Category: Print Edition

When Science Meets Art
Vapers say taste matters. According to a survey conducted by Frost & Sullivan, among 3,000 Chinese vapor consumers, taste was a key factor in choosing an e-cigarette. The top three indexes in flavor were the overall sensation of taste (66 percent), aroma (61 percent) and the amount of vapor (50 percent).
In late-December, FEELM, a heating technology brand, introduced the industry’s first taste evaluation model. The model allows FEELM researchers the ability to describe the taste of atomization scientifically. Composed of four dimensions, flavor, strength, note and vapor, and 51 specific indexes, the model establishes a system to evaluate the human senses of mouth, tongue, nose and throat.
Frank Han, CEO of FEELM, said the company’s devotion to continuously improving the taste of e-cigarettes originated from a client’s concern. “How’s the taste of California strawberries at 6 am? What’s the difference between it and that of refrigerated ones?” he said the client asked. “Could FEELM ceramic coils bring back the taste of California strawberry at 6am with flavored e-liquid?”

Inspired by the client, FEELM team members conducted numerous studies with the goal of developing a scientific system to properly evaluate and provide the perfect flavor. “As you can imagine, analyzing and delivering such an abstract concept as taste will [take] anyone tons of effort,” Han said.
To help with challenging endeavor, FEELM’s parent company, Smoore Technology, set up several research institutes around the world (Smoore does not produce any e-liquid). Smoore technical experts began building a world-leading atomization platform. Now, more than 75 percent of those researchers are focused on understanding and improving taste through atomization. Smoore also established relationships with research institutions such as Tongji University, Tsinghua University and Princeton University.
“This institute will focus on the background study and harm reduction from new perspectives such as bio-medicine and artificial intelligence,” Smoore said in press release. “To further study the science behind atomization, FEELM has also established a professional taste evaluation team, and built a taste evaluation lab complied with the national standard and could hold seven tasters at a time.”

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The process for evaluating a flavor is precise. Before picking up a vaping device, each taster washes and sanitizes their hands and then chews a slice of lemon or yellow peach to clean the palate. Testers than drink boiled water to freshen up the mouth and smell coffee beans.
“It is not until the light and the exhaust fan in the booth are turned on that the taster begins tasting,” Smoore explained. “While tasting, a recorded form with all detailed criteria is prepared for scoring and taking notes. Afterwards, the same vaping device will be handed over to chromatography, electron microscope as well as reliability labs to analyze its e-liquid ingredients, coil and safety … a diagnostic report will be produced based on both human and machine criteria. FEELM is then able to figure out the deficiencies in the vaping experience and work out precise solutions.”

The FEELM Taste Scientific Institute is made up of more than 10 labs, including cell lab, taste evaluation lab, element analysis lab, chromatography lab, and electron microscope lab. The company says its labs can produce 50 physical tests, more than 200 chemical tests, six microbiological test items, three genetic toxicology tests, three categories of clinical abuse tests, as well as three categories of human factor testing.
“Besides scientific research, great taste cannot be separated from production,” the company said. “Smoore has established a rigorous production safety standard, which is even stricter than the TPD [Tobacco Products Directive] in the EU and AFNOR in France. The production protocols are also more stringent than what is required by the premarket tobacco product application process for the U.S. Food and Drug Administration, covering 50 individual tests.”
FEELM also developed the first fully automated pod production line in the vapor industry. Its production capacity is 6,000 pieces per hour, boosting efficiency five times over manual production. Automated production guarantees the stability and consistency of quality.
“Taste is a meaningful word,” said Han. “Great taste relies on the scientific system of fundamental research, the persistent improvement of product development and manufacturing, strict quality control, and a devoted focus towards science and ingenuity.”
April 1, 2021
People First
Photo: BAT
Jennie Galbraith discusses British American Tobacco’s human rights initiatives
By Stefanie Rossel
In December 2020, British American Tobacco (BAT) became the first tobacco company to launch a human rights report. Tobacco Reporter spoke with Jennie Galbraith, the company’s head of environmental, social and governance (ESG), who is responsible for overseeing the development and implementation of BAT’s sustainability agenda and leads the group’s ESG engagement with investors.

Jennie Galbraith
Tobacco Reporter: Your company has been engaged in the field of human rights (HR) since 2000, with measures and achievements previously being reported in your corporate social responsibility reports. Why have you decided to publish a separate HR report?
Jennie Galbraith: We have a long-standing commitment to respect the human rights of our employees, the people we work with and the communities in which we operate. We have achieved a lot over the last 20 years, and we are setting the bar even higher. The HR report presents the progress we have made, highlights our ongoing work and outlines our plans for the future. This report is aligned with the United Nations Guiding Principles Reporting Framework, which provides comprehensive guidance for companies to report on how they respect human rights in accordance with the UN Guiding Principles for Business and Human Rights. We also wanted to publish a human rights-focused report to provide our stakeholders with more in-depth information on our ambitions and our efforts to assist in addressing impacts across our global business and supply chain. We are proud to be the first company among our peers to publish such a report.
What are the most pressing HR issues in your tobacco supply chain?
Temporary workers, use of family labor in small-scale farming and high levels of rural poverty make agriculture a particularly vulnerable sector for human rights risks.
For example, according to the Office of the High Commissioner for Human Rights, poverty can lead to farmers taking their children out of school to work on the land or to overlook health and safety standards. That is why enhancing farmer livelihoods is central to our approach to achieving our goal of eliminating child and forced labor by 2025.
We have robust policies in place outlining our commitment to preventing child labor and exploitation of labor, underpinned by due diligence, monitoring and remediation programs. We also know that human rights issues in agricultural supply chains are very complex and cannot be single-handedly solved by one company alone. So, we adopt a collaborative approach. For example, it has been 20 years since BAT became a founding member of the Eliminating Child Labor in Tobacco Growing (ECLT) Foundation.
We support our directly contracted farmers in a number of other ways. This includes education and training on the latest sustainable agricultural methods, including new seed varieties that improve yields, and support with diversifying their crop to provide additional income and enhance food security. For example, in 2020, 93 percent of tobacco farmers in our supply chain reported growing other crops, including fruit, vegetables, maize and soy. We also provide our contracted farmers with training to help build their skills, knowledge and awareness on a range of topics—from human rights and health and safety to farm business management and women’s empowerment. For example, in 2020, 2,887 women’s empowerment training sessions were held, with 16,658 attendances.

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In your report, an external sustainability expert on HR issues singled out three emerging and interlinked issues that will affect tobacco farmers in the near future: the changing climate, women’s empowerment and the need for alternative incomes. Of the three, climate change is likely to have the most far-reaching impact. What measures is BAT taking to tackle this issue?
To address climate change, we provide all our contracted farmers with a wide range of best practice environmental information and training as well as introducing them to sustainable farming practices and technologies, developed by our global leaf agronomy research. Beyond the farmers we contract directly with, we have long-term strategic partnerships with many of our third-party suppliers, and we expect them to provide the farmers they source from with similar support services. The Sustainable Tobacco Program (STP), an industry-wide initiative, sets the standard we expect from all our tobacco suppliers worldwide. The STP is aligned to international standards, including those of the International Labor Organization and the UN Guiding Principles, and it is our policy that all our leaf operations and third-party suppliers participate in the program.
Examples of our sustainable farming initiatives include sustainable fuels and curing technologies to help preserve forest resources and methods to reduce agrochemical use and preserve soil health. For example, since 2016, 99 percent of wood used by our contracted farmers for curing fuels has been from sustainable sources. We also support our farmers in using water more efficiently. In Pakistan, for example, drip irrigation technology has helped reduce farmers’ water use by up to 40 percent.
Sustainable farming practices not only bring environmental benefits; they also help to build farmers’ resilience to the impact of climate change. In some countries, we also facilitate crop insurance for our contracted farmers. This can be crucial in providing a safety net for unexpected events and natural disasters, such as floods and droughts.
Please explain the minimum standards expected from suppliers.
At a minimum, the standards we expect regarding human rights from our suppliers in relation to their own employees and contractors—including permanent, temporary, contract agency workers and migrant workers—include that they:
Provide equal opportunities to, and fair treatment of, all workers
Work to eliminate any form of harassment and bullying within the workplace, whether it is of a sexual, verbal, nonverbal or physical nature
Provide a safe working environment, adopt procedures to identify and address workplace health and safety risks, implement safe working practices and provide, where relevant, appropriate personal protective equipment to prevent occupational injuries or illnesses
Provide fair wages and benefits, which comply at least with applicable minimum wage legislation and other applicable wage and working time laws or collective bargaining agreements
Ensure operations are free from child labor. Specifically, following the guidelines of the International Labor Organization that any work that is considered hazardous or likely to harm the health, safety or morals of children should not be done by anyone under the age of 18 (or 16 under strict conditions); the minimum age for work should not be below the legal age for finishing compulsory schooling and, in any case, not less than the age of 15; where local law permits, children between the ages of 13 and 15 years old may do light work, provided it does not hinder their education or vocational training, or include any activity that could be harmful to their health or development—for example, handling mechanical equipment or agrochemicals. We also recognize training or work experience schemes approved by a competent authority as an exception.
Ensure operations are free from exploitation of labor. Specifically, ensuring their operations are free from slavery, servitude and forced, compulsory, bonded, involuntary, trafficked or unlawful migrant labor.
Ensure the right to freedom of association. Specifically, ensuring all workers are able—subject to applicable laws—to exercise their right to freedom of association and collective bargaining, including the right to be represented by recognized trade unions or other bona fide representatives.
Ensure responsible sourcing of “conflict minerals,” including cobalt, gold, tantalum, tin and tungsten, and the ores from which they originate, originating from conflict-affected and high-risk areas that could directly or indirectly finance or benefit armed groups or human rights abuses. Where products or materials supplied to the group contain such minerals, suppliers should work to exercise appropriate due diligence and perform a reasonable country of origin inquiry, including requiring its suppliers to engage in similar due diligence.
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How has the Covid-19 pandemic impacted on your HR programs and efforts?
With the pandemic bringing human rights into even sharper focus, it is imperative that we continue to work in partnership with others to support communities that may be particularly vulnerable to both the virus and its long-term economic implications. For example, we are supporting tobacco-growing communities and have worked to keep farms and trading floors operating safely, have distributed personal protective equipment and other essential items, and in countries such as Kenya, we have enhanced access to clean water and hand-washing facilities.
We have continued to strive to do more despite the pandemic and have set ourselves ambitious targets. We aim for our tobacco supply chain to be free of forced and child labor by 2025. I believe our purpose-led strategy and focus on delivering a better tomorrow have put us in a better position to manage these issues and to support our people and partners around the world.
Something that’s also been in the news a lot is the Covid-19 vaccine candidate, developed by BAT’s U.S. bio-tech arm, Kentucky BioProcessing (KBP). We are proud to play our part in the global fight against this virus and—hopefully—we can contribute to the solution.
What developments do you expect for 2021 as the pandemic continues to affect the world? What further measures will BAT take to support its farmers and suppliers?
With the U.N. Climate Change Conference and the U.N. Biodiversity Conference both set to take place this year, the “E” in ESG will continue to be a prominent feature on business agendas. But this does not mean human rights will be taking a back seat. There will be a keen focus on human rights and the impact of the pandemic on progress in this area. In addition to the normal economic challenges facing rural communities, there are fears that Covid-19 could increase poverty, and this could lead to more incidents of child labor. We believe this is a very real risk and are calling on everyone involved in global agriculture supply chains to look at child and forced labor solutions differently.
For our part, we will continue our well-established support for our contracted farmers and suppliers across the world, focusing on strong policies, extensive due-diligence and effective remediation to create shared value for all. We continuously work to improve and strengthen our approach, including examining new ways to train our field technicians to help them identify child labor risks and spot early warning signs, how we can better address root causes and how we can help improve farmer livelihoods.

