Category: Print Edition

  • Vote of confidence

    Vote of confidence


    Seke opens a tobacco processing factory in Macedonia.
    TR Staff Report
    Facing declining cigarette sales and increasing regulatory pressures, tobacco companies around the world have been scaling back their operations and diversifying into other activities. So when a leaf merchant announces a substantial investment in its traditional line of business, the industry sits up and takes notice.
    Next month, Seke will open a €6 million ($7.39 million) tobacco processing factory in Macedonia. Located near Prilep, in the heart of Macedonia’s tobacco growing region, the new facility will be able to store and process 4.5 million kg of oriental tobacco per year.
    The opening is the latest step in Seke’s ambitious expansion plan in the Balkans.
    Created in 1947, Seke is the Greek Cooperative Union of Tobacco Producers. Its headquarters and factories are in Xanthi, in northern Greece, an area known worldwide for its excellent-quality oriental tobacco. Today, Seke is the biggest tobacco company in Greece and the second-largest in the Balkans. It caters to multinationals, independents and local players.
    Alexandros Kontos

    At the turn of the century, Seke was a purely domestic player, according to Alexandros Kontos, the firm’s current general manager, who served as Xanthi factory director at the time. “The company was satisfied with the existing situation,” he says with a shrug. In 2000, Kontos left his position at Seke to run for public office.
    Kontos was elected a member of parliament representing Xanthi prefecture. From 2004–2009 he served as minister of rural development. In this position, he looked after the interests of Greek tobacco growers during the EU negotiations on agricultural policy, among other things.
    In 2010, Seke hit hard times, and the firm’s president asked Kontos to return and help the company improve its competitiveness. The tobacco industry was under attack on multiple fronts, and Greece had just been struck by the worst economic crisis in living memory. Many companies were having problems accessing finance. “Those were the most difficult years of my professional life,” recalls Kontos.
    Despite the challenging economic environment, Seke formulated an ambitious growth plan that started with heavy investment in human resources. In addition to strengthening its leaf and agronomist teams, the company hired professionals in finance, exports and business development. “You need good players to make a good team,” says Kontos, emphasizing the importance of maintaining and enhancing the quality that has always characterized Seke’s work.
    Seke spent €1.9 million ($2.32 million) to upgrade its Xanthi processing facility with the latest equipment, including a state-of-the-art Tomra laser sorter for the removal of nontobacco-related materials.
    At the same time, the company decided to expand internationally. Seke’s strategic geographic location facilitated the expansion in the Balkans.  
    Considering Seke’s intimate knowledge of oriental tobacco, it made sense to enter other countries capable of producing that type of tobacco.
    Seke set up operations in Bulgaria and Macedonia, signing contracts with farmers and hiring agronomy experts. Recently, the company started operations in Albania, too.

    But Seke’s biggest splash was reserved for Macedonia, which the company views as the most sustainable source for classical oriental. According to Kontos, the country’s fertile soils, favorable climate and skilled farmers, along with its supportive regulatory environment (see sidebar), make Macedonia an ideal location for oriental tobacco production.
    After receiving the applicable licenses and signing farmer contracts, Seke started operations in 2015. The company found warehouses and installed a pre-processing factory in the scenic town of Krushevo.
    In 2017, the company contracted with about 3,500 growers, who produced some 2.5 million kg. This season, it expects to contract with 5,000 growers.
    Initially, Seke sent the Macedonian tobaccos for final processing to Xanthi, a six-hour drive away. As volumes increased, however, it became economical to build a local factory—a move that also suited the company’s growth strategy.
    Covering 11,000 square meters, the new facility is equipped with late-model presses, direct conditioning cylinders and soft dryers, among other pieces of machinery.
    It will be fully operational in June and is expected to increase Seke’s local workforce from 250 to 350.
    Unsurprisingly, local authorities have been keen to facilitate the company’s investment. Kontos says he has been impressed with the responsiveness of local authorities.  Going forward, Seke intends to further promote Macedonian leaf qu
    ality, not only by producing tobacco with desirable smoking properties but also by ensuring compliance. The company’s extensive agronomy department helps make certain that farmers use the appropriate fertilizers and crop protection agents, while minimizing environmental damage and ensuring the safety of workers.
    According to Kontos, Seke’s customers have strongly supported the expansion in this country, demonstrating the industry’s continued interest in oriental tobacco. The company is eager to meet and exceed their expectations.
     
     

    A sustainable source of classical oriental


    It was standing room only in the theater of Prilep, Macedonia. On a chilly February evening, hundreds of farmers had come to hear agriculture minister Ljupcho Nikolovski clarify the government’s new agricultural policies. Weathered faces protruding from leather jackets took turns shouting questions about price supports, fertilizer supplies and import duties.
    A beekeeper demanded protection against Ukrainian honey, which he said sells for less than his cost of production. To enthusiastic applause, another audience member asked the minister to raise crop prices by 30 percent. Tactfully rebuffing the request, Nikolovski pointed out that the government lost its authority to dictate prices years ago, when Macedonia emerged as an independent state from the Socialist Federal Republic of Yugoslavia.
    Most questions, however, focused on Macedonia’s new tobacco law, which is set to take effect in the upcoming growing season. Eager to retain farmers and stimulate the production of quality leaf, the government is introducing new subsidies. Instead of receiving a flat mkd60 ($1.21) per kilogram, farmers will from now on be rewarded for higher qualities. Under the new system, grade 1 tobacco will attract mkd80; grade 2, mkd70; while grades 3 through 6 will continue receiving mkd60 per kilogram.
    Jane Stankoski

    According to Jane Stankoski, acting manager of the State Agricultural Inspectorate, the new law builds upon an already solid legal framework for tobacco. If you want a tobacco trading license, for example, you need not only an agronomist, a processing line and a warehouse, but you must also prove that you have sufficient funds to pay your farmers. Growers, in turn, must substantiate to the government their land holdings; they cannot contract tobacco from land that they do not own. The objective is to guarantee a fair and stable trading environment for all stakeholders.
    The rules demonstrate how seriously Macedonia takes its tobacco sector. At a time when most governments are distancing themselves from tobacco—witness, for example, the EU’s “decoupling” of tobacco subsidies—authorities in Skopje are strengthening their commitment to the industry.
    Part of that has to do with tradition. Tobacco has a long history in Macedonia, dating to the time of the Ottoman Empire. The country has a near-perfect mix of soils, climate and farming skills for the golden leaf. “There is a true tobacco culture here,” marvels Manolis Kazantzidis, planning and business development director at Seke of Greece. Like their government, farmers in Macedonia are serious about tobacco, he says, noting that this is not always the case in other origins.
    During the Yugoslav period, the tobacco industry was run by the state. After the federation collapsed in the early 1990s, the multinationals moved in. Today, Macedonia is home to two cigarette factories—one operated by Philip Morris International and one by Imperial Brands—and a whopping 10 leaf merchants. The renowned Scientific Tobacco Institute of Prilep—the oldest in the Balkans—supplies farmers with certified seeds and researches ways to promote plant health, among other tasks.

    But the country’s positive attitude toward tobacco is driven also by economic realities. Generating some $124 million per year, tobacco is Macedonia’s leading agricultural export. The crop provides a livelihood to some 30,000 farm families and thousands more in supporting industries. Those are significant numbers in a country with a population of less than 2 million. What’s more, the net returns of tobacco growing are relatively high in Macedonia; according to Stankoski, the gap between earnings from tobacco and earnings from other activities is bigger than it is in competing tobacco growing countries.
    Macedonia is fortunate in that it produces a style—classical oriental—that remains in demand even as global cigarettes sales have slumped. Classical oriental is an essential ingredient in the still popular American-blend cigarettes and the emerging heat-not-burn category. According to local industry representatives, the country’s type of tobacco is used by all major players. Also, as regulators around the world restrict the use of artificial tobacco flavorings, tobacco companies are likely to seek out more tobaccos with strong flavors of their own. Classical oriental fits the bill.
    Biljana Gveroska

    Only a handful of countries—the other ones are Greece, Turkey and Bulgaria—are capable of growing true classical oriental. With annual production averaging around 25 million kg, Macedonia is second to only Turkey in terms of absolute output. When measured against the size of its population and economy, however, the role of tobacco is much greater in Macedonia than it is in neighboring countries. Attempts to produce the leaf outside of the traditional sourcing areas have been unsuccessful. Reflecting the strong demand and limited supply, this year’s green prices were up by 10 percent over those of last year in Macedonia.
    For the reasons outlined above, industry representatives view Macedonia as a sustainable source of classical oriental. Nonetheless, even here, there is concern about the future. At 45, the average Macedonian tobacco farmer is younger than his counterparts in Greece or Turkey, but he’s not exactly a spring chicken, either. Many youngsters view farming as unfashionable. They’d rather wait tables in the city than toil in the countryside. At the same time, health advocates are pushing farmers to embrace other crops.
    The tobacco scientific community faces a similar problem. One of the Tobacco Institute’s big challenges, according to senior research fellow Biljana Gveroska, is recruiting young scientists.
    Stankoski suspects young people would feel differently if they realized how lucrative tobacco farming can be in Macedonia. The combination of good prices and a guaranteed market, he says, is unrivaled. Part of the solution, he believes, lies in better communication. Another part could come from efforts to make tobacco farming easier. Growing oriental is a notoriously laborious undertaking, and leaf merchants have been looking into ways to mechanize the job. The new tobacco law, too, should help—not only by strengthening the legal framework but also by ensuring that good farmers are well-rewarded.—Taco Tuinstra
     
     
     
     

