Category: Print Edition

  • One-Stop Shop

    One-Stop Shop

    Photos: ATD

    ATD’s unique pedigree allows gives it a leg up in tackling the mechanical challenges of cigar manufacturing.

    By Stefanie Rossel

    The development of cigar making equipment comes with its unique challenges, tempting machinery manufacturers to focus on specific parts of the cigar manufacturing process, such as over-rolling. Dutch original equipment manufacturer ATD Machinery stands out in the marketplace as it is a one-stop shop, providing an extensive portfolio of secondary machinery from bobbinizing machinery to pack-finishing. Among other things, it offers a complete line for manufacturing shoulder boxes and a flavor injector.

    The company, which originated as the technical department of Royal Agio Cigars, one of Europe’s largest privately owned cigar companies, became independent in 2013. ATD started out developing machines for Agio’s overseas business in the 1970s. Today it has 50 employees. In addition to cigar-manufacturing equipment, the company offers production and packaging machinery for other sectors. Tobacco Reporter spoke with ATD Machinery’s new CEO, Koen te Lintelo, about what’s new.

    Koen te Lintelo

    Tobacco Reporter: How has your business developed since it was spun off from Royal Agio Cigars?

    Koen te Lintelo: Indeed, ATD moved to a brand new, state-of-the-art building, and its independence was formalized. But I think our unique history of developing technological know-how and machinery with direct feedback from the factory made us into what we are and has allowed us to become the market leader. But in reality, ATD was already independent in how it operated. Helping our customers solve cigar manufacturing challenges, producing more efficiently, with class leading reliability and quality, have always been ATD’s mission.

    In how far has your customer base changed and become more independent of your parent company, Agio Cigars? Are you still growing mostly organically?

    Our growth is entirely organic and comes from both existing customers and new ones. The fact that Agio is no longer part of the Wintermans family does not really change that. I believe the fact that we have a complete portfolio of machinery from boxing and packaging machines all the way to newly developed bobinizers, bunch makers, finishing machines and the world’s fastest cigar over-roller, makes us an attractive partner. We try to look at our clients’ challenges from all angles, whether it is from a desire to improve efficiency or the quality of output, data collection or technical solutions to new regulation. And that’s only possible with excellent engineering capabilities and actual manufacturing experience. As I said before, it is in our history, in our DNA. And honestly, we are proud of our heritage.

    Back when you became autonomous, the percentage of your business generated by cigar machinery stood at 85 percent to 90 percent. What is its share between your business from the cigar industry and that from other sectors today?

    ATD’s prime focus is on the cigar industry. We have made a strong commitment to keep on innovating and investing in the cigar business. And, as a result, the balance for cigar machinery is still 85 [percent] to 90 percent. Nevertheless, as the total business grew, the volume in turnover increased for both pillars. But we are no longer a machine manufacturer only. Today we also provide technical know-how on-site as a service. It is all about how we can help in the best possible way.

    How has the global cigar market developed since ATD’s independence?

    Cost of ownership, return of investment and environmental footprint are stronger key decision criteria. A driver for ATD to innovate on cost efficiencies and environmental impact.

    New products and packaging concepts have been launched. Improvement and speed-up kits have been developed to upgrade existing production capacity, and we extended our capability to refurbish several types of bunch makers.

    Is cigar making equipment still a viable business, given the increasing restrictions on tobacco products worldwide?

    Most definitely. If anything, new regulation makes it even more important for cigar manufacturers to be agile and produce efficiently and qualitatively at the same time. We have to be one step ahead to tackle any issues that might arise as a consequence of new regulation.

    What are the most promising markets for your company at the moment?

    ATD is a global player, and every market has its own challenges and opportunities. In Europe, the focus is on cost, quality control and changes in production due to regulation. In the Americas, the single-leaf cigar is very promising, and in Asia the total quantities of machine-made cigars increases. With ATD’s setup, we are able to support all these markets.

    You took over as CEO last September. What are your plans for ATD Machinery?

    I believe helping our customers solve cigar manufacturing challenges, producing more efficiently, with class-leading reliability and quality, are at the core of ATD. Both the team and ATD’s portfolio are great, and we will keep on raising the bar in the years to come.

    What have been the most remarkable developments at your company in recent months?

    Last month, we launched our new website, including a new client portal. For clients, this portal makes it really easy to have 24/7 access to all necessary manuals and to select wear [parts] and spare parts.

    As part of our focus on quality and production control, we developed several improvement kits for the installed base, like filter boxes and vacuum controllers, to reduce the heat and dust development and to reduce electricity consumption. Especially for the cigarillo market, several drivers of the existing wrapping machines can be replaced by new drive technologies to create higher production speeds. 

    Last half year alone, we introduced three new machines: the SW60 to produce single-leaf cigars at a speed of 60 per minute, the ABM60, a highly flexible tax-stamp applying machine with minimum footprint, and the pouch folding unit.

    What are the most significant trends in the cigar market today?

    What is really interesting about the cigar making industry is that every client is different and has a different approach toward the craft of creating a cigar. For the top-10 clients, production quality in higher quantities becomes more important compared to flexibility. Depending on the cigar format, we are able to speed up the process, like cigar over-rolling, and increase the process data control by replacing several drives by the latest servo techniques.

    The Covid-19 pandemic has reportedly led to increased cigar smoking around the globe. Have you noticed an impact on your business?

    ATD noticed an increase for especially single-leaf cigars and cigarillos. This resulted in an increasing demand for machinery. Logically, track-and-trace is prioritized for the coming years.

    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.
  • Enduring Resilience

    Enduring Resilience

    Photo: Taco Tuinstra

    Emerging from the pandemic, the leaf tobacco industry has once again proven its mettle.

    By Stefanie Rossel

    One and a half years into the Covid-19 pandemic, the world has yet to return to normal. Leaf merchants around the globe have felt the impact on their business, too, as they had to cope with new challenges in their operations. Yet tobacco has once again proven its famed resilience in times of crisis, and leaf traders have found solutions to handle the unprecedented circumstances. Tobacco Reporter asked several of them to describe their experiences and provide a snapshot of the current global leaf market.

    “Global leaf markets have come out of the gate sizzling hot in 2021,” says Jay Barker, founder of U.S.-based JEB International Tobacco. “The dynamics of the Brazil crop have been heavily affected by the Covid lockdowns, and prices have subsequently skyrocketed. Zimbabwe seems to be quite firm also, and contracted volume in the U.S. was up substantially from 2020 levels. These are the times when being in the tobacco business is the most fun; there is never a dull day.”

    “At this stage in the tobacco calendar, we are noticing an increased demand which exceeds supply in certain key export markets,” notes Alex Mackay, CEO of Premium Tobacco Group, which is headquartered in Dubai. “This in both the flue-cured Virginia (FCV) and air-cured burley varieties. The overall increase in demand will have a positive impact on all unsold inventories of which are at lowest levels seen for many years.”

    Mackay has noticed a further reduction in the production of air-cured burleys this year. “We believe that certain manufacturers may face supply challenges as core sourcing origins deliver less volume than demand requires,” he says. “However, smaller niche markets could see increased interest as a result. Outside highly specialized and high-value cigar products that are still enjoying reasonably good demand, dark-fired production for the medium[-value] to super-value segments predominately for the Middle East, North African regions have dropped steadily for the past few years. We are expecting supply to stay restrictive and demand set to increase as crop production in African and Indian origins continue to decline.”

    Hardy Kohl Jr.

    Brazil plays a special role this year. The price of Brazilian flue-cured has surged recently, according to Mackay, and higher-than-expected demand continues to be seen across all quality segments. “We believe certain manufacturers are keen to capitalize on the current crop quality, and the potential threat of a shorter crop next year may necessitate longer range buying patterns to strengthen durations,” he says.“In Brazil, we have a signal for a reduction in production for 2022, among other reasons, due to the excellent gain of farmers with other products,” confirms Hardy Kohl Jr., general manager of Kohltrade in Brazil. “It has also been a challenge for players to deal with Brazilian exchange rate volatility, which, together with the reduction in margins, has increased the risk of operations.”

    Miguel Goerck, sales director of ATC-Associated Tobacco Co. Brazil, also observes strong demand for tobacco, especially out of Brazil. “There will be no stocks available after the current season,” he says.

    “Brazil has always been, along with Zimbabwe and USA, a source of quality tobacco. On the past two seasons, the demand has increased because of a few factors. The Brazilian Real suffered a steep devaluation; Zimbabwean tobacco is expensive and committed to a few customers; Chinese tobacco stocks are lower, and there are not as many lots available at very low prices as before. Many customers are looking for price and cheap tobacco only. With commodities’ prices and tobacco growing costs increasing, it will be interesting to observe what will be the market reaction already on the next crop.”

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    Kohl anticipates the market to head toward a shortage of certain tobacco grades for the next few years. This is also a trend in the U.S., says Rick Smith, founder of Independent Leaf Tobacco Co. in Wilson, North Carolina, who observes a tendency toward tighter supplies of flavor styles and domestic underproduction of these types, especially dark types. “Other flavor markets are also beginning to show the same tendencies,” he says. “Prices are inching up, cutting into the dealer’s ability to make a profit. Filler styles are available.”

    Oscar House, president and CEO of U.S. Tobacco Cooperative (USTC), has singled out a new business opportunity for U.S. farmers. “Given that USTC only deals with flue-cured tobacco, the most significant thing that has occurred is China returning to the market to not only buy the 2018 and 2020 crops but also with indications for the 2021 crop,” he says. “This gives our farmers an opportunity to increase their growing contracts by up to 80 percent with the cooperative, which will greatly help their farming operations with the cuts of the past two years. With China back in the U.S. buying tobacco, it will be a boost for the flue-cured crop going forward.”

    With China back in the U.S. buying tobacco, it will be a boost for the flue-cured crop going forward.

    Oscar House, president and CEO, USTC

    Quality Remains Key

    While the South American and African tobacco crops are in mid-season, with both FCV and burley in high demand, marketing of the African crops has recently begun with demand again appearing to be in line with projected crop size, notes Jim Schneeberger, director of global leaf sales at CNT in Germany. “But quality will be the determining factor if indeed demand is to align with supply,” he says. “Weather continues to play an important role in the quality of tobacco crops and in turn farmers’ viability. Demand for competing agricultural crops is increasing, and there are some indications that tobacco growers may convert to food crops.”