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While you have made significant progress in the tobacco supply chain as far as HR are concerned, your New Categories portfolio presents challenges different from those in the leaf supply chain. What are these challenges, and how are you addressing human rights?
Our supply chain for our New Category business can have many layers of suppliers between the raw materials and the final product. This complexity can increase risks for both the security of supply and human rights. We are focused on mapping our supply chain and building relationships with critical lower-tier suppliers. All our tier 1 New Category suppliers are subject to our supply chain due diligence program, including human rights risk assessments and independent audits of workplace conditions. Since 2018, this has included tier 2 suppliers too. Suppliers are prioritized for audits based on the level of risk identified, against independent human rights indices developed by Verisk Maplecroft. We conduct an annual risk assessment on 100 percent of our existing materials suppliers. In addition, before we start working with a new product materials supplier, it must undergo an independent audit performed by our partner, Intertek.
We also need to monitor closely for conflict minerals in our electronic supply chain. The main challenge here is that the mines are often many layers away from BAT, meaning that we do not have control over their activities. However, we are committed to responsible mineral sourcing as outlined in our Supplier Code of Conduct. In 2019, we implemented new due diligence procedures, aligned to the OECD’s internationally recognized guidelines for responsible mineral supply chains. Last year, we published our first Conflict Minerals Report.
In our first year of monitoring for conflict minerals, we were pleased by the strong level of engagement from our suppliers, with a 100 percent response to our due diligence enquiries. The suppliers were at varying levels of maturity in implementing their own conflict minerals due diligence. We are working with all the suppliers concerned to help them address these gaps and support them in building capacity and strengthening due diligence measures.
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.
April 1, 2021
Nurturing a Niche

Photos courtesy of Frederick de Cramer
A new joint venture brings security to the supply of Latakia tobacco.
By George Gay
It’s easy to become sold on the idea that tobacco and nicotine products exist to satisfy the demands of people who don’t want to consume them because, bizarre as this narrative might appear to be, it is the one mostly offered up by the general media. Tobacco and nicotine consumers are portrayed as hapless addicts in need of saving by those who know that they know best. Even now, with the traditional tobacco wars largely behind us and with the former combatants from both sides of those wars seemingly marching in step toward a joint vision of a world freed from tobacco smoking, skirmishes, perhaps less intense than those of the tobacco wars but probably more numerous, are still being fought. What once pitched tobacco interests against anti-tobacco interests now pitches the forces of harm reduction against those of the quit-or-die brigades, pitches those who come bearing the gifts of less risky products against those who offer only blood, sweat and tears.
But if the focus is switched from that of the combatants to that of the users of tobacco and nicotine products, a different picture emerges: one in which many of these consumers quietly get on with enjoying their various habits. Take, for example, a recent story told by Chuck Stanion, who took “A closer look at Latakia tobacco” in Tobacco Talk on the Smoking Pipes website. His story is both interesting and informative, but what caught my eye particularly were the comments that followed it, which were clearly generated by an uncommonly calm online community of informed pipe smokers who were looking for and keen to share knowledge about blends, products and much else. Many of them clearly sought out pipe tobaccos that listed Latakia as part of their blends.
And this is not surprising. Because of the way that it is processed, Latakia provides distinctive notes to the aroma and taste of the blends in which it is included. Mostly, these blends are pipe tobaccos, but, apparently, Latakia has also been used in snuff, and there is currently talk of its possibly being used in other tobacco products such as cigarillos and waterpipe tobaccos.

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Improving efficiency
My attention was drawn to Stanion’s story by Frederick de Cramer, a doyen of the Turkish oriental tobacco business who, in November 2020, through his consultancy, Cramer Tobacco, linked with ASTAB in a joint venture partnership, part of whose aim is to expand ASTAB’s Latakia tobacco production and sales, which currently go to the U.S. and countries of the EU.
ASTAB was set up in 2007 by Haldun Babacan and Selcuk Karagozler, former Tekel employees who both graduated from the Tekel Tobacco Technology department of Istanbul University and who, during their time with Tekel and other companies, between them built up a wealth of experience in tobacco grading, purchasing, blending and processing. This experience translated into expertise and put them in an ideal position to tackle the growing need to improve the efficiency and thereby lower the cost of oriental tobacco production, which had undergone little change for decades.
Their efforts led in part to the development and patenting of the automated loose-leaf oriental tobacco curing system known as the Vento system, which provided for the expansion of the Izmir crop by more than 10,000 tons in the East Adiyaman area. But they were also involved in the development of an oriental tobacco harvesting machine, even though, because of the nature of this tobacco and the environments in which it is grown, for a long time it was thought that it would not be possible to automate and mechanize such harvesting. And they developed other methods of harvesting, including one in which the mid-rib of sun-cured Virginia is removed at harvesting, before the lamina is cured using the Vento system. This method reduces costs because it bypasses the need for costly traditional curing and does away with the need for expensive threshing equipment. Not only that, but it is also said to result in a more even cure and, therefore, a better quality tobacco.
Meanwhile, following the passage three years ago of a law allowing for the growing of hemp in Turkey, ASTAB produced machines for extracting fibers from the plant’s stem and producing yarn for the textile industry, and, since then, in collaboration with textile companies, it has produced high-quality cloth from hemp. But its latest project, begun in 2018 in cooperation with Birol Yigiter, a leaf tobacco expert who started his career at Austro Turk, has seen it embrace Latakia production.
Currently, the Latakia production process starts with the purchase of high-quality Izmir tobacco from the classical production areas, though the company has plans to run trials with Basma, Yayladag and other classical oriental varieties. The tobacco is shipped to ASTAB’s warehouse in Izmir where it undergoes an initial process in which the leaves are cleaned and separated. Then, in line with demand, these tobaccos are placed in barns where they are exposed for two to three months to smoke generated by burning the branches of a type of wild Mastica shrub or small tree, smoke that gives the tobacco its unique aroma and smoking quality.
The Mastica shrub that is used in this process grows only in the eastern Mediterranean, and ASTAB obtains its supplies from a pine forest that grows adjacent to where it has built its barns and that it rents from the Turkish Forestry Department. To ensure that its Latakia business remains viable, ASTAB uses the Mastica sustainably, with branches being harvested in such a way that the shrubs regenerate within two years to three years.
After the tobacco leaves are smoked in the barns, they are reconditioned and screened for nontobacco materials, broken lamina, scrap and other unacceptable tobacco. Then they are packed in 50 kg cartons ready for shipment to customers.