  • Taking stock

    Taking stock

    Evaluating the challenges and opportunities for leaf tobacco.
    By George Gay
    If you believe the publicity (and I’m not suggesting you shouldn’t), the route to being a “successful” supplier to the global leaf tobacco trade lies in the direction of consistently producing quality tobacco in a sustainable way and at a competitive price. Fine, but how do you achieve this, given that there are clearly internal conflicts even within the brief guide to success given here?
    While pondering this, I decided to ask a number of leaf dealers and traders to rate what the important factors were in maintaining a healthy leaf industry by arranging the following factors in order of importance: (1) easy access to reasonable grower loan facilities, (2) quality seed availability, (3) input availability, (4) grower expertise, (5) grower support, (6) weather/climate, (7) curing fuel availability where appropriate, (8) type of sales system, (9) consistent offtake by buyers, (10) grower prices, (11) export prices and (12) government involvement. From their replies, which are logged in the table on page 30, I awarded 12 points for each time a factor was rated as the most important, 11 points for each time a factor was rated as the second-most important … down to one point for a factor’s being rated 12th most important.
    The results were as follows:
    56 points: consistent offtake by buyers
    56 points: grower prices
    56 points: export prices
    40 points: grower expertise
    39 points: easy access to reasonable grower loan facilities
    36 points: input availability
    34 points: weather/climate
    32 points: grower support
    29 points: government involvement
    25 points: quality seed availability
    25 points: type of sales system
    23 points: curing fuel availability where appropriate
    In part, some of the things that might seem anomalous here are down to the fact that my question was not specific enough. So, for instance, the fact that “quality seed availability” doesn’t appear higher up the table is not because the experts didn’t think seed was important, but because some of them took the view that seed wasn’t an issue any longer. It had been sorted out some time ago to the extent that just about all tobacco growers now use only quality seed. I assume, too, that with much tobacco being grown as part of a cooperative effort between growers and buyers, “grower support” and, to an extent, “grower expertise” were seen in much the same light by some. And while “weather/climate” might be capable of blighting some seasons, over the long term this factor might be seen as being neutral, though less so, perhaps, in this time of reduced stocks.
    “Government involvement” was one factor that split contributors, with some who would welcome more involvement, some who reluctantly accepted that the time of government support was over, and others who wanted governments to have nothing to do with the specifics of tobacco production but who acknowledged that governments had a role to play in providing a stable, predictable environment in which to do business in general.
    The biggest surprise to come out of this exercise as far as I was concerned was that “curing fuel availability where appropriate” came out bottom, because, after all, the guide to success at the start of this story mentions sustainable production. In part, the lowly position occupied by curing fuel availability was because two of the experts who took part were involved wholly with sun-cured tobaccos. But even so, this factor was not rated within the top five places by anybody, even though its contribution to sustainability, whether positive or negative, must be huge.
    In answering a question about what the current supply/demand situation was in respect of the tobacco types and varieties in which his company was involved, one contributor said, in part, that though all markets were being impacted by changing cigarette consumption, those that were sustainable were likely to be less affected. There was continued pressure on growers “to remain profitable and invest in mechanization to produce crops grown in compliance with environmental and labor standards.”
    It will be interesting to see how these issues are resolved in Zimbabwe in the time available given that, under the Sustainable Tobacco Program, starting in 2020, global cigarette companies are expected not to buy leaf tobacco produced in an unsustainable manner. In February, NewsDay Zimbabwe reported that not one tree seedling had been planted in Zimbabwe as part of a government reforestation scheme funded to the tune of $20 million by levies imposed on farmers since 2015.
    The bottom line
    Meanwhile, I think that it should be of no surprise that the top three places went to “consistency of offtake by buyers,” “grower prices” and “export prices.” Consistency of offtake dovetails nicely with the consistent production mentioned in the guide at the start of this story. And the importance of consistency of offtake was nowhere better illustrated than in India, where a onetime troubled flue-cured tobacco production industry was turned around after buyers stopped using it mainly as a country they went to when supplies from elsewhere failed to meet demand. As I write this piece, a successful—from the point of view of growers and buyers—Karnataka sales season is coming to an end, and what looks like being a successful Andhra Pradesh season is starting.
    It is unfortunate, therefore, from the point of view of Indian growers, that while they are at last enjoying the fruits of a relatively stable industry, the authorities are introducing uncertainty by raising the prospect of reducing production in line with the diktats of the World Health Organization’s Framework Convention on Tobacco Control. Such a prospect would not be so negative if it were based on a concrete, rational idea, but it continues to be based on vague promises about pie-in-the-sky, unspecified “alternative” crops and other schemes.
    The question of grower prices is a more complex one than is offtake, though the two cannot be separated. Logically, the producer should receive a price that makes it worthwhile to grow tobacco the following season, while the buyer should be able to obtain the tobacco he needs at a price that allows reasonable profits to be made further up the chain. But this supposed balance doesn’t exist in reality, certainly not in all producing countries. This can be clearly seen in Zimbabwe, where sales seasons over the past 20 years have seen grower prices that have fluctuated but that overall have not increased.
    The reasons for this state of affairs seem rarely to be looked at, but one buyer who contributed to this report said simply that buyers imposed on growers terms that included stringent grading requirements and poor prices. As an example, farmers in Malawi received low prices on long crops and slightly improved prices on short crops. Over the past 10 years, grower prices for Malawi burley has been between $1 and $2 per kilogram. In addition, farmers were never contracted for more than the current growing season. How, then, could they look at borrowing money to finance their children’s higher education or a mortgage, etc., he asked.
    Interestingly, shortly after these comments were made, the Malawi parliament’s agricultural committee asked the Tobacco Control Commission to change its tobacco classification system because, in its view, the current system did not favor tobacco growers.
    Managing challenges
    In the main, contributors seemed reasonably upbeat about the future of tobacco production, though not oblivious to some very obvious challenges that were being faced and that would be encountered to a greater extent in the future: the fall in the consumption of traditional cigarettes; the rise in the consumption of new nicotine/tobacco products, some without tobacco, some with small amounts of tobacco whose form and blend were different to those of traditional cigarettes; and legislation impacting the consumption of certain types of tobacco. Also raised was the perennial problem of trying to encourage tobacco manufacturers to be more forthcoming in respect of their future requirements.
    Burley tobacco, buffeted by a fall in the consumption of American-blend cigarettes and legislation restricting or even banning the use of flavors in cigarettes, seems to be most threatened. Indeed, Alliance One International announced earlier this year that it would not be buying any burley from the U.S. market in the current season. The longtime U.S. leaf tobacco commentator Christopher Bickers reported in his newsletter that Alliance One had put its decision down to sales of cigarettes in the U.S. declining by about 3 percent a year and global cigarette sales following a similar trend. But Bickers suggested that there might be other reasons as well, including perhaps the state of burley inventories and speculation about the U.S. Food and Drug Administration requiring reductions in nicotine yields.
    Another threat facing U.S. growers arose during the preparation of this report as China named U.S. leaf tobacco as one of the items on which it might increase tariffs in retaliation for those threatened by the U.S. in respect of certain Chinese goods. China buys from the U.S. mainly flue-cured; tariff increases would be felt almost entirely by growers of this type. And according to a story by Brian Murphy and Zachery Eanes for The News & Observer at the beginning of April, the impact on growers in North Carolina, USA, could be “devastating.” North Carolina exported leaf tobacco worth more than $156 million to China last year, making China the biggest national consumer of the state’s tobacco. Presumably, too, there would be an added if slight impact since China was considering also targeting U.S. cigarette imports.
    Outside of this threat, most contributors were not expecting dramatic changes in the production of flue-cured in North America. Nor were they expecting much change in Europe in respect of this type. Change was expected, however, in China and India, where, for a variety of reasons, including increased domestic demand and production controls, the availability of this type of tobacco for export would be reduced. This would mean that South America and Africa would see increased demand for medium- and lower-quality flue-cured. South America would continue to dominate, but Africa, which can provide everything from filler to flavor styles, would become an increasingly strategic area.
    In the case of classical oriental tobacco, both the demand and overall volume supply seem to be relatively stable, as they have been for some years, though a huge oversupply of mediocre-quality Izmir tobacco in Turkey is, for the time being, causing severe headaches for merchants, who seem to have been left holding the baby. But within the oriental type, volumes are changing in respect of individual varieties. In the case of Greece’s Basma crop and Macedonia’s Prilep, the mood is good, and production of the former is likely to remain stable while production of the latter might increase (also see “Vote of confidence,” page 20). But in respect of some other varieties, the mood is not so good because of a range of issues to do, directly or indirectly, with prices, an aging farmer base, taxation, labor shortages partly due to urban migration and opportunities provided by other crops. Katerini production is in decline in Greece, Yacca production is falling in Macedonia, and the production of Krumovgrad and other varieties are in decline in Bulgaria. It is possible that the production of some varieties will fall below their tipping point and will eventually disappear altogether. In Turkey, Izmir production will be reduced significantly this year as part of a necessary short-term correction. But while this might impact the size of the grower base, Izmir will remain the dominant variety for the foreseeable future.
    One contributor said that he believed that classical oriental needed a good boost provided by a combination of higher green prices, long-term commitments by all sides, participation of governments that includes EU programs and the provision of industry finance for the modernization of tobacco farms and farming methods. Another speculated that classical oriental production could disappear within 20 years.
    On a more general level, one contributor cut through the complexities by saying that demand for cigarettes would continue to drop, and so the supply of cigarette tobaccos would have to drop with it. One consequence of this would be that cigarette manufacturers were likely to continue to reduce the complexity in their supply chains by concentrating on fewer origins—origins that offered stability in all its aspects and opportunities for expansion. Once these criteria were met, it would all come down to a question of price: which origins could supply the required tobaccos—mainly medium grades—at the lowest prices while complying with a sustainable program. And what this meant, in all probability, was that, in the main, smaller-scale farmers would move to other crops while larger operators would stay with tobacco.
    The writer would like to thank the following contributors to this story:

    • Nikos Allamanis, doyen of the Greek classical oriental tobacco industry
    • Rainer Busch, principal, NewCo
    • Frederick de Cramer, coordinator, Sunel Tobacco
    • Graham Kayes, executive vice president of business relationship management and leaf, Alliance One International
    • Iqbal Lambat, president and CEO, Star Agritech International
    • Grant Readings, Premium Tobacco
    • Rick Smith, principal, Independent Leaf Tobacco
    • Nikos Tzoumas, MD, Missirian
    • John Wallace, principal, Leaf Only

     
     

  • Countering counterfeits

    Countering counterfeits

    Flexible production technologies may help stem the forgery of cigarette paper booklets.
    Contributed
    When people contemplate the illicit trade in tobacco products, they usually think about cigarette brands. Less known, but increasingly problematic, is the counterfeiting of tobacco accessories, such as cigarette paper booklets. Established brands in particular are susceptible to this problem, and manufacturers are challenged to come up with ways to prevent the forgery of their valuable trademarks. One potential solution comes from engineering. By applying innovative technologies in the production process, booklet manufacturers can make life considerably more difficult for brand pirates.
    Today, a wide range of tobacco accessories are available. The time when a roll-your-own tobacco smoker would select his favorite product from only a handful of more or less similar booklets is over. Not only have new products found their way to store shelves; the diversity of individual brands has increased enormously. Do you prefer white, unbleached or green paper? Is your preferred product made of hemp or wood? Have you already picked its size and thickness? In addition, a booklet today often comprises more than just a package with papers. Some include pre-rolled paper, flat tipping paper or even a tray for mixing.
    The market for tobacco paper booklets is not only more diverse than it was in the past; it is also growing. A 2010 survey found that more than 10 percent of smokers in Europe use predominantly RYO. Other research suggests that, when cigarette prices rise, smokers are more likely to switch to RYO than to illegal cigarettes. The legalization of marijuana in many jurisdictions has boosted demand for rolling papers, as well.

