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Category: Also in TR

  • Raising the Next Generation

    Raising the Next Generation

    Photo: JTI

    JTI steps up its investment in new nicotine products.

    By George Gay

    Having been asked to write about Japan Tobacco International, I immediately headed for the company’s website, where the following question jumped out at me: Who is JTI? Even though I have become used to the fact that, in some jurisdictions, corporations are, from a legal standpoint, treated as though they are individual people, the word “who” struck me as oddly personal. I would have glided past the question “What is JTI?” a point that probably was in the minds of those who constructed the site.

    There are some advantages in conferring anthropomorphic status on a company, but the idea can raise negative images too. People grow old, they retire, become increasingly feeble (take my word for it) and eventually die. But, on the other hand, they form relationships and produce offspring.

    And, stretching the metaphor toward its breaking point, this, of course, is the direction of travel of JTI. The company still offers, and will for the foreseeable future offer, traditional tobacco products, but a new-generation company is emerging and offering new-generation products (NGPs), including e-cigarettes, heated-tobacco products (HTPs) and nicotine pouches. The relationship between the parent and offspring is still obvious, but the latter will increasingly be making its own way, and the resemblance will gradually fade.

    From Words to Action

    I write that with some confidence—with much more confidence than I would have had a week ago—because a few days back, the U.K. government announced that “1 million smokers will be encouraged to swap cigarettes for vapes under a pioneering ‘swap to stop’ scheme designed to improve the health of the nation [England*] and cut smoking rates.”

    “As part of the world-first national scheme, almost one in five of all smokers in England will be provided with a vape starter kit alongside behavioral support to help them quit the habit as part of a series of new measures to help the government meet its ambition of … [making England] smoke-free by 2030—reducing smoking rates to 5 percent or less,” a government press note said.

    What difference, you might ask, does one jurisdiction make in the grand scheme of things when JTI has a presence in about 130 countries? Good question, especially since the press note, in many respects, left the U.K. government sitting on the same old fence from where it was trying to promote vaping as a method of quitting smoking while suggesting that it was going to make vapes less attractive because of the perceived threat they posed to young people. Nevertheless, I think the announcement represented a sea change. In the past, the authorities in the U.K. have been willing to state categorically that vaping is far less risky than smoking, but this is the first time to my knowledge that they have demonstrated they are so sure of this position that they are willing to take what can only be described as decisive—though admittedly limited—action.

    And if, as most of the people who read this magazine probably believe, such action, properly implemented for as long as necessary, succeeds in reducing smoking rates significantly from what is already a low base, then England can only become an exemplar that other countries interested in reducing smoking rates will be almost bound to follow.

    Even with the World Health Organization raged against NGPs, with the U.S. Food and Drug Administration less than supportive of NGPs and with scientists steeped in conspiracy theories feeling happy to muddy the waters around NGPs, a real-time, real-life, nationwide case study will be hard to ignore, assuming tobacco smoking does, as we’re told, take a toll on economies.

    During 2023, significant investments toward HTS will be necessary to establish the foundations for the JT Group’s future earnings growth.

    Masamichi Terabatake, president and CEO, JTI

    Riding the Wave

    Although JTI, as the tobacco market leader in the U.K., will be negatively affected by any reduction in sales of traditional products, it is, at the same time, in a good position to take advantage of any transition that might occur to NGPs in England. There it sells Logic Compact, a closed-tank e-cigarette, and last year it launched in London its Ploom X HTP, an updated version of Ploom S. And it offers, too, Nordic Spirit nicotine pouches, which were launched in the U.K. in 2019.

    Looking further afield, in October, Japan Tobacco and Altria signed a joint venture agreement to market HTPs in the U.S. with Ploom-branded devices and Marlboro-branded consumables, for which, according to a Nikkei Asia report in the middle of April, they plan to have FDA marketing approval by early 2025. They also signed a long-term, nonbinding global memorandum of understanding to explore commercial opportunities for a wide range of reduced-risk products (RRPs).

    Meanwhile, in introducing JT’s 2022 earnings report, Masamichi Terabatake, president and CEO of the JT Group, made much of the company’s ambitions in respect of NGPs. “We continued to make progress in the … RRPs category, with Ploom X increasing share in the HTS … segment in Japan and the launch of Ploom X in London,” he said.

    “2022 marked the first year of the newly combined tobacco business structure, which has successfully strengthened our business fundamentals and capabilities through various initiatives. More is to come, especially regarding HTS—our RRP investment priority over the 2023–2025 business plan—with the acceleration of Ploom X market launches. This will support our 2028 ambition to reach break-even in the RRP category, by achieving an HTS segment share in the mid-teens across key HTS markets. During 2023, significant investments toward HTS will be necessary to establish the foundations for the JT Group’s future earnings growth.”

    Increased RRP investments are seen as the route to building a future of profit growth. And investments are set to be significant. According to the Nikkei Asia report, JT is aiming to spend $2.25 billion during the next three years on its heated-tobacco operations, two-thirds of it on marketing beyond its core Japan market. It is understood to be planning to launch this year Ploom X on more than 10 markets where HTPs are already established and at least 20 markets by the end of 2024.

    Terabatake told Nikkei Asia that the company’s ambitions for expanding its heated-tobacco investments overseas had been held up by a semiconductor shortage, which meant there were not enough heated-tobacco devices. But, he added, “For 2023, we are back on track for procurements, and we are able to secure more than twice Japan’s supply volume compared to last year.”

    It is worth noting, however, that JTI has not been neglecting its traditional tobacco operations, and, indeed, in the second biennial report on the Tobacco Transformation Index, which, published last year, detailed the findings of two further years of research into the efforts made by the world’s 15 largest tobacco companies to reduce the harm caused by the consumption of their products, the JT Group’s “Product Sales category score was … negatively impacted by the company’s increasing (CAGR 2019–2021: plus-0.8 percent) HRP [high-risk products] volume sales.”

    And JTI, unsurprisingly, is not happy when those volume sales are put under threat, as can be seen from the considerable space it devotes on its website to the illegal trade in cigarettes.

    Calling a Spade a Spade

    Up to a point, I find it encouraging how JTI is willing to call out bad policies for what they are. In one section of its website, it is blunt in pointing out that in imposing extreme regulations on the sale of tobacco products, many countries are creating more problems than they are “supposedly solving.”

    While some try to deny the obvious by saying that sales of illicit cigarettes are not boosted by high levels of cigarette taxes, JTI says on its website that the introduction of ever-steeper tax increases has criminal gangs “rubbing their hands with glee.” It makes the point that consumers who are suddenly priced out of the legitimate market are driven toward the cheaper illicit tobacco options available on the black market.

    JTI does not say this, but, to me, it is self-evident that if a government raises the price of a product to which it says consumers are “addicted,” knowing those consumers are aware of a cheaper source of that product, that government is not making a serious attempt at reducing smoking, just an attempt at reducing recorded, tax-paid consumption.

    It is important to note that JTI is not against regulation of the tobacco and nicotine industries. Indeed, it says at one point that it “supports regulation that conforms to the Organization for Economic Co-operation and Development’s principles of Better Regulation.”

    “These principles can be summarized as openness, participation, accountability, effectiveness, coherence and proportionality,” it says.

    Nevertheless, it calls out, too, the “misguided” moves toward display bans and “plain packaging” despite a lack of evidence that these policies achieve their stated health goals.

    Again, JTI does not say this, but the idea of a government’s ordering graphic health warnings on cigarette packs as a means of putting people off smoking, and then requiring those packs to be placed behind closed doors, seems incoherent. The only people likely to see those graphic warnings on a regular basis are those who are already committed to smoking, so the policy of requiring display bans seems largely aimed at making the life of retailers more difficult.

