study, while BAT Bangladesh was most active and the only company that acted alone to thwart graphic health warning implementation.

The study urges the government to adopt the World Health Organization Framework Convention on Tobacco Control’s Article 5.3 guidelines and make their implementation a policy priority.

May 1, 2023

Filipinos Warned Against Disposed Cigs

The Philippines Bureau of Customs (BOC)-Port of Zamboanga has warned the public against buying cigarettes that have disposed of by the agency, reports the Philippine News Agency.

The confiscated smuggled cigarettes are sprayed with pesticides, according to Mike Lanza, the customs intelligence and investigation service chief of BOC-Zamboanga.

“Hundreds of people were waiting to salvage packs of cigarettes,” Lanza said, referring to a large-scale destruction of illegal cigarettes completed on April 28, which took place at a sanitary landfill in Barangay Salaan in Zamboanga City. “The drivers of the dump trucks had to stop to avoid accidents.”

According to the BOC, individuals will pay scavengers for each pack of cigarettes they can recover. “They sell the cigarettes to community sundry stores at cheaper prices,” said Arthur Sevilla, BOC-Port of Zamboanga acting district collector.

The confiscated cigarettes are drenched in water and repeatedly crushed by heavy equipment, but scavengers search for packs that may have managed to stay dry.

May 1, 2023

The Man Behind the Plan

Zimbabwe’s minister of Agriculture, Anxious Jongwe Masuka, explains how the country will build a $5 billion tobacco industry by 2025.

By Taco Tuinstra

Following the resignation of Zimbabwe’s longtime president, Robert Mugabe, in late 2017, the new government invited private citizens to provide ideas on how to improve agriculture. Drawing on his extensive background in agriculture, policy and strategy, Anxious Jongwe Masuka wrote a letter in which he detailed the steps that he believed would help the nation achieve a prosperous, sustainable and competitive agricultural sector.

One of the issues he mentioned was tobacco, the country’s most important agricultural export by a wide margin. Zimbabwe has the potential to generate and retain much more value from its tobacco industry than it is getting now, Masuka argued in his missive, unaware that he would soon be put in charge of the sector.

“Then, when I was appointed a minister, President Emmerson Mnangagwa handed me back my letter and said, ‘I fully agree with what you have written here, and now please go ahead and implement it,’” recalls Masuka.

Tobacco Reporter caught up with Masuka at the Ministry of Agriculture in Harare to discuss the details of what is now known as the Tobacco Value Chain Transformation Plan.

Tobacco Reporter: Please briefly sketch the economic significance of tobacco to Zimbabwe. How much of the value created is retained domestically, and why does it fall short of its potential?

Anxious Jongwe Masuka: The context of the tobacco industry in Zimbabwe is exciting, since the first tobaccos were grown by missionary priests and presented at a show in 1895. Tobacco is one of [the] great successes for the country. By 1998, 1,500 large-scale white farmers produced a record 239 million kg. At the time, only a handful of small-scale Black farmers, less than 1,000, produced the crop. Following the land reform program from 2000 onward, the demography has dramatically shifted. A new record 260 million kg was produced in the 2019/2020 season, predominantly by smallholder farmers who constitute over 85 percent of the growers.

The tobacco crop annually supports up to 160,000 households, accounts for more than 50 percent of agricultural exports and contributes 25 percent to agriculture GDP.

Tobacco production is now a catalyst for accelerated rural development. Tobacco is grown predominantly by smallholder farmers, who constitute 85 percent of producers. Tobacco supports, directly and indirectly, 10 percent of Zimbabwe’s population (1.5 million).

Some 98 percent of tobacco is exported in a semi-processed form. However, according to the Reserve Bank of Zimbabwe, only 12.5 percent of total exports is the net benefit after payment of external loan obligations by tobacco merchants.