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A sought-after niche
At first, volumes were minimal, and it was only in 2020 that ASTAB enjoyed its first year of substantial production, which raises a question. Why would a company want to get into the Latakia business, especially a company that already has a number of arrows to its bow? After all, putting it mildly, pipe tobacco is a niche product even within the range of OTPs, and Latakia is a niche ingredient in the blends of pipe tobaccos. On top of that, it is clearly a tobacco requires a lot of skill, effort and time for production.
Well, according to de Cramer, while Latakia is a niche product, it is nevertheless much sought after by those pipe tobacco manufacturers that use it in their blends. Additionally, he said, the countries where this tobacco had traditionally been produced, Syria and Cyprus, had, for various reasons, been unable to maintain production of the volumes and qualities required by the market. Throw in the idea that it would not be possible, without an effort that would eclipse any possible returns, to produce Latakia outside of the eastern Mediterranean, and such an enterprise takes on a much more appealing aspect.
And, of course, between them, Birol, Haldun and Selcuk had the leaf expertise and technical know-how that allowed them to quickly get to grips with the processes involved. After only one year and using a prototype container-sized curing barn, they managed to produce a high-quality Latakia that customers approved. And from there, they were able to go ahead with building six barns in 2019, which gave them an annual capacity of 10,000 kg of Latakia.
These barns, which are steel framed buildings covered in corrugated sheet and insulation material, have simple furnaces built under them where the Mastica branches are burnt. Within the barns, trays, on which the tobacco leaves are spread evenly, are stacked one on top of the other on mobile racks that can be rotated about the barn to ensure an even processing of the tobacco.
It is a measure of the early success of this project that, as this story was being written in early January, ASTAB was confident enough to start building, on land adjacent to where its curing facilities stand, another seven barns, which should be ready for use during the first quarter of 2021. Part of the reason for the confidence in this project is down to the fact that the high-quality tobacco necessary for producing Latakia, along with the materials for curing it, are available locally. And to that can be added the fact that Turkey, with its relatively low labor costs and a currency that mostly can be depended on to fall in value against the dollar and euro, is ideal for producing Latakia, which involves a process that is labor intensive, in large part because the furnaces need near-constant attention. In addition, the team that comprises the joint venture is confident that there is still room for improvement in its barns and processes and that even better results can be achieved in the future.
This should be music to the ears of manufacturers developing pipe tobacco blends because, by their nature, any niche ingredients will raise concerns about continuity of supply. And Latakia is clearly an important and intriguing type of tobacco for those charged with such developments. In his story, Stanion quotes Jeremy Reeves, head blender at Cornell & Diehl, as saying that it takes only a little Latakia to characterize a blend. But, at the same time, he was quoted as saying that it was wrong to give the impression that it was a “strong” tobacco because, in fact, it was remarkably mild. It burnt at relatively low temperatures and was forgiving on the palate.
According to an entry in my 1984 edition of the Tobacco Encyclopedia, Latakia tobacco was originally produced in Syria and took its name from the region where the oriental tobacco that was used in the special curing process was originally grown. At that time, the plant was apparently stalk-cut when ripe, sun cured and afterward fumigated over open fires of green wood, which produced copious amounts of smoke. “This gives the tobacco a distinctive spicy aroma without its undergoing real fermentation; the precise flavor depends on the particular wood used,” the encyclopedia entry says.–G.G.
George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.

April 1, 2021
China Rising

Photo: Meccasky | Dreamstime
China’s vapor market has been growing rapidly from a small base. How it will evolve from here depends largely on the government.
By Timothy S. Donahue
There are 350 million smokers in China. The country consumes an estimated 1 trillion cigarettes per year. As the largest cigarette market in the world, it would make sense for China to embrace vapor products as a less risky alternative to combustible tobacco. However, with a state-run tobacco monopoly and billions of dollars of taxes at stake, industry experts say the Chinese vapor market is complicated and slow to implement regulations.
Despite impressive growth, China’s vapor market is still insignificant compared to its tobacco market. As of the end of 2019, an estimated 7.4 million people in China were regular e-cigarette users, according to Cloris Li, a spokesperson for Smoore International, parent to FEELM and the Vaporesso brand. “That means the electronic cigarette industry in China can still potentially convert a large number of smokers,” said Li. “Considering China’s status as the biggest tobacco market, it has enormous potential to continue the current rapid growth rate. In 2018, Chinese e-cigarettes and auxiliary products had a market size of CNY5.52 billion [$848.38 million] and it is predicted to grow more than double to CNY11.28 billion by 2022.”
Vaping products in China are not considered tobacco products like they are in Europe and the United States. Instead, e-cigarettes are considered a consumer goods product. During the E-Vapor and Tobacco Law Virtual Symposium, sponsored by the law firm of Keller and Heckman, two industry experts discussed the current vaping and tobacco market in China. One speaker noted that because e-cigarettes do not fall under the definition of tobacco, as defined under the country’s monopoly laws, China has yet to implement any major restrictions on vapor products.

China, where the modern e-cigarette was invented, has become the manufacturing hub of the fast-growing global vapor industry. (Photo: Timothy Donahue)
“When looking at the regulation as it relates to e-cigarettes in China, we are seeing what I would classify as slow development,” the speaker said. “On a national level, [there are] no mandatory laws or regulations as it relates to e-cigarettes[-related] or e-tobacco-related products. That may change at some point; we don’t know. But what we do know is that it does not fall under the definition of tobacco at the present time.”
With little regulatory guidance, China’s vapor market has been booming both in terms of domestic consumption and manufacturing exports. China, where the modern e-cigarette was invented, has become the manufacturing hub of the fast-growing global vapor industry. This has led to the rise of several major corporations, including the world’s most valuable vapor company, Smoore International. When Smoore went public in mid-2020, its stock grew by nearly 150 percent on its opening day of trading on the Hong Kong Exchange.
The value of Chinese e-cigarette maker RLX Technology, parent to the RELX brand, jumped 146 percent during its trading debut in January 2021 after raising $1.4 billion in its U.S. initial public offering, the first major U.S. listing this year by a China-based company. In its prospectus, RLX stated that vaping products only have a 1.2 percent penetration rate in China compared with 32.4 percent in the U.S. The Electronic Cigarette Industry Committee estimated China’s 2020 e-cigarette sales at CNY14.5 billion, an increase of 30 percent from 2019 (CNY11.2 billion). By comparison, the U.S. e-cigarette market in 2019 was worth $5.34 billion and is expected to reach $6.50 billion in 2020, according to Grandview Research.

When Smoore International went public on the Hong Kong Exchange in mid-2020, its stock grew by nearly 150 percent on the first trading day. (Photo: Smoore International)
RLX is doing its part to accelerate e-cigarette sales in China. In early 2020, the company launched its two flagship RELX vape shops in Shanghai and Beijing. Today, RELX has partnered with 110 authorized distributors to supply its products to over 5,000 RELX-branded partner stores and over 100,000 other retail outlets nationwide, covering over 250 cities in China, according to its prospectus. Revenue for the company nearly doubled in the nine months ended Sept. 30, 2020 to $324 million, with a net income of $16 million.
Along with the Smoore and RLX IPOs, China’s vaping industry continues to attract lots of attention from the capital market, according to Li. “This year, in 2021, many more second-tier brands are spearheading efforts to acquire financing to expand the market [in China], especially markets in lower-tier cities,” Li said. “For example, MOTI intends to invest CNY1 billion to open 10,000 stores. Snow Plus even announced its intent to distribute future stock shares to distributors to open more stores.”
To date, the Chinese government has passed two major pieces of legislation for vapor products. In 2018, it made it a crime to sell a vapor product to anyone under 18 years of age. In November 2019, the government prohibited online sales of vapor products to prevent youth initiation. In 2020, the country passed the Law of the People’s Republic of China on the Protection of Minors. That law is aimed at preventing parents or other guardians from “indulging or instigating minors” to smoke or vape.

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The Chinese government wants to avoid the rapid rise in youth vaping that occurred in the U.S. If the U.S. figures replicated domestically in China, it could harden Beijing’s stand on the category, according to a 2021 report from ECigIntelligence. For now, e-cig usage among Chinese youth remains relatively low. A 2019 survey by the Chinese Center for Disease Control and Prevention found that 8.6 percent of high school students aged between 15 years and 18 years in China had used “tobacco” products during the previous 12 months.
Between July and August 2020, authorities collected comments on a bill that would restrict the public use of e-cigarettes nationwide and establish specific areas where vaping would be allowed. “The amendments to the Law on the Protection of Minors would prohibit vape stores from operating near schools, ban e-cigarette sales to minors and vaping in schools, kindergartens and anywhere else where young people are gathered,” the report states. “The bill would also require vendors to ask for an identification document if in doubt about a purchaser’s age while shop owners would be required to put up a prominent ‘no sales to minors’ sign. If the proposals are adopted and e-cigarettes are regulated under the same umbrella as traditional tobacco products, it would be China’s first national law specifically restricting e-cigarettes.”
In 2020, the Chinese government also floated the idea of banning vapor products completely. Another proposal suggested that e-cigarettes should be regulated as tobacco products while prohibiting their promotion as smoking cessation products. While the government has not indicated it will act on any of these proposals, the discussions send a clear message to the industry that politicians are willing to step up and regulate e-cigarettes, according to the report.