    I don’t agree with everything JTI has to say about the illegal trade, and there is something that appears on its website that, like the “who is JTI?” question, jumped out at me. I point it out only because I believe it is worth thinking about. The following is part of what appears below a heading that reads, “Illegal tobacco helps organized crime infiltrate local communities”: “In March 2021, an enforcement operation conducted by Russian Law Enforcements resulted in the seizure of one illegal cigarette factory in the Krasnodar area; 10 tons of raw tobacco used in the illegal production; 7.3 million counterfeit cigarettes; and 428,000 cigarette pack blanks.”

    A lot of what appears on the website concerns the claim that the purchase of illicit cigarettes supports organized criminals and terrorists. The question arises, however, as to whether, in an increasing number of countries, the purchase of licit cigarettes does much the same.

    *The reason why this initiative by the U.K. government applies to England only is that responsibility for health matters is largely devolved to the “parliaments” of Northern Ireland (the Assembly), Scotland and Wales (the Senedd).

    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.
  • Changing Gear

    Changing Gear

    Photo: Taco Tuinstra

    How the tobacco industry can accelerate transformation

    By Clive Bates

    In the unlikely event that I am appointed CEO of a large tobacco firm, this is what I would do to accelerate the transformation of the business.

    First, I would ask if we really do want to transform the business and, if so, why. Until the board, thousands of staff, investors and stakeholders understand our rationale, what chance is there of bringing them on the journey? This is a more vexing question than it might appear at first sight. Perhaps we would be better off as we are? After all, we make terrific margins on cigarettes; we have tremendous pricing power courtesy of the tax authorities; we are embedded in a comfortable oligopoly that knows how to make money; and, of course, it helps that the product is addictive, and the customers are loyal to our brands.

    In contrast, the transformation is toward a volatile and diverse market, intense competition holding down margins, the ever-present danger of being caught flat-footed by rival innovation, fickle customers pursuing the next new thing and the potential for illicit entrants flooding the market. Why would we want that? The answer is that we don’t get to choose. Even if we could join forces with all other tobacco companies, we cannot individually or collectively hold back this transformation and restore the situation as it was before 2010. This is because consumer preferences and competition from nontobacco companies drive it. The ship has sailed. Our only viable strategy is to compete ferociously for market leadership in the new product categories. We need to deepen our explanation of the drivers of transformation and set out our transformation rationale clearly and rigorously. For inspiration, we will look to the scholars of creative destruction, diffusion of innovation and corporate strategy: a little more Harvard Business Review and a little less New England Journal of Medicine.

    Second, we need to sell high-quality, compliant products that people want to buy as alternatives to cigarettes and make good money by doing it. Apologies if this is a statement of the obvious, but it is the core function of businesses undergoing a market transformation. Everything else is froth. Fortunately, the impetus for this is all too clear: competition and the threat of rivals converting our cigarette smokers to their smoke-free products and, equally, the opportunity to convert their customers to become ours. Some in public health suspect that Big Tobacco would like to hold back innovation and slow down the rate of transformation. However, Big Tobacco is an imaginary construct comprising companies that compete intensely. A company that tries to hold back innovation will not fare well at the hands of its innovative rivals. The aggregate effect of all the companies pursuing competitive advantage in new product categories will be the primary driver of transformation. Ironically, the primary drag on transformation will be legislators, regulators and tobacco control activists intervening to throttle innovation and uptake of new technologies. Yet, it would be a mistake to rely on “useful idiots” to protect the cigarette business. Their attitudes and ideas could change with as little as the stroke of a philanthropist’s pen.

    Third, we should engage with the environmental, social and governance (ESG) investing community. ESG is the new language for “ethical investment.” There are really three types of ESG investing: (1) taking stakes in virtuous companies that do not trigger exclusion criteria, of which “tobacco” would always be one. This route is closed. (2) To back emerging world-changing companies, though these are difficult to spot in advance and few in number. (3) So-called “engagement investing,” where ESG investors buy into companies with a significant problematic health, social or environmental burden and pursue improvements. By reducing negative footprints, this form of investing has the potential to do more material good for society than the other two. For tobacco companies, ESG engagement would endorse a transformation strategy with external validation and accountability.

    Fourth, we must master the future of nicotine and its place in society. Nicotine is a popular recreational stimulant for a reason and not just because it is “addictive.” Tobacco companies have been understandably shy about discussing nicotine and why there is a demand for it. But companies are in the consumer nicotine business—it is the reason they exist and why they have a future. As consumer nicotine products are becoming smoke-free and far less harmful, the main deterrent to nicotine use—the health risks of smoking—is becoming weaker. The decades-long controversy about tobacco is shifting its focus from severe smoking-related diseases, such as cancer and chronic obstructive pulmonary disease, to concern about nicotine use and addiction. Most people understand and accept why there is a demand for alcohol and caffeine, and many understand the demand for cannabis. But who really understands the demand function for nicotine once this is no longer conflated with smoking? People use nicotine for pleasure and stimulation, to modulate mood, stress and anxiety, and for a range of cognitive improvements. Nicotine may interact beneficially with various health conditions, including attention-deficit/hyperactivity disorder and Parkinson’s disease. As a society, we should not be recommending or endorsing nicotine use, but we should surely have a better understanding of why people use it.

    Fifth, to the extent possible, we should agree with other transformation-minded businesses on the optimal regulatory and fiscal approach. We routinely state that excise and regulation should be “risk-proportionate,” but what do we mean by that in more detail? How should we approach contentious issues, such as youth uptake? We should be (and be seen to be) leading the thinking and marshalling of the evidence base for risk-proportionate regulation. This requires some careful judgements: we must avoid erecting excessive barriers to entry to smaller players, or we risk looking (and being) predatory, and our approach will be dismissed as cynical and expedient and generate opposition among potential allies. The regulatory environment may evolve over time and may contain dependencies. For example, some of the stricter measures to address cigarettes must be accompanied by readily available and well-understood pathways to smoke-free products.     

    Sixth, we must be more assertive scientifically. Just as the industry’s science provides high-quality insights into tobacco harm reduction and reduced-risk products, it is increasingly excluded from conventional publishing platforms and scientific fora. The exclusion is not accidental or merely a misunderstanding based on historical industry malpractice. Nor is it likely to change. It is because a significant share of the academic community rejects the strategy of harm reduction and, therefore, the science that supports it. For many, it is seen as “the nicotine maintenance survival strategy of Big Tobacco” and thus to be opposed, whatever its benefits to health and welfare. The way to address this is to fully embrace the ideas and principles of the open science* movement. The industry could produce or sponsor publicly accessible scientific resources that are category-wide, such as living reviews of biomarker or toxicology studies or informative behavioral research. We should engage credibly, respectfully and systematically to challenge poor-quality science, misleading interpretations and policy recommendations that go far beyond the science that supposedly justifies them. The lack of accountability and redress in tobacco control science has created cavalier attitudes to scientific rigour that would not be acceptable within the industry. Consistent with an open science approach, we should acquire and release all relevant market data to the independent research community and allow them to interpret it. If substitution effects are real and a transformation is proceeding, this is the best form of validation.