Zimbabwe produces 6 percent of the world’s tobacco. The global tobacco market is estimated at US$850 billion, and 6 percent of the value translates to $51 billion of the global market value of tobacco. In 2020, Zimbabwe produced and exported over 200 million kg of tobacco worth only $991 million, so clearly there is scope for massive value retention in the country.

This is the basis for the Tobacco Transformation Plan, an idea I floated to the president in 2018 when I was still in the private sector and before being appointed minister in August 2020.

What are the Tobacco Transformation Plan’s main objectives?

From the mentioned statistics, it is clear that the industry must transform for value preservation and for sustainability. The Tobacco Value Chain Transformation Plan seeks to increase tobacco production to 300 million kg by 2025 and transform the value chain into a $5 billion industry through exports of tobacco value-added products. The broad objectives of the plan are to accelerate localization of tobacco funding; increase tobacco productivity and production from 210 million kg to 300 million kg; increase production of alternative crops and increase their contribution to farmers’ incomes; increase the level of tobacco value addition and beneficiation into cut rag and cigarettes; and ensure sustainability and traceability in the production of the crop.

Why is such a large share of cultivation currently funded by contractors? And how does the Tobacco Transformation Plan seek to remedy this situation?

Collateral, title deed-based financing collapsed in 2000, when all agricultural land became state land. By 2004, tobacco production had plummeted to 48 million kg from a high of 239 million kg. A dual marketing system was then introduced by government—a contract system was allowed, operating alongside the established auction system. Over the years, the contract system was refined to provide agronomic and farm infrastructure and equipment support in addition to inputs and working capital. Resultantly, and cumulatively, over 95 percent of production is currently funded through contract farming. This contract production financing model of tobacco requires that tobacco be prefinanced by offshore funding.

Local lending by local financial institutions for farming purposes is limited, particularly for small-scale farmers who do not meet the collateral requirements following the collapse of title-based lending in 2000.

The localization plan will involve government availing $60 million as seed finance to establish a revolving facility. The plan will operate alongside contract production of the crop. This will anchor the growth to 300 million kg.

How do you view the role of tobacco buyers in the future? Will they still be funding tobacco cultivation after the Tobacco Transformation Plan has been carried out?

Zimbabwe envisages growing the tobacco industry to a 300 million kg crop by 2025—an additional 90 million kg from the current average production of 210 million kg—so there is room for both contractors and local financing. The government is not replacing anyone in the current system, especially contractors and buyers. In fact, the exact opposite—we require more contractors and more localization of financing. We envisage that contractors can operate in both systems, whether the source of financing is offshore or is local, a contractor will be required alongside some direct lending to farmers.

According to some economists, one of the reasons smallholder tobacco growers have struggled to access funding in the past was lack of titles to their lands. What is the current situation in terms of property rights? Does the Tobacco Transformation Plan deal with this issue?

Those economists are misguided. Tobacco production has reached an all-time high in the current tenure system, post-land reform. All agricultural land is vested in the state, and for the right reasons, following the land reform program. Farmers got offer letters, and now securitized A1 and A2 permits and thereafter 99-year leases. It is in this context that tobacco production has grown through strong value chain or contract-growing support.

Government is currently seized with the legal reviews to make permits and leases more attractive to financiers, so issues of collateralization, transferability and valorization are being discussed.

It is also important, for emphasis, to highlight that the Tobacco Transformation Plan is an agronomic plan, not a land reform plan.

Are you confident that Zimbabwe can sell a 300 million kg crop even as global cigarette consumption stagnates?

Zimbabwe will achieve 300 million kg of production by 2025 through increased yields and reduced post-harvest losses. Zimbabwe produces flavor-style tobacco, currently marketed to 60 countries. This style of tobacco will continue to be in demand for the foreseeable future in these countries and beyond. We are also exploring new markets to replace lost markets. Tobacco smoking is by choice, and we think many will continue to choose to smoke Zimbabwean tobacco.