With online sales banned, vapor companies have been investing in brick-and-morter outlets.
The authors point out that Chinese rules can impact a market virtually overnight. Prior to the country’s ban of online sales of vapor products, there were hundreds of thousands of products available on the internet. The day after the announcement, an online search for e-cigarettes would have yielded zero results. “When the authorities do put something in writing and announce something that they want to put into effect, it can happen oftentimes almost immediately,” the report states.
While the Chinese government is yet to release any vapor regulations concerning components and manufacturing, several industry players have come together to self-regulate the industry. In 2017, draft regulation or standards were developed on the industry level. While not mandatory national standards, the rules give a good sense of what the industry considers sensible in terms of specifications, requirements and limitations.
“The same holds true with the group standards concerning the raw materials, about the diluents, the flavorings, and some requirements as it relates to physical, chemical, hazardous substances. They go into some test methods,” a presenter at the Keller and Heckman seminar said. “Not always, but typically, the authorities will look at these group standards, voluntary standards, and start to adopt some of that language when they make mandatory national standards. So, having a good sense of what these [recommended standards] look like … that would be important.”
Further complicating China’s vapor market is the China National Tobacco Company (CNTC), the state-run tobacco monopoly. If the monopoly chooses to enter the vapor market, it could devastate the independent vape shops that proliferate the Chinese market. “The state monopoly has yet to signal clearly how it will regulate e-cigarettes or whether it will sell them. If it does, it has the power to regulate its competitors out of the market,” the report states. The industry is acutely aware of this risk. In a November 2019 interview with Reuters, one investor in a Chinese e-cigarette start-up compared the combined regulatory and competitive threat posed by CNTC as “a knife on the neck.”
CNTC is a source of major funding for the Chinese government. Its contribution accounted for an estimated 5.45 percent of the country’s tax revenue in 2018. That amounts to CNY10.8 trillion, according to media reports. If CNTC were to enter the vapor market, the monopoly’s existing 5 million domestic retail outlets could present a major challenge for private vape shop owners.
Kate Wang, CEO for RELX, told Reuters that she’s “not worried” about the government’s impact on the sector. The products will continue to remain available, she said, “as long as there’s proof that this is a good solution for smokers.”
Market overhaul: China seeks to regulate ENDS like tobacco
It has long been anticipated that the tobacco monopoly in China would one day regulate electronic nicotine-delivery systems (ENDS). At press time, China’s Ministry of Industry and Information Technology (MIIT) and the State Tobacco Monopoly Administration (STMA) released a draft proposal to overhaul rules governing the ENDS market.
Shares in RLX Technology, parent to China’s market-leading RELX e-cigarette brand, plunged in the wake of the announcement. Just two months after the vapor maker’s billion-dollar debut on the New York Stock Exchange, RLX shares fell by more nearly 45 percent to $10.69 per share on March 22, having reached a high of $19.46 per share on March 19.
An online copy of the draft regulations suggests the government intends to regulate ENDS like ordinary cigarettes. The ministry is seeking public comments on the draft regulations until April 22. The implications of the draft regulations could be far-reaching. With an estimated 300 million smokers, China is the world’s largest potential market for vapor products.
“In view of the homogeneity of new tobacco products such as e-cigarettes and traditional cigarettes in terms of core ingredients, product functions and consumption patterns, new tobacco products such as e-cigarettes shall be implemented in accordance with the relevant provisions of the Regulations on Cigarettes,” the draft proposal states. “The implementation … will greatly enhance the effectiveness of e-cigarette supervision, effectively regulate e-cigarette production and operation activities, solve the product quality and safety risks of e-cigarettes, false advertising and other issues, and effectively protect the legitimate rights and interests of consumers.”
While the news will have some impact on the global ENDS market, the Chinese manufacturers producing for international markets will likely continue operations. “Depending on how they regulate and to what extremes, it could be devastating to the companies operating in the consumer market in China,” said a representative of a major China-based ENDS manufacturing company who asked for anonymity. “We expect that there will be players that remain in the market, possibly working alongside the Chinese government in the promotion and sales of vaping products. Right now, we are just waiting for a better understanding of what this means for China’s domestic market. A worst-case scenario would be an outright ban on all products, but this is unlikely.”—T.S.D.
Timothy Donahue is the assistant editor of Tobacco Reporter. Since joining our team in January 2013, he has become not only an expert on the traditional tobacco business but also a well-respected voice in the rapidly developing vapor industry. Tim spends much of his time on the road, attending conferences and interviewing industry representatives. His networking skills, work ethic and quick mind are valuable assets to our diverse audience.

April 1, 2021
Tectonic Shift

Photos: PMI
By 2025, smoke-free products could contribute more than 50 percent to Philip Morris International’s total net revenues.
By Stefanie Rossel
Five years ago, Philip Morris International (PMI) announced its ambition for a smoke-free future, based on the development and commercialization of smoke-free products that are less hazardous than combustible cigarettes. During its virtual Investor Day conference on Feb. 10, 2021, PMI provided an update on its progress and revealed new targets. By 2025, PMI aims to derive more than 50 percent of its net revenues from smoke-free products, up from 24 percent in 2020.
IQOS Iluma, the next generation of its IQOS heated-tobacco product (HTP), is supposed to play a major role in the company’s transformation. The device comes with a new internal heating technology based on induction and will be launched in the second half of this year. “IQOS Iluma is simple and intuitive,” explained PMI’s Chief Operating Officer Jacek Olczak. “It self-activates and requires less explanation, which will save time and cost of acquisition as well as aftercare and retention. It supports easier switching and higher conversion for legal-age smokers.”
With the new heating system, PMI addresses consumer feedback on the heating technology of its successful IQOS tobacco heating device. Some consumers reported breaking blades.
The Iluma will be available in three designs at three price points. Next to a super-premium version, there will be a variant that corresponds to the present IQOS model 3.1 and more affordable version. For the time being, Olczak said, PMI will maintain IQOS with both the blade and the induction technologies on the market.
“Higher loyalty to the new products will drive consumers to conversion. Requiring less infrastructure, Iluma will enable more access to geographically remote areas,” said Olczak. Iluma will be introduced with a new broad range of consumables; the tobacco sticks of blade and induction technology devices cannot be interchanged.
In the five years since PMI announced its smoke-free ambition, the company has created an entire new product category. As of December 2020, IQOS had 17.6 million users, of which 12.7 million had switched from cigarettes and stopped smoking, according to PMI’s CEO Andre Calantzopoulos. The product is present in 64 markets, a reach planned to be expanded to 100 in the next five years. It also has an 80 percent segment share. According to PMI, IQOS is the world’s No. 1 smoke-free brand and No. 5 nicotine brand. In IQOS markets, the product is the third largest brand behind Marlboro and Winston. IQOS generated net revenues of $6.8 billion in 2020. To date, PMI has invested $8.1 billion PMI in developing reduced-risk products. IQOS has remained remarkably resilient during the Covid-19 pandemic, Calantzopoulos said. In 2020, 76 billion heated-tobacco units (HTUs) were shipped, an amount that is targeted to reach 140 billion to 160 billion in the 2021–2023 period.

Jacek Olczak
Exceptional growth expected
Calantzopoulos anticipates a decline of total nicotine industry volume of 1 percent to 2 percent over 2021 to 2023, but a clear transition to nicotine smoke-free products. He expects the share of combustible cigarettes and other tobacco products (OTP) to decrease from 94 percent in 2020 to 90 percent by 2023, whereas smoke-free products (HTP, e-vapor and nicotine pouches) are estimated to grow from 6 percent to 10 percent over the same period. The HTP category alone, which had a volume share of 3 percent last year, is forecast to account for 7 percent by 2023, assuming the same regulatory conditions as for combustible cigarettes.
In 2020, the retail value of the global nicotine industry stood at around $450 billion. Of that, cigarettes and OTP represented 94 percent, HTP 4.5 percent, vapor products 1.6 percent and nicotine pouches 0.1 percent. Over the next four years to five years, Calantzopoulos expects value compound annual growth rates of roughly 4 percent for the total industry but 25 percent for HTP and 10 percent to 15 percent for vapor products.
Opportunity for IQOS remains vast. “There are 150 million addressable users in current markets and around 600 total international potential users excluding China and the U.S.,” said Calantzopoulos. Indonesia, the Philippines and Vietnam are considered sizeable geographies with potential for IQOS. The U.S. market, where IQOS was authorized as a modified-risk tobacco product by the Food and Drug Administration in July 2020, also holds great promise for the company. “There is high consumer interest in smoke-free alternatives,” Olczak explained, “and a rational and robust regulatory environment for building awareness.” Commercialization of IQOS in the U.S. is supposed to start in early 2021.
“Reduced-risk products (RRPs) are a different business,” said Calantzopoulos, describing PMI’s learning curve. “Their complexity is much higher than that of combustible cigarettes.” Apart from the different manufacturing and supply chain, operating in an uncharted regulatory landscape, the need to build new brand equity and for high conversion for harm reduction and gaining scale, he mentioned a new consumer “journey,” which drives development and commercialization and route-to-market, high upfront investment for meaningful entry and new organizational skills and ways of working. Rewards, though, were also higher, he added. Next to the positive public health impact, RRPs come with higher profitability. This is especially true for IQOS: Its margin is about 2.4 times that of combustible cigarettes and approximately five times that of closed-system vapor products, according to the company’s chief financial officer, Emmanuel Babeau.