    “Tobacco demand is firm in most countries, and unsold stocks are in line with pre-pandemic average volumes,” says Rainer Busch, managing director and owner of Germany-headquartered NewCo Global Tobacco Trade & Service. “What is surprising is that, although the seasonal workforce is large and infection could be easy, the harvest volumes have not decreased dramatically. The same applies to the intensive workload in the factories, but no significant effects were found.”

    Aylin Bahcevan, marketing supervisor of Istanbul-based Star Agritech International, hints at a development that began impacting the leaf market long before Covid-19 entered the scene. “Traditional tobacco product consumers are gradually inclining toward smoking alternatives due to the rising awareness about health concerns,” she explains. “Thus, the introduction of innovative tobacco products with unique taste options has become essential.

    As a result, manufacturers have shifted their focus on premium tobacco products produced with flue-cured tobacco and fine whole leaf. The launch of low-nicotine and alternative smoke products are expected to rise and fuel the market growth of the next-generation tobacco products segment.

    Prominent players in the industry, including us, are investing in research and development more than ever to meet the changing needs of the industry and lead the way of innovation. Such efforts bear the potential to help attract a larger customer base for tobacco products.”

    Aylin Bahcevan

    Traditional tobacco product consumers are gradually inclining toward smoking alternatives due to the rising awareness about health concerns.

    Aylin Bahcevan, marketing supervisor, Tar Agritech

    The Challenge of Logistics

    Last year’s season saw disruptions in key markets due to the Covid-19 pandemic. Travel restrictions not only caused shortages of agricultural inputs and seasonal farm workers, but also prevented many buyers and sellers from visiting the sales floors. In TR’s survey, leaf merchants unanimously named logistics as an issue of concern.

    “By far, the most pressing issue for me is logistics,” says Smith. “With the pandemic raging, it is hard to get a shipment from point A to point B in a timely manner. What used to take 45 days now takes 90 if you are lucky. This seems to be true for all sources.”

    “We face higher shipping and transportation costs and delivery delays due to the overbooking of certain routes,” echoes Busch.

    For House, the biggest concern for his company is the supply chain. “This has been exacerbated by the Covid-19 pandemic, and it will take some time before shipping lines have a good handle on where goods are coming from and going to in order to smooth out the disturbances in the system,” he says. “Trucking has also been affected in the U.S., and it will also take time before there are the right amount of trucks for the right amount of drivers for the right amount of customers.”

    “The impact of Covid-19 is still adversely affecting the leaf supply sector; we have seen some delayed decisions within the trade last year as customers postponed placing orders, tried to better utilize or manage existing inventories and gauge potential cigarette sales given restrictions and lockdown requirements,” says Mackay. “To further compound matters, the dramatic increase in freight rates from Asia and the general lack of availability of containers and shipping routes caused dramatic cost increases and caused longer than usual transit times. As we continue to deal with the potentially longer-term impact of this pandemic, we sense the industry will inherently be more cautious in tobacco production and financing. The cost of business could be more restrictive and might limit worldwide production plans and see diminished inventory levels that could lead to an undersupply in some segments.”

    Nevertheless, leaf merchants remain optimistic. “The tobacco industry has proven to be very resilient in the face of Covid-19, and the only significant decline in combustible products is from the inactivity in global duty-free shops at airports and the like,” explains Schneeberger.

    “The Covid-19 virus and the challenges that came along with it have made it our priority to facilitate a transformation for ourselves and our industry—a transformation that calls for a better understanding and improvement,” Bahcevan points out. Kohl expects a stabilization of the pandemic that should generate a recovery in investments. “It is a transition moment as we believe we are seeing this imbalance in basic market rules, such as the balance between supply and demand.”

    For Dora Gleoudis, managing director of Nicos Gleoudis Kavex, which specializes in Greek oriental tobacco varieties, business life has returned almost to normal. “We are travelling a lot,” she says. “It’s good to see some recovery.”

    Global leaf markets have come out of the gate sizzling hot in 2021.

    Jay Barker, founder, JEB International Tobacco

    Supply Chain Challenges

    Meanwhile, strong demand for leaf tobacco is pushing farmer prices “to the roof,” according to Goerck. “The recent strengthening of the Brazilian Real is also pressuring the free-on-board prices up, which can make some customers source tobacco from other regions,” he says.

    Ever stricter regulations only add to the pressure. In the EU, pending legislation will require companies to examine their supply chains for risks to human rights and the environment—and fix any shortcomings. The U.S., too, is enforcing social governance policies with regards to tobacco trade and delivery.

    “Since the introduction of the U.N. Guiding Principles on Business and Human Rights in 2011 and the U.N. SDGs in 2015, there has been a rapid shift in focus to ensuring companies implement supply chain due diligence,” says Mackay. “The focus is on: ‘Was there minimal social and environmental impact during production?’ Companies are expected to follow and implement transparent programs using the procedure of: Identify. Prioritize. Respond. Measure. Report. The new STP program [Sustainable Tobacco Program—an industry-wide initiative that helps to drive standards in agricultural practices, environmental management and social and human rights areas] focuses on several themes, social and environmental issues being of particular significance.”

    A prime example are chemical residues. “As with all agricultural products and increased consumer awareness, the elimination and use of highly hazardous pesticides in the supply chain is critical,” says Mackay. “To achieve this, the implementation of proactive programs focusing on safe application of reduced-risk products, coupled with robust traceability systems, is key for suppliers. For some regions and suppliers, this will be challenging, which could redefine the tobacco industry going forward. The regulatory landscape is rapidly evolving, and the ability of suppliers to effectively address and fulfill new requirements will determine their long-term success in an increasingly competitive industry.”

    Compliant crop production, along with sustainable and responsible supply, will become more essential, according to Mackay. “The requirements and obligations by all future suppliers could have a dramatic effect on the way tobacco is produced, crop sizes and the countries and companies that can implement these potential requirements. The elements needed to ensure all tobacco is grown, processed and delivered in an environmentally, socially responsible, compliant and transparent manner that is likely to redefine the tobacco industry soon.”

    Schneeberger believes the regulatory environment will remain a major factor within the tobacco industry. “The focus on the ESG [environmental, social and governance] footprint of manufacturers and suppliers alike will further regulate the way tobacco is produced, and countries that are unable to satisfy international sustainability standards will most likely lose their markets for tobacco, especially as relates to exports,” he says. “The apparent impact of climate change and resultant drought conditions in certain nonirrigated tobacco crops will continue to increase production of certain ‘nondesirable’ styles of high nicotine FCV and burley for which there is little demand.”

    Spotlight: Macht Tabak

    Leaf tobacco trade has a long tradition at Macht Tabak MIJ (MTM). The family-owned business, which is part of Macht Global Holdings, has roots in the tobacco industry dating back to 1951. Headquartered in Hong Kong, the leaf-dealing company has presence in Dubai, Izmir, Moscow and Luxembourg.

    MTM provides a wide variety of leaf tobaccos from a selection of origins tailored with custom value-added services to become an essential solutions partner to its clients’ supply chain. While primarily supplying directly from the origins, MTM holds select tobacco stocks in Belgium and Dubai to fulfill the prompter requirements of its clients in the respective regions.

    Furthermore, the company offers in-house cut rag blend selections for traditional American and Virginia blends as well as a tailor-made service to provide its customers with their very own rich taste signature blend.

    In collaboration with its partners, MTM additionally serves in the supply of DIET and CRES products.

    Hand in hand with activities of its affiliates, MTM supports its very own impact investment platform that focuses on sustainable solutions for a greener energy and resource-efficient future.

     

    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.
  • A Solid Foundation

    A Solid Foundation

    Photo: Auremar

    The transition to less harmful nicotine products will succeed only if investors buy into the concept.

    By George Gay

    It is probably reasonable to suggest that in a fully rational world, it would not be difficult to raise investment funding for companies trying to reduce the incidence of tobacco smoking around the world. After all, smoking, we are told, is extremely harmful to the health of smokers and those around them. Therefore, if you reduce the incidence of smoking, you reduce the harm done to smokers while reaping wider societal benefits.

    But we don’t live in a fully rational world. Reviewing in the London Review of Books in 2019, Philosopher of the Heart: The Restless Life of Soren Kierkegaard, by Clare Carlisle, Terry Eagleton made the point that while Kierkegaard and a number of other thinkers would have accepted the idea that without reason we perish, they believed there was something more fundamental than reason shaping the way we think: power, desire, emotional bonds …

    Raising money, even for good causes, has never been a simple matter.

    One company with skin in this game is London-based Idwala Research, which offers research and advisory services aimed at promoting global tobacco transformation and harm reduction. In an email exchange in April, Managing Director Pieter Vorster told Tobacco Reporter that part of Idwala’s offering comprised advising companies on their capital-raising activities. “Before approaching potential investors, it is critical to develop a clear investment thesis, which requires a deep understanding of its business model and how it is positioned or likely to be positioned within the tobacco harm reduction product (THRP) universe and the evolving regulatory framework,” he said.

    Idwala’s clients are typically smaller businesses and startups since large corporations, tobacco companies in particular, generate strong cash flows and finance their own THRP activities. On the other side of the equation, meanwhile, Idwala focuses its search for potential investors based on where the company seeking funding is in its development life cycle and on the amount of capital it is looking to raise. Potential investors include high-net-worth individuals, venture capital funds and private equity funds.

    ESG considerations are generally only applied once risk/return criteria are met.

    Pieter Vorster, managing director, Idwala Research

    Seeking returns

    So what are these potential investors looking for? Are they interested mainly, perhaps entirely, in the level of return they might expect, or do they take, in part or in whole, an “ethical” view: either being repulsed by the presence of “tobacco” in the acronym THRP or drawn to its “harm reduction?”

    “Ultimately,” said Vorster, “funds flow to where investors perceive the best returns for a given level of risk. ESG [environmental, social and governance] considerations are generally only applied once risk/return criteria are met, which means that whilst companies may be excluded from a portfolio on ethical grounds, they are unlikely to be included unless they also offer attractive returns.”

    It is true, however, that some potential investors object to investing in anything related to tobacco and nicotine regardless. “To some extent, this is understandable,” said Vorster, “given the abstinence-based rhetoric evangelized by the likes of the Bloomberg Foundation and the Campaign for Tobacco-Free Kids. Still, it results in a golden opportunity to accelerate both tobacco industry transformation and global harm reduction potentially being missed.”

