Hauni stresses digitization, flexibility and efficiency at its in-house exhibition.
By Stefanie Rossel
The intelligent factory and digital transformation were the main themes at Hauni Maschinenbau’s open house, staged in November on the occasion of the company’s 70th anniversary.
Under the motto “Innovative technologies. Smart services. Focused on your success!” the company had set up 54 information stations throughout its production halls. In a relaxing atmosphere, more than 500 visitors learned about topics pertaining to the future of tobacco engineering.
Hauni presented a range of new service concepts. For example, customers can now outsource their supply chain management to the company, allowing them to reduce their cost by up to 50 percent, according to Hauni.
The machinery manufacturer also offers performance analysis, evaluating data and advising customers about potential improvements in their production processes. Hauni’s service portfolio includes several other features, such as product cycle management or a remote service for troubleshooting.
Characterized by a high degree of interconnectivity, the hardware on display in Hamburg, Germany, catered to all sectors of the tobacco industry. It included specialized equipment for the production of shisha capsules, iQOS “HeatSticks” and snus.
Particular emphasis was placed on process optimization. The Protos M5e cigarette maker offers more than 95 percent efficiency—greater even than that of the company’s acclaimed M5, according to Hauni.
The firm also presented various entry-level solutions, including a complete standardized primary, as well as a cigarette maker, Protos M4. Capable of producing 10,000 cigarettes per minute, the Protos M4 is a good fit for Hauni’s new entry-level filter maker, KDF 2 NEO.
KDF 2 NEO was one in a series of new filter makers shown at the in-house exhibition. Another member of this group, KDF 2 ER-D, can produce hollow filters with shapes, such as letters, at the tip. The KDF6 MF LEAD multi-filter maker, meanwhile, enables operators to perform the world’s fastest brand change, according to Hauni.
During the event, Hauni also presented its new premium filter maker, KDF6 LEAD—not to be confused with the KDF6 MF LEAD described above. With the addition of Hauni’s Flexport modules, the KDF6 LEAD can produce a large variety of special filters, inclusive of thread or capsule insertion. A 3-D format change takes less than an hour, and other format changes can be performed even more quickly, Hauni says.
New instruments were presented by Hauni’s subsidiary Sodim, a lab-testing equipment manufacturer. Its Sodiscan MWS is an off-line detector for the right capsule position in the filter and important for quality assurance. Sodilab checks whether the grooves in ventilated filters are even and perfectly shaped. Sodim ASP allows for automatic testing of cigarettes, servicing cigarettes one by one. When checking cigarettes from a double-track maker, the channel rod detection module can detect, with the help of laser technology, from which track the cigarette has been picked.
Hauni has also been exploring the possibilities of “additive manufacturing,” the manufacture of machinery parts by a 3-D printer. This new technology enables shorter delivery time of components; it also helps Hauni to improve the function of parts. Some 3-D printer-produced parts have already been built into Hauni machinery.
At one of the information stations, visitors could dive into the world of virtual reality and “handle” a machine that exists only in a computer program. Together with another German company, Hauni developed an augmented-reality program to help explain its products. In the future, the system may also support operators.
Right now, they may already benefit from Hauni’s key support tools, which are connected through the company’s data processing and analysis system, AREO. Through an app, they provide operators with data of the entire plant, circuit diagrams, reference books and potential solutions to machinery malfunctions. In six to 12 months’ time, Hauni will introduce solutions for various machinery access levels by radio-frequency identification.
Celebrating 25 years in business, ITM Poland demonstrates it is ready for the future—in whatever form that may arrive.
By Taco Tuinstra
ITM Poland started operations in a turbulent time, both for the tobacco industry and the world at large. The collapse of communism in Eastern Europe and the Soviet Union had opened an enormous, previously underserved market for tobacco companies. From Berlin to Vladivostok, millions of smokers were yearning for Western products. But the lifting of the Iron Curtain also created new opportunities for the region’s talented professionals, who were now free to market their skills and cooperate with whomever they wanted.
A veteran of the Polish tobacco monopoly, Andrew Stanikowski didn’t need to think long when ITM CEO Arend van der Sluis Sr. approached him about setting up a Polish division for ITM. Headquartered in the Netherlands, ITM had until then been primarily a rebuilder of existing tobacco machinery, but the company had outgrown its niche and was eager to start developing its own equipment.
Poland was an obvious choice for the new venture, but not for the reason cited by many Western firms at the time. Whereas other foreign companies were attracted primarily by Poland’s low cost of labor, ITM was interested in the quality of the country’s workforce. For all its shortcomings, the former communist regime had invested heavily in technical education, resulting in the widespread availability of skilled engineers.
Excited by the opportunity to work for an international company, the young Polish team started innovating almost immediately. Under the direction of Leszek Sikora—currently CEO of ITM Poland—it developed groundbreaking equipment, such as Capricorn, a revolutionary first-in, first-out rod buffer; Gemini, a flexible filter logistic system; and the Solaris filter combiner. Capricorn, in particular, represented a milestone—not only due to its pioneering technology but also because it put ITM on the map as a manufacturer of new equipment.