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IQOS as an umbrella brand
Over the midterm, the company says it might need two to three technologies and respective consumable offers to cover the full spectrum of consumer price segments. As a premium brand, IQOS can be stretched over two price segments as in Japan. To cover three to five price points in certain markets, further offerings and partnerships will be required.
IQOS is supposed to become the umbrella brand in a consumption environment characterized by poly-use, Olczak pointed out. In the combined markets of the U.K., Germany, Japan and Russia, combustible cigarettes were consumed by 66 percent, vapor products by 7 percent and HTPs by 8 percent of nicotine users in 2019. But there were overlaps: Of the smokers, 4 percent also used HTPs and 7 percent also used vape products. Triple use was observed in 7 percent. “We will move from single to multi-focus, with IQOS addressing a range of consumer preferences,” Olczak said. In the future, the company forecasts, consumers will increasingly use different smoke-free products in parallel.
The second new product launch this year will hence be a vapor product called IQOS Veev. Based on the company’s Mesh technology, which uses a metallic mesh with tiny holes to heat e-liquid in a pre-filled, pre-sealed pod, the product will initially be introduced in more than 20 markets. “Closed system users mean better economics for the manufacturer,” Olczak stated. “The e-vapor category is growing and consolidating. The expected increase in users over the next five years will be 7 [percent] to 10 percent, albeit concentrated in specific geographies. For existing business models, returns remain low—there is low conversion to the category, low loyalty within the category, and a high number of devices per user driving up acquisition and retention cost.”
PMI seeks to enter the market from a different angle, Olczak added, by leveraging the IQOS infrastructure with a bespoke route-to-market approach. Veev will be a premium product coming with a new age verification technology that presently is in the final stages of testing.

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Beyond nicotine
PMI is also eying the nicotine pouch category, a small but growing segment with a market size of 5 billion stick equivalents in 2020. With new consumer tests, the company will develop its platform 2, a THP closest to the combustible cigarette ritual and experience, further this year. Platform 3, an electronics-free nicotine product, is supposed to be commercialized within the next three years.
To accelerate smoking cessation, Calanzopoulos called for differentiated regulatory frameworks taking the differing levels of harm of nicotine products into account. “We must stop debating whether RRPs should be made available, but how fast and how best to help the men and women who would otherwise continue smoking,” he said. “With the right regulatory frameworks, dialogue and support from civil society, cigarette sales can end within 10 [years] to 15 years in many countries.”
To refinance its RRP investments, PMI intends to achieve around $2 billion in annualized gross cost efficiencies by 2023 compared to the 2020 cost base. The company will continue to use the revenues from its combustible cigarette business to support its smoke-free expansion. In 2020, PMI generated net revenues of $28.69 billion ($29.81 billion in 2019), of which combustible cigarettes accounted for the lion’s share.
Excluding China and the U.S., the global cigarette market decreased by 6.7 percent in 2020 compared to the previous year, PMI estimates. In IQOS markets, the decrease even amounted to 9.1 percent. “The reduction of social smoking moments during the height of Covid-19 restrictions has led to consumption loss, which put Marlboro under pressure in 2002 while our other brands performed well,” Olczak pointed out. The temporary loss of duty-free due to reduced air travel contributed to the overall category decline. “But consumption will come back once we return to our pre-Covid-19 daily routines,” said Olczak. Although impacted by the pandemic, the company continued to lead the global cigarette market excluding China with a share of 25.7 percent, down from 26.9 percent one year previously. The downtrading trend continued last year, with the majority being from mid-priced brands to low-priced and super-low-priced products.
PMI predicts a further annual drop in global consumption outside China and the U.S. of 3 percent to 4 percent between 2021 and 2023. The company, however, already has plans to go beyond nicotine: It intends to employ its newly won expertise in life sciences, inhalation technology and natural ingredients to explore and develop botanicals and respiratory drug delivery, the market sizes of which PMI estimates at $29 billion and $36 billion by 2025, respectively. If its up to PMI, “beyond nicotine” products will contribute at least $1 billion to the company’s net revenues by that time.
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.

April 1, 2021
Flexible Solutions

Photos: Parkside Flexibles
The prospects for tobacco packaging remain bright despite stagnating cigarette sales.
By George Gay
A recent Fortune Business Insights report predicted that the turnover of the global tobacco and nicotine packaging business would grow from the $16.15 billion of 2019 to $20.45 billion by 2027. This seems like a healthy increase given what we are often led to believe is the declining state of the business, at least the overwhelmingly dominant part of it that is made up of sales of traditional cigarettes.
Given this, Tobacco Reporter asked Paula Birch, global sales director of Parkside Flexibles, whether she believed the sector of the tobacco and nicotine packaging business that Parkside operated in would grow to this extent, and she kicked off her emailed reply by providing some context to the growth figures.
As was mentioned by Fortune Business Insights, the value of the tobacco packaging market was predicted to grow by about 27 percent during the next six years, she said. Additionally, research by British American Tobacco had found that more than 19 percent of the world’s population comprised smokers who consumed more than 5.3 trillion cigarettes annually across a global cigarette market worth about $700 billion, a figure that rose to $814 billion annually when other tobacco and nicotine products were included. It was also the case, though, that cigarette sales had fallen by 17 percent since 2010, so the high and increasing figures for the value of sales had been down to retail prices, which, at the same time, had increased by 91 percent, according to figures by the U.K. Office for National Statistics.

Keen to serve increasingly environmentally conscious consumers, Parkside Flexibles has developed products such as recycled content inner liners.
“As prices have risen, consumers have increasingly demanded value for money and greater premiumization to ensure they are getting what they pay for,” said Birch. “The key to achieving these two aspects is via enhanced barrier performance, which provides improved tobacco quality, freshness and extended shelf life, all of which can be achieved with flexible packaging. By using flexible solutions for inner liners, pack wraps and pouches, brands can provide consumers with the superior quality they are seeking.
“As a result, we are now seeing the emergence of flexible packaging as the solution of choice for tobacco brands in Eastern and Western markets due to its greater ability to protect, preserve and present throughout the supply chain from manufacture to supermarket shelf. For tobacco brands, flexible packaging offers greater flexibility and cost-effectiveness in production when compared to other popular solutions, such as cardboard. At Parkside, we develop flexible packaging solutions that offer superb barrier performance to prevent product deterioration and aroma transmission and inhibit the growth of bacteria within the pack, thus ensuring premium freshness and quality of tobacco products.
“The benefits of flexible packaging for the consumer and brand mean we feel confident that over the next decade, this packaging format for tobacco will grow at a similar double-digit rate in line with the overall tobacco packaging market.”

As prices have risen, consumers have increasingly demanded value for money.
JPaula Birch, global sales director, Parkside Flexibles
Growing populations and hectic lifestyles
One question that arises out of this is whether the growth in tobacco and nicotine packaging turnover will be driven mainly by demand in particular countries and regions or be a worldwide trend. Consumption patterns, at least up until the Covid-19 pandemic struck, would seem to suggest that growth would have to be fueled by developing countries, but is there more to it than volume consumption?
The U.S. Centers for Disease Control and Prevention stated that between 2005 and 2015, the percentage of adults smoking fell worldwide, said Birch. Despite this, the global tobacco packaging market continued to grow because, while the overall percentage of people smoking had reduced, global populations continued to rise, resulting in higher numbers of people consuming the product. And, as mentioned previously, packaging company turnover was increasing as a result of their meeting the rise in consumer expectations about product quality.
“The modern-day lifestyle in many countries—with increased workloads, hectic schedules and, indeed, the Covid-19 pandemic—has led to a significant increase in tobacco consumption among professionals and those with stressful professions,” said Birch. “We expect to see the Asia-Pacific region experience the fastest growth in tobacco packaging turnover due to this combination of population growth and working lifestyle. We also anticipate continued growth across Europe and the U.S. for the same reasons.
“Interestingly, growth in the flexible packaging format does not rely solely on consumption patterns. Due to the versatility of the format across pack wraps, inner liners and pouches to name a few, the substitution of metal, card and paperboard continues to drive market growth.”

Platform for promotion
Even with standardized tobacco packaging being introduced in many countries, the authors of the Insights report seem to believe there is still a part that packaging can play in product promotion. So Tobacco Reporter asked whether Birch believed this to be the case.
“Absolutely,” she said. “Although brands must adhere to strict packaging guidelines in terms of packaging standardization in many countries, there are still significant opportunities to utilize the right packaging to promote a particular product. These restrictions can be challenging when competing with lower-risk products like vapes that are not constrained by packaging design laws as stringent as those for standard tobacco packaging.
“It is vital in the modern market space that brands market and communicate their products through unique and innovative promotional methods. In particular, the opening and reclosing feature can be differentiated, the use of tactile or premium finishes on the inside of the pack, and integration of novel communications and graphics within the pack can all be leveraged. Tactile packaging and intricate design work like embossing can help to convey a premium quality. This is often seen in the premium spirits market, where bottles are placed in intricately designed boxes to create a sense of luxury, generating a consumer sensory experience beyond the purely visual.