    And in answer to another question, Vorster added that, by making nicotine, rather than smoking, the enemy, organizations such as the World Health Organization were actively denying millions of smokers access to safer alternatives and, in doing so, perpetuating entirely avoidable smoking-related deaths. “This, sadly, also filters through to how many investors approach the sector,” he said.

    Active engagement

    But it is not all doom and gloom, and Vorster pointed out that last year’s launch of the Tobacco Transformation Index by the Foundation for a Smoke-Free World had marked a key development in the process of industry transformation by encouraging investors to engage actively with publicly traded tobacco companies about change.

    According to a note on the Idwala website, the biennial Index ranks the top 15 global tobacco companies on their relative progress toward harm reduction. “It aims to accelerate tobacco harm reduction by encouraging industry participants to speed up the implementation of measures that will improve their relative ranking,” the note says. “In addition, it seeks to provide investors with an objective tool for engagement with the industry.

    “For the Index to have its desired effect, tobacco companies would need to perceive value from improving their index ranking, and, for investors, it needs to provide the tools that enable them to engage more effectively with the industry to bring about change. In time, we believe both could be achieved…”

    Theoretical projections are all very well, but potential investors are likely to be convinced about the value of a new project also if similar projects have provided reasonable returns in the past. So the questions arise as to how past THRP developments have been funded and whether they have produced returns good enough to allow past performances to be used to convince potential investors?

    “The tobacco industry—PMI and BAT in particular—has invested heavily in these products, which has all been financed from internal resources,” said Vorster. “There is a strong positive correlation between the contribution from reduced-risk products to sales and the valuation multiples tobacco companies trade on, principally because these revenues are growing much faster.

    “Financing of nontobacco industry investment has come from a mixture of entrepreneurs’ own capital, friends and family, venture capital as well as private equity. There have been some notable successes, especially for early investors in some of these ventures. When Juul sold 35 percent to Altria, it valued the business at $37 billion, and Smoore International, which listed in Hong Kong last year, is currently also valued at $37 billion. Even RLX, whose share price has declined significantly since it listed in the U.S. in January, is still valued at $14 billion.”

    There is a strong positive correlation between the contribution from reduced-risk products to sales and the valuation multiples tobacco companies trade on.

    Pieter Vorster, managing director, Idwala Research

    One apparent problem with the transition to THRPs is that it moves from one environmental concern—cigarette butts—to another—batteries, and the question arises whether this is a negative issue as far as some investors were concerned.

    “It is bound to become an issue as sales of these products grow, and it is not only batteries that would be of concern,” said Vorster. “Disposable pods and nicotine liquid bottles are all nonrecyclable and are becoming a growing litter challenge. Furthermore, heated-tobacco products typically use filters similar to those found in filter cigarettes.”

    At the same time, could it be the case that potential investors might be wary of the latent success of at least some THRPs because they possibly provide a route for smokers to transition through these products to abstinence and, therefore, are part of an endgame for both combustible cigarettes and THRPs?

    “Potentially, yes,” said Vorster, “but there is no evidence to suggest that this is happening. Global nicotine use is rising, even though smoking is declining. In part, this is down to consumers having more opportunities to use these products than they do smoking cigarettes. It is also plausible to suggest that lower health risks would attract consumers to the category who would otherwise have avoided smoking.”

    In offering the services it does, Idwala has nailed its colors to the THRP mast, and it seems fair to ask whether it has similarly strong views about the range of current THRPs. Does it believe, for instance, that vapes are more efficacious and less controversial than HnB products containing tobacco? Or does it believe tobacco harm reduction should be taken in the direction of oral pouches using synthetic nicotine?

    “I believe all these products, and ones we don’t yet know about, have a role to play if they help consumers avoid the harm caused by smoking,” said Vorster. “What works for one doesn’t for another. The closer a product is to a cigarette, the more likely a smoker will initially switch to it. Over time, these same users may choose to distance themselves from tobacco whilst others may want to do so from the start. Synthetic nicotine is still nicotine and, currently, significantly more expensive to manufacture.”

    From vision to reality

    Idwala envisions an environment where persistent and broad-based tobacco harm reduction becomes a reality in both developed and emerging markets. “A prerequisite for this is an acceleration in the transformation of the mainstream tobacco industry combined with the continued growth of new enterprises adept at driving innovation,” the company’s website says. “This needs to be underpinned by sensible regulatory and tax regimes …

    “Broad availability of reduced-risk products that appeal to smokers, and those who otherwise would have smoked, will require sustained and substantial investment.

    “Ultimately, the pace of transformation and harm reduction will be a function of the quantum of investment into these products. In turn, this will depend on the potential risks and returns associated with these investments…”

    This all sounds very plausible, but how confident is Idwala that enough potential investors will be found to finance within a reasonable time all the future developments necessary to push forward significant levels of tobacco harm reduction, and what part would Idwala play in uncovering that funding?

    “On the assumption that the regulatory environment is conducive to the expansion of THR, which is by no means a minor assumption, funding will be available for opportunities that offer investors attractive risk-adjusted returns,” said Vorster. “With annual retail sales of combustible tobacco products exceeding $800 billion, there is no question of the potential market being big enough.

    “How successful a given product is will firstly depend on how satisfying it is to consumers. The closer the sensorial experience and nicotine delivery to a cigarette, the more likely smokers will switch. But it also needs to be widely available at a price that doesn’t result in consumer resistance whilst delivering margins that generate the returns required by investors. Does the product have a competitive advantage over others, is this a sustainable advantage, and is its IP protected and defendable? These are all important additional factors that drive potential returns.

    “Regulatory risk is a fact of life in tobacco and also tobacco harm reduction. As an emerging category, reduced-harm products are arguably subject to more regulatory uncertainty, and many investors find this hard to navigate. For those who are adept at understanding and pricing regulatory risk, extra-normal returns are obtainable.”

    Finally, Vorster said that Idwala would play as big a part as the market allowed it to do. “Finding funding is the culmination of first identifying opportunities that we view as attractive, advising these businesses on strategy, regulatory developments and the competitive landscape as they evolve and helping them develop their investment proposition,” he said. “We furthermore aim to support the development of THR by contributing to the debate through our blog, conference appearances and research projects and by providing a financial markets’ perspective to THR activists and organizations.”

    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.
  • Fearless Fighter

    Fearless Fighter

    Mayiwepi Jiti

    How Mayiwepi Jiti became a successful commercial grower in Zimbabwe’s male-dominated leaf tobacco industry.

    By Stefanie Rossel

    In sub-Saharan Africa, more than 60 percent of employed women work in agriculture. As shown by the example of Malawi (“This Is a Man’s World,” Tobacco Reporter, May 2021), they are at a significant disadvantage compared to men as women often lack control over land and access to financing while being excluded from important links of the agricultural value chain. Being dependent on a male relative to access the land, they are vulnerable; a husband’s death, a divorce or simply a man’s change of mind can leave a female farmer landless overnight.

    Zimbabwe is no exception. Tobacco, which today is grown primarily by smallholder farmers, accounts for about 40 percent of the country’s exports. According to the Borgen Project, approximately 72 percent of the country’s population lives in chronic poverty, and 84 percent of Zimbabwe’s poor live in rural areas. Zimbabwe has yet to recover from the 2008 financial crisis. Its gross domestic product (GDP) has been declining since 2013, in part due to stalling investments and adverse climate conditions that hurt the agricultural sector.

    “Zimbabwean women played and are still playing a pivotal role in resuscitating the country’s agricultural sector after its dilapidation by the Zimbabwean-British relations,” explains Mayiwepi Jiti. As a successful commercial farmer employing more than 200 permanent and seasonal workers and as the founder and president of the Zimbabwe Integrated Commercial Farmers Union (ZICFU), she is a rare example of a powerful woman in the country’s agricultural sector.

    “Women are bearing positive results on the country’s economy, where tobacco accounts for 10.7 percent of the country’s GDP. However, the Gender Links 2013 Barometer on Zimbabwe reported that although Zimbabwe’s economic framework calls for women’s participation in key sectors of the economy, there are no gender-responsive policies in the agriculture sector. Plans are underway for the government to align legal frameworks that would ensure equal opportunities between men and women.”

    Before the land reform of 1999, not a single woman owned a commercial farm in Zimbabwe’s mostly patriarchal commercial farming system. Females would inherit land only when there were no male heirs. Things gradually began to change from 2000, when the government redistributed land to redress the imbalances of landownership and a small number of Zimbabwean women secured land and became commercial farmers. Due to lack of funding in agriculture, contract farming was introduced as a temporary relief, but conditions remained unfavorable, especially for women.

    Out of more than 110,000 small-scale farmers today, 39.5 percent are women, says Jiti—an increase triggered by a rise in the number of single mothers, either widowed or divorced or pressed with financial responsibilities. In tobacco farming, these women are accepted as equal partners when they are selling tobacco on the tobacco floors, but due to gender-based constraints and shortages of funds to compete with the patriarchal society, they are not yet fully involved in all stages of the tobacco value chain, Jiti points out. “This makes it difficult to be involved in decision-making and inclusion on finance issues. Women have a very limited voice in that aspect.”

    In less than two seasons, I proved both the financiers and family members wrong

    Mayiwepi Jiti

    Rocky Road

    Reflecting on her own career, Jiti says that raising her voice and getting heard as an entrepreneur was not easy. “I faced a lot of challenges when I took over running of the family farm when my husband suddenly passed away in 2004. I had small children to look after, I had over 300 farm workers who looked up to me and I had a farm to work on to make a living and run as a professional enterprise,” she says.

    “Banks shunned me because of gender, and they looked down upon women as they had a feeling that as a woman, I was a nonperformer, and they did not know that behind every successful man there is a woman. Culturally in Zimbabwe, women tend to submit themselves to men and believe that it is the man who should initiate first before they follow. While men are discussing important issues, whether business or family issues, women are supposed to keep quiet or sometimes act behind the scenes. In most cases, the women are the brains, with brilliant and intelligent ideas. They are good at implementation and [are] naturally hard workers,” says Jiti.

    A primary schoolteacher by training, Jiti married a man with a farming background. Together, they bought a farm in 1996 and set up the respective infrastructure, which involved clearing land, making bricks, constructing tobacco barns and preparing the land to plant a crop. Three years later, when Jiti was pregnant with twins, her husband persuaded her to resign from her job. Instead of teaching, Jiti became involved in farm work. “It was like he fully prepared me to eventually take over farming after him,” she says.