    Seventh, we may need an organizational vehicle to advance the transformation agenda for the industry as a whole. The tobacco industry is not homogenous. Many companies, notably the state-owned monopolies, are not interested in transformation and profit mightily, at least in the short term, from the prohibitions promoted by the World Health Organization and its fellow travelers. Yet, all the tobacco multinationals generally recognize the transformation imperative and decline to be seduced by the Bootlegger and Baptist implicit bargain with tobacco control activists. This group must find its voice—not as a conventional trade association but as a cross-industry body dedicated to an idea. It would delineate the territory of common category-wide interests (e.g., greater public understanding, a common regulatory agenda, marketing standards, environmental issues, scientific engagement, etc.) from inter-company competitive interests (pricing, product launches, etc.).

    Finally, something we should not do. We should resist the temptation to use regulation for short-term gain by supporting regulation that helps us and hinders our competitors. Over the longer term, our opponents will selectively adopt the restrictive and reject the permissive measures we back. What appears to help us today may harm us a couple of years from now as we develop new products or acquire new businesses. Our goal should be an enduring fiscal, regulatory and communications environment that works for smoke-free categories as a whole. That will create a rules-based context for competition between companies and an attractive alternative to illicit trade.

    Clive Bates is the director of Counterfactual Consulting and the former director of Action on Smoking and Health (U.K.).
  • World Vape Day:

    World Vape Day:

    Photo: BAT

    A new scientific study on Vuse underscores the contribution vapor products can make toward tobacco harm reduction.

    By James Murphy

    Almost 20 years ago, I joined BAT as a scientist motivated by the positive change that tobacco harm reduction (THR) can achieve. We have made great strides since then, and on days like World Vape Day, it is encouraging to see continued innovation in this area. This ambition to support THR is embodied by BAT’s release today of one of the largest vapor product studies ever conducted, further supporting the role that Vuse, BAT’s flagship vapor brand, can play in tobacco harm reduction.

    Science and research have been fundamental to the progress that I have witnessed over almost two decades at BAT. Together, they form the cornerstone of consumer and regulatory confidence in our brands. This confidence is essential for our new-category products to be able to both support THR and provide reduced-risk*† alternatives for consumers who would otherwise smoke.

    Early in my career, I had the opportunity to lead product development for BAT’s first vapor product, which would subsequently turn into Vuse: a billion-pound brand and the No. 1 global vaping brand by market share.1 Now, in 2023, there is wide acceptance that vaping continues to grow in importance as adult smokers seek reduced-risk alternatives to continued smoking.

    As director of research and science at BAT, my priority is to develop and publish science-based information needed to better understand the real-world impacts of our products. 

    Our latest study, published today in the peer-reviewed journal Internal and Emergency Medicine, is intended to do just that. By comparing clinical measurements from exclusive Vuse consumers with current smokers, the results of the study show that adult consumers using BAT’s vapor brand Vuse2 had significantly better results for biomarkers relevant to smoking-related diseases than smokers.

    For priority cigarette smoke toxicants identified by the World Health Organization, levels of exposure were significantly lower in the Vuse consumers compared to the smokers. Additionally, favorable differences between the Vuse consumers and smokers were found across all seven measured biomarkers of potential harm relevant to smoking-related diseases.

    We believe these results underscore the contribution that vapor products can make toward tobacco harm reduction and how, by using a robust evidence base to substantiate the role of reduced-risk* products, we can give adult smokers who would otherwise continue to smoke access to satisfactory reduced-risk* alternatives.

    While World Vape Day brings together a global community to converse and learn about tobacco harm reduction, there are significant barriers and challenges facing companies involved in the vaping industry. I believe a core component to overcoming these barriers is evidence-led and science-backed regulation and leadership. These two areas are key to ensuring that reduced-risk* products are only made available to adult consumers and that consumers feel confident about the quality and safety standards governing the development of alternatives like vapor products.

    In countries where the concept of tobacco harm reduction has been embraced, we have seen accelerated declines in smoking rates as smokers migrate to noncombustible products. Sweden, for instance, is on the cusp of becoming the first European country to become officially smoke-free—with smoking rates at just 5.6 percent—a 51 percent drop in a decade. Low smoking rates have also had direct benefits for Swedish public health, with cancer rates that are 41 percent lower than the rest of Europe. However, many countries are yet to offer consumers legal access to reduced-risk* products as alternatives to widely available conventional cigarettes.

    I am more convinced than ever that tobacco harm reduction has the potential to be transformative for our consumers and significantly lower currently projected smoking rates worldwide.

    There is a clear opportunity to use the scientific evidence we now have available to substantiate the benefits of reduced-risk* products for those who would otherwise smoke. Looking ahead, I am increasingly confident that the quality of ongoing research from us, other manufacturers, academics and public health authorities—combined with open and honest debate with a diverse range of political, regulatory and public health stakeholders—will accelerate tobacco harm reduction.

    James Murphy is the director of research and science at BAT.

    * Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk-free and are addictive.

    † Our products as sold in the U.S., including Vuse, Velo, Grizzly, Kodiak and Camel Snus, are subject to FDA regulation, and no reduced-risk claims will be made as to these products without agency clearance.

    1 Based on Vype/Vuse estimated value share from recommended retail price in measured retail for vapor (i.e., total vapor category value in retail sales) in the U.S., Canada, France, the U.K. and Germany. These five markets cover an estimated 77 percent of global vapor closed-system net turnover, calculated in June-July 2021.

    2 The study focused on self-reported exclusive users of commercially available Vuse ePod or Vuse ePen3. Thus, references to “Vuse” in the context of the study means either Vuse ePod or Vuse ePen3.

  • The Man Behind the Plan

    The Man Behind the Plan

    Anxious Jongwe Masuka
    (Photo: Taco Tuinstra)

    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.
  • The Pharmacology of Nicotine

    The Pharmacology of Nicotine

    Photo: Richard Villalon

    The fascinating workings of a widely misunderstood chemical

    By Grant Churchill

    In this article, I will describe the pharmacology of nicotine. I will guide you along nicotine’s journey, starting with how it gets into a person, explain what it does once inside by interacting with specific receptors and finally, how it is inactivated and leaves.

    Due to its chemical properties, nicotine can exist in two forms, depending on acidity, which controls its ability to be absorbed and, in turn, the effectiveness of delivery by different routes of administration. For example, certain forms of smoked tobacco must be inhaled to absorb nicotine, such as cigarettes, whereas others, such as cigar and pipe tobacco, are not inhaled but nicotine is still absorbed.

    It might be useful for the reader to know where I’m coming from in writing this article. I’ve got a professional interest in how drugs work as I do research and teach in this area and find the pharmacology of nicotine fascinating and convey this to medical students. I’ve also got a personal interest as both my parents smoked and died from cancer. So, I wonder if vapes were available 40 years ago, would my parents still be alive? And now, should I be concerned that my adult son is vaping?

    Routes and Rates

    I’ll now describe in more detail how nicotine gets into the body and then the brain. This depends on the fascinating interplay between the route of administration and the chemical formulation, for example, free base or salt of nicotine. Regarding the route of administration, one can have an intuitive and qualitative understanding by considering the number of barriers and distance from the site of application to the brain.

    When inhaled, nicotine has a short journey with few barriers as it is absorbed into the oxygenated arterial blood and goes from the heart to the brain within 10 seconds.

    When swallowed, nicotine has a much longer journey with several barriers as it has to make its way through the stomach on to the small intestine before it can be absorbed into the bloodstream. Then it is in the deoxygenated venous blood that goes to the liver, then through veins to the heart, then through the lungs, where it finally meets the starting point for the inhaled nicotine. Importantly, the liver acts as a paper shredder for drugs and metabolizes them before they are delivered to the rest of the body.