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“Sustainability is also a feature that consumers consider when making their purchases, so brands can use this to stand out from the crowd. Laminate structures of compostable films can be used to produce the pouches widely used by the roll-your-own tobacco consumer, and they comprise a viable, environmentally friendly alternative to other materials. At Parkside, we have created fully accredited flexible packaging pouches that compost both at home and in industrial composting environments. Accredited to EN13432 and Vincotte OK Home Compost regulations, the compostable OTP pouch enables brands to demonstrate their sustainability commitment.”
Finally, Tobacco Reporter asked Birch the question that, currently, no interview can leave out: How has the Covid-19 pandemic affected Parkside’s business?
“The last year has been extremely challenging for all businesses,” she said. “Demand has been volatile, and there have been various supply chain challenges, which we have successfully navigated.
“At Parkside, our primary focus is on the health, safety and well-being of our employees and their families as well as our customers, suppliers and the communities we operate in. We implemented a range of measures in line with current U.K. government and NHS [National Health Service] guidelines to minimize the spread of the virus and ensure that productivity didn’t come at the expense of staff safety.
“Importantly, we have continued to successfully work with tobacco brands around the world and implemented a range of supply chain protocols, which have enabled us to operate at full capacity throughout the pandemic. We have excellent supply and stock management systems in place, and we are continuing to meet the increased demand from our customers across all markets.”
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.

April 1, 2021
Chewing the Fat
Our U.K. editor ponders the absence of health warnings on his calorie-laden ice cream bar
Recently, I had an ice cream bar from a stash in our freezer. I appreciate the own-brand product in question because the supermarket that offers it has gone to the trouble of catering for vegans such as me and is offering a tasty ice cream bar whose production is almost certainly more environmentally friendly than that of the usual animal-products-based ice cream bars. And while the vegan ice cream bars are wrapped in nonrecyclable plastic, the wrapping is thin, and the whole is offered in a recyclable cardboard box.
What’s not to like? Well, when I opened the box, the contents looked as if somebody fairly large had sat on it with intent. Packaging is supposed to protect products, but it cannot work miracles, and there must be a complex set of calculations that would have to be made to determine what is the ideal strength and efficacy of packaging, taking into account such things as the need to maintain product integrity in the supply chain, the danger of waste, the need to protect the consumer’s image of a brand, costs versus benefits, and a whole slew of factors impacting the environment.
Frankly, despite the forlorn appearance of my squashed ice cream bar, I cannot help thinking that the packaging of this own-brand was just about right. The type of packaging that would have been needed to protect the ice cream bars from the sort of pressure my box came under would make them too expensive at retail and far too damaging to the environment.
But there was something else about this packaging that made me think. Why was there no health warning on it? I’m sure these ice cream bars could become “addictive,” which means I could become obese eating them; so, using the sort of logic applied to cigarettes, these ice cream bars could kill—me, for one! Cigarette packs are strewn with huge, grizzly warnings while ice cream bar packs are not, which is perhaps part of the reason why only about 14 percent of adults in the U.K. smoke while more than 50 percent are overweight or obese.

I have lived a long time, but I have never seen teeth so badly damaged as some of those depicted on cigarette warning labels.
Okay, you might argue, cigarette consumption causes all manner of health issues—but then so does being overweight or obese. According to my rough-and-ready research, smoking is associated with 16 cancers, but being overweight or obese is associated with 12 cancers. And take a look at our current situation. I see a lot of stories about how smokers who contract Covid-19 are at higher risk of severe outcomes than others in the population, though these reports are often quiet on smokers’ risks of contracting the disease in the first place. But, in fact, “increased body weight is the second greatest predictor of hospitalization and a high risk of death for people suffering from Covid-19,” according to the World Obesity Foundation website.
And what is the greatest factor? Smoking? No, age.
So why are there health warnings on cigarettes and none on the sorts of food associated with overweight and obesity. One argument could be that you can eat sugary and fatty foods sensibly and not become overweight or obese just as, according to the government, you can—don’t laugh—drink alcohol responsibly. This, I imagine, is poppycock. The ideas that you couldn’t safely consume one cigarette a day, but you can consume one ice cream bar or one glass of wine and not be tempted to have another, are beyond reason to my way of thinking.
Am I advocating sensible, responsible smoking? No. Definitely not. But then I wouldn’t encourage either the responsible drinking of alcohol or the sensible consumption of ice cream bars.
What I find unacceptable is the fact that while the packaging of other consumer products that raise serious health concerns bear more or less no ill-health messages, cigarette packaging does have such messages, and many of those messages, I suspect, are bogus. The trouble is that on cigarette packs that I see, there is no indication of what percentage of smokers ever suffer from the types of complaints depicted or what proportion of smokers suffer those complaints to the level depicted, so what is being conveyed in many of these graphic warnings is misleading at best, wrong at worst.
One example comprises some of the oral problems portrayed. I have lived a long time, but I have never seen teeth so badly damaged as some of those depicted on cigarette warning labels. In this case, I have to assume that such afflictions affect only a small proportion of smokers, so, to my way of thinking, this should be stated on the warnings. That way, smokers might take note.
At the same time, it might be worth pondering whether ice cream bars are good for your teeth.
Oh yes, and one other thing. Purely by chance, I wrote this piece on World No Smoking Day, March 10, so I thought I might check whether there was a similar day in the calendar for obesity. There isn’t. Well, that’s not quite true. There is no World No Obesity Day nor any World No Eating Day. But there is World Obesity Day (March 4 this year), which sounds odd to my way of thinking—almost as if it’s a celebration. —George Gay
April 1, 2021
Fighting Fakes

Chinese law enforcement officers destroy confiscated equipment that was used to manufacture counterfeit cigatrettes (Photo: Tobacco Reporter archive)
As illicit trade thrives in the pandemic, demand for security devices is expected to grow.
By Stefanie Rossel
Reduction in trade, restrictions on movement—while many legal businesses are suffering in the difficult conditions brought about by governments’ attempts to halt the proliferation of Covid-19, the pandemic has provided fertile ground for the activities of criminal organizations. A 2020 report by Euromonitor International found that the pandemic led to a surge in illicit trade, particularly in the tobacco industry, where organized crime is causing governments to lose billions in tax revenue as well as severely affecting legitimate businesses.
“The pandemic has created the ideal conditions for illicit trade in general to grow by amplifying the underlying key drivers that contribute to market imbalance,” says Nicola Sudan, general secretary of the International Tax Stamp Association (ITSA). “These include disrupted supply chains combined with global demand going off balance and government interventions, such as closed borders and consumption bans.
“There is also altered consumer behavior as a result of increased economic hardship and lockdowns. In North America, for instance, we have seen an exponential increase in illegal tobacco—and drug—trafficking direct to consumers while they are locked down at home. This is expected to continue as a way of avoiding taxes. And in France, interestingly, changes in sales patterns during times when borders were closed has also shown the extent of cross-border shopping in normal times when customers take advantage of differential tax regimes in the European Union to circumvent tax measures.”

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Stretched government resources have curtailed enforcement efforts. “Indeed, the pandemic impacted the traditional work practices of tax authorities, leading to decreased inspection visits to factories and reduced audit performance. This weakened state capacity might have emboldened producers to mis-declare and under-declare their production,” says Sudan.
Criminals have been quick to exploit these opportunities to expand their activities in scope and scale. “While legitimate businesses were struggling to maintain business operations during the pandemic, criminal elements adapted to the altered conditions with remarkable speed. With air traffic and air cargo significantly reduced, traffickers increasingly utilized land shipments, international small parcel shipments and relocated production facilities closer to destination countries.”
Increased illicit trade in excise goods also resulted as an unintended consequence from well-intentioned efforts to blunt the impacts of the pandemic. Several countries, including South Africa, banned both the sale of liquor and tobacco products during lockdown, leading to unprecedented levels of illicit trade. “According to news reports, over 90 percent of smokers were able to buy their cigarettes from illegal sellers [in South Africa],” says Sudan. “Many people fear these levels of illicit trade will persist long after the pandemic finally subsides as they will have the effect of further entrenching in different countries an already thriving illicit tobacco and alcohol market.”