    With both coming from farming backgrounds and having a lot of passion for agriculture, it was not difficult for her to proceed after her husband died in a car accident. At that time, they had just started construction of a dam for irrigation. The banks immediately stopped funding the project. “They demanded that I pay back what had been borrowed simply because they thought [that] as a woman, I was never going to finish off the project. Obviously, they judged me based on gender.”

    However, Jiti managed to construct the dam to 75 percent of its intended capacity without bank funding. “I achieved this through planting and selling cash crops like potatoes, cabbages, tomatoes, with the assistance of well-trained supervisors whom I had groomed with the assistance of my husband.”

    Today, Jiti grows tobacco on 80 hectares, whereas 50 hectares each are dedicated to maize and wheat, respectively. Most of the workers she employs are housed on the farm in self-contained houses with clean water and electricity.

    While women are accepted as equal partners when they are selling leaf on the sales floors, they remain disadvantaged in other parts of the tobacco value chain. (Photo: Taco Tuinstra)

    Successful Exporter

    The start was tough. “Running the farm and the family was a huge responsibility which needed sobering up and tireless hard working. I had very limited time to rest as I had a huge responsibility. My two children were in junior primary school when my husband passed on. Most family members looked down upon my abilities as a single mother and businesswoman. But in less than two seasons, I proved both the financiers and family members wrong. I pulled through and became a very successful and prominent farmer as I managed to not only look after extended family members, but I also successfully joined the male and white dominated export field of fruits and vegetables to Europe and won an international gold award on production of quality products.” Due to racial discrimination, black farmers were not allowed to venture into export, she adds. As information was not easily and readily accessible, it wasn’t an attractive field of business for them either.

    While more women are now in leadership positions, Zimbabwean farming is still dominated by men, according to Jiti. Women, she says, are often told to give their ideas to their husbands, who then take the credit. What’s more, female entrepreneurs also suffer the challenge of defying social expectations. “On the one hand, men tend to believe that to be successful in any business, there is a need to be competitive, aggressive and sometimes harsh. On the other hand, some successful women out there are mostly true to themselves and generally confident with their work,” says Jiti. “The societal perspective needs to change, and women must be embraced for who they are. They ought to be given a chance to display their wings on their own and not to be made to compete with men, who are born inherently different.”

    Another issue is that most women have no access to funding. “In my opinion, if there are government grants, they must benefit women equally as much as they benefit most men,” says Jiti. “Other challenges need to be addressed as well. Examples are corruption, the bottleneck system on the certification on export permits and the middlemen in the tobacco industry who buy farmers’ produce at low prices and resell it at huge markups.

    Contract farming, she believes, plays a positive role to most women farmers in Zimbabwe, where tobacco is typically sold in auctions. Under the current tobacco-selling regulations, farmers receive 60 percent of their tobacco payments in U.S. dollars and the remainder in Zimbabwe dollars.

    Farm inputs are priced in U.S. dollars, and the Zimbabwean dollar has been subject to considerable inflation. “In a country like Zimbabwe, which is believed to have many small-scale farmers who are unable to participate in intensive agricultural production and lucrative export markets, contract farming will be the way to go, at least for now,” says Jiti. “It is the women who suffer most as they have restricted access to loan facilities, insurance, are treated unfairly, etc. Contract farming has been tried before and has proven to be useful to most women. I therefore believe that if it is upheld, it assists in the promotion of most women into intensive agricultural production.”

    Representing Farmers’ Needs

    Jiti founded the ZIFCU in 2018 after facing challenges with the existing farmers union, ZFCU, where she was vice president of administration. “ZCFU has been registered as a private company benefiting a few individuals and allocating themselves union properties that were acquired by farmers for the benefit of the union members,” Jiti says. “Being a woman founding the union would not be taken lightly by the men-dominated ZCFU as they think it is a direct challenge to their union and are scared of the competition as they are quite aware that women leaders deliver. As a result, they are trying by all means to tarnish my image by false accusations. It is so sad to note that ZCFU leadership has very little knowledge about agriculture, making them very passive leaders in as far as farming challenges is concerned.”

    ZICFU provides support networks to farmers, ensuring they have access to resources and skills training and development for them to effectively utilize the land and market their produce. Groups represented by the association include subsistence agriculture, dairy farming, ranching, poultry and hobby farming. “ZICFU creates collaboration between farmers regardless of gender and other organizations, government and private partners to enable them to get the best out of their land,” Jiti explains. 

    Because irrigation equipment is expensive, small-scale to medium-scale Zimbabwean farmers tend to produce only rain-fed crops, which means low productivity. Most smaller farmers depend on government input handouts, which do not encourage them to expand production. When given these free packages, some farmers sell them to earn a small income for immediate household needs, eroding their credibility as borrowers in the eyes of the banks, according to Jiti. “The huge interest rates charged by the lenders are exorbitant and leave the farmer always in debt.”

    To eliminate this—and to deal with the effects on precipitation of climate change—more dams must be constructed. “In addition, there is need for the Zimbabwean government to constantly give grants to the deserving citizens so that those that are into commercial farming can afford irrigation equipment and other inputs that assist them in their farming activity thereby also bringing foreign currency to Zimbabwe.

    “I also believe that farmers need to be educated on the importance of evolving from subsistence to commercial agriculture. Commercial farming is highly rewarding, not only for the farmer but for the country at large,” Jiti says. Furthermore, she argues, people need to be educated on the importance of honoring the credit facilities. “This farming business can only succeed if we as farmers observe the need to be honest amongst ourselves and to the bank. The banking sector should charge reasonable interest rates for the sustainability of the farmers.”

    It is at this juncture that ZICFU comes in as an organ that advocates for positive change in agriculture. “Our aims and objectives are centered on the evolution in the agriculture sector and being the voice of the women who are still downtrodden, who also need emancipation and empowerment. In addition, ZICFU educates farmers to stand on their feet instead of constantly relying only on government grants and to embrace the digital world. We therefore intend to bring more awareness campaigns to the Zimbabwean farmers from all spheres, which will assist them in moving from small-scale farming to commercial farming, which is also in line with the Zimbabwean economic blueprint.”

    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.
  • The Smoke That Thunders

    The Smoke That Thunders

    A startup cigar manufacturer hopes to move Zimbabwe’s tobacco exports up the value chain.

    By Thulani Mpofu

    When water flowing along Africa’s fourth longest river, the Zambezi, plunges over a cliff to a gorge 108 meters below at a point on Zimbabwe’s western border with Zambia, it produces a roaring sound and a spray of droplets visible from 48 km away.

    From a distance, the immense collection of droplets looks like a pall of white smoke. The Tonga people, among the first inhabitants of western Zimbabwe, call the landform Mosi Oa Tunya, “The Smoke that Thunders” in English. It is now officially known as the Victoria Falls after Scottish missionary and explorer David Livingstone first saw falls on Nov. 16, 1855, and named them in honor of Queen Victoria of Britain. In addition to being Africa’s most famous waterfall and Zimbabwe’s foremost tourist attraction, Victoria Falls is one of the seven natural wonders of the world.

    Zimbabwe’s first cigar maker, which started operating in March 2020, aspires to be what Victoria Falls is to local and global tourism while giving consumers a smoking experience that thunders.

    “The naming of the cigar is not by coincidence,” Mosi Oa Tunya Cigars founder and CEO Shepherd Mafundikwa told Tobacco Reporter. “This will be the smoke that thunders!”

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    Mafundikwa has never smoked but was motivated to consider investing in cigar making after he had a discussion with a friend while in the United States in 2019. They talked about Zimbabwe’s tobacco industry, its contribution to the southern African country’s economy, the level to which it is being beneficiated and prospects for growth. Cigar making featured prominently in their discussion. Mafundikwa had lived and worked in the U.S. for 15 years. Returning to his homeland, Zimbabwe, he and his friend Loy Veal started translating the casual conversation they had had into practice. Harare, Zimbabwe’s capital, was the natural choice for the setting up of the factory because the city is the center for tobacco trade in the country and is surrounded by four tobacco growing provinces.

    Mafundikwa also travelled to Cuba and the Dominican Republic to learn more about cigar making as well as to recruit staff skilled in cigar rolling. He convinced several cigar rollers to come over from Cuba to help him launch the business, but after some time, most of them opted to return home. However, a veteran cigar roller from the Dominican Republic, Elias Lopez, stayed on and became the head of training. He has, since May, been training an all-female workforce of eight.

    The Mosi Oa Tunya team. Elias Lopez is the fifth person from the left and Shepherd Mafundikwa is the sixth. (Photos: Mosi Oa Tunyaosi)

    Lopez, who is also a cigar smoker, has been rolling them for 30 years in the Dominican Republic, Costa Rica, Nicaragua and Panama for companies such as Arturo Fuente, Davidoff and other legends. Prominent American film actors and producers Sylvester Stallone and Chuck Norris have smoked some of the cigars he has rolled during his time in the Americas, Lopez claims.

    “When I agreed to come to Zimbabwe, I didn’t know what to expect,” Lopez said.

    “I must say, I have been pleasantly surprised by the quality of the tobacco, the warmness of the people and the pace at which the students have grasped the cigar rolling skills. I’m proud to be associated with the first cigar making factory in Zimbabwe, and I look forward to being part of the growth this company will definitely experience. The world will soon know and love the Mosi Oa Tunya cigar brand.”

    Zimbabwe is Africa’s leading tobacco growing nation and the sixth largest internationally. The three main types of tobacco grown in the country are Virginia flue-cured, burley and Oriental. Virginia accounts for over 95 percent of the leaf outputs, according to the Tobacco Industry and Marketing Board (TIMB).

    Burley, which Mafundikwa says his company rolls into cigars, contributes between 2 percent and 3 percent of total yearly tobacco output in the country.     

    “Ninety-five percent of our cigar input is locally grown burley,” he said.

    “The wrapper is imported. We are working with local experts to grow the wrapper, and hopefully we will soon have a 100 percent Zimbabwean cigar.”

    I have been pleasantly surprised by the quality of the tobacco, the warmness of the people and the pace at which the students have grasped the cigar rolling skills.

    Elias Lopez, veteran cigar roller

    Goodson Khudu, a research and extension officer at the Tobacco Research Board, said burley is grown in Burma Valley in eastern Manicaland Province near Zimbabwe’s eastern border with Mozambique.