    When applied by a patch, the skin provides an additional barrier before nicotine can enter the bloodstream. Surprisingly, an intravenous injection of nicotine results in a slower route to the brain than inhalation.

    For the intuitive understanding of the routes and rates, one can think about the physiological role of each system. The job of the lungs is to absorb large amounts of oxygen and quickly deliver it to the brain, the importance of which is driven home by considering that consciousness is lost within tens of seconds if inhibited. In contrast, the job of the gastrointestinal tract is to absorb food for energy, which is not needed at the pace of oxygen. Moreover, the job of the liver has evolved to protect us from the remarkably diverse and potentially harmful chemicals we consume in our diets, and in this regard, a drug is just another nonfood or non-nutrient to be inactivated and removed.

    The uptake of nicotine can be more precisely studied quantitatively by monitoring nicotine in the blood and graphing this over time. This reveals an initial increase, a peak and then a tapering off, and numbers can be put to the time and concentration at the peak and the area under the curve. The hit comes from a combination of the speed of the peak and the maximum concentration, and the craving comes from when the concentration falls below a critical activity threshold. The different routes of administration show characteristic concentration over time profiles, with inhaled nicotine showing a fast peak within minutes whereas a patch-delivered nicotine shows a slow increase, taking an hour to peak. This has implications in the user experience and the success of nicotine-replacement therapies for tobacco harm reduction. The rate of decrease in nicotine concentration is similar for all routes of administration due to the same elimination mechanisms: a combination of metabolism by the liver and excretion by the kidney into the urine.

    Crossing Barriers

    The chemical formulation of nicotine as a salt or free base has a major impact on its uptake into the body as only the latter gets in. The chemical basis of this can be understood by considering a vinaigrette, which forms two layers, with the oil floating on a layer of vinegar and table salt (sodium chloride) dissolving only in the vinegar. This demonstrates that molecules can be watery or oily and only mix with their own kind, as summed up by the adage that oil and water don’t mix. Bringing this back to biology, the barriers to uptake of nicotine are cells that form layers like brick walls to separate the contents of our gastrointestinal tract from blood and blood from the organs. The cell’s barrier is its surface membrane called a bilayer, which is an inside out soap bubble with a watery surface and an oily interior forming the barrier. A water-loving nicotine salt cannot cross the oily interior whereas the oily free base of nicotine easily crosses.

    The ability of nicotine free base to easily cross cell membranes is the mechanistic explanation of why nicotine can be absorbed from pipe and cigar smoke held in the mouth whereas cigarette smoke must be inhaled. The processing of the tobacco alters the chemical composition and acidity, resulting in cigarette flue-cured tobacco being acidic with nicotine salt whereas air-cured pipe tobacco is alkaline with nicotine free base. For a fuller explanation, we must again consider how chemistry interacts with biology. Smoke from acidic tobacco (nicotine salt) is less harsh and irritating and can be inhaled deeply into the lungs, where the large surface area (approximately the size of a tennis court) compensates for the inability of the salt to cross membranes.

    Nicotine is always present in both forms, and the acidity controls the relative amounts of salt to free base with only a tenth of a percent in cigarette smoke being the free base compared to 50 percent in pipe smoke.

    The trade-offs between the amount of nicotine that is bioavailable and how deeply it can be inhaled to take advantage of the large surface area of the lungs can also explain the nicotine salt craze in vapes. Nicotine salt formed by adding benzoic acid leads to a “smooth” taste, enabling deep inhalation of higher concentrations of nicotine.

    How it Works Inside

    Now that nicotine is in the body, I’ll describe its effects and how it is active. Nicotine affects cognition, body function and mood. The effects of nicotine on cognition relate to attention and memory and it has been suggested to be a “work” drug as opposed to what most of society would think of as a recreational or “fun” drug. The effects of nicotine on body function mostly relate to heart rate and blood pressure. The effects of nicotine on mood are relaxation and euphoria, arguably two of its major effects as nicotine stimulates a reward pathway in our brains the causes one brain region to stimulate other regions involved in emotion by releasing the neurotransmitter dopamine. Neurotransmitters are chemical messengers that enable communication between the brain cells termed neurons. Very generally, dopamine signals reward or the anticipation of reward—think sex, drugs and rock ’n’ roll, and these days, smartphones—which leads to pleasure and risk of dependence. Nicotine itself acts by mimicking the neurotransmitter acetylcholine, which is involved in learning, memory and attention, which fits with its subjective effects mentioned above.

    Remarkably, all the diverse actions of nicotine arise from it acting on the same pharmacological target: the nicotinic acetylcholine receptor. This receptor spans the surface membrane of a cell and acts as a gated pore that allows ions such as sodium to flow through and trigger a wave of voltage change that sweeps from one end of the cell to the other. The binding of acetylcholine, or nicotine, results in opening and turning on the signal—but with prolonged presence, the gate on the pore jams shut in what is termed “desensitization.”

    So, nicotine has time-dependent effects: Over a period of minutes, the nicotinic acetylcholine receptors open and release dopamine, but after several hours in the presence of nicotine, many of the receptors desensitize, dopamine levels fall, and more nicotine is required to return to the higher level of dopamine. Over a period of weeks, the neuron responds by increasing the number of nicotinic acetylcholine receptors, but most are desensitized, and if nicotine is no longer present, dopamine levels fall, giving rise to physiological withdrawal and addiction. Addiction at the molecular level is related to the structure of the nicotinic acetylcholine receptor, which is made up of five cylindrical subunits arranged side by side in a circle to form the pore. Each subunit is given a Greek letter designation, and in a mouse model, addiction relates to the presence or absence of the beta subunit.

    Chemical Inactivation

    The pharmacological effects of nicotine wear off with time, not from the above desensitization mechanisms but through chemical inactivation and excretion. Nicotine in the blood has a half-life, the time for a given concentration to be reduced by half, of about two hours. Nicotine declines over time through processes common to all drugs in which the underlying principle is to convert a drug from an oily compound to one that is watery. Water is watery due to it being composed of hydrogen and oxygen, therefore introducing oxygen into nicotine makes it watery.

    This chemical transformation occurs in the liver by the enzyme (a molecular machine) cytochrome P450, which forms the major metabolite cotinine. As cotinine has a half-life of about a day, it can be used to examine past nicotine exposure, often by health insurance companies. Cytochrome P450 is a family of enzymes, and different forms are more or less active in converting nicotine to cotinine; the specific form varies between individuals, and certain forms are more frequent in a given ethnic group. For example, a less active form of the enzyme is more prevalent in individuals with Black or Asian heritage. Cotinine or its metabolites are finally removed from the body through the action of the kidneys and excreted into the urine. Again, the effect of acidity on nicotine can be employed by acidifying the urine to increase the fraction of salt, which cannot be reabsorbed back by the body, which thereby increases nicotine excretion.

    Addressing Misunderstandings

    Lastly, there are many controversies surrounding nicotine based on misunderstanding, half-truths and myths. The major health consequences of smoking are due to chemicals other than nicotine produced during combustion of tobacco, so other methods of nicotine delivery provide for tobacco harm reduction. For example, the relative health harms are such that vaping is a method for smoking cessation endorsed by the National Health Service in the U.K. and promoted as such by the government based on the best current scientific evidence.

    Nicotine was used as a pesticide and can be toxic, but as Paracelsus famously stated, the dose makes the poison; any chemical can be toxic, including seemingly innocuous water, or an exceptionally toxic substance such as Botox can be used safely at a lowered concentration. Nicotine may have bona fide therapeutic use beyond smoking cessation in Alzheimer’s disease, Parkinson’s disease, schizophrenia and obesity. Intriguing evidence has been published regarding all these disorders, but the studies were small, leading to equivocal results.