The pandemic has created the ideal conditions for illicit trade in general to grow by amplifying the underlying key drivers that contribute to market imbalance.
Nicola Sudan, general secretary, International Tax Stamp Association
Revenues required
The massive rise in counterfeiting during the pandemic is expected to boost demand for security and authentication devices to better protect brands. Sudan notes that requests for security devices, including that for tax stamps and marks and secure traceability systems, come primarily from national governments. “Given the devastating impact of the pandemic on economies across the world, it has never been more important for governments to be able to raise significant levels of revenue—and raise them quickly—in order to rebuild their ravaged economies. To do this, however, they will likely need to increase tax rates, including excise taxes.”
Sudan warns that before imposing tax increases, especially in the exceptional circumstances created by the pandemic, governments should ensure they have robust tax administration, border management and supply chain control systems in place to recover the taxes and duties already due to them that are lost to illicit trade. “This is where security mechanisms such as tax stamps and traceability schemes have a significant role to play as confirmed by authoritative bodies such as the World Bank and as demonstrated by systems already in place in a number of countries.”
Sudan anticipates the greatest need for security devices to come from developing economies, mainly throughout Asia and Africa, where weak tax administration and supply chain control have led to widespread acts of noncompliance and tax evasion by domestic operators and where porous borders have facilitated smuggling and other forms of illicit trade. “Robust tax administration and supply chain control systems are generally characteristic of advanced economies because of their well-established practices. In developing countries, there is an appetite for new technologies such as the use of tax stamps and other security devices to strengthen tax administration and increase compliance by economic operators involved with excisable products.”

With air traffic and air cargo significantly reduced, traffickers increasingly utilized land shipments, international small parcel shipments and relocated production facilities closer to destination countries.
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Sophisticated solutions
In recent years, authentication technologies in the tobacco sector have made great strides. The implementation of a tracking and tracing regime is a requirement of the World Health Organization Framework Convention on Tobacco Control’s (FCTC) supplementary treaty, the Protocol to Eliminate Illicit Trade in Tobacco Products, which entered into force in September 2018. Traceability of the movement of legal tobacco products from the field to the consumer has already become obligatory in the EU, which, as part of its revised Tobacco Products Directive, requires cigarette packs and other tobacco products packaging to be labeled with an individual ID code, a so-called unique identifier (UID) since May 2019.
An authentication system using a UID involves the generation, capture, encryption, application, recording, interrogation and verification of the code. “Such systems are designed to provide crucial data to revenue and customs authorities for the effective control and enforcement of their excise management programs,” says Sudan. “Comprehensive track-and-trace systems, which go a stage further by following the product all the way from manufacturer/distributor to retailer/consumer are not yet the norm. However, the building blocks are there, and an increasing number of such systems are now being implemented—not only because it makes financial and logistical sense to do so but because, in a few years’ time, the more than 60 parties to the WHO FCTC Protocol will in any case be obliged to implement tracking and tracing as part of their commitment to the Protocol.”
An all-digital solution, as opposed to one based on the use of paper-based security labels, cannot be used to cover the traceability, authentication and tax collection needs of a government, she clarifies. “Although there are some very good digital systems currently in place that provide a lot of data for national excise management programs, tobacco products in particular are susceptible to acts of fraud and manipulation due to the high levels of tax associated with them. Such illicit acts involve the cloning of a UID on a pack of cigarettes to make it look like the real thing and ostensibly perform the same function as a legitimate code.”
To mitigate the risk of code duplication, ISO standards recommend incorporating an intrinsic, physical security layer into the UID as an authentication element. “However, although it is possible to incorporate some security into digital codes, a lot more security can be carried by a label such as a tax stamp. The stamp provides better protection and higher visibility as well as providing an anti-tampering function and catering to a wider range of stakeholders. So, while a digital solution may be suitable for low-tax or no-tax products, tobacco products in particular need a more robust solution to deal with the fraudulent practices that affect this high-risk market.”
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.

April 1, 2021
Coping with Covid

Photo: Transcom Sharaf
Accustomed to dealing with unforeseen situations, tobacco storage and logistics companies take the pandemic-related disruptions in stride.
By George Gay
During a telephone call on April 10, 2019, Guy Harvey, the CEO of logistics company Transcom Sharaf Group, which is based in Beira, Mozambique, told me that while his business had suffered “a few blows” from Cyclone Idai, it would come out of it stronger than it went in and better equipped to deal with any future extreme weather events (see “After the Storm,” Tobacco Reporter, May 2019). The port was operating, and the infrastructure was there, “so it’s business as usual,” he added.
It is astonishing how resilient some companies are. For those who need reminding, Cyclone Idai, which struck Malawi, Mozambique and Zimbabwe in the middle of March 2019, was described by the U.N. as one of the worst weather-related disasters in Africa. Other agencies rated it as one of the worst in the Southern Hemisphere.

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Given what happened two years ago and Transcom’s response to those events, I wasn’t surprised when, at the end of February this year, I was in touch with Harvey again and learned that, while the Covid-19 pandemic too had delivered a few blows to the company’s tobacco business, these had been fended off with judicious changes to normal and planned methods of operation. Nor was I surprised that, in one sense at least, there was a feeling that the business might come out of the pandemic stronger than it went into it.
As part of an email exchange, and in answer to a question, Harvey told me the pandemic had to some extent disrupted leaf tobacco delivery times on those markets that use Transcom’s facilities. There had been a delay in getting sample test results and, as a consequence, delays in obtaining sales confirmations and shipping instructions, which had resulted in longer-than-usual storage periods of higher volumes, he said. In addition, some destination countries also had higher-than-usual tobacco stocks at ports or storage facilities, the result of their own shutdowns; so they could not accept new-crop tobaccos as soon as would normally have been the case. “A lot more shipments had to be carefully scheduled to limit volume arrival per month, which required careful planning,” said Harvey. “In some cases, financial pressures meant sales were rolled to 2021 completely.”

Guy Harvey
Different ways of working
Meanwhile, Rene Luyten, a director of b-Cat, which, as part of its business activities, works closely with tobacco warehouse and logistic companies, made the point that whereas the pandemic had affected all businesses, this didn’t mean necessarily that business activities were down in all areas; in some cases, it just meant that different ways of working had had to be adopted. Before the pandemic, it was usual to visit customers’ sites, whereas now, some of those “visits” had gone virtual—were being made via video calls, which in most cases worked well. And though some new projects had had to be put on hold last year, the company had been able to send technicians to install its Controlled Atmosphere Chambers, which, for instance, are used by some warehouse operators to control insects in tobacco stocks.
Rene Luyten
Harvey pointed out that Transcom had been fortunate in at least one respect because Mozambique had suffered fewer restrictions than other countries in southern Africa and, indeed, than those in much of the rest of the world. The only strict shutdown in Mozambique had occurred in April and May 2020, which was in any case the normal “off season” for tobacco. And while temporary government office closures and restricted working hours had added some documentation delays, the movement of cargo from Transcom’s facilities to and into the port of Beira had hardly been affected.
By the same token, Luyten considers b-Cat to have been fortunate to operate out of the Netherlands, which has operated a “Smart Lockdown,” thereby allowing the company to operate its factory as normal throughout the pandemic. On the negative side, he said, supplier delivery times had been extended, but even this had not affected b-Cat’s operations materially. One upshot of this business continuity is that, not only has the company been able to retain all its employees, but it is expecting to have to take on additional skilled technicians.

Due than higher-than-normal tobacco stocks at ports and storage facilities, some shipments had to be carefully scheduled to limit volume arrival per month during the pandemic.
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While getting tobacco to the port of Beira has been relatively straightforward for Transcom, shipping it out of Beira has presented challenges. During the past three months, some shipping lines have been moving their empty containers to Asia to meet the high demand there, regardless of export contracts already in place, and, in some cases, customers have had to pay higher ocean freight rates than those for which they would have budgeted.
Bart Brouwerens
And in this respect, it might be some time until things return to normal. Bart Brouwerens, a director of the Netherlands-based Andromeda Forwarding & Logistics, told me in an email exchange at the beginning of March that rates for containers from the Far East had quadrupled during the past year. Lots of clients were holding shipments in the hope that rates would decrease, Brouwerens said, but “regretfully this is not the case yet.” Vessels were fully booked and, for as long as shipowners were able to attract high levels of freight, they would require their clients to pay premium prices. “I do not foresee any changes to this in the near future,” he added.
As is suggested above, while for most industries and business sectors the pandemic has been hugely negative overall, some individual businesses, while suffering, have been able to take advantage of new opportunities. Transcom, for instance, has seen an increase in tobacco from Zimbabwe being routed through the Beira corridor because of the strict lockdowns and border closures that have been in place on the more traditional routing to Durban, South Africa. “This is an opportunity for us to show the services we can provide and hopefully grow more market share,” said Harvey. In a similar way, while pandemic-inspired restrictions on travel have been largely negative for a company that values face-to-face meetings and believes they cannot be replaced completely with virtual meetings, it believes also that, in the future, regular conference calls will comprise a useful addition to in-person meetings.

Despite the pandemic, b-Cat has been able to send technicians to install its controlled atmosphere chambers.
The importance of face to face
Luyten seems largely in agreement. He believes that making on-site contacts will remain important (and more fun than remote interactions), but that the travel this involves can be reduced and, indeed, rendered more efficient and effective by augmenting it with video calls, which he sees as being fast and efficient.
One aspect of b-Cat’s business that lends itself well to such ways of working is its vQm (modified atmosphere) packaging system, which is used mainly in the food industry and which is said to be taking off hugely. Luyten explained that this was a simple and flexible system that didn’t need installation support on-site. The client could operate the system without the physical presence of b-Cat personnel.
While dispatching tobacco has created challenges for Transcom, so, too, has ensuring receipt of the supplies necessary for conducting its business. Imports of spares and maintenance items from China and South Africa have been a lot slower than pre-pandemic, and the company has had to get used to holding higher stock levels than it would like to do and to planning further ahead. At the same time, it has been challenging getting the overseas contractors needed to work with some of the company’s specialized equipment and new project developments, which means that it has had to put some projects on hold and make alternative plans in respect of others.