    “That area has the right climatic conditions for the crop,” said Khudu.

    “We have had some German interest in contracting local farmers to grow burley there, and it has been very successful. However, output has been low in recent years, suggesting that the company (Mosi Oa Tunya Cigars) might want to consider promoting its growing in a bigger way so that local production meets all their requirements.”

    The German tobacco firm Von Eicken has been supporting farmers in Burma Valley to grow cubra. In 2016, 11 tons were produced under the Von Eicken initiative. The volume expanded to 20 tons in 2017 and 24.5 tons in 2018.

    Mosi Oa Tunya Cigars recognizes that a large proportion of locally grown tobacco is exported unprocessed, a weakness that is shared by other countries in Africa. The firm produces three blends—light, mild and strong. The light flavor is for beginners and is available in mini cigars.

    “Our staff is still undergoing training, and at optimum production we will be producing 1,500 cigars a day,” Mafundikwa said.

    “We want to scale up production, but the final figures will depend on market demand. Surprisingly, there is a very vibrant cigar smoking culture which we were unaware of. At the moment, all our output is being locally consumed, and there is potential to grow the market as more people become aware of our product.”

    He is happy to be contributing to local tobacco beneficiation in a country that exports up to 90 percent of its leaf raw.

    “This is not peculiar to Zimbabwe,” said Mafundikwa. “It’s a continental problem where countries find it easy to export raw materials. In addition, finances also hinder players getting into manufacturing. We at Mosi Oa Tunya are playing our part in value addition. Governments have to come up with policies and support to start manufacturing entities.”

    Mosi Oa Tunya is confident the quality of its cigars is comparable to that of any brand anywhere.

    The cigar manufacturing industry in southern Africa is small, with reports that there are only two companies in the region that are in the business—Zimbabwe’s Mosi Oa Tunya Cigars and Bongani Cigars in neighboring Mozambique. The latter, which considers itself Africa’s first in this luxury market, hand rolls 10,000 cigars every month with locally grown tobacco and wrappers imported from Cameroon across the continent in West Africa. It was founded in 2016 and, like its Zimbabwean counterpart, relied on a maestro from the Dominican Republic to train Mozambican rollers. It sells locally and exports to South Africa, Kenya and Nigeria, among other countries.

    Mafundikwa is aware that breaking the stranglehold of legends in the elite cigar market will not be easy for his greenhorn. However, his company has already had expressions of interest from Vietnam, Romania, Dubai and the U.S.

    “We are making an African cigar, and we believe the quality is comparable to any brand anywhere given the legendary status of Zimbabwean tobacco. The lure of a new exotic and authentic African product will be our trump card, and we will thrive on competition,” he said.

    Mosi Oa Tunya Cigars has been received well by locals who are excited that at last their country has an exotic product to match their nation’s lofty standing as Africa’s biggest producer and one of the world’s top six growers.

    TIMB chief executive officer Andrew Matibiri said the government always encouraged greater investment in tobacco beneficiation, but the response has been slow. There are about four cigarette manufacturers in the country, with British American Tobacco dominating. The entry of Mosi Oa Tunya into the market, he said, is a welcome addition.

    “It is clear that, yes, we are the dominant growing nation on the continent and among the top six globally, but that dominance has not been matched by corresponding investment in adding value to tobacco,” Matibiri said.

    “I am talking here about the flue-cured leaf, which is more than 90 percent of the national output. But like Oriental and others, we are exporting them in raw form. Therefore, we welcome Mosi Oa Tunya Cigars in the context of the national effort to boost value addition and hope that, with time, they will get all their requirements locally. We are excited that they have joined that niche market and wish them the best.”

  • Permission to Speak

    Permission to Speak

    A court ruling allows German e-cigarette retailers and manufacturers to tell customers that vaping is less unhealthy than smoking.

    By Stefanie Rossel

    In Germany, the concepts of tobacco harm reduction (THR) and relative risk haven’t quite arrived yet. Several representative surveys show that more than half of the population, especially smokers, mistakenly believe that e-cigarettes are at least as hazardous to health as combustible cigarettes. But perhaps things will get better: A recent court ruling allows vapor companies to set the record on e-cigarettes straight in their communications with consumers.

    In February 2021, the Koblenz higher regional court cleared the way by overturning a May 2020 ruling by the Trier District Court. The case originated with a campaign to convert smokers by a Trier e-cigarette retailer, Michal Dobrajc, who is also executive chairman of German e-cigarette association Verband des e-Zigarettenhandels (VdeH). In mid-2019, Dobrajc placed billboards with the slogan “E-Ziga retten Leben—jetzt umsteigen.” The catchphrase is a pun on the German verb “retten” (to save) and means “E-cigarettes save lives—switch now.”

    The German center for protection against unfair competition considered this misleading advertising and sued Dobrajc. The center argued that the advertisements suggested that e-cigarettes were harmless and that switching would save smokers’ lives. It argued that the campaign could convince nonsmokers that vaping products didn’t present health risks. The Trier District Court found in favor of the plaintiff and ordered Dobrajc to cease advertising with the slogan.

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    Dobrajc appealed, and the Koblenz court came to a different result. The catchphrase, the court noted, did not contain any incorrect statements regarding the main characteristics of the advertised products. The advertisements were therefore neither misleading nor unfair. What’s more, plenty of scientific studies documented that e-cigarettes had a significantly less harmful effect on health than combustible cigarettes, the Koblenz court said.

    Assigning a life-saving effect to a product is justified when the advertised alternative product has a less hazardous influence on the human body than a conventional cigarette, the court claimed. If consumers switched to e-cigarettes, a decrease of the hazardous impact caused by combustible cigarettes was to be expected, an effect that fundamentally has the potential to decrease the number of severe diseases that could also lead to death.

    The “Switch now” campaign, the court further argued, did not encourage nonsmokers to start vaping but was clearly directed at current smokers. The target group of the advertisement, the court found, was sufficiently clear. The court did not permit an appeal.

    The recognition of e-cigarettes as a less hazardous product by a higher regional court is a milestone as it confirms the reduced risk and explicitly allows such statements as based on scientific evidence.

    Michal Dobrajc, executive chairman, VdeH

    Dobrajc welcomed the ruling. “The recognition of e-cigarettes as a less hazardous product by a higher regional court is a milestone as it confirms the reduced risk and explicitly allows such statements as based on scientific evidence,” he said. The ruling, however, has no effect on existing or planned advertising bans for e-cigarettes as products, he adds. “These can’t be advertised in Germany anymore, for example in print media or on the internet, and billboard advertising will soon be banned too.”

    The ruling is nevertheless a positive development because it enables retailers and manufacturers to use advertising to highlight the reduced risk inherent to vape products. “The VdeH will continue to educate society and politics with independent scientific evidence on the chances of harm reduction,” says Dobrajc.

    “Especially with a view to envisaged regulatory measures such as taxation of e-cigarettes [see sidebar] and the revision of the European Union’s Tobacco Product Directive, it is vital that politicians in particular comprehend the chances and listen to science. Every excessive regulation will impact on the perception of the population: ‘If something is particularly strictly regulated or highly taxed, it must be especially harmful for me,’” he notes.

    “Our influence as an industry association is limited, but there must be a development that public authorities and especially the media turn away from their often dogmatic views characterized by personal ideology and start to inform in a differentiated and objective manner about e-cigarettes as a product. It’s the only way to bring about a turnaround in the perception of consumers, and we need to place a greater onus on politicians and the media.”

    No sin tax for no-sin products

    The German e-cigarette association Verband des e-Zigarettenhandels (VdeH) recently drew attention to the unintended consequences of a controversial vapor tax bill with an unusual initiative.

    In March, Germany’s ruling coalition, largely driven by the social democratic SPD, proposed a tax on vape products and heated-tobacco products (HTPs) as part of a tobacco tax modernization initiative. The new tax would triple e-liquids prices from the current €5 ($6.03) per 10 mL bottle, making the products more expensive than conventional cigarettes. Germany’s finance ministry expects the measure to generate several hundreds of millions of euros in tax revenue per year.

    On a huge screen in front of the Reichstag building, which houses Germany’s Parliament, de VdeH projected imagery depicting former smokers’ experiences with e-cigarettes and scientists’ findings on the products’ harm reduction potential.

    VdeH Executive Chairman Michal Dobrajc called the planned tax a disaster in terms of health policy. “Studies have shown that the tax has no relevance for the protection of youths as prevalence of e-cigarette use has been at a consistently low level for years,” he said. “As a result of the horrendous price increase, consumption of adult consumers is expected to shift back to the much more hazardous combustible cigarette, according to a recent survey.

    “Besides, it is also likely that no significant additional tax revenue will be generated but that jobs will be destroyed, and a lucrative black market will be created. German customs called the planned tax ‘a startup for criminals’ and ‘a stimulus package for smugglers.’ It is incomprehensible that valuable experience from other countries in this regard is being ignored and that Germany is attempting a solo run while at the same time consultations for a harmonization of e-cigarette taxation are taking place on European Union (EU) level and are intended to be finalized by 2021,” said Dobrajc.

    Dobrajc cited Italy as an example of what happens when a country sets its vapor taxes too high. In 2014, Italy became the first EU country to tax e-liquids. And while its rate was only half of what Germany is envisioning, it turned out disastrous. Many vape shops closed while the black market flourished. In 2018, the government felt compelled to slash its vapor tax by 90 percent. Italy had collected only one twentieth of the tax it anticipated. Estonia and Hungary had similar experiences. Germany’s intended tax would be fivefold the EU average.

    “With still 11 million smokers in Germany, the e-cigarette is the biggest health opportunity we have. We must take advantage of it. Every tax has a steering effect,” Dobrajc said. “But if this drives consumption back in the direction of the significantly more dangerous combustible cigarette, something is going completely wrong. Making e-cigarettes unattractive through a tobacco tax is like taxing green electricity like gasoline.” Taxation of vape products and HTPs, Dobrajc explains, should be based on scientific evidence and consider products’ relative risk profiles.

    The projection in front of the Reichstag complemented the VdeH’s regular talks with parliamentarians in which the association seeks to convey knowledge about vape products. “Interest is growing,” noted Dobrajc. “An increasing number of politicians understand the context and set straight their perceptions of vape products and their health protection potential. As politicians attach more importance to scientific evidence, resistance against the draft law increases across all political groups. The parliamentarians think carefully whether they want to take on responsibility for an experiment at the expense of the health of millions of smokers.”