    Larger studies are needed, but the demonization of the tobacco industry for past wrongs is tainting and hampering the ability of scientists and physicians to obtain funding and conduct large, definitive trials. Given that psychedelic drugs, which were made illegal and vilified in the 1960s, are experiencing a renaissance to treat depression and post-traumatic stress disorder, there is hope that nicotine can be separated from smoked tobacco and used or not based on the evidence.

    Grant Churchill is a professor of chemical pharmacology at the University of Oxford.
  • The Scientific Approach

    The Scientific Approach

    The Tobacco Research Board in Harare | Photos: Taco Tuinstra

    Boosting Production Through Innovation

    By Taco Tuinstra

    The tobacco transformation plan aims to boost production without expanding the farmer base or laying claim to significantly more farmland (see interview with Minister of Agriculture Anxious Masuka). To help the government achieve its objectives, the Tobacco Research Board (Kutsaga) (TRB) is developing improved seed varieties, innovating to reduce post-harvest losses and creating education programs for tobacco growers.

    According to TRB CEO Frank Magama, the key to sustainable growth is improving yields. Just recently, the TRB released four new flue-cured tobacco varieties developed for marginal growing areas in the south of Zimbabwe, which is dryer than the rest of the country. With traditional tobacco varieties, farmers in that region have been getting yields of about 1,100 per hectare. Magama hopes the new varieties will boost that number to 2,500 kg per hectare.

    The varieties have been issued on a so-called limited-release protocol. “We allow 20 farmers to grow one hectare each so we can get more data and learn whether the new varieties are suitable,” says Magama. If, in consultation with the growers, the breeders are satisfied with the results, they will move to the next stage of the trials. In the second season of evaluation, the TRB will distribute seed for these varieties among a larger number of farmers for further testing. In addition, tobacco merchants will test-smoke cigarettes manufactured with tobacco from the new varieties to make sure they deliver the desired flavor. Altogether it will take between three years and four years from the start of the trials until the new varieties will be available to all growers in the targeted areas.

    Recently, the TRB released four new flue-cured tobacco varieties developed for marginal growing areas in the south of Zimbabwe, which is dryer than the rest of the country.

    Reducing Losses

    The TRB is also looking at reducing post-harvest losses. According to Magama, smallholder farmers may lose up to 50 percent of their crops due to inadequate handling. “If you look in the field, it may be a 3 ton crop,” he says. “But what goes to auction is perhaps 1.5 tons.”

    The problem starts before the tobacco even leaves the farm. After curing, the leaf is very brittle, and to prevent breakage while moving the leaf from the curing barn to the shed, it must be conditioned. Ideally, this is done with a misting system, but this requires piping and electricity, which are often unavailable in the rural areas. So small-scale farmers may just use boiling water, which doesn’t generate the proper mist. As a result, a needlessly high share of good tobacco ends up as scrap that may sell for perhaps $0.10 per kg—or, more likely, end up as compost.

    “It’s an issue of infrastructure,” says Magama. In partnership with a tobacco equipment manufacturing company, the TRB evaluated a portable firewood steam boiler for tobacco conditioning. This portable unit can be moved from barn to barn and also to grading facilities with ease and without a need for extension pipes. “If we solve that aspects of losses, we can significantly boost yields.”

    We hope that eventually hemp can be grown on tobacco farms, either as a rotation crop with tobacco or eventually as an alternative to tobacco.

    Frank Magama, CEO, Tobacco Research Board

    At the same time, Kutsaga is working to reduce the amount of wood required for tobacco curing and other farm activities. The shift from commercial growing (which uses mostly coal as a curing fuel) to smallholder production has put considerable pressure on Zimbabwe’s forest cover. Innovations such as the rocket barn and Kutsaga’s counter-current barn use up to 50 percent less wood than conventional barns. And while the rocket barn is comparatively expensive, Magama believes farmers can significantly reduce its cost through materials substitution, by making their own bricks, for example.

    The TRB has also been distributing eucalyptus tree seedlings to farmers but with mixed success. Tobacco growers are not always keen to plant trees on land that could be used for other crops. So the board is also working with schools in rural areas. “We donate seedlings and presented it as an educational and commercial opportunity,” says Magama. Tending to the trees is light work—you will need to protect them against termites, for example—and within three years to four years, the schools will have timber that they can sell to tobacco farmers and other users. “The initiative with the schools has gotten a lot more traction than working directly with tobacco growers,” says Magama.

    The TRB is building a model farm at its Kutsaga Station to teach tobacco growers good agricultural practices

    Model Farm

    Another way to improve tobacco yields is through education and training. This is extensively done through what Kutsaga terms tobacco improved productivity sites (TIPS), where training is done on farms in selected tobacco-growing areas. Farmers from the area are provided with all the necessary inputs and then trained year-round on these sites. The TRB is currently also building a 6 ha model farm at its Kutsaga Station to teach tobacco growers good agricultural practices: How do you properly rotate tobacco and food crops, and what else can you cultivate on your farm? “We are also doing this to prepare growers for a future with less smoking,” says Magama. Upon completion of construction of the facility, the TRB will select a grower to live and work full time on the farm with his family. Supported by the best agronomic advice, this farmer will then become a visual model for other growers to emulate.

    Meanwhile, the TRB itself is adjusting to a changing market with declining cigarette consumption. Following the legalization of industrial hemp and cannabis for medicinal use in Zimbabwe in 2019, the board has set up three stations for hemp research. According to Magama, it would be relatively easy for tobacco farmers to get into hemp. “We hope that eventually hemp can be grown on tobacco farms, either as a rotation crop with tobacco or eventually as an alternative to tobacco,” he says. Kutsaga is also investigating crops such as stevia and chia.

    Looking further ahead, Magama would like the TRB to venture into biopharming, using tobacco to develop compounds of value, such as pharmaceuticals or vaccines. He hopes some of the board’s current innovations will help generate money to fund the modern labs required for such endeavors. For the time being, it remains a dream only. If it becomes reality, however, it will provide an unrivaled boost to Zimbabwe’s effort to extract more value from its tobacco business.

    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.
  • The Trade’s Perceptive

    The Trade’s Perceptive

    The Trade’s Perspective: Leaf Merchants Urge Sustainable Growth

    By Taco Tuinstra

    Stakeholders in Zimbabwe’s tobacco business have generally been receptive to the Tobacco Value Chain Transformation Plan (TVCTP), which among other things aims to boost leaf production and move up the value chain (see interview with Minister of Agriculture Anxious Masuka). “The plan has some sound fundamentals,” says Mark Mason, managing director of Zimbabwe Leaf Tobacco Co., a subsidiary of Universal. “It sensibly talks about vertical growth—boosting tobacco production by improving yields and cutting losses rather than expanding hectarage or increasing the number of farmers. Those are admirable objectives.”

    At the same time, the industry is counseling caution and realistic expectations. In recent years, some entrepreneurs have moved beyond Zimbabwe’s mainstay of flue-cured Virginia (FCV) production. Several companies, including Mosi Oa Tunya Cigars (see “The Smoke that Thunders,” Tobacco Reporter, June 2021), are now manufacturing cigars with locally grown tobacco. Cavendish Lloyd is experimenting with low-nicotine FCV for shisha products (see “Great Expectations,” Tobacco Reporter, May 2022). There are also several companies producing cigarettes for the local market. In October 2022, Cut Rag Processors announced it would build an $80 million cigarette factory in Harare. Iranian Tobacco Co. has expressed interest as well, though the discussions are only at an exploratory stage.