Making a plan
Despite these setbacks, Transcom has retained and protected all its staff, none of whom had tested positive for Covid-19 by the time of our email exchange. Nevertheless, Harvey was not being complacent. Mozambique was currently facing its highest rates of infections, so preventative measures had been increased accordingly, he said. Transcom had introduced a program of continuous education and awareness, something that it hoped had benefitted society beyond the work environment. Strict sanitary measures had been introduced while the wearing of face masks and social distancing had been made compulsory. In addition, the company had introduced takeaway meals from its canteen according to a rotational shift system and increased the number of work shifts with lower staff numbers per shift. It had cancelled all external, noncritical visits to site for a long period, assessed on a case-to-case basis. Additionally, it had stopped all nonessential staff travel, and, where travel was essential, post-trip, home quarantine had been made a requirement.
It is a similar situation at b-Cat, where there have been no positive Covid-19 tests among employees, even those who have been travelling. Many precautions had been taken, said Luyten, both by b-Cat and by the clients on behalf of whom b-Cat had been operating. Strict protocols were in place, and all b-Cat’s employees had been provided with personal protective equipment while, at the same time, receiving clear instructions, including those concerning the need to respect the precautions being taken by client companies. Of course, Luyten added, none of this could eliminate completely the risk created by Covid-19, but, so far, maintaining high standards of hygiene and applying common sense had kept employees safe.

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It is too early to say what will be the full financial impact of the changes that have had to be made because of the pandemic, but this should be clearer by the end of this year. Harvey did say, however, that the pandemic had been a tough pill to swallow given that Transcom was still recovering from the effects of Cyclone Idai. The company had been proactive in business diversification planning and had taken advantage of the extra volume coming through the corridor due to the restrictions in South Africa. “We hope to show our new clients that we are a better alternative and establish long-term relationships with them,” he said.
So, what about the future? When, if ever, shall we be back to “normal”? Well, Harvey doesn’t think things will ever return to “normal” but that businesses, such as Transcom, will adapt to the “new normal,” perhaps by the end of this year, by which time, it is hoped, vaccination programs will have been rolled out regionally. Certainly, some protocols introduced because of the pandemic will remain in place indefinitely.
In addressing the question of the future, Luyten put his faith in science and, particularly, in the development of vaccines, though he said that the rollout of such vaccines to everybody was still some way in the future. And even then, he questioned whether life would return to what it was pre-pandemic. In the meantime, he added, it was incumbent on people to make the best of the situation and hope for an end to the loss of family members and friends to Covid-19.
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.

April 1, 2021
Alternatives for Adolescents

Iro Schunke Photo: Taco Tuinstra)
Youth empowerment, the main objective of the Growing Up Right Institute, is a key element for transformation in Brazil.
By Stefanie Rossel
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The United Nations has declared 2021 the International Year for the Elimination of Child Labor. Although child labor decreased by 38 percent in the past decade, it still affects 152 million children worldwide. According to the International Labor Organization (ILO), around 70 percent of child laborers work in the agricultural sector. Tobacco cultivation plays an inglorious role in this issue—child labor still occurs in developing countries, such as Malawi and Indonesia, but also in rich countries, such as the United States.
Brazil, the world’s No. 2 tobacco producer, which in 2020 exported $1.4 billion in leaf, according to Statista data, is familiar with the issue too. In 2008, the country barred children under 18 from any work with tobacco and imposed penalties for child labor violations for farmers, factories and companies that purchase tobacco leaves from fields that employ children. Through extensive information campaigns, the government has raised tobacco farmers’ awareness about the hazards of nicotine and pesticide exposure, particularly for children. Despite the country’s understaffed labor ministry and lack of resources to carry out sufficient inspections, Brazil has been praised for its progress in addressing the problem.
“The tobacco sector is, without any doubt, a model of child labor eradication in the rural areas in Brazil,” says Iro Schünke , president of the Growing Up Right Institute (Istituto Crescer Legal, or ICL). “The fact has already been acknowledged by the ILO. For over two decades, we have been fighting the problem, and it is no exclusivity of the tobacco sector in the rural area.”
Between 2000 and 2010, the greatest reductions in child labor reduction took place on smallholder tobacco farms, according to the Brazilian Institute of Geography and Statistics. During that decade, the sector lowered the rate of child labor in the tobacco supply chain by 58 percent in Rio Grande do Sul, even as the area dedicated to tobacco cultivation doubled. The national average reduction of child labor, Schünke points out, is 10 percent.
Numerous awareness initiatives on farmers’ health and safety and child and adolescents’ protection, launched by Brazil’s tobacco industry since 2009, have contributed to this development. According to Schünke , the tobacco industry is the only agricultural sector in Brazil to require school enrollment forms and school attendance certificates of school-age children as a condition for the renewal of commercial contracts with farmers.
“The main challenge to the theme in the rural area, especially in family farming, is a cultural question,” says Schünke . “During all those years of holding seminars, we perceived a feeling of great anxiety among the farmers about what to do with their children once they conclude their elementary school. The shortage of rural schools is just another problem in the rural area and, along with the problem of drugs and idleness, the parents end up contributing toward a cultural viewpoint that places great value on work, thus encouraging the children and adolescents to engage in activities inappropriate for their age.”

Creating better chances
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Awareness work was necessary to help parents place greater value on education while public policies were needed to strengthen the schools in rural areas, according to Schünke . In 2015, SindiTabaco, Brazil’s Interstate Tobacco Industry Union, and its associate companies established the ICL. Supported by experts and organizations involved with education and the fight against child labor, the initiative provides young people with opportunities in rural areas.
It is currently focused on southern Brazil—a major tobacco cultivation region—and provides children between the ages of 14 and 17 who want to follow in the footsteps of their tobacco-growing parents with training programs in rural administration and entrepreneurship. The curriculum includes studies of the rural properties, diagnosis of the municipality and region based on the local productive arrangements, mapping of local partnerships and strategic alliances. It also involves the development of group work, engaging the families and communities, as well as product creation and viability studies.
The adolescents are hired as apprentices by tobacco companies and are remunerated in compliance with the country’s learning law. Instead of working, the participants carry out theoretical and practical activities within the premises of the school, geared toward the reality of their families and communities, thus stimulating life projects and personal development without leaving the rural areas. Exclusively focused on rural management and entrepreneurship, there is no training relative to any specific type of rural activity, not even tobacco, Schünke explains. “The young are provided with tools to think about their life projects, whether in the rural setting or in town, with an eye on sustainability.”
The training takes place in the shift opposite regular school hours and comprises 900 hours of tuition in one year. “The young apprentices [enjoy] the same benefits as the apprentices in town,” says Schünke . “This is a way to keep them away from inappropriate activities for their age and, at the same time, provide them or their families with a source of income,” says Schünke . “The course also provides the adolescents with a new vision on the countryside—they come to know about possibilities that have not yet been explored by their family members; they come to grips with the value of the land and acknowledge the farm as business. “Within this context, it is not a rare thing to see a change in the way some young people look at the rural activities and at the countless chances to do business in the countryside, whether as farmers, service providers, educators or leaders in their communities, for example.”
Rural exodus is a major issue in Brazil, which is one of the most urbanized countries in Latin America. According to Statista, almost 87 percent of the population lived in cities in 2019; their share has continuously increased over the past decade.
Toward more gender equality
In its six years of operation, nearly 500 young people have benefited from the ICL’s rural professional learning program. The initiative, says Schünke , has gained momentum at national and international levels. “When they finish the course, the youth are more qualified to understand that it is through qualification and education that they can improve their quality of life. Furthermore, they are in a better position to understand which tasks are appropriate to their respective age and the importance of their extended and continuing education, carrying on with their studies of both their elementary education and higher education. As a result, they are better prepared to make their choices for the future and engage in professional work as soon as they achieve the minimum age required.”
Apart from the training program, the institute offers courses focused on gender equality and on entrepreneurship in education. “Us for Them—The Female Voice in the Countryside” is a program designed to develop the communication skills of young rural girls. One of its objectives is to keep all rural communities informed through local radio programs. “Four editions of the program have already been conducted, starting in 2017, focused on former girl students of the rural professional learning program.”
In 2020, the institute launched a pilot of its program “Good Practices in Entrepreneurship for Education” in the municipality of Cangucu, Rio Grande do Sul. The initiative consists of sharing methodological tools tested and approved by the pedagogical team of the Growing Up Right Institute with the aim to qualify teachers able to multiply these practices geared toward administration and entrepreneurship.
For the time being, all the activities take place exclusively in Rio Grande do Sul, Schünke says. “We have plans to extend the activities of the institute to other tobacco growing regions in Brazil.”
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.

April 1, 2021