    Dobrajc believes the initiative in Berlin has achieved its objective. “With the event, we showed that there is serious resistance against the bill and that our industry is looking for dialogue. And exactly this dialogue took place: During our demonstration, many parliamentarians were leaving the building, and we were able to have constructive exchange with them. This way we could also reach politicians who previously had perhaps not taken our written information into account.”—S.R.

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

    Gathering Clouds

    Photo: Comugnero Silvana

    How tobacco rules would change China’s vapor business

    TR Staff Report

    On March 22, 2021, China’s Ministry of Industry and Information Technology published a draft of regulations that would subject vapor products to tobacco rules. The news caused share prices of leading Chinese e-cigarette companies, such as RLX Technology and Smoore International, to plunge from the stratospheric heights they had reached prior to the announcement.

    The prospect of operating under the umbrella of China’s State Tobacco Monopoly (STMA) has clearly frightened investors, but what exactly would it mean for the vapor business to be governed by China’s tobacco rules? Bullet Finance, a Chinese-language business publication, recently interviewed Miao Wei (not his real name), a former officer in charge of raw materials at the China National Tobacco Corp (CNTC) who now heads an e-cigarette company.

    With some 350 million smokers, China is the world’s largest tobacco market and the world’s largest potential market for vapor products. In a prospectus accompanying its initial public offer in January on the New York Stock Exchange, RLX Technology reckoned that vaping products have a penetration rate of only 1.2 percent in China compared with 32.4 percent in the U.S. Those numbers suggest considerable opportunity for growth. If Chinese smokers embrace e-cigarettes in meaningful numbers, the vapor business should thrive.

    The tobacco business is a formidable source of income for the state, however. In 2018, it contributed an estimated 5.45 percent of the country’s tax revenue. The government is unlikely to sit by idly as its cash cow deflates. While officials cited health as a reason to regulate vapor products like tobacco, the desire to sustain revenue is likely to be an equally strong motivation.

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    Understanding the System

    To appreciate the potential impact of tobacco-style regulations, vapor executives must understand how the Chinese tobacco industry works, Miao told Bullet Finance. Unlike the vapor business, which comprises numerous private companies competing for business, China’s tobacco sector relies on central planning and coordination. Individual manufacturers have little autonomy under this system.

    From the cultivation of leaf tobacco to the retail sale of finished product, China’s state monopoly guides all tobacco companies’ actions. Prior to the tobacco growing season, the CNTC determines planting areas, establishes production targets and specifies the desired leaf grades. Once the crop has been grown, the CNTC purchases tobacco at set prices. Likewise, the CNTC is heavily involved in the development, selection and procurement of raw materials, such as filters, paper and packaging.

    Significantly, sales and manufacturing functions are split between different entities under China’s tobacco monopoly. Cigarette manufacturers merely fulfill production targets set by the CNTC, which then purchases the products at set prices. The CNTC handles sales to retailers, who must be licensed by the monopoly to carry cigarettes. The CNTC determines how many cigarettes they receive, how much inventory they may carry and at what prices they should sell, which means the monopoly also specifies the retailer’s profit margin.

    Individual cigarette manufacturers have little autonomy under China’s centrally guided tobacco system.
    (Photo: Taco Tuinstra)

    Current Rules

    Unlikely the tobacco industry, the vapor sector has historically been lightly regulated in China, perhaps because of the business’ relative youth and small size. Most hardware and e-liquids produced there are exported. The Shenzhen region supplies more than 90 percent of the world’s vapor products, and China has presumably been happy with the positive trade balance.

    Vaping products in China are not considered tobacco products like they are in Europe and the United States. Instead, e-cigarettes are treated as consumer goods. In the absence of heavy restrictions, the vapor sector has boomed. After the invention of the modern e-cigarette by a Chinese pharmacist, the country has spawned some of the world’s most valuable vapor companies.

    Like RLX Technology, most Chinese vapor companies are light on assets. They design products, register trademarks and handle sales. Production and raw materials procurement are typically outsourced to foundry factories, such as Smoore International. This keeps assets low and minimizes investments. Vertically integrated companies that handle all aspects of the vapor business, such as Boulder International, are rare in China, according to the Bullet Finance article.

    While many of these firms manufacture for export, an increasing number is keen to serve the budding domestic vapor market. In November 2019, however, the Chinese government prohibited the online sales of vapor products, citing concern about youth initiation. Remarkably, the vapor business continued to flourish in the wake of the crackdown, with companies boosting online sales to foreign customers and shifting domestic sales to brick-and-mortar stores. In January 2020, RLX Technology pledged to invest more than cny500 million ($77.35 million) over the three years to open 10,000 outlets in China. Boulder International opened more new Chinese vape stores in the first quarter of 2021 than it did in all of 2020, according to Bullet Finance, raising its store count above 2,000.

    Under a tobacco framework, the CTNC would likely designate and closely monitor suppliers of raw materials.
    (Photo: Smoore International)

    Potential Implications for E-cigarettes

    Integrating e-cigarettes into the tobacco regulatory framework would change China’s vapor industry beyond recognition, according to Miao. The CTNC would designate and closely monitor suppliers of raw materials such as nicotine liquids, salt and heating coils. This would standardize vapor companies’ procurement procedures of raw materials.

    Because the CNTC handles tobacco research and development, it would likely do the same for vapor products. Instead of multiple private players competing to produce technical breakthroughs, product development would depend on the efforts of a single state-run entity.

    A separation of production and marketing functions would force vapor companies to choose what part of the business to specialize in—product design, R&D or manufacturing, for example. The most lucrative part—sales—would be off-limits, however, as that area is reserved for the CNTC under the monopoly system. Many companies would be relegated to contract manufacturers, a big change for some of the leading e-cigarettes firms whose business has been built on heavy marketing and few assets. A company like Smoore, however, would already meet the definition of “manufacturer” under the cigarette monopoly system, according to Miao.

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    In managing the vapor business, the CNTC would also be considering its role as a generator of tax income. Decisions about e-cigarette volumes and pricing would in part be determined by how these variables affect the targeted government revenue. That means it will be difficult to predict the volume and value of e-cigarettes each year and whether the price of vapor products will be higher or lower than that of cigarettes.

    With CNTC setting profit rates, vapor companies are unlikely to achieve the dizzying margins that they recorded as private entities—a prospect that explains the steep drop in vapor stocks following the Ministry of Industry and Information Technology’s March 22 announcement.

    The draft legislation reportedly faces strong opposition not only from the vapor business but also from public health advocates. The Beijing Tobacco Control Association noted that the STMA has historically failed to protect people against the risks of smoking, saying that the monopoly was “essentially performing the corporate functions of a tobacco corporation.”

    Some see positives in stronger industry oversight, however. According to analyst Xiao Yue, who was also quoted by Bullet Finance, the rules could help tackle the problem of false advertisements in the sector and better protect the rights of consumers.

    The comment period ended April 22. China’s State Council has not indicated when it will decide on the proposed legislation.

    With thanks to Amei Zhang, China analyst at TMA

  • Rooting for Science

    Rooting for Science

    Photo: BAT

    Participants in the In Focus: THR conference examined the state of tobacco harm reduction in a critical year for the subject.

    By Stefanie Rossel

    The year 2021 will be critical for tobacco harm reduction (THR). In November, the ninth session of the Conference of the Parties (COP9) to the World Health Organization’s Framework Convention on Tobacco Control will take place. The European Union recently introduced its Beating Cancer Plan, which aims to reduce tobacco use in the EU to less than 5 percent by 2040 and commits to significantly strengthen tobacco-control measures in the union. It coincides with a review of the EU Tobacco Products Directive, scheduled to begin this month, that will consider amendments to take account of next-generation products (NGPs), many of which did not exist or were in their infancy when the original directive took effect years ago.

    The first “In Focus” virtual conference, organized by the GTNF Trust and held on April 27, shed some light on the challenges and opportunities for THR. The open mic session, moderated by Counterfactual Director Clive Bates, probably summed up best what is going well and what is going badly in THR. On the positive side, panelists noted that, thanks to continuous innovation in the corporate sector, consumers now have a vast choice of alternative products that are fundamentally better than combustible cigarettes. In the United States, the leading market for vape products, the Food and Drug Administration has started to process premarket tobacco product application (PMTA) submissions. Significantly, it approved Philip Morris International’s IQOS tobacco-heating product as a modified-risk product in 2020.

    The negative list, however, is much longer: Several countries tax e-cigarettes like combustible cigarettes. The tobacco industry appears to have no chance to restore its bad reputation—whatever it is doing, it must be counteracted, in the view of its detractors. The points most frequently mentioned by panelists were misperception of the risk of nicotine and the misperception that reduced-risk products (RRPs) are in fact more harmful than combustible cigarettes. Both have led to bad public health policies, such as flavor bans, rules that make distribution of NGPs more difficult or outright prohibition of vapor products. “Correcting misperception of nicotine and RRPs is essential to spreading the concept of THR,” said Maria Gogova, vice president and chief scientific officer, Altria Client Services. “Data show that consumers who are informed about relative risks are more likely to switch to RRPs.”

    Cliva Bates
    Maria Gogova
    David Abrams

    No magic bullets

    Almost two decades after Hon Lik invented the modern e-cigarette, there is a plethora of THR studies, according to Professor Riccardo Pelosa, professor of internal medicine at the University of Catania, Italy, and founder of the Center of Excellence for the Acceleration of Harm Reduction. “However, THR research is in need of critical reform,” he argued. “Many THR studies have common methodological problems or a flawed study design. Rigorous THR research is not an obstacle but an asset to reduce divisions among tobacco control researchers. We need extensive research that shows the effect of switching in fewer illnesses and deaths.”

    Making science prevail over ideology remains a daunting task, said Professor David Abrams from the Department of Social and Behavioral Sciences at New York University. He lamented the proliferation of “zombie ideas,” such as the claim that e-cigarettes don’t help quitting, that keep resurfacing without supporting evidence. “There is no magic bullet against them,” he said. “We can’t expect those with the strongest convictions to change their minds quickly or easily—or ever. But those without such intense effects will come to recognize that harm reduction opponents lack an evidence base compared to those supporting the risk continuum.” Abrams recommended a focus on acts of scientific virtue, such as openness and humility, and said there was a need to engage in good faith with those who disagree.