    The plan sensibly talks about vertical growth—boosting tobacco production by improving yields and cutting losses rather than expanding hectarage or increasing the number of farmers.

    Mark Mason, magaging director, Zimbabwe Leaf Tobacco

    But while BAT and some of its smaller competitors have been happy to manufacture limited amounts of cigarettes in Zimbabwe, it’s doubtful that big players such as Philip Morris International and Japan Tobacco International will build factories in Zimbabwe. Serving global markets and headquartered in Western capitals, the multinationals are guided by purely commercial considerations and generally seek to establish their manufacturing operations in countries with smooth roads, reliable power and business-friendly legislation—areas in which Zimbabwe faces strong competition. For these and other reasons, significant local cigarette production for exports by the majors may remain a bit “pie in the sky,” according to one tobacco veteran.

    The merchants, in turn, are content with their current position in the value chain, which ends after the transformation of green leaf into unmanufactured tobacco. Currently, there are three tobacco processing factories in Harare—ZLT, Mashonaland Tobacco Co. (MTC) and Tobacco Processors Zimbabwe, which is managed by Northern Tobacco. “We have no investments beyond processing,” says Rob Holmes, executive officer of the Tobacco Leaf Exporters Association of Zimbabwe (TLEAZ), which represents nine leaf dealers with lamina exports of at least 1 million kg each and accounts for 85 percent of the contracted crop. According to Holmes, moving into cigarette manufacturing would put the merchants in direct competition with their customers—a situation they are obviously keen to avoid. “So, monetary-wise, the value addition described in the plan would take place very much after our stage of the chain,” he says.

    Merchants warn that, in the current market, Zimbabwe may struggle to sell 300 miillion kg.
    (Photos: Taco Tuinstra)

    Contracting with tens of thousands of farmers, the merchants are better positioned to help grow the crop. But here, too, they are urging caution. “In the current world market, we would struggle to sell 300 million kg,” says Holmes. “There has been a bit of an increase in the demand for our leaf from China [which purchases 40 percent of Zimbabwean volumes] but not to the extent that you can soak that up.” According to Holmes, the styles that normally go into China are unique to that market and relatively expensive. “Where do you find customers for the excess volumes of those styles?” he asks.

    The demand for Zimbabwe’s prized flavor grade tobacco, too, is limited. “International customers require only so much of that style,” says Holmes. “Otherwise, you’d be getting into more filler grade tobaccos, and then you are competing purely on price whilst you’ve got cost-of-production issues.” Supply chain disruptions in the wake of Covid and the war in Ukraine have driven up the cost of inputs such as fertilizer and fuel considerably during the most recent growing season. In addition to such global factors, the Zimbabwean industry has had to cope with local cost pressures this season, such as erratic supplies of electricity and exchange rate rules that force businesses to buy Zimbabwean dollars at official rates while paying significantly higher parallel-market rates for their supplies.

    Leaf merchants also want to make sure the targeted volume increases are achieved sustainably.

    Leaf merchants also want to make sure the tobacco transformation targeted volume increases are achieved sustainably. “We support the government’s goals, but we need to make sure that they are aligned with customer expectations,” says Alex Tait, managing director of MTC, a subsidiary of Alliance One International. Leading cigarette manufacturers these days expect their tobacco to be produced in line with strict environmental, social and governance (ESG) criteria, which means keeping close track of agricultural practices, labor conditions and environmental impacts, among other issues.

    The shift from commercial tobacco production to smallholder cultivation has put tremendous pressure on Zimbabwe’s forests. Before the land reforms at the start of the century, the bulk of Zimbabwe’s crop was produced by about 1,500 commercial farmers, who at their peak in the late 1990s brought some 239 million kg to market. Today, similar volumes are cultivated by nearly 160,000 growers, the vast majority (85 percent) of them smallholder farmers. But whereas the commercial farmers use primarily coal to cure their tobacco, the smallholders rely mostly on wood, creating a voracious demand for timber.

    In a presentation to industry stakeholders, including the ministry of agriculture, which drew up the TVCTP, the tobacco industry stressed the importance of meeting ESG objectives, noting that there is no point in growing additional volumes if you cannot sell them. Failing to fulfill ESG requirements, the industry cautioned, will prompt customers to source their leaf elsewhere, leaving the Zimbabwean tobacco grower impoverished.

    The trade insists the tobacco value chain transformation plan’s objectives must be consistent with customers’ ESG expectations.

    To ensure sustainable growth, tobacco merchants have been developing renewable sources of curing fuel by establishing woodlots and providing farmers with seedlings. Financed by a voluntary leaf dealer contribution, the industry’s Sustainable Afforestation Association has been planting trees since 2013 and is preparing for its first harvest next season. Despite its considerable efforts, the organization still does not have enough renewable wood to cure the current crop, let alone the additional volumes described in the transformation plan.

    One of the constraints, according to industry representatives, is access to land close to the tobacco growing areas, which has been mostly in state hands since the land reform program. The prime lands for timber production are in the east of the country, which means added cost for transportation. The government meanwhile collects levies from growers to invest in reforestation, although critics say it is unclear how the money is being invested.

    In addition to increasing its supply of sustainable wood, the industry is working to reduce its consumption by helping farmers adopt more efficient curing systems. Innovative designs, such as the rocket barn, allow growers to reduce their wood consumption by up to 50 percent, although costs are a hurdle. At $2,000 per unit, the rocket barn is out of reach for the typical smallholder tobacco grower. The industry is also researching alternative energy sources, such as gas, biomass and briquettes, to curtail deforestation.

    The opportunity for Zimbabwe to extract more value from its tobacco industry begins and ends with the ability of the farmer to make a living income.

    Meanwhile, the trade is contributing to vertical growth by helping small-scale growers increase their yields. Benefiting from tailored inputs and agronomic extension services, contracted growers have in recent years increased their productivity to an average of 1,700 kg per hectare, a figure the industry hopes to drive up to 2,200 kg per hectare in the future. The national average, which includes independent growers selling at auction, is estimated at only 800 kg per hectare, however, suggesting considerable opportunity for growth.

    “In well-managed contract schemes, with the right service levels, the right inputs and the right advice, you can get very good yields,” says Mason. “That needs to roll out throughout the industry. There is definitely opportunity for the newer contractors or the smaller contractors to push through better programs.”

    Zimbabwe’s regulator, the Tobacco Industry and Marketing Board, is in the process of implementing a minimum input standards package recommended by the TLEAZ—not only to increase the crop size and benefit the national economy but also to improve the profitability and livelihoods of individual growers. As all stakeholders interviewed for this article acknowledged, the latter will be crucial for the success of the tobacco transformation plan. After all, the opportunity for Zimbabwe to extract more value from its tobacco industry begins and ends with the ability of the farmer to make a living income.

    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.
  • ‘Not Really a Gamble’

    ‘Not Really a Gamble’

    Leaf Dealers Look Forward to Receiving a Good Quality Crop

    By Taco Tuinstra

    While the Tobacco Industry and Marketing Board had yet to release official figures at the time of Tobacco Reporter’s visit to Zimbabwe in early April, traders were expecting farmers to bring 230 million kg to market in the 2023 selling season. That compares with 212 million kg in 2022, which in turn was up from the two years prior.

    The increase was due in part to good climate conditions despite the influence of an El Nino. The periodically recurring atmospheric phenomenon typically results in wetter than normal conditions in southern Africa from December to February. But in the event, it wasn’t all that wet.