    Pierre Mousson

    With a bigger market to share, new suppliers have been entering the market. The development has not gone unnoticed by booklet manufacturing machinery suppliers. “The last six months we have sold and installed platforms outside of Europe, while the installed base in the European market is growing as well,” says Pierre Mousson, managing director of Imatec, which is based in Luxembourg and part of the ITM Group.
    “Not long ago, aside from a few big brands, the production of booklets was done mostly by private labels,” he explains. “The number of private labels has grown, and lately a few label [manufacturers] have set up their own production facilities.” According to Mousson, such investments suggest the operations of those manufacturers are profitable, which in turn hints at the strength of the market.
    Thanks to evolving technology, setting up a booklet manufacturing factory is easier today than it was several years ago. “If I look at our own booklet platform, we were able to increase the flexibility of our machine tremendously in the last few years,” he says. “This means manufacturers can use the same platform to produce different kinds of paper sizes and switch easily between additional options in the booklets. Therefore, it is easier to reach return on investment.”
    But greater flexibility of the equipment is not the main reason for the new brand entries, according to Mousson. “If you look at the booklet market, three kinds of parties can be distinguished,” he says. “Of course, there are the established, large manufacturers. But over the past few years, two types of players have joined them in the market. The first type is looking for a quick win; with striking designs they want to stand out on the shelf and attract mostly young roll-your-own smokers. Their pricing is low, and, quite often, the quality is low as well.”
    The second group of entrants will be a bigger competitor to the well-known manufacturers, according to Mousson. “These brands are also giving a lot of attention to attractive design, but [they] are combining it with high quality and the fulfilling of specific demands of targeted niches,” he says.
    Especially in developed countries, RYO smokers feel strong loyalties to their booklet types and brands. As is the case with cigarette brands, smokers view the choice for a paper booklet as a statement about their identity.
    The combination of brand loyalty and product quality makes these new brands vulnerable to counterfeiting. “For counterfeiters, the largest brands are the most interesting,” says Mousson. “So, when new entries are showing growth in their market share, they will get noticed by copycats.”
    Rip-offs have the potential to considerably hurt the brand owner’s sales volumes and reputation. If users don’t recognize the lower-quality booklet as a copycat, they will point their fingers to the legal manufacturer.
    “To prevent the harmful effects of counterfeits on the [manufacturer’s] image, it is important that the end user is able to immediately detect that he holds a counterfeit,” says Mousson. “If the end user thinks he has a [genuine] booklet, while the counterfeit is made of a lower paper quality or uses artificial gum, he will avoid buying the more expensive [real] brand in the future.”
    Fortunately, the technical capabilities to prevent counterfeiting are growing. “Today, some producers are experimenting with coding on the booklet,” says Mousson. “They are adding a promotional paper, or printing the brand on every rolling paper in the booklet. But these solutions are not watertight, and [they] are making the producer less flexible.”
    Watermarking, for example, is typically done by the paper manufacturer before the paper is slit. This means the booklet producer cannot easily change the printing later, giving counterfeiters more time to copy. And for a QR code to be effective, the end user must be willing to scan the code and be able to realize that an error message indicates a counterfeit, which requires consumer education.
    Together with its customers, Imatec has been working on better alternatives. “The best way to outsmart copycats is to keep adjusting the product,” says Mousson. “This can be done on the cardboard of the booklet and on the rolling paper itself.”
    By letting the booklet machine, rather than the paper manufacturer, print the rolling papers, the producer can adjust the designs almost instantaneously. “Think of printing logos or texts that relate to events in a specific country,” says Mousson. “This will not only make this booklet less interesting for counterfeiters but can also enhance marketing possibilities.”
    Comparable solutions can also be deployed on the booklet. “When producers can add and adjust text, shapes and pictures in the booklet producing machine, it will have an immense effect on flexibility,” says Mousson. “It will deter counterfeits tremendously.”
    Imatec is constantly designing and developing new solutions to discourage counterfeiters. “As a team, we are proud we enable our customers to outrun the copycats,” says Mousson. “Because of the variety in options that we can build in our booklet platform, we are able to offer every customer his own solution. This makes every platform unique and will give every producer his own advantage in the market.”
     
    This article was contributed by Imatec.
     

  • Outside the box

    Outside the box

    Next-generation products have prompted suppliers of tobacco adhesives to look at their business with a fresh perspective.
    By George Gay

    If you want to upset an industry journalist—and I can think of many reasons why you might want to do so—the best approach is not to refuse to take part in an interview but to give an interview in which you say there are lots of exciting things going on within your sector, but that you are not at liberty to disclose what they are.
    Welcome to the adhesives sector of the tobacco industry in 2018.
    Asked whether SPI Developments, which designs and builds adhesives- and flavor-application systems, was becoming involved in the supply of systems for next-generation products (NGPs), business development manager Danielle Roxborough hesitated for a moment before saying she had to tread carefully here. It was all very exciting, but she couldn’t say too much.
    What she was able to tell me was that SPI had been approached by several companies in respect of secretive projects that SPI had assumed were for new-product developments, particularly nontraditional tobacco products. In fact, the last year had been characterized by a large number of unusual inquiries about adhesive application, some of which involved new techniques and some of which harked back to earlier projects. “What I can tell you is that we have existing technology that we can adapt to fulfil these needs,” said Roxborough.
    SPI, she added, kept records and could refer back even to projects that were thought to have led nowhere. “You think it is a dead project, but a few years later somebody else wants it and it resurfaces,” she added. “Unfortunately, I can’t tell you much more than that.”
    Serious buzz
    Nevertheless, it is clear that NGPs are creating a serious buzz in the adhesives industry. And that can only be a good thing. For a long time there were few radical changes in cigarette production, at least as far as adhesive-sector suppliers were concerned, with the exception perhaps of the requirements created by the rise of multisegment filters. Of course, important innovations have been made on a continuing basis because of required changes to adhesive ingredients and changes to product substrates, and in respect of increasing speeds of application and efficiencies, but these have tended to be incremental.
    Now, some of the NGPs that have come and are coming to the market demand that all those companies that supply manufacturing requirements and equipment—not just those working within the adhesive sphere—make innovative leaps. They are having to provide or deal with new materials, old materials presented in different ways and new ways of putting everything together.
    Roxborough said that some of the inquiries SPI was getting required a new set of rules—they constituted a new world. “It is quite exciting for us because it is giving us new challenges and demanding new ways of thinking about things,” she said. “All of a sudden it is a whole new ballgame. We are having to think outside the box more.”
    H.B. Fuller, too, is excited about NGPs: the opportunities they have created already and their potential to generate further business in the future. Andrzej Dabrowski, the company’s business manager for tobacco, said, for instance, that while some adhesive applications for heat-not-burn (HnB) products, such as those concerned with the side seam, tipping and packaging, were similar to those used with conventional cigarettes, those to do with HnB filters were different because the filters were different—a lot more complex. And for these filters H.B. Fuller had, working closely with machine suppliers, developed two water-based products, Ipacoll 2790 and Ipacoll 2626. These products had provided very clean running, operating at the highest speeds of HnB machines, but H.B. Fuller was continuing to work with the machinery suppliers because it wanted these adhesives to run faster in the event that manufacturers demanded higher speeds and the machinery suppliers were able to deliver those speeds.
    All of the adhesive suppliers I spoke with were convinced of and excited by the possibilities presented by NGPs. Lara Kaslowski, sales executive at Turkey-based Organik Kimya, said her company had a dedicated R&D team for each of the markets it served and put enormous effort into innovation. In fact, Organik had recently received a “best innovation strategy” award in Turkey. “Innovation is at the core of our strategy,” she said. “We aim to partner up with our machine suppliers and our customers to develop new products for NGPs that will make a difference in the market.”
    Sisyphean task
    There is something slightly perverse—though admittedly inevitable—in adhesive manufacturers becoming excited about developing special products for NGPs because they have developed and are developing multifunction products for traditional cigarettes with the ultimate aim of reducing stock holdings for both them and their customers. Marc Gonzalez, technical director of Spain-based PJM Pujadas, mentioned particularly that one of his company’s main objectives was to develop multipurpose adhesives that could simplify the logistics and production processes of its customers by reducing the number of adhesive products they had to deal with. For example, PJM Pujadas had introduced recently filter seaming adhesives that could be used with low- and high-porosity papers, as well as packaging adhesives for difficult-to-bond packs that provided for good performance on a wide spectrum of machines equipped with rollers and/or nozzles.
    But even in the traditional product field, reducing the number of adhesives is something of a Sisyphean task. New materials with specific surface properties used on tobacco products and packaging, such as coated rod and tipping paper or transfer-metalized hinge-lid blanks, made it nearly impossible to have “universal” grades, said Jean Pierre De Smet, business manager for tobacco adhesives at Henkel.
    And another factor that tends to make the tobacco adhesives business more complex rather than simpler comprises regulatory requirements, which De Smet said were becoming increasingly more demanding, especially with regard to additives. “This requires constant reformulation for many existing products,” he said. “As legislation varies from region to region and country to country, the experts at Erlinsbach [Henkel’s production facility in the Swiss district of Aarau] have to work in close cooperation with its worldwide customers and original equipment manufacturers … to create tailor-made solutions.”
    The question of regulations was another subject broached by all of those I spoke with. H.B. Fuller’s marketing manager for converting solutions, Judith Liddle, made the point that her company went beyond making sure that all of its ingredients met regulatory requirements. The company looked at what it should do in respect of any ingredient listed as being of very high concern by the European Chemicals Agency (ECHA) because the chances were that, in the future, such ingredients would become the subject of stricter regulation. “For instance, boric acid is a raw material that has been used for a long time in water-based products and it is a great additive to get a good balance of performance, but that is now listed as a material of high concern by the ECHA. So in new product development we are not using it anymore,” she said. “We try to second-guess where the regulations are going and get ourselves ahead of them because it is better for our own operations as well as our customers’.”
    Gonzalez, too, made the point that the evolution of ingredient regulations was leading generally toward stricter rules and that adhesive producers had to be prepared to fulfil them and adapt their formulations and raw materials in accordance with the upcoming restrictions. The new EU Tobacco Products Directive, for instance, was in accord with REACH legislation—the EU’s Registration, Evaluation, Authorisation and Restriction of Chemicals regulation—that regulated harmful chemical substances in the EU.
    PJM Pujadas, he said, was committed to supplying the safest adhesive products of the best quality that provided for the highest production standards. But beyond the regulatory environment, he said, the final consumer was becoming increasingly interested in the use by manufacturers of sustainable or eco-friendly products. PJM Pujadas maximized the introduction of such sustainable raw materials—alternatives that offered to protect both human health and the environment.
    Sustainable operations