Tobacco cultivation has environmental impacts, such as deforestation. What measures are in place to protect the environment as the tobacco industry expands?

The targeted increase in volume to 300 million kg is not from area increase but from post-harvest loss reduction and yield increase. There is, therefore, no envisaged additional deforestation from the increased production. However, the government has created a law for tobacco farmers, so there is an afforestation levy administered by the Ministry of Environment, Climate, Tourism and Hospitality to reverse deforestation caused by the tobacco sector. The industry has a sustainable forestry association, which plants tens of thousands of eucalyptus trees annually.

Alongside this, research and development has also led to more efficient curing systems, reducing wood and coal usage from 10 kg [of tobacco] to 1 kg [of] tobacco and 6 kg [of tobacco] to 1 kg [of] tobacco, respectively, to almost 1 to 1 for coal to tobacco in current continuous curing systems. Biofuels are also promising fuel alternatives to curtail deforestation.

All contractors have now signed the sustainability code, and traceability has been heightened to ensure farmers use alternative curing fuel. Growers are also encouraged to plant 1 hectare of trees for every 7 hectares of tobacco, and seedlings are readily available.

This cocktail of measures will reduce the industry’s environmental footprint.

Please comment on the Tobacco Transformation Plan’s goal to promote alternative crops. What crops are you targeting, and how do they compare to tobacco in terms of earnings for the farmers and economic contributions to the country?

Tobacco is already grown in rotation with various crops, for example, maize, and there is also livestock grazing on rotation grass. We need to enhance these and look for alternative crops, for example, industrial hemp and cannabis. The objective is to complement tobacco, not to replace it.

In 2018, Zimbabwe legalized cannabis for medical and industrial use, with some predicting earnings on par with those of gold. How has the cannabis industry developed since 2018? What have been the major lessons of Zimbabwe’s experience with this crop to date, and what are your expectations for its future?

Zimbabwe has just legalized the production of cannabis and has issued licenses to 60 growing units. This industry is at a developmental stage, and we expect rapid growth.

The Tobacco Transformation Plan seeks the beneficiation of tobacco by encouraging value-added production. What progress has been made in this area to date? Please comment on the reports about local cigarette factories planned by Cut Rag Processors and Iranian Tobacco Co.

The environment for investment has seen much improvement, and we expect investors to take advantage of this, including Cut Rag Processors, the Iranians and many others.

What do you consider to be the greatest challenges to achieving the objectives of the Tobacco Transformation Plan? And how are you addressing those challenges?

By far the greatest threat is from the World Health Organization Framework Convention on Tobacco Control, which seeks to eliminate tobacco smoking. This will have tragic consequences for tobacco-dependent African countries such as Malawi, Tanzania, Zambia, Mozambique and Zimbabwe.

Then there are issues of adherence to sustainability and traceability and ensuring growers’ viability.

More discerning markets want their tobacco to be produced ethically and sustainably. These are legitimate concerns. We are taking this on board and going to every length to show we are producing this tobacco in a sustainable manner, eliminating child labor, traceability, harmful substances, etc.

Ultimately, growth in this industry will depend on grower viability. Due to the war between Russia and Ukraine—two major sources of raw materials for fertilizer production—and disruptions to the global supply chain, among other factors, the cost of production for tobacco [has] increased by 30 [percent] to 40 percent. Without a corresponding increase in the price, this means that farmers are squeezed and will therefore have to produce the crop more efficiently.

We must highlight also that success of the Tobacco Transformation Plan depends on a whole-of-industry approach. The government has created a tobacco working group involving all stakeholders. Every quarter, representatives of tobacco growers, labor unions, buyers, bankers and regulators meet to discuss progress of the Tobacco Transformation Plan, and we look forward to accelerating its implementation.

Have the various stakeholders generally been receptive to the Tobacco Transformation Plan?

They have been extremely receptive. The Tobacco Transformation Plan was long overdue.

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

May 1, 2023