    “The crop was planted on time, and weather patterns were generally favorable,” says Alex Tait, managing director of Mashonaland Tobacco Co., a subsidiary of Alliance One International. As is the case throughout Africa, curing space proved a constraint in Zimbabwe this year. Fast ripening in some areas created some quality challenges toward the tail-end of the season, but nothing pointing to disaster. “It was a normal season,” says Tait.

    Traders at the Tobacco Sales Floors in Harare
    (Photos and video: Taco Tuinstra)

    Zimbabwean volumes have largely recovered from the disruption that followed the government’s land reform program, which shifted the emphasis from commercial growing to small-scale farming during the 2000s and at one point saw the crop plummet to 50 million kg. 

    The quality produced by smallholders has also been steadily improving, thanks in part to contractors’ extensive support of their growers. This season, overall quality is fair to good, according to Mark Mason, managing director of Zimbabwe Leaf Tobacco Co. (ZLT), which is associated with Universal. “Despite the majority being smallholder, the Zimbabwean tobacco grower is a good farmer,” he says. “If they are serviced well, they produce a very acceptable crop.” In fact, Zimbabwe’s combination of climate, soils and skills means tobacco merchants have come to expect a decent crop, observes Mason. “It’s not really a gamble for us—unless the weather gets very poor,” he says.

    Volumes this year were further boosted by good pricing in the 2022 marketing season, which spurred growers’ interest. What’s more, the payment modalities have recently improved, with growers receiving a higher share of their earnings in U.S. dollars as opposed to the less valuable local currency.

    Meanwhile, pricing has become quite competitive in the contracting arena. “We have a situation in  which more contractors are chasing fewer growers,” says Mason. “If you want to expand in this market, you have to coax a grower to come and join you. You have to argue your case, explain why he should leave X and join Y. The pricing this year will take into account some of those costs.”

    Mason expects an increase of about 9 percent in the average per-kilo tobacco price this year, also as a result of the rising cost of production. The price of fertilizer, in particular, spiked in the run-up to this growing season, mostly due to the war in Ukraine, which traditionally supplied many of the raw materials needed for fertilizer production.

    At the same time, erratic power supply in Zimbabwe forced commercial growers, who need electricity to operate their curing barns, to use diesel generators, which is more expensive than pulling power from the grid. The shortages were driven by low water levels in Lake Kariba, which houses a major hydroelectric power dam and is crucial to regional energy security, and maintenance at the Hwange power station. Power supply will likely remain a concern going forward, but Tait is cautiously optimistic that recent rains in the catchment areas along with progress at Hwange will help ease the shortages next season.

    Despite the anticipated price hikes, exporters expect demand for Zimbabwean leaf to be firm again this season. Tait believes part of that is due to the lingering impact of Covid. “People thought that smoking would go down during the pandemic, but it actually went up,” he says. So the global crop size dipped over the past two years even as cigarette consumption increased. “Of course, there is a question about how long that situation will last,” says Tait. “Zimbabwe’s crop has gone up, as has Brazil’s, so we may see demand level out next year.”

    The switch to smallholder growing has radically changed the leaf merchants’ business models. “In the past you used to go and buy what you liked and sell it; now you get a crop throw and you have to figure out how to market that effectively,” says Mason. With contracting accounting for 90 percent of Zimbabwean volumes, dealers these days operate extensive agronomic departments. ZLT alone has well over 100 on-the-ground field staff along with countless cars and motorbikes to service its growers in the countryside. The merchants have also (reluctantly) assumed the role of financiers because the new growers have no collateral with which to secure bank loans. Post land reform, all agricultural land belongs to the state in Zimbabwe.

    While dealing directly with thousands of smallholders is a herculean logistical exercise with a huge impact on cost, the shift has also had an unexpected advantage for the tobacco merchants. “In a way, it’s what has allowed us to tick the right boxes because now everything is traceable,” says Tait. “The manner in which ESG [environmental, social and governance] requirements have evolved in recent years is working out for us because we are right down to the farm level to make sure that what the grower is doing is compliant.”

    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.
  • Betting on Weed

    Betting on Weed

    Photo: contentdealer

    BAT has further increased its investments in the cannabis industry.

    By Stefanie Rossel

    In its endeavor to transform its business, initiated in 2020 under the slogan “A better tomorrow,” BAT is increasingly focusing on the cannabis sector to diversify beyond tobacco and nicotine. Two years after its first venture into the hemp market, the group currently has partial stakes in 13 cannabis startups, more than any other tobacco company, according to Seeking Alpha, a financial services provider.

    BAT’s most recent move in this direction is a joint venture with Denver, Colorado-based cannabidiol (CBD) producer Charlotte’s Web Holdings in early April. BAT’s subsidiary AJNA Bio Sciences, a botanical drug development company focused on mental health and neurological disorders, has teamed up with Charlotte’s Web and is contributing $10 million as the joint venture’s initial investor. AJNA was co-founded and is partially owned by its president, Joel Stanley, the former CEO and chairman of Charlotte’s Web, together with other founding members of Charlotte’s Web.

    The aim of the cooperation is to develop from propriety Charlotte’s Web hemp genetics a botanical drug targeting a neurological condition and pursue approval by the U.S. Food and Drug Administration. While the joint venture did not disclose the neurological condition, observers suspect that the drug is aimed at the treatment of seizure disorders. Charlotte’s Web is also the name of a hemp strain from which an oil can be made that can be used to treat Dravet syndrome and other epilepsy diseases.

    The strain, which contains 17 percent CBD and 0.5 percent of the psychoactive ingredient tetrahydrocannabinol, was bred in 2011 by the Stanley brothers to treat a young girl suffering from a severe form of pediatric epilepsy that did not respond to commonly used anti-epileptic drugs. Encouraged by the patient’s positive response to their CBD oil, the brothers established a nonprofit organization to give seizure patients access to high-quality cannabis with a high CBD content. With their advocacy, they helped change laws and public perceptions relating to plant-based solutions. Nevertheless, their product did not become the first treatment derived from cannabis plants to receive FDA authorization. That honor fell to Epidiolex, which contains only CBD and was approved by the agency in 2018.

    The joint venture, in which BAT holds a 20 percent stake and Charlotte’s Web and AJNA have a 40 percent stake each, will be led by representatives of all three companies. Its clinical and regulatory strategy will be led by Orrin Devinsky, who was a principal investor in the FDA approval of Epidiolex. Apart from being AJNA’s chief medical advisor, he is also the director of New York City University Langone’s Comprehensive Epilepsy Center. The joint venture wants to file an investigational new drug application and commence phase I clinical development in 2023.

    In November 2022, BAT paid £48.2 million ($60.36 million) for a 19.9 percent stake in Charlotte’s Web, a leading company in hemp extract products and the only publicly traded CBD B Corp-certified company. According to its latest financial reports, Charlotte’s Web generated revenues of $74.13 million in 2022.

    In mid-March, a major shareholder urged BAT to move its primary stock market listing from London to New York. About 60 percent of BAT’s profits come from the U.S. while only 1 percent is generated in the U.K. With a move to the U.S., analysts argued, the FTSE 100-listed company would not only gain an investor base with greater appreciation of reduced-risk products but also be better equipped if it wanted to venture into the cannabis markets. U.K. law prohibits a company from listing if its profits are sourced from recreational cannabis, even if they are earned in a jurisdiction where marijuana is legal. Although similar restrictions currently exist in the U.S., analysts expect these issues to be addressed in the near future.

    With its recent investments, BAT continues its exploration of the cannabis business, which started in March 2021, when it acquired a minority stake in Organigram Holdings of Canada for CAD221 million ($175 million at the time). Canada legalized cannabis in October 2018. Through a number of acquisitions and organic growth, Organigram has since become the second-largest licensed cannabis producer in Canada.