Prepared for tomorrow
As ITM Poland celebrates its 25th anniversary, the tobacco industry is again in the midst of transformation—perhaps the biggest since Columbus brought the golden leaf to Europe from the New World. Whereas the venerable combustible cigarette has remained virtually unchanged since its introduction, 150 years ago, today’s modern products are outdated almost the minute they hit the store shelves. Short product life has become the norm, requiring tremendous creativity from technology suppliers. During its anniversary celebration, ITM Poland sought to demonstrate that it is well-prepared for this new dynamic market.
In mid-September, business partners from around the world descended on ITM Poland’s hometown, Radom, to take part in festivities and learn about the company’s latest technical solutions. Company representatives recounted past successes, thanked customers for their support and paid tribute to Arend Van der Sluis Sr., who passed away in March.
Whereas the first day of the event celebrated the past, the second day was about the future. As several speakers pointed out, the greatest challenge is predicting what tomorrow’s products will look like. In the absence of a crystal ball, ITM is building as much flexibility into its products as technology will allow, so that its machinery can evolve along with the product.
In 2014, ITM’s TDC affiliate introduced the Genesis, for example—the industry’s first e-cigarette automated filling and assembly solution. Designed modularly, the machine allows customers to keep up with product changes simply by adding and removing modules.
With the same future-oriented philosophy in mind, ITM presented several new technologies at its Radom event.
In the filter segment, the company launched a capsule-insertion module for its Polaris filter maker, along with a cavity-filling unit and a non-cuttable objects module for its Solaris combiner.
Utilizing the full speed capability of Polaris, the capsule-insertion module operates at an unprecedented speed of 500 meters per minute without compromising insertion accuracy, according to ITM. Features include a double-capsule insertion function and an on-board capsule-presence monitoring system.
The Solaris combiner cavity-filling unit, says ITM, sets new benchmarks for precise cavity creation, filling percentage and product cleanliness. With a built-in monitoring system, the unit is ready for both current and future filling additives.
ITM’s noncuttable objects module creates opportunities to insert new finished component types that differ from the typical base rod into (future) products. The ITM Solaris can combine quadruple products, including ultra-short 5 mm internal segments. The new module allows for novel combinations of finished products. As is the case on all the company’s new filter solutions, an onboard monitoring system ensures quality.
In the rod-handling segment, ITM launched its new Taurus tray unloader. Benefitting from the company’s considerable experience in rod logistics, the machine features a modular construction method with selectable options to fit varying needs and budgets.
ITM’s Delphi II tobacco reclaimer, which was also introduced during the event, builds on the success of its well-established predecessor machine, but has been redesigned to process more complex products. Advances in filter technology, with new materials and components, such as flavor capsules, have made the task of reclaiming tobacco from rejected cigarettes trickier. To prevent contamination of the recovered tobacco, the machine features integrated infeed separation, a new rod-alignment system and the latest in gentle opening technology.
Other reclaiming innovations presented during the event included the Elph plug remover and the Delphini on-line tobacco reclaimer, which guarantees full traceability and eliminates the risk of cross-contamination between brands.
According to ITM, all introduced reclaiming technologies are capable of retrieving tobacco from all existing tobacco products, including the special-purpose tobacco rods used in today’s new-generation products.
Gathering expertise
As it prepares for the future, ITM is not shy about borrowing ideas and best practices from other industries. To expand its skills and knowledge, the company has been on a bit of a buying spree lately, snapping up companies that complement its core business. ITM’s recent acquisition, Tricas Industrial Design & Engineering, is a good example. The company uses crossover innovation to apply proven technologies from other industries in the tobacco industry.
In 2013, ITM acquired IMAtec of Luxembourg, a supplier of packing equipment for other tobacco products. IMATec’s portfolio includes cigarette paper booklet machines, pouch makers, clear-wrap kits, shrink kits and end-of-line packaging equipment.
Combining the companies’ teams has enabled ITM to offer complete packing solutions from concept to machine acceptance. In addition, it can now produce prototypes and mockups. The company will also be offering efficiency improvement services.
In 2015, ITM purchased Gemba Solutions. Based in Atherstone, U.K., Gemba specializes in overall equipment effectiveness software and continuous-improvement services that maximize production efficiency, increase throughput, reduce inventory and provide all-round visibility into factory operations and processes.
And, earlier this year, ITM teamed up with EME-Engel from Zaandam, the Netherlands. With more than 75 years of experience, EME-Engel specializes in liquid-pouch packing. It offers a broad spectrum of solutions, from concept to final design and production. According to ITM, the new partnership provides a platform for crossover innovation, enabling it to apply technologies from other industries to tobacco applications and vice versa.
In the meantime, ITM has been paying close attention to “Industry 4.0,” the trend of automation and data exchange in manufacturing technologies. As machines become “smarter,” they are increasingly able to communicate with their operators and one another. By making clever use of the data generated, manufacturers can greatly improve the efficiency of their operations, minimizing downtime and optimizing performance. The Solaris Athena