    Marc Gonzalez

    On the question of environmental protection, Kaslowski said that Organik, which “eagerly” took the necessary steps to ensure a sustainable world for future generations, had recently received the “Low Carbon Hero” award in Turkey. Organik, she said, was one of Europe’s largest processors of polymer, the raw material for water-based adhesives, which meant that the company was able also to offer price stability and materials security.
    De Smet said that Henkel was dedicated to the principles of sustainability and environmental protection. All Henkel products combined strong customer benefits with ecological compatibility, and the company maintained the highest standards for comprehensive product safety and health protection. According to Patrick Herzog, plant manager at Henkel’s Erlinsbach facility, the consumption of energy has been reduced by 25 percent since 2010. During the same period, water savings amounted to 48 percent, CO2 emissions dropped by 35 percent, and the volume of waste decreased by 68.5 percent. “We are constantly adjusting the levers that optimize sustainability,” said Herzog.
    One thing that is perhaps surprising is the high level of confidence about the future of tobacco industry business among adhesive suppliers. Gonzalez described the tobacco market as quite stable—in some areas it was declining, and in some it was increasing. But PJM Pujadas was growing, he said, because customers were looking for increased competition among adhesive suppliers, and PJM Pujadas could offer competitive products that provided for “very high performance.” Customers wanted to have such alternatives, and PJM Pujadas had seen the evidence last year with a growth in sales as it developed its presence from the Europe, the Middle East, Africa and Russia to new emerging markets, such as Indonesia, Thailand, South Africa and China.
    Meanwhile, Stuart Jenkinson, business director for converting at H.B. Fuller, seemed particularly upbeat about the future. The Middle East, Africa and Asia were still markets that were growing, he said, and H.B. Fuller did a lot of business within those areas. The company had factories in India, Egypt and Africa, and overall it saw the Middle East, Africa and Asia as places where it could grow its share and also register organic growth. H.B. Fuller continued to invest in those areas, where it had dedicated people and where, as a consequence, it continued to gain new business and grow with its customers.
    Roxborough, too, said that SPI was seeing an upturn in business that was coming from all angles. Some of the old systems that had been shelved were being taken back off the shelf and looked at with fresh eyes in respect of how they could meet new requirements. And this was the case in respect of both SPI’s adhesives and flavors businesses. “It’s typical tobacco industry,” she said. “You think you know everything, and then something comes along and changes your perspectives. You try as much as you like to predict what is going to happen in this industry, but you never can.”
     
     
     

  • Two in one

    Two in one

    Cerulean’s new vaping machine allows for regulatory and cell exposure studies of next-generation products.
    By Stefanie Rossel

    The rise of next-generation tobacco products has brought about new requirements for testing equipment to assess the emissions of these products and their impact on the human body. The most recent launch by Cerulean, a British manufacturer of precision test and measuring equipment, has been designed precisely for this. Named Chimera, the new vaping machine is a flexible and versatile test station for the comprehensive study—on-line and off-line—of the effects of aerosol vapors on primary cultures and cell lines.
    According to Cerulean, the Chimera is the first dedicated vaping machine to produce a near-continuous vapor phase for use with exposure studies. The continuous vapor created by the 30-port vaping machine replicates the vapor generated throughout the entire life of an e-cigarette or heat-not-burn (HnB) product, from the first puff to the last puff.
    “Continuous vapor production is essential when exposing in vitro cell cultures to a steady and consistent vapor stream, sometimes for many hours at a time,” explains John Campbell, marketing manager at Cerulean. “The Chimera enables this with the added sophistication of delaying the start of specified heads of e-cigarette vaping, so creating a vapor stream that is representative of the whole lifetime of the e-cigarette—a sort of ‘average’ in terms of composition and physical form.”
    The machine can be configured to produce continuous vapor for any stage of the e-cigarette life, the company claims, thus enabling, for instance, a comparison of the exposure effects of the first 50 puffs with the last 50 puffs to better understand the influence of coil annealing, e-liquid delivery and vapor generation performance on biological systems. The Chimera features a fully traceable software data system that has been prepared and audited for use in a 21 CFR Part 11 environment. “This should assist when submitting results for third-party validation,” says Campbell.
    Focus on toxicological effect
    In the development of the machine, particular attention has been paid to the pathways. The design is centered on preserving the integrity of the vapor both chemically and as a physical aerosol, according to Campbell. “Designed with consistent heated pathways, the Chimera allows minimal changes to particle size within the machine, allowing more accurate exposure,” he says. “This is a move from chemical analysis to studying the toxicological impact of e-cigarette vapor, a key to understanding where e-cigarettes can be placed on a harm continuum.”
    The heated pathways ensure that the vapor interacts with cell cultures at blood temperature and also significantly reduce the vapor loss due to condensation buildup within the machine. “This is coupled with very short pathways that are chemically inert, which preserves the physical and chemical composition of the vapor so that the vapor exiting the Chimera is the same as the vapor exiting the e-cigarette,” says Campbell.
    The Chimera has the added functionality for the capture of vapor aerosols using traditional 44 mm Cambridge filter pads. “2018 will bring additional functionality, including use with electrostatic capture, 92 mm filter pad capture and button activation,” says Campbell. “All these add to the Chimera functionality, so it can be used for both toxicology studies and more traditional off-line capture for chemical analysis, which effectively makes it two machines in one.”
    Other features of the vaping machine include the ability to carry out angled vaping over 180 degrees in order to mimic how people hold vapor products. A temperature control reduces premature aerosol condensation—the vapor of e-cigarettes and HnB products is very wet. A user-defined regime allows the Chimera to be configured for any duration of experiment along with puff volume, shape, puff duration, puff interval, temperature, angle, puff count per piece and total puffs required. In addition, it has an optional delayed start for “whole vapor life” generation. A software system guides users to design experiments that can utilize the full capability of the machine. According to Cerulean, users also benefit from the high throughput for pieces and the ability to run continuously for many hours.
    The Chimera’s approach to combine the vapor streams from each individual e-cigarette into a single exit stream that is intended to be used to expose cell cultures for toxicology testing is a move away from Cerulean’s traditional focus on chemical analysis of smokes and vapors. “The Chimera does not look like a smoking machine. It is something quite different, and it has been designed for the e-cigarette market,” says Campbell. “We started from trying to make the most flexible and appropriate machine for e-cigarette toxicology studies and believe we have achieved this by drawing on our experience of the conventional burn-down world but not being constrained by this experience.”
    Since the introduction of the machine in September 2017, he says, the company has had significant interest from customers around the globe. “Our production has been running at full capacity to meet the initial demand, and we are excited to continue this into 2018.”

  • Valuable insights

    Valuable insights

    A new all-parliamentary group report aims to dispel some of the unhelpful myths about vaping.
    By George Gay

    There was something sinister about one piece of information contained in an all-party parliamentary group (APPG) report on vaping that was officially launched by the group’s chairman, Member of Parliament Mark Pawsey, at an event at the U.K.’s Houses of Parliament on Nov. 20, 2017.
    As other vaping reviews have done before, the APPG report, “State of the Vaping Nation,” described how misinformation about the health impacts of vaping was rife and how, as a consequence, more people than in the past were coming to believe, erroneously, that vaping and smoking were equally risky undertakings. As Pawsey says in his foreword: Today, just over 13 percent of people in the U.K. know what are the relative risks of vaping and smoking, whereas four years ago 21 percent knew. That is an unhelpful trend with serious consequences.
    Before reading the report, I had generally assumed that this misinformation and its acceptance by a large swath of the population was down to researchers carrying out well-intentioned but flawed investigations into vapor products and the most lurid findings of these investigations being picked up by a section of the media that long ago convinced itself it could float only on a sea of shock, no matter how degraded that sea had become with its plastic news. Even some normally well-adjusted media outlets are unable to resist the siren calls of these lurid vaping headlines because they seem unable or unwilling to judge each subject on its merits. They have a mindset that, understandably, says the tobacco industry did bad things in the past, but that goes on to assume, unreasonably, that everything the industry becomes involved in, including vaping, also must be bad. This is despite their being willing uncritically to report the activities and opinions of financial institutions, car manufacturers and pharmaceutical companies.
    I had assumed also that the main reason why many of these vaping investigations were flawed was because the researchers didn’t understand the products they were studying, which, in fairness, have been around for only a relatively short time. In any case, I thought, what can you expect when, it seems, few of the researchers who look into the consumption of tobacco and nicotine have ever used such products?
    So I was shocked to learn from the report that I had been naive—that at least some of the findings of these investigations were the results of “tricks” being played by the researchers. One of the contributors to the report, Peter Hajek, a professor of clinical psychology and the director of the tobacco dependence research unit at the Wolfson Institute of Preventive Medicine at Queen Mary University of London, said that an increasing number of smokers in the U.K. believed that vaping was as dangerous as smoking and that misinformed health professionals and regulators continued to believe that e-cigarettes lured children into smoking.
    Hajek said the misinformation was based on several standard and repeated “tricks.” Some of these tricks were elaborate, but most were simple, and he gave as an example of the latter the ploy by which any level of chemicals detected in vapor was interpreted as posing a danger, even if the levels were negligible with no possible impact on health.
    What Hajek described as “dirty campaigning” had heavily influenced EU regulators, and he said there was an urgent need to counteract the current wave of misinformation. One possible approach could be an authoritative information campaign, including “adverts” in tabloids that were most often read by smokers, and that were most active in misinforming them.
    Even more research?
    Presumably he is convinced that such public information campaigns would not fall foul of the EU’s Tobacco Products Directive (TPD), something of which I have no idea. But even so, the question seems to arise as to whether it would be possible to come up with a consensus around the wording of such information campaigns. Even people within the health community who are supportive of encouraging people to switch from smoking to vaping will, for whatever reason, add a rider about how more research needs to be done in respect of vaping, vapers and vapor devices. And while such statements might be well-intentioned, I think it is fair to say that they add nourishment to any seed of doubt that has been planted in the minds of smokers, who don’t need much encouragement to keep doing what they’re doing.
    Indeed, another of the contributors to the report, Linda Bauld, a professor of health policy at the University of Stirling and deputy director of the UK Centre for Tobacco and Alcohol Studies, makes such a statement: “It is largely accepted by Public Health England, the Royal College of Physicians and the many in the research community that e-cigarettes are far safer than smoking, but research is needed on the long-term health impacts.”
    But do we really need more research? As Hajek points out, part of the problem has to do with research, or at least the sort of dodgy research being picked up by parts of the media. Will it be possible in the future for people trying to put together information campaigns to sort the research wheat from the chaff, given that, as far as I can see, some of the seemingly dodgy research has behind it some respected names and institutions?
    Perhaps there is a case for less or no research. Ordinary people, ordinary smokers, saw for themselves from the start the opportunities presented by the vapor products being offered by a bunch of startups, and they gradually spread the word through their online forums about what was good, what was not good and what should change. It could be argued that it was with the entry of the researchers, along with the experts, regulators and hangers-on that things started to go pear-shaped—that the conversion rate of smokers to vapers started to fall.
    And as to long-term consequences: In my view, the only way to gather information of any value is to watch the vapers, who comprise epidemiological research on the hoof. It is not ethical to delay decisions about vaping while we wait for long-term research because vaping is the long-term research. And when we talk of long term, we have to realize that we mean a very long time. Every vaper who has come from smoking will have a different smoking history, and trying to put these people into groups from which valid health impact conclusions might be drawn is surely years and even decades off, unless of course something catastrophic is going to show up.
    Well-researched
    The APPG report, which has clearly been well-researched over several years and which is to be welcomed, is positive on the huge potential benefits that vaping offers in respect of replacing smoking without underestimating the challenges that realizing those benefits are going to throw up. It is being forwarded to relevant government departments and agencies, and it has been handed to the parliamentary Science and Technology Committee, which has been conducting an inquiry into e-cigarettes and which was still taking evidence when the APPG report was launched at the November event attended by the committee’s chairman, Member of Parliament Norman Lamb.
    The report makes five recommendations:

    1. The government and public health bodies should immediately start a continuous program to accurately communicate the positive public health message of vaping to the remaining 7 million smokers in the U.K.
    2. The APPG calls upon the government to urgently deliver the commitment in the Tobacco Control Plan to review vapor regulation, in particular the disproportionate aspects of Article 20 of the TPD that effectively put vaping in the same bracket as smoking.
    3. The APPG recommends that the government adopt a wider collaborative approach to policy creation involving all stakeholders, including the regulators, scientific and public health experts, and the industry.
    4. Trading standards must ensure that current vaping regulations, particularly the product standards of the TPD, are consistently and rigorously enforced.
    5. The government should review and consider the steps taken by devolved authorities in Scotland and Wales to develop the enforcement powers of regulators.