    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.
  • Incentivizing Innovation

    Incentivizing Innovation

    How the EU’s ambition to overhaul its packaging legislation might impact the tobacco industry.

    By George Gay

    As I understand things, a human body can be composted, in those places where this practice is legal, within about 30 days. On the other hand, my experience is that some starched-based “fully compostable” packaging can take more than 600 days to break down completely. Such a difference in composting times gives pause, I think, and I have long felt that the messaging around compostable packaging could do with some fine-tuning.


    So I was encouraged, at least on behalf of those living in the EU and countries that follow EU packaging rules, to see that the EU Commission, as part of its proposed overhaul of its packaging legislation, is seeking to clear up the confusion around bio-based, biodegradable and compostable plastics.


    In an end-of-November press note titled “European Green Deal: Putting an end to wasteful packaging, boosting reuse and recycling,” the commission announced its proposed revision (see https://bit.ly/3F6PRfp) of the EU’s legislation on packaging and packaging waste, saying that while the production and use of bio-based, biodegradable and compostable plastics had been increasing, a number of conditions had to be met for these plastics to have positive environmental impacts rather than exacerbating plastic pollution, climate change and biodiversity loss. “The commission’s new framework clarifies in what way these plastics can be part of a sustainable future,” it added.


    In my view, it is important that the proposals, which must now be considered by the European Parliament and Council, are successful in their aims. The commission says a circular economy of packaging will help decouple economic development from the use of natural resources, contribute to achieving climate neutrality by 2050 and halting biodiversity loss, and reduce the EU economy’s dependency on many materials. Specifically, it estimates that by 2030 its proposed measures would bring greenhouse gas emissions from packaging down to 43 million tons compared to 66 million tons if the legislation is not changed. (Detailed impact assessment documents can be accessed at https://bit.ly/42cYEXd.)

    Impacting Industry

    These proposals, which are said to be aimed at creating a level playing field of packaging that is not more trade restrictive than necessary to fulfill the environmental objectives, will impact all companies working within the EU and those selling into the region, including those working within the tobacco and nicotine industries, though some exemptions apply to small companies. The use of packaging is universal, and the materials covered by the proposals include aluminium, cardboard, ceramics, glass, metal, paper, plastic, porcelain, stoneware, textiles and wood.

    But, just to be certain where the tobacco industry would stand, I wrote to the commission asking if I would be correct in assuming that all the proposals finally accepted by the parliament and council would apply to the tobacco industry, in respect of both its leaf tobacco and its product (including new-generation products) packaging.

    Interestingly, the commission chose to answer a different but related question by saying, “The tobacco industry would certainly [my emphasis] not be exempt from these rules according to our proposals.” I thought this answer, apart from being a little sniffy, was interesting because it seemed to assume that, despite a history of disadvantages being heaped on tobacco industry packaging, I had been wondering whether the industry could, suddenly and miraculously, expect to be advantaged by being exempted from some of the proposed rules.

    In fact, my thoughts had been going in another direction. I had been wondering whether the tobacco industry and its much put-upon consumers might be well served by being treated equally with other industries for once. As I understand it, the commission proposals, in part, are about incentivizing innovation, something the industry might want to examine.

    Buying in Bulk

    If the proposals applied across the board, the tobacco products industry might, for instance, be encouraged to participate in refillable initiatives, which are mentioned in the proposals as a way of reducing the use of packaging materials. It could be imagined that, under such a scheme, cigarette consumers might buy from their local store cigarettes obtained from bulk packs and taken away in reusable containers. Clearly, with the exception of the bulk packs, which would be seen only by a limited number of people, possibly mainly nonsmokers, this would put paid to the grotesque health warnings that smokers, unlike alcohol drinkers, have to endure.

    I cannot imagine the tobacco industry being allowed to apply such a system given that it has in the past been dissuaded, both by external or, rather more shockingly, internal forces, from introducing environmental incentives into its packaging because of the idea that, in the mind of consumers, environmental claims equal health claims. This idea, I suspect, would be impossible to defend, but it persists.

    But why should the industry not be allowed to apply such a system? Where is the moral line to be drawn here? Is it right for the commission, despite what it says, to apply exemptions to the tobacco industry? Is it defensible for the commission to hang onto these health warnings, which have dubious moral or practical underpinnings, in an attempt to dissuade smokers from continuing with their habit? Remember, to disallow such a tobacco industry initiative would, in the commission’s view, discourage the use of more environmentally friendly packaging and thereby make the world a riskier place for everybody.

    Certainly, if it does decide to disadvantage the tobacco industry, it should do the same with any number of other industries, such as the automotive industry, which destroys lives in much the same way (and other ways) as the tobacco industry is said to destroy lives. Sections of the automotive industry, too, have been deceptive about the risks caused by the use of their products and, in their case, about the extent to which such use endangers the public at large rather than just the users of their products.

    Action Needed

    Having said that, while I do not work in packaging and cannot speak for the practicality or efficaciousness of individual proposals, it is clear to me that action needs to be taken in respect of the three stated objectives of the proposed revisions. Firstly, to prevent the generation of packaging waste by reducing it in quantity, restricting unnecessary packaging and promoting reusable and refillable packaging.

    Secondly, to boost high-quality (“closed loop”) recycling by making all packaging on the EU market recyclable in an economically viable way by 2030. And thirdly, to reduce the need for primary natural resources by creating a well-functioning market for secondary raw materials and increasing the use of recycled plastics in packaging through mandatory targets.

    I like the emphasis on preventing wherever possible the generation of packaging, though it is important to note the commission makes clear that packaging plays a vital role in protecting and preserving products.

    I also like the commission’s emphasis on having clear and consistent labeling on every piece of packaging to indicate what it is made of and to what waste stream it should go. This is not the case currently. The commission, in its proposals, makes the point that regulatory approaches differ from one member state to another, which means that, for instance, labeling requirements differ.

    One concern has to be whether the new rules can be made to work, because previous rules haven’t, at least not satisfactorily. The commission says that its directive on packaging and packaging waste (94/62/EC – PPWD), which, under the latest proposals, is due to be repealed, was a regulatory failure that cannot be remedied simply by better enforcement of the current rules. Moreover, the commission added, the available data hinted that neither measures undertaken by the member states based on the current PPWD nor those based on the ORD [2020 Own Resource Decision] or SUPD [2019 Single-Use Plastic Directive], both of which would be amended under the proposals, were sufficient to ensure that they met all the specific targets for the recycling rates set out in the PPWD.

    In trying to make the proposed rules more effective, the commission is aiming for them to be bound up in a regulation rather than in a directive, which seems to be a step in the right direction. Regulations are binding legal acts that must be applied in their entirety throughout every member state whereas directives are legislative acts that set goals that all states must achieve but that allow room for individual states to devise their own laws for achieving those goals.

    Finally, the press note included a couple of comments, and in part, Virginijus Sinkevicius, the EU commissioner for Environment, Oceans and Fisheries, made the point that we had all at one time or another received products that, ordered online, had arrived in excessively large boxes. I’m sure there is a lesson to be learned from this claim, but I hope that such knowledge does not lead only to the examination of packaging, which is merely a symptom of a social problem. Tracking back to the cause will show, I think, that we need to examine, too, our buying habits. For those of us lucky enough to be able to do so, we should surely try to buy less stuff and only from shops to which we can walk or cycle carrying reusable containers—including elegant cigarette cases.

    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.