    Despite the abundance of THR research, scientists are still seeking to fill gaps. Many of those gaps relate to real-world use of electronic nicotine-delivery systems (ENDS). It remains unclear, for example, to what extent vape products differ in effectiveness in assisting smoking cessation. To help answer that question, Neil McKeganey, director of the Center for Substance Use Research at the University of Glasgow, is carrying out The Big Vape Survey.

    Mark Kehaya
    Neil McKeganey
    Riccardo Polosa

    Over a period of 12 months, his team will collect data on 30,000 current adult smokers, looking at aspects such as ENDS purchase at the baseline and at follow-up, combustible cigarette use, patterns of e-cigarette use, intentions to quit smoking and nicotine strength and flavor choices. The output, McKeganey related, will provide a deeper understanding of the interaction between individual customers and individual devices. A similar survey in the U.S. will investigate the impact of reduced product variety. Since September 2020, ENDS manufacturers may sell their products only if they have submitted a PMTA.

    AMV Holdings, one of the largest independent specialty vape retailers in the U.S., has conducted several consumer surveys since 2015. Chairman Mark Kehaya shared the results of the most recent one from 2019. Seeking to measure how effective AMV is in weaning smokers off cigarettes, the poll looked at the behavior of almost 10,000 present and former customers for more than 12 months. Ninety percent of respondents used traditional tobacco products before they started using ENDS. Thirty percent of them had been smoking more than a pack of cigarettes per day; 50 percent had been smoking for more than 10 years. Ninety percent of respondents chose e-liquids with nontobacco flavors—for AMV, Kehaya pointed out, fruit is the single biggest category. After 12 months, the repeat range was between 72 percent and 73 percent. Sixty percent reported success in using ENDS to quit cigarettes, whereas 42 percent said they would eventually quit using ENDS as well. A reduction of nicotine strength in e-liquids was also observed. “ENDS are a significant means of getting people out of combustible cigarettes in an effective way, and flavors play an important role,” Kehaya concluded.

    A poll of 2,000 U.S. consumers conducted by Reynolds American (RAI) earlier this year demonstrated how widespread misperceptions of RRPs and nicotine are. While 70 percent of respondents believed that THR was a positive thing for public health in the U.S., only 16 percent thought that vaping was better for health than smoking combustible cigarettes, according to James Murphy, executive vice president of R&D and scientific and regulatory affairs at RAI. Eighty-two percent believed that nicotine was linked to cigarette-related mortality. “This misperception restricts the movement of smokers to less hazardous products,” said Murphy, who also hinted at the challenge of assessing the risk profiles of NGPs for which no epidemiological data are available yet. Modern oral products, such as nicotine pouches, have shown even lower toxicity and chemistry levels than the well-researched traditional oral products, such as moist snuff and Swedish-style snus.

    James Murphy
    Kgosi Letlape
    James Glassman

    Wanted: A new approach

    To make the WHO’s fight against global tobacco consumption more efficient, the COP9 would be well advised to change its stance toward THR, according to the participants in the In Focus forum.

    Clive Bates invited his panelists to a mind game, asking them about the elements their policy would include if they were the WHO. Karl Fagerstrom, president of Fagerstrom Consulting, suggested that the system of alcohol regulation in which the alcohol concentration is decisive for the risk attributed to it could also be applied to tobacco. “In the case of tobacco, it would not be the nicotine concentration, but the hazard of the individual product,” he said. “This, however, requires that people are informed about the nature of nicotine and the continuum of risk.”

    Regarding knowledge gaps, Kgosi Letlape, former president of the Health Professions Council of South Africa, noted that the way in which people have been socialized in countries such as his presents a formidable challenge. “After 400 years of colonization, there is no cultivation of independent thought,” he said. “We have become a zombie nation, relying on the WHO to tell us what to think. People need to be given reliable information to make differentiated choices.”

    By 2030, more than 80 percent of tobacco-related deaths will occur in low-income and middle-income countries (LMICs), according to Ambassador James K. Glassman, former U.S. undersecretary of state for public diplomacy and public affairs and chairman of Glassman Advisory.

    Since September, Glassman has been chairman of the Commission to Reignite the Fight against Smoking, which is being sponsored by the Foundation for a Smoke-Free World. The committee is currently working on a report that focuses on how tobacco harm reduction can be leveraged to LMICs.

    It is scheduled to be finished by September—well in time for the COP9.

    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.
  • Beyond Volumes

    Beyond Volumes

    Photo: AOI

    Alliance One International believes there is opportunity for leaf suppliers who can offer tobacco produced in a sustainable and compliant manner.

    By George Gay

    It seems likely that many businesses will not, for the foreseeable future at least, resume all the working methods they employed before the onset of the coronavirus pandemic. This was to be expected. Businesses have been forced to examine their operations closely in developing strategies to overcome hurdles thrown up by the pandemic, and this self-examination was always going to come up with ideas that resonated beyond the time when we eliminate or learn to live with Covid-19.

    For instance, throughout a wide range of tobacco industry businesses, high levels of travel have long involved economic and environmental costs that, but for inertia, could have been reduced by utilizing modern communications. Now, the pandemic has nudged into sharper focus the rationale surrounding travel and communications—along with other aspects of doing business.

    Alliance One International (AOI) provides a case in point, especially given that it is part of the leaf tobacco sector in which travel has long been part of the fabric. In an email exchange last month, the company said that while it expected its business travel to pick up again, it did not expect it to return to the level that it was prior to the arrival of Covid-19. “The past year has demonstrated how effective teams can be when working remotely and using technology, and we expect that trend to continue,” said Alex Strohschoen, president of Alliance One. “That said, there is value in face-to-face interaction, and we look forward to being able to collaborate with our colleagues and customers worldwide when it is safe to do so again.”

    While Alliance One, like all businesses, was last year caught up in managing the changes made necessary by the spread of Covid-19 to pandemic status, it was involved, too, in well-publicized changes to its parent company, Pyxus International, which in June filed voluntary petitions for relief under Chapter 11 of the U.S. bankruptcy code and then, in August, was able to announce that it had completed its financial restructuring and emerged from Chapter 11. However, Strohschoen said the changes to Pyxus had been largely tied to other divisions of the company, not necessarily Alliance One. “We have restructured, but those changes were driven by a desire to improve the efficiency and effectiveness of the business rather than a result of any changes at the parent company.”

    Sustainability and Compliance

    The need for increased efficiency, however that is manifested, is a must for a sector in which demand for its product is presumably on a long-term slide. And Alliance One believes there are opportunities out there beyond volumes. “We believe there is a good opportunity for leaf suppliers who can offer a product produced in a sustainable and compliant manner, and Alliance One is a leader in this space,” Strohschoen said, before adding that consumers of all types of tobacco products, including combustible cigarettes, wanted to know how their products were manufactured and where the various components came from.

    At the same time, regulation was evolving, and bodies such as the EU were exploring rules that would require corporations to share publicly more information about their supply chains, Strohschoen said. And, in the case of cigarettes, complying with such rules could be achieved only by working with suppliers such as Alliance One.

    In addition, as major manufacturers looked to reduce complexity in their operations, Alliance One expected that they would begin to reverse the vertical integration of their supply chains.

    In recognizing these trends, Alliance One says it has been investing in its sustainability and agronomy departments. The company’s objective, Strohschoen said, was the long-term success of the business, which would be achieved by meeting the balance between “the needs and expectations of our various stakeholders and those of our company” in a manner that was underpinned by a strong commitment to managing the business ethically and operating with integrity in all aspects of the business.

    The company says that it is primarily focused on managing its impact in those areas directly related to its business. “This includes managing our carbon emissions to reduce environmental impact, responsibly managing water and waste, providing safe and healthy workplaces for our employees, providing a satisfying and inclusive working environment, supporting local communities, upholding human rights and working to enhance farmer livelihoods,” said Strohschoen.

    At its global R&D hub in Brazil, AOI develops new technologies to support the improvement of crop quality and efficiency. (Photo: AOI)

    Research and Deployment

    Alliance One contracts tobacco from growers in 20 countries but has a presence in about 30 countries and sells to customers in about 90 countries. It primarily contracts flue-cured, Burley and oriental tobacco, but it works also with other varieties, including air-cured, sun-cured and dark-fired. About 50 percent of its employees directly interact in some capacity with about 300,000 farmers across five continents, an operation that involves about 1,000 trained agronomists and field technicians conducting more than one million farm visits annually.

    Of course, it is important to realize that farming these days is not about dirty fingernails, or not only about dirty fingernails. Global agronomy director, Helio Moura, said that Alliance One had established a global research and development structure to support agronomic research, development and deployment of new technologies, with capabilities that included agronomy science, breeding and seeds, and development and deployment training.

    “Since 2005, the Alliance One Brazil (AOB) operations have managed an R&D operation which has supported the development and release of new technologies around the world,” said Moura. “And in 2020, the company adjusted its global structure so that the AOB R&D facility has become AOI’s Global Research, Development & Deployment (GRD&D) Center. The GRD&D Center, located on an 82 hectare existing company property in Passo do Sobrado, Brazil, was officially repurposed in December 2020.

    “We have all the tools necessary to accelerate the deployment of cutting-edge technologies globally in order to increase farmer profitability, improve product quality and comply with regulation, which enhance the sustainability of our global tobacco production chain.

    “In addition to the GRD&D Center in Brazil, we are maintaining an R&D hub in Turkey to focus on oriental tobacco. Alliance One primarily produces oriental tobacco in Europe, and by conducting research on the crop from the region in which it is grown, we can increase the speed at which we can bring solutions to the market.”

    We must help the farmer improve their profitability to address other concerns, such as child labor, deforestation, etc.

    Helio Moura, global agronomy directior, AOI

    Future-Proofing Farmers

    The need for such research and the dissemination of the results that stem from it is predicated on a demand for tobacco and, though Alliance One did not discuss volumes, it looks likely that demand will fall in the future unless in the unlikely event that the uptick in smoking apparently caused by smokers’ reactions to the pandemic and stories stemming from it turns into a medium-term or even long-term trend. At the same time, noises coming out of the U.S. seem to indicate that that country at least could be heading into a future of very-low-nicotine tobacco: tobacco that presumably not all tobacco-growing countries will be able or willing to produce. So the question arises as to what support will be available as, presumably, increasing numbers of farmers are forced to abandon tobacco growing.