    I would have liked to have seen the first recommendation worded differently so that the government was being urged simply to communicate accurate public health messages about vaping, whatever they were, so as to acknowledge that some people are not convinced about the efficacy of vaping products and to indicate that their messages will be given an airing if they prove to be valid—not the result of tricks. And I would have liked to have seen vapers specifically named as stakeholders in the third recommendation, especially since the report does include the voice of a vaper, Sarah Jakes, who is secretary of the New Nicotine Alliance, a group dedicated to improving public health through a greater understanding of new nicotine products and their uses.
    But these are merely quibbles about what is a good, authoritative report by a group that has consulted widely. The report looks at everything from the growing sophistication of vapor products and the retail environment in which they are offered for sale to research, advertising and communications, consumer perceptions, regulations good and bad, the role of government, the value of the vaping industry to the U.K. economy, and vaping in public places. One section of the report that I think will give pause to just about everyone who reads it tells how the U.K. Medicines and Healthcare products Regulatory Agency estimates that the value of the health gains associated with a single successful quit attempt is £74,000. “Even applying simple arithmetic shows that the smokers who have switched to vaping, and no longer smoke, already represent savings to the U.K. of more than £111 billion,” the report says.
    More to come
    Pawsey said in his foreword that it is intended that the APPG’s “State of the Vaping Nation” would be the first of a series of reports designed to educate and inform parliamentarians in an area of consumer policy that affected many thousands of people in the U.K. This is good news because vaping is developing fast, and we all need to keep abreast of the developments. One of the subjects I should like to see the group tackle next is that to do with heat-not-burn (HnB) products. This would be a more difficult subject for the group, I would imagine, because it might break the consensus that has generally formed around e-cigarettes that deliver nicotine but contain no tobacco. Manufacturers, who like the business model that HnB devices offer, might find themselves more at odds with some researchers over these products.
    My reading of the situation at the moment is that HnB products might encourage more smokers to switch to vaping than e-cigarettes do, especially in some markets, but that they will prove to be riskier than are e-cigarettes. So should a trade-off be made, and, if so, where? How many notches down the risk continuum are we prepared to let an alternative product sit if it is cranking up the consumer acceptance level? And what of the apparently critical communication? This seems to work if you can say Product B is 95 percent less risky than is Product A, but what happens to your message if you have to say 75 percent less risky, or 50 percent less risky? There is also a need to look at some of the details, such as the use of flavors and the tricky question of addiction. How, if at all, do they alter the picture?
    Finally, I would like to see the group, for which the UK Vaping Industry Association provides the secretariat, investigate who are the people using research tricks to put vaping in a bad light. We need to know who they are, why they are doing what they are doing and who is funding them. We need to name and shame. After all, what they are doing is no more acceptable than some of the tricks the tobacco industry pulled in the past, and it is not without serious consequences.

  • Proper procedure

    Proper procedure

    Tobacco pest control technologies would be more effective if they were carried out correctly.
    By George Gay


    As I started to research this story about the control of insect pests in tobacco, a subject that I previously covered in 2011, I was hit by a feeling of deja vu. The value of the tobacco currently lost each year to tobacco beetles and moths is thought to be roughly—probably very roughly—$800 million, the same figure as was being bandied about in 2011. Also, the problem highlighted in 2011 of the emergence of increasing numbers of insects resistant to the most commonly used fumigation technique has not been solved. In fact, it has become worse, implying, I suppose, that the value of the tobacco lost must have increased or must be increasing. And the reason for the increase in insects that are resistant to phosphine gas fumigation is, as it was in 2011, down to incomplete and/or faulty fumigations.
    Now, as then, experts involved in such techniques will tell you that phosphine is a good gas for the job and, if used properly, will kill all insects, even resistant ones when the more demanding Coresta guidelines for fumigating such insects are followed. And they will tell you that phosphine fumigation must remain one of the weapons in the tobacco industry’s pest control armory. But they will tell you too that phosphine fumigation is often not done properly, because the environment is unsuitable, the equipment is deficient, there is a lack of time (fumigation in the case of resistant insects can take up to 12 days), there is a lack of understanding of what should be done by those undertaking the task, and, something that might impinge on any one of the aforementioned, there has been a failure to pay a reasonable price for the job where, as is often the case, it is carried out by third parties.
    Oxygen starved
    Given all this, the bad news is that, unlike in 2011, there seem to be no new systems coming to the rescue. In 2011, controlled-atmosphere (CA) systems, which had been used in respect of other commodities and various products for 15 years or more, were starting to gain traction with tobacco people—those involved in warehousing, shipping, trading and manufacturing tobacco. Indeed, in 2012, Coresta issued a guideline for the treatment of tobacco beetles with CA, a guideline that was revised to include the tobacco moth the following year.
    Used properly, CA offers enormous benefits because it kills all tobacco beetles and moths in all their life cycle stages. It can be used for all types and varieties of leaf tobacco without affecting taste and color, and it can be used for tobacco products.
    And because of these benefits, CA is being adopted, and the rate of its adoption is likely to increase in the future, if for no other reason than that the industry cannot afford to continue losing the fight against resistant insects, especially in an era when it is likely that increasing numbers of pesticides will be banned and removed from the market. Rene Luyten of b-Cat, which, among other things, supplies CA systems, told me at the end of November 2017 that business was good—that his company was expanding. Just in the previous two months, he said, his technicians had installed CA chambers in Germany and Poland, and they were preparing to install some in Jordan.
    But even so, as can be inferred from the fact that even now CA is being used to treat only a small proportion of tobacco (I was told variously “from 1 percent to 2 percent” to “certainly not more than 10 percent”), this system has its drawbacks. Probably the major hurdle to having more tobacco treated with CA is the cost of the investment involved, a factor that is being brought into sharper focus by the day as talk of combustible cigarette endgames becomes more serious.
    CA involves the construction, usually within a warehouse, of a gas-tight chamber or chambers in which the temperature can be controlled and the composition of the air can be changed to deprive the insects of oxygen. In this way, given the correct period of exposure to this controlled atmosphere, all stages of the beetle are killed—the adults and larvae, which are relatively easy to deal with, and the eggs and pupae, which normally present more of a challenge.
    As is obvious, I think, investment decisions about such installations might be easy to make when they are being taken ultimately by companies with deep pockets and refer to places where power supply is not a problem. For one thing, CA is probably a better fit than is phosphine fumigation with such companies’ sustainability strategies. But they can be difficult decisions for smaller operators even though it is a moot point whether CA treatment is more or less expensive than is phosphine fumigation. I was told by different people that CA was more and less costly than is phosphine fumigation, and this disagreement is not surprising given that CA is relatively new, making it difficult to calculate how much tobacco is being saved. Also, different companies will take different views on depreciation.
    And there are other important factors, too. In some tobacco production areas, export logistics might determine that tobacco departure points must be changed, while the location of CA chambers are fixed. In some growing areas, such as southern Brazil, the sheer scale of production might be a deterrent, and in others, having to put tobacco through chambers, necessarily in fixed locations, can act as a constriction in the logistics flow.
    And following on from this idea, one thing that works against a decision to install CA chambers is that the use of phosphine fumigation is very flexible. The fumigator can, within reason, choose where the fumigation should be done and, providing it is done properly, he will achieve his aims.
    Improving treatments
    So up to a point the important question comes down to whether the two processes are likely to be carried out properly. And here, for the time being at least, CA seems to win hands down. For one thing, CA tends to reduce greatly the possibility of human error in the process. Once the tobacco has been positioned in a chamber and the equipment and monitoring devices have been programmed, technology takes over. The programmed atmospheric conditions are achieved, and they can be maintained via a system of strategically positioned monitors feeding back instructions to the various controls.
    So far, however, such sophistication has been largely lacking when it comes to phosphine fumigation. Monitoring seems to be, in most cases, sketchy, and feedback controls nonexistent.
    It is possibly counterintuitive, but the worst criticism seems to be leveled at phosphine fumigations carried out in shipping containers. I was told by one bemused observer that the tobacco industry continued to accept the fact that it was spending money fumigating in containers when it was known that such operations were not being carried out properly and were creating more insect resistance. Fumigations, on the other hand, carried out under tarpaulins are relatively successful, given that the tarpaulin is of the right type and in good condition.
    Shipping containers, even with their vents taped up, tend to leak gas at unpredictable rates, but the main problem is that the fumigator often has little idea what has gone on. I was told that to monitor a container would require instruments to be positioned at the back of the container, in the middle and at the door. But this was rarely done because it was too expensive. Instead, monitoring was usually done only at the door, where the phosphine plates were placed and where the levels of the gas would be the highest. In addition, the monitoring would be done only once a day.
    But things might be about to change. Nico Vroom, one of the earliest advocates of CA systems, told me at the end of November 2017 that he was shortly going to an exhibition in Dubai, United Arab Emirates, where he would be demonstrating Centaur’s wireless fumigation sensors, with which it would be possible to monitor phosphine treatments 24/7 via a cloud platform rather than once a day. Previously with Eco2, Vroom was at the time he spoke with Tobacco Reporter in the process of setting up a pest control consultancy—N.I.C.O. (No Infestation Consulting Organization)—through which, in part, he will be assisting companies with CA installations and operations and helping to improve phosphine treatments.
    It was probably misleading to say above that there were no new systems coming to the rescue. It is true, but there are new techniques being trialed and used in various parts of the world. For instance, CA chambers, which have been installed in Mozambique without the equipment necessary for CA treatments, are being used for phosphine fumigation. Such chambers provide an environment in which phosphine fumigation can be properly monitored and controlled. They offer the advantage that without the CA equipment they are less expensive than they otherwise would be, while providing the opportunity to install such equipment later. Also, trials have been conducted using shipping containers as chambers for CA treatments.
    And work has been carried out on creating insect-free warehouses—warehouses that prevent free-roaming insects from entering and that therefore remain insect-free providing all of the tobacco introduced into them has been properly treated.
    Guy Harvey, the CEO of Transcom Sharaf in Africa (South Africa, Mozambique, Malawi and Zimbabwe), said that his company, which is in the process of building an additional 18,000 square meters of warehouse at the port of Beira, Mozambique, was trying a lot of different techniques to reduce beetle counts and increase hygiene levels. In part, it was working with the port authorities, describing to them the losses that insects could cause and encouraging them to enforce strict hygiene levels throughout the port.
    Such hygiene is vital during storage, transport, processing and manufacturing because whereas the tobacco beetle and the tobacco moth are public enemies No. 1 and No. 2, they are not exclusive to tobacco. This was a point made by Steven Bailey, group managing director of Barrett and Co., which supplies the MoBe Combo Mk2 pheromone-based monitoring trap for the detection of beetles and moths. In fact, Bailey emphasized this point by always referring to these insects by their Latin names: Lasioderma serricorne, the beetle, which is also found, for instance, in cocoa, and Ephestia elutella, the moth, which is commonly known as the warehouse moth and can be found in stored food such as grains.
    The MoBe trap is unique in that it attracts both the beetle and the moth, and Bailey said this was important. Whereas the beetle was often considered to be the priority pest, probably correctly, the moth should not be underestimated. At one time, the moth was seen mainly as an insect of northern Europe, but now, because of climate-controlled warehousing and shipping, the moth, in pupae or egg form, was able to migrate. This meant that both beetles and moths could thrive just about anywhere in the world and meant that, in one sense at least, they were both equally problematic.
    Such traps can act as an early warning system and can help pinpoint infestations so that fumigations can be limited. And while it is not really a significant factor in their use, by their very nature they do trap and kill a limited number of insects.
    But Bailey pointed out that it was important that traps went wherever tobacco went: into warehouses, shipping containers, trucks, processing plants and manufacturing factories. And this was a point echoed in one way or another by everybody I talked with. Ridding tobacco of insects by fumigation, CA treatment or freezing comes to naught if the tobacco is not properly monitored and handled after such processes.
    There’s that “properly” word again. Tobacco must be properly monitored and properly handled, including by ensuring that traps are used properly. A trap that is left beyond its end date will not be giving off the plume of pheromone necessary to attract beetles and moths, and it could in this case provide a false sense of security.