    “Enhancing farmer livelihoods is a priority for our entire business,” said Moura. “As demand for tobacco changes, we are focused on helping farmers continue to improve their efficiency as well as diversify their crops. By helping farmers improve their crop yield, quality and management, we can help maximize their profitability but also improve the quality of the life across environmental, social and cultural pillars—thereby creating a truly sustainable crop that is beneficial for stakeholders throughout society. When considering this approach, it is important to recognize that the economic lever is the main one which supports our strategy. We must help the farmer improve their profitability in order to address other concerns, such as child labor, deforestation, etc.”

    Alliance One says that this is not a new initiative but one it has been involved in for quite a few years.
    “In Malawi, we have introduced growers to a variety of new-to-them crops, including groundnuts, maize and soya, and provided the agronomic expertise to enable them to successfully bring those products to market,” said Moura.

    “In Brazil, we have partnered with Bayer Crop Science to provide quality maize seeds and agronomic support to smallholder tobacco farmers. Approximately 75 percent of our contracted Brazilian farmer base produces maize along with tobacco. By providing them with high-quality agronomic maize packages, we are helping them improve the quality and yield of the maize crop. We implemented a pilot project in Brazil during the 2020 growing season with 2,300 farmers and found that farmers appreciated the support and guidance we provided. As a result, we will implement this project across the country’s entire base of farmers in the 2021 season.

    “By providing the necessary support to enhance the crops that they are already growing, we are providing our contracted farmers with the tools they need to diversify their income and create an additional food source. In addition, crop diversification is becoming increasingly important as extreme weather patterns impact crop production. We are excited about the potential for this project and the potential for AOI to scale it at a global level in the future.”

    Pandemic Exit Strategy

    Finally, it is impossible these days to ignore the pandemic, and nowhere is this more so than in the case of a company with a global presence. At any one time, some of these countries are going to be suffering another wave of infections and hospitalization; some are going to be in lockdown while others are going to be entering or leaving lockdown, and some are going to have achieved high levels of vaccinations while others will not have done so.

    “At Alliance One, we have taken immense steps to protect the health and wellness of our employees, and we are continuously adjusting our plans as we respond to the evolution of the virus and its impact on our operations,” said Strohschoen. “Some of the many actions we have taken include changing shift size and keeping employees working in the same ‘pods,’ adjusting work hours, requiring employees to wear face masks and socially distance, implementing work-from-home procedures and better enabling remote work through technology. … We also worked with farmers throughout the world to provide PPE and offer guidance on how to adjust ways of working to keep farmworkers safe.

    “At the same time, we implemented these measures so that we could minimize the spread of Covid within the operations and enable the operations to continue running. We had to make sure we could keep buying, processing and shipping tobacco so that we could meet customer requirements … Operationally, we have accelerated some of our internal processes to enable us to ship more efficiently and provide additional time to allow for longer logistical processes.”

    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.
  • Now You’re Cooking!

    Now You’re Cooking!

    ThermoNox CEO Martin Hoffmeir with his equipment

    ThermoNox eradicates tobacco pests by raising the temperature.

    By Stefanie Rossel

    When it comes to cured tobacco, “Don’t let the bugs bite” gets a whole new meaning. Avoiding infestation of the valuable raw material with cigarette beetle (Lasioderma serricorne) and tobacco moth (Ephestia elutella) during storage, manufacture and distribution remains a challenge. The worldwide annual loss of stored tobacco is estimated at between $400 million and $800 million.

    The insects are prolific. In a tobacco bale, the female cigarette beetle can produce up to 32 billion descendants per year. They thrive in warm and humid warehouse environments in which the larvae feed on dried tobacco, pressed lamina or cut rag. By contaminating the product with their excretions, they make it unusable. The creatures are notoriously difficult to eliminate: Equipped with a special breathing system, cigarette beetles can survive a long time without gas exchange and with extremely little oxygen. In each of their lifecycles—beetle, egg, larvae, pupae, cocoons—the bugs adapt to their environment for survival.

    But even these survival artists have a weak spot, and this is where ThermoNox comes in. The Bavarian family-owned company has developed a patented low-heat treatment method of the same name, which makes use of the fact that insects, including adults, larvae and eggs, cannot survive temperatures of 46 degrees Celsius (115 degrees Fahrenheit).

    The process is similar to that of frying an egg.

    Unlike humans, insects can’t control their body temperature. When exposed to that heat for some time, the proteins in the vermin’s body will irreversibly “denature”—they coagulate and become hard and inactive. The process is similar to that of frying an egg.

    Designed for eradicating pests from empty rooms and manufacturing lines, the system works with strategically placed electrical ovens supported by special fans. By recirculation, they heat the ambient air to 120 degrees Fahrenheit for 15 hours to 30 hours. The lethal temperature is then maintained for 10 hours to 25 hours. “Machinery must be unplugged and free from product as we work with a gentle but defined heat to avoid any damage on the equipment,” says Martin Hofmeir, ThermoNox’ CEO. “Our goal is to reach every little corner and hiding place of all insect development stages.”

    Using the ThermoNox system, cigarette manufacturers isolate infested machines with simple foil during treatment.

    Accepted standard

    Thermal disinfestation is one of four pest control standards approved by Coresta. Tobacco fumigation with phosphine gas, which has been employed for decades, is still the most used method, requiring low initial investment and involving low long-term cost. As the complete warehouse can be sealed for fumigation, the process allows for high-volume treatment. If protocols are followed, it leaves no chemical residues after the treatment. However, because the treatment isn’t always applied properly, increasing resistance against phosphine among cigarette beetles has been observed worldwide.

    Another accepted standard is controlled atmosphere (CA), a relatively new method to the tobacco industry. The process consists of a specially constructed, gastight chamber in which a commodity is treated in an artificially engineered atmosphere. In the case of infested tobacco, it’s a low-oxygen treatment in which the oxygen level in the chamber is reduced to below 0.5 percent to ensure a 100 percent mortality rate in all life stages of the insects. While involving initial investment to set up the gastight chamber, it can treat all types of leaf tobacco without affecting taste and color. It’s unsuitable for high-volume treatment, however. To make CA effective, procedures need to be strictly followed.

    A third, but rarely used, process is freezing the tobacco to below 20 degrees Celsius. While efficient, the technology is expensive and not suitable for handling the high volumes common to cigarette production. It is therefore presently used only to treat high-value cigar leaves.

    External requirements for thermal disinfestation are less demanding. Cigarette production floors are separate rooms, hence factors such as the outside temperature and the climate zone in which a factory is located play no role. Because the tobacco industry works with batches, individual cigarette-making lines are often separated. This means a simple foil can be used to enclose an infested machine and place the ThermoNox system around it. “Thus, we can provide a comparatively fast treatment on the spot,” Hofmeir points out. For ThermoNox to treat an entire room, building or factory floor, it is typically sufficient to simply shut off the ventilation system and close all doors and windows. This is a considerable advantage over tobacco infestation control systems, such as phosphine fumigation or controlled atmosphere, which require hermetically sealed rooms and require significant preparations.

    But then, the two latter procedures are used exclusively to treat stored product—an application where thermal disinfestation, being a physical procedure, reaches its natural limits. “Due to their insulating effect, tobacco bales cannot be disinfested with heat,” explains Hofmeir. “By contrast, phosphine fumigation and controlled atmosphere are quite sensitive in use, and you cannot employ them in machinery disinfestation. Phosphine will affect non-ferrous metals, which is a huge disadvantage if you think of expensive, high-tech tobacco machinery. In the tobacco sector, we see the unbeatable strength of our process in the treatment of empty rooms and manufacturing lines. ThermoNox is the only thermal heat infestation control system that has been officially endorsed by German original equipment manufacturer Hauni for its machines.”

    ThermoNox has franchised its technology to partners worldwide and carried out disinfetions is 45 markets.

    Reliability

    The fact that ThermoNox is such a well-known name in the tobacco industry is due to coincidence rather than marketing. Hofmeir’s father developed the system in the early 1990s to combat pests, such as flour and rice beetles, in the family’s grain mill. The method soon became popular with the hospitality industry where it helped fight bed bugs and other insects. In 2007, British American Tobacco approached the Bavarian company, looking for a disinfestation solution for its German cigarette factory in Bayreuth. Since then, the ThermoNox system has been used by all leading tobacco companies.

    Preventing reinfestation after successful disinfestation requires a comprehensive integrated pest management system that incorporates all parts of the upstream production process, according to Hofmeir. “This includes meticulous monitoring of the raw material as well as keeping all areas of production and machinery pest-free. Additionally, strict spatial separation of raw material, intermediate and finished products is necessary, preferably with a one-way system and locks. Pest control actually is the last method of choice in IPM.”

    The tobacco sector, he adds, is characterized by good pest monitoring in its manufacturing lines. The raw material is also carefully controlled and treated on its various paths through the supply chain. “Since we securely kill off all development stages of tobacco pests with our method, disinfestation intervals are generally longer than with fumigation.”

    In recent years, Hofmeir has observed a globally growing trend toward sustainability and away from toxin use across all industries. “This awareness starts with the consumer and moves backwards through all supply chains,” he says. “But apart from meeting this trend, our method simply is the most successful in its area of application, which is a win-win for all stakeholders. The increasing resistances against various chemical substances accelerate the switch to thermal disinfestation even more.”

    The company has franchised its technology to partners around the world and has successfully carried out disinfestations in 45 markets and all sorts of industries. Hofmeir emphasizes that his company aims for moderate growth because it refuses to compromise quality of execution. “In the end, we will help every customer who needs our help,” he explains. “Asia, of course, is a huge market with a lot of potential. This is true for the tobacco sector as well as for other industries.”

    ThermoNox has also felt the changes in the industry, including the shift of tobacco production from stagnating Western markets to more promising countries in Asia and elsewhere. “Our main markets, however, are the food sector, followed by the hospitality industry. Hence developments in the tobacco industry don’t hit us as hard as, for instance, the almost 100 percent decline in the tourism sector caused by the Covid-19 pandemic, which meant a massive decrease in orders in bed bug disinfestation.”

    Despite such challenges, Hofmeir remains optimistic. “As a family-owned business with franchise partners, we have a different approach than large corporations that have to meet shareholder expectations. As a company, we continuously develop further with the challenges of our customers. This way, we won two new industries as our customers in recent years. Hence if one door closes a little, another one will open.”

    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.