  • Turning up the heat

    Turning up the heat

    Can heat-not-burn products continue to grow at their current pace?
    By Stefanie Rossel
    All those stunned by the phenomenal development of e-cigarettes in the past decade may soon find themselves at a loss of words to describe the growth of heat-not-burn (HnB) tobacco products. According to some analysts, these products have the potential to dwarf the vapor category. For the time being, it’s the other way around. British American Tobacco (BAT) put the number of vapers worldwide at 55 million in 2017, compared with about 4 million users of HnB products—but the HnB segment is believed to be growing at a rate of 180 percent annually.
    “Forecasting growth of the heated-tobacco category is still very much more of an art than a science, but it is relatively clear that in terms of growth rate alone, the category will be much more dynamic than other vapor product categories,” says Shane MacGuill, head of tobacco research at market research provider Euromonitor International.
    He cites several factors. For starters, the HnB segment is growing from a smaller base. Also, the unit price of heated tobacco is broadly much higher than that of other vapor product categories, meaning that every new user or additional unit of volume grows value more speedily. “Heated tobacco might appeal to consumers which e-cigarettes do not seem able to reach or retain,” says MacGuill.
    Breaking even
    In contrast to the vapor industry, the market for HnB products remains highly concentrated. Three years after Philip Morris International (PMI) launched iQOS, though, competition has begun to heat up. Next to PMI, BAT, which has entered the race with Glo, and Japan Tobacco International (JTI), which markets Ploom Tech, are investing heavily to build scale. In November 2017, South Korea’s KT&G joined the multinationals in the category with the launch of Lil. Imperial Brands, too, may introduce a heated-tobacco product, according to analysts, despite that company’s initial skepticism about the segment.
    The next generation of next-generation products (NGPs) is already underway. PMI and BAT are both expected to launch carbon-tip HnB products—called Teeps and Neo Core, respectively—this year. And, inevitably, copycats are trying to cash in on the success of the market leaders. There is at least one alternative heating device available that will fit iQOS consumables, wrote Jonathan Leinster, an analyst at Berenberg Bank.
    Contrary to previous attempts at marketing heated-tobacco products—think of the hapless Accord and Premier—current efforts appear to be paying off. In terms of profitability, iQOS remains ahead of schedule. The product is expected to break even on a dollar basis in the second quarter of 2018, according to Wells Fargo Securities analyst Bonnie Herzog. At its recent investor day, BAT again increased its estimate for the size of the NGP segment. The company expects the heated-tobacco segment to account for 73 percent of its total NGP sales growth over the next five years, Leinster noted.
    Big in Japan
    In a recent webinar by Euromonitor on emerging and next-generation nicotine products, MacGuill, too, predicted a bright future for the category. He estimated that, by 2021, the top 10 HnB markets, led by Japan, the U.S. and Turkey, would together be worth $15 billion. Of the overall tobacco alternatives markets, he predicted, the segment would then constitute 45 percent, up from 17 percent in 2016.
    By 2021, HnB products are expected to account for an estimated 22 percent of Japan’s conventional cigarette market, in which iQOS alone in October 2017 already held 13.3 percent, up from 11.9 percent in the third quarter of 2017, according to Euromonitor. In terms of market penetration, Japan is expected to continue to lead the global HnB segment by a significant margin.
    Japan, of course, is special, not only because of its consumers’ famous appetite for new technologies but also because of its business environment. Due to a ban on vapor devices, there is little competition from other alternative products. Manufacturers in Japan can communicate with consumers comparatively freely, and its tobacco culture remains strong despite growing restrictions. Disposable incomes are high, and, at least for the time being, HnB products enjoy favorable tax treatment.
    Decisive year ahead
    For Leinster, the next year will be critical for NGPs. “We expect a firm indication in 2018 as to whether the heated-tobacco segment will have a significant presence outside of Japan or South Korea,” he said. Korea currently is the largest HnB market after Japan, with iQOS already accounting for 4.5 percent of domestic combustible cigarette sales. The performance of new products, such as BAT’s Raptor, the nationwide rollout of Ploom Tech in Japan and the national launch of Lil in South Korea, should provide useful indications about the future of the NGPs.
    The industry will also be closely watching the outcome of PMI’s modified-risk tobacco product (MRTP) application for iQOS in the U.S., which the company submitted in December 2016. While the Food and Drug Administration is still reviewing the proposal and a determination isn’t expected until the first quarter of 2018, the company’s U.S. branch is said to already be preparing iQOS’ rollout. “If PMI were to be successful, this would be hugely supportive to the category globally,” says MacGuill.
    Much of the HnB segment’s future success will depend on taxation. In Germany, for example, the consumables of cigarette-like HnB products, such as iQOS and Glo, are currently taxed as pipe tobacco, since they cannot be smoked directly. That means manufacturers benefit from a considerably lower excise rate—only a quarter of that for combustible cigarettes—and from the lower volume of tobacco needed in the consumables, which are about half the size of a combustible cigarette. As a result, selling HnB products is a lucrative business in Germany. A pack of 20 Heets (the iQOS consumables) retails at €6 ($7.13) in Germany, which corresponds to the price of 20 traditional cigarettes. Speaking to The Wall Street Journal, Michael Lavery, an analyst with Piper Jaffray, estimated iQOS profit margins to be between 30 percent and 50 percent higher than those on regular cigarettes.
    Many variables
    Other factors affecting the HnB category include pricing, consumer preferences, regulation and shareholder value. “Many of these factors are bivalent and could work for, or against, the category,” says MacGuill. If regulatory and fiscal authorities recognize that the new products present lower health risks than do traditional cigarettes, he says, this would obviously drive growth.
    “Conversely, something close to tax parity between HnB and combustible cigarettes could remove room for maneuver for the industry in future years,” says MacGuill. “With respect to shareholder value, I think the accepted wisdom is that this will slow migration on the part of the companies over to HnB. I think this is true to a point, but it’s hard not to suggest that the emergence of iQOS is supporting PMI’s value currently, and then in the future we may see more and more recognition of the commercial logic in moving to reduced-risk categories and commensurate pressure on companies to do so.”
    MacGuill assumes that HnB regulation will differ from that applied to vapor products because of the product’s symbolic content: tobacco. But the impact, he adds, won’t be uniform. “In some countries, the ‘symbolic’ presence of tobacco will lead to prejudice against the category. However, in others it may mean that heated-tobacco products are allowed where e-cigarette products are not, as with Japan currently,” he says. “The key impact will be in increasing the burden of persuasion and evidence building regarding the quantum of reduced risk—this is why the MRTP application could be so important. My sense is that the reduction of risk of liquid nicotine may intuitively be easier to metabolize for regulators and the public simply because ‘it looks different,’ whereas tobacco is assumed a priori to be harmful.”
    Technology will also play a major role. “The more open the regulatory environment for HnB—and vapor products as a whole—is, the more incentive there is for innovation in important technical areas,” says MacGuill. “Big technical breakthroughs on vaporization, battery life or size could drive the appeal of HnB—or, conversely, increase the appeal of a competitor e-cigarette product type.”
    The impact of next-generation consumers on the future growth of HnB products is still unclear. Members of the currently adolescent Generation Z—the successors to the millennials—are characterized by extreme health consciousness. MacGuill believes that’s a double-edged sword. “A real worry for the industry, I think, is that negative attitudes [among] Generation Z, and those coming beyond, to tobacco use—of any kind—harden so quickly that with or without risk reduction there is little ongoing demand for its products into the mid or longer term. However, if it can persuasively develop reduced-risk products [that] are thoughtfully designed and offer real value to the consumer, then health-consciousness can collide with other emergent consumer behaviors to offer the industry an opportunity.”
    Challenging markets
    While HnB products are increasingly successful in industrial nations, conquering lower-income countries might be more difficult because HnB devices are costly compared to combustible cigarettes. A possible scenario for these markets could be the emergence of a broad spectrum of HnB products, ranging from budget, me-too products to premium devices, such as iQOS—a development similar to that seen in the smartphone market.
    MacGuill believes that consumers in low-income markets will be just as interested in reduced-risk products as their compatriots in richer countries. “There will be a demand for similar types of product within what is economically reasonable,” he says. Already, Chinese manufacturers are offering products that allow users to heat traditional cigarettes with the goal to reduce risk.
    In the short term, these might be a solution in lower-income countries, as they would facilitate risk reduction while allowing consumers to continue to purchase more “cost-effective” traditional products, says MacGuill.
    “In many lower-income countries, snus or other forms of smokeless tobacco could also be a competitor for heated tobacco.”
     

  • Fresh impetus

    Fresh impetus

    The spirit of innovation and renewal associated with heat-not-burn products has also gripped the supplying industries.
    By Stefanie Rossel
    Potential future hurdles for the heat-not-burn (HnB) category left aside, the advent of next-generation products (NGPs) has already changed the tobacco industry significantly. What used to be a rather static, conservative sector focused on a single product—the cigarette—now suddenly exudes some startup spirit. In a world of continuously declining cigarette sales volumes, the rise of NGPs has lifted the mood.
    Considering the increasing regulatory pressure on the traditional business, pursuing daring ideas and venturing into the unknown has become not an option but a necessity. Using leaf tobacco, HnB products offer the potential of risk reduction to smokers who, for one reason or another, have been unimpressed by e-cigarettes.
    The fresh impetus the HnB segment has brought to the tobacco industry can be felt in the ranks of suppliers, too. Unlike e-cigarette production, which bears little resemblance to conventional cigarette manufacturing, the construction of HnB products requires cigarette-like components. As a result, it engages traditional tobacco industry suppliers, such as papermakers, machinery manufacturers and instrumentation companies.

    Patrick Meredith is innovations director at Essentra.

    Because HnB technology differs considerably from that used in traditional cigarettes, however, suppliers have had to redesign their components. Take filters, for example. “Although at first glance the appearance of filters used in tobacco heating products appears to be substantially similar to those in conventional cigarettes, this is almost where the similarities end,” says Patrick Meredith, innovations director at Essentra, an independent solutions provider for special cigarette filters and scientific services. “The function of the HnB cigarette is considerably more complex than [that of] a conventional cigarette—there are mechanical pressures, cooling [and] heat resistance, [among] other concerns, to factor into the design.”
    The filter, Meredith points out, can help overcome some of these challenges, and its role is also modified according to this complexity. “Heating tobacco also creates completely different—and considerably fewer—constituents [than] burning it, so the functional requirements of the filter are wholly different whilst still being required to maintain acceptable draw resistance and firmness as part of the user experience.”
    An HnB filter is generally longer in proportion to the consumable than that in a conventional cigarette. Among other things, this increases the time the “smoke” spends in the filter, allowing it to cool to an acceptable temperature for the consumer. Different materials may also be used to achieve this same objective. “As a result of these requirements, the materials used in an HnB consumable tend to push to the boundaries of existing processing capabilities,” says Meredith. “So, although [tobacco-heating products] do not require special filters as we would define them for cigarettes, they do require filters that have completely different filtration requirements, can use different materials and have a different construction, so they can be defined as pretty special by themselves.”
    R&D restructuring
    Raoul Herve

    In all areas relating to the manufacture of HnB consumables, the novel products require new approaches and, often, new workflows. Because establishing a new product category in the market brings about uncertainty for manufacturers, many suppliers have seized the opportunity to support their clients with extended services and innovations.
    Schweitzer-Mauduit International (SWM) provides an interesting case study. The company, which includes two business units—Engineered Papers (EP) and Advanced Materials & Structures (AMS)—accelerated its diversification activities in 2013. It is a global leader in reconditioned tobacco leaf (RTL) and paper for conventional cigarettes and now also provides components for HnB products. “Heat-not-burn is part of the future,” says Raoul Herve, SWM’s R&D director for EP. “As a leader in the industry, SWM had to go in this direction. It’s a unique chance to explore many new disciplines. We have to adapt to the challenges of NGPs.”
    The company got involved in the new segment in 2012. To stay ahead, SWM in 2015 reorganized its EP research and development department. Many of its research and development employees work at SWM’s new OneFiber laboratory in Quimperle, France (see “One vision,” page xx). Inaugurated in 2016, the facility is SWM’s central prototyping lab for paper and, more recently, for all the company’s tobacco-related substrates, such as RTL for HnB products and new fiber types.
    The laboratory is dedicated to innovation and to taking innovative product concepts through the prototyping and qualification steps. Furthermore, SWM runs two labs in Spay, France—the LeafLab, which focuses on transforming fibers from botanicals such as cocoa, tea and mint into new products for diverse applications, and the OneLeaf lab, which is committed to RTL prototyping and HnB tobacco.
    A challenging product
    The technical requirements for both paper and RTL used in HnB consumables are complex. The paper needs to be designed in such a way that it can be exposed to high temperatures without starting pyrolysis—and without turning brown. In addition, it needs to have dimensional stability. “Heat transfer is also an important factor,” says Herve. “We need to look at how the paper interacts with the device and transfers the appropriate level of heat to the fuel or RTL inside the consumable. We currently spend some of our researching efforts on the connection between the heating device and various components, such as RTL and papers. You need to make sure of the right temperature transfer.”
    SWM develops HnB paper at its OneFiber lab. The company has established scientific programs to solve technical challenges, such as how to preserve optical properties and add nonburning properties to the paper.
    Manufacturing the rod content of HnB products with cigarette-like consumables is a science in its own right. Instead of pure and shredded tobacco leaf, the consumables contain a highly specialized type of homogenized tobacco. Custom-engineered RTL blends can help create a taste experience closer to that of a combustible cigarette, potentially better even than genetically modified leaf could.
    It also helps meet other requirements for HnB products, such as satisfaction, a concept that involves tobacco taste, aerosol density, consistency and the avoidance of “hot puff.” Reaching acceptable levels of nicotine while keeping irritation at an acceptable level is another challenge. With RTL, HnB manufacturers get a ready-to-use single blend component with easy aerosol formation, a high humectant level and flavoring.
    The RTL used in HnB products differs significantly from the byproduct employed as a filler in conventional cigarettes. It is tailor-made with a selected tobacco leaves blend that SWM casts into a sheet using its established papermaking process. With the help of water, the tobacco is separated into a fibrous portion and a soluble portion. The fibrous part is formed to a sheet, whereas the soluble part that contains flavor is concentrated and applied onto the sheet to create reconstituted tobacco.
    “The reconstituted leaf is important for the aerosol formation of the HnB,” explains Herve. “RTL has an exceptional ability to carry and deploy components used in the creation of aerosols.”
    Unlike RTL for combustible cigarettes, which SWM supplies in ready various ready-made grades, RTL for HnB products tends to be custom-manufactured. “The development of new, stand-alone and successful HnB products is too critical for the tobacco industry to not use customized RTL blends. In general, HnB requires a much closer cooperation with our clients,” says Herve, adding that it is crucial for the RTL recipe to work with the heating device.
    Comprehensive approach
    Rather than just lab services, the OneFiber lab offers its customers a comprehensive concept, including brainstorming sessions where both sides can explore new ideas or test new recipes and an academy to train customers on product lines and find out what their next specifications will be. Additionally, clients can hire lab team members to work in confidentiality on specific projects. They can also make use of HnB sensory assessment services.
    To offer this portfolio, Herve put together a team of R&D experts from the company’s various business sectors. “To be successful in the field of HnB, it was important to merge many talents,” he says. “In the beginning, paper and tobacco people were not used to working together, but now we are one cohesive team.”
    An increasing share of SWM resources is directed toward NGPs. “HnB has opened the minds in the tobacco industry and presents opportunities for us to innovate new solutions,” says Herve.
    Next-generation instrumentation
    Christine Camilleri

    His sentiment is shared by Christine Camilleri, sales director of Sodim, a metrology specialist based in Orleans, France. The NGP segment “has generated a lot of positive thinking, enthusiasm and new abilities,” she says. “When we entered the segment in 2012, we had to increase the capacity of our development team. The new technology required different skills, so we hired new employees that did not come from tobacco but from the technology and software side. They have shared their knowledge with the rest of the team so that we have seen a lot of new synergies within the company.”
    Today, HnB instrumentation generates an additional 20–30 percent of Sodim’s business—a share Camilleri expects to increase over the next few years. “At Coresta or ISO meetings, you will only hear talk about HnB products because they are growing so fast. All cigarette companies that bought to e-cigarette manufacturers have moved to HnB because the change is so drastic.”
    Sodim’s main business is physical testing. Part of the German Hauni group, the company is a leading supplier of test stations. Its developments for the HnB segment are linked mostly to the consumables, which differ with each manufacturer. “The new stick design required a redesign of measuring equipment, not only because of their shorter length compared to conventional cigarettes,” Camilleri explains. “The filters sometimes have a different shape or different segments. Here, visual inspection and testing become particularly important to determine the length of tipping, wrapping or the gaps between the segments.”
    For certain basic measurements such as pressure drop, instrumentation used for combustible cigarettes can be adapted.
    Because the category is still new and lacks standardization, uncertainty among manufacturers regarding measurements is not unusual. “They frequently have an idea of a measurement, but they don’t know which precision [level] they want to reach in that measurement. This is particularly true for complex metrological targets. We assist them by providing terms of reference and tolerances. The main difficulty is to find a calibration standard for some measurements,” says Camilleri.
    Camilleri believes that the percentage of instrumentation that Sodim builds for HnB products will further increase. “We have many new modules in mind,” he says. “As HnB products will be controlled more closely, demand for all-in-one measurements will grow. HnB companies will ask for all data in one measurement because the production of HnB is fast and manufacturers have no time.”
    Within the next 18 months, the company plans to integrate new measurements into its plug-and-play test stations. “We will use one test station design and adapt it to the different properties of the tested products so that it can carry out measurements on both conventional cigarettes and HnB consumables. Our aim is to offer more and more flexibility to our customers,” says Camilleri.
    Other Hauni member companies are also increasingly involved in supplying the HnB market. For example, Borgwaldt KC, a manufacturer of quality-control devices, recently presented a dedicated smoking machine for heat-not-burn products.
    Thomas Schmidt

    “The measurement of smoke behavior and analysis of smoke condensate, gas phase or trapped aerosol is just as relevant for large and small producers of e-cigarettes, liquids and HnB products as it is for traditional cigarette manufacturers,” explains Thomas Schmidt, director of scientific and technical affairs at Borgwaldt KC. “The problem is that these new user devices do not fit easily into traditional analytical instruments, and the formats are less standardized than those of conventional cigarettes. This is why our measurement and test units in this segment are, almost without exception, made-to-measure products designed for individual customers.”
    They are based on a range of Borgwaldt KC aerosol-collecting vaping machines. The company reports growing demand for its instruments, which incorporate various numbers of vaping channels including bottom activation as well as further applications, e.g., a cell contamination unit for in vitro toxicological assessments, an inert gas box for oxygen exclusion studies, a pressure drop tester for e-cigarettes and HnB products, and an aerosol detection system.
    Schmidt is convinced that the demand for measurement instruments for alternative tobacco products is still in its infancy. “Regulation is inevitable in this diversified and rapidly growing market for NGPs. In fact, we expect it to come sooner rather than later,” he says. “Tomorrow’s vapor industry will be faced with regulations on vaporizers, e-liquids and, increasingly, HnB product emissions. Then, at the latest, it will be essential for manufacturers and testing laboratories to have access to precise measurements. The diversity of these products and the technologies they use has increased dramatically.”
    For Hauni Maschinenbau, the arrival of HnB products had a positive effect, too. Demand for its high-speed cigarette makers has increased because tobacco companies have begun to make room for HnB combustible production in their factories. Often, this involves replacing several older, inefficient machines with one new, fast maker. To meet demand, Hauni says it had to recruit additional staff.
    “HnB products are cigarettes without the guilt,” notes Camilleri. “They have given the tobacco industry enthusiasm and breathed new life into the sector.”

  • Standing out

    Standing out

    How newcomer Skruf took the age-old snus market by storm.
    By George Gay

    As part of Imperial Brands’ latest preliminary results, chief development officer Matthew Phillips provides a roundup of the company’s next-generation products (NGPs) in which he includes oral tobacco. What he is describing in respect of oral products is mainly concerned with snus, so what he has to say gives you pause for thought. After all, snus has been around for a long time, which leads you to question how it can be seen as an NGP.
    I don’t know what Phillips had in mind, but in fact it is not hard to make a next-generation argument for snus. For instance, snus is a fairly new category for Imperial. And just as a story is “news” to somebody who has never heard the story before, even though others might have read it months previously, snus would represent a new product to most of the people of the world because they would be unfamiliar with it.
    Some might object, of course, that “next-generation” implies a technological advance, and, indeed, in most tobacco/nicotine NGPs there is a strong technical presence. But vegan cheese is an NGP, and it doesn’t come with batteries and chargers. With snus and vegan cheese, the technology is likely to be confined to the design, formulas and processing.
    But for me, the strongest argument for including snus as an NGP comprises its lower-risk credentials. For most people with a close interest in such things, an NGP label on a tobacco/nicotine product strongly implies that the product in question occupies part of the positive end of the continuum of risk, and, in my view, snus sits quite close to nicotine-replacement therapies (NRTs) on this continuum. Snus has a long, well-documented history of reducing risk (far more extensive than that of any NRT), both in the sense that it is inherently safer to use than are other tobacco products and possibly some nicotine products and, importantly, in the sense that it has a track record of providing many smokers with an acceptable alternative to combustible cigarettes.
    The trouble is, snus can seem not to be going anywhere. The EU bans it in all countries but Sweden, and in the U.S. the Food and Drug Administration, while not banning it, doesn’t allow the lifesaving potential of this product to be promoted properly.
    Amazing pace
    But this is not the full picture. Recently, Imperial sent to me a graph showing the increase in production at its Skruf subsidiary, which is almost exclusively involved with snus, and that increase is almost vertiginous. In 2003, its first year of production, Skruf manufactured 400,000 cans, while this year (Imperial’s 2017 financial year to the end of September) it manufactured 94 million cans. “Basically, since day one, we have been growing at what can only be described as an amazing pace,” said Jonas Yden, Imperial’s smokeless category director.
    Skruf was started in Sweden by two entrepreneurs, Adam Gillberg and Jonas Engwall, who, while looking to disrupt a category, stumbled on snus, which, in 2003, was ripe for the introduction of something new. Ironically perhaps, given their goal, they took the name of the company and their original brand from an old spelling of a small community in Sweden, Skruv, which, by the way, is a clue to one of the acceptable pronunciations of the name, the other of which rhymes with “hoof.”
    Gillberg and Engwall enjoyed immediate success with Skruf, which quickly proved to be such a dynamic brand that they were encouraged to launch it in Norway in 2004, in which year production was to hit 1.9 million cans. In 2005, with production headed for 4 million cans, Imperial bought a minority share in Skruf, and the next year Skruf launched a new brand, Knox, in Sweden, which helped take production to 6 million cans. Two years later, in 2008, Imperial acquired 100 percent of the shares of Skruf, and production hit 11.5 million. In 2012, with production heading toward 40 million cans, Skruf launched in Sweden a low-price brand called Smalands, which is named after the region of Sweden where its factory was located.
    All this activity has meant that Skruf has taken a 42 percent share of the snus market in Norway, where the company sells only the Skruf brand, and an 18 percent share of the Swedish market, where Skruf is its premium offering, Smalands is its low-price product, and Knox is its medium-price brand, which, with 14 percent of the market, is what Yden describes as the “volume engine.”
    Whole package
    At this point, the obvious question is what has driven the sales that have made necessary Skruf’s huge increase in production, which Yden puts at about 10–15 percent a year. It was difficult to pinpoint any single factor, he said, because it was really the whole package that had been successful, including how the company had approached the trade, how it had worked with distribution and how it had worked on pricing. But given the challenges that tobacco regulations raised in respect of communicating with consumers, it was obvious that the product had to stand on its own feet. Skruf had been good at creating high-quality products with flavors and formats that consumers wanted—basically using an “outside in” perspective. And right from the beginning, the company had been clear about doing things differently—standing out. It had launched the first white can on the market, and that had created a buzz because it stood out against older brands whose packaging was normally dark in color. Even now, most of the products in Skruf’s portfolio are white, particularly in Norway.
    But innovation isn’t everything, everywhere. Yden said that it was necessary to look at the situation from an individual-market perspective. In Sweden, a traditional market, flavors weren’t a big thing, but in Norway consumers liked flavors and new formats. In Norway there was a need for a higher pace of innovation, and Skruf had hit gold in this market with its fresh mint flavor. That had taken Norway by storm and now represents a “pretty big chunk” of the company’s total portfolio and total sales in Norway, according to Yden.
    Apart from that, Skruf worked with what it called a living portfolio. It tried to bring new flavors to market each year to test if they worked. If they did, they were retained; if they didn’t, they were delisted and something else was tried to keep things interesting for consumers. This kept the brand alive because things were happening the whole time. But that was in Norway, Yden said. In Sweden the pace was more restrained.
    I wondered whether Skruf’s success had been achieved at the expense of other manufacturers or whether the company’s products were attracting new consumers. In fact, it’s a bit of both, plus the fact that the snus category is growing well both in Sweden and Norway. Thirty percent of snusers come from smoking, and these ex-smokers can reasonably be regarded as new customers. And it is also the case that a lot of ex-smokers tend to favor flavored products, which is an area in which Skruf is strong, particularly in Norway.
    Skruf’s success has brought it recognition in Sweden, where it has been awarded “super company” status in each of the past six years. These awards are presented by the Swedish version of Bloomberg Businessweek only to companies with specific—high—sales and profit growth.
    In-flight construction
    But as well as bringing recognition, success has delivered capacity challenges, and, as a result, Skruf has been engaged in what Yden describes as “building the rocket while we’re flying to the moon.” Later he expanded on this and paid tribute to the factory’s workers, who, he said, didn’t necessarily get all the credit they deserved. They had done a tremendous job in increasing their efficiency so that, with the same amount of machinery, they had managed to manufacture a lot more products in a given time.
    Despite these efforts, by 2011 Skruf’s production had outgrown its factory, and the company had to build a new one with 7,500 square meters of space. But by 2011, production had reached “only” 28 million cans, whereas it was headed toward 75 million in 2015; so it is not surprising that, for about the past year, Skruf has been adding another 5,000 square meters to its manufacturing facilities, which, like a cigarette factory, comprise a primary department—though one deals also with a pasteurization process—and a secondary department. The shell of the new building was finished in the summer of 2017, and at the end of November machinery was being installed.
    Yden told me the company was now “future-proof,” but I got the idea that he was holding some sort of talisman at the time. Skruf had almost doubled the floor area of the factory, he said, and it didn’t take long to install new machinery. So now the company could be a lot more proactive in terms of production planning than it had been before.
    That raised the question of whether Skruf might expand its horizons beyond Sweden and Norway. Well, world domination would be nice, said Yden, though he was realistic about trying to sell the snus experience around the world. But even if the snus product has limited travel opportunities, the Skruf brand might have more. In the summer, the company launched a lutschtabak (paste) product in Switzerland under the Skruf name, and that is said to be “doing extremely well given the small size of the category and Switzerland.” The company also launched a new chewing tobacco product under the Skruf name, this one in Denmark, which was said to be “doing OK.”
    But Switzerland and Denmark were small markets, even compared with Sweden and Norway, Yden said, and the focus for the foreseeable future would be on core markets, which are now defined as Sweden and Norway. Being an entrepreneurial company, however, Skruf would be keeping its eyes open everywhere there was an opportunity.
    While the U.S. is a big market for smokeless tobacco products as a whole, its snus market is comparatively small, according to Yden. The product would have to be adapted before it would achieve in the U.S. the sort of consumer pull that Skruf would want. At the end of the day, he said, the company would love to launch all over the world, and it if it changed the product around just a little it might find at least a few other pockets of interest.
     
    Imperial ‘thrilled’ with Nerudia acquisition

    Although the huge and rapid success enjoyed by the Imperial Brands-owned Skruf can best be described as “amazing,” in one sense the story is about a strategy that Imperial has long followed—one in which it has been comfortable and successful in expanding its portfolio of product types, in this case snus.
    This strategy—this ambition if you like—was on show earlier this year when Imperial, through its vapor technology company Fontem Ventures, acquired Nerudia, a company that seems set to help Fontem and Imperial move in the new directions being encouraged by attempts to switch smokers to less harmful products.
    It was early days in the acquisition story when, in November 2017, Tobacco Reporter was in contact with Titus Wouda Kuipers, the CEO of Fontem Ventures, but his enthusiasm for the new venture was clear.
    “We’re absolutely thrilled to have made this acquisition,” he said.
    “Nerudia is a well-established and respected business, and its founders have an impressive track record of developing innovative e-vapor and nicotine products.
    “The [next-generation products] category is evolving incredibly quickly. High levels of innovation and fast-paced product development are very important in order to attract and retain consumers in the face of major competition.
    “Product innovation is at the heart of our ambitions at Fontem, and Nerudia’s proven expertise will provide a significant boost to our capabilities in this area.
    “As a research and development company, Nerudia’s strengths lie in the front end of the innovation process—that’s to say, coming up with new ideas and scrutinizing them thoroughly, part of which involves a deep understanding of the intellectual property landscape.
    “At Fontem, we already have good capabilities in the latter parts of the process … taking a concept to mass manufacturing and through to market launch. So it’s an extremely complementary acquisition, and we look forward to making the most of the exciting opportunities that lie ahead.”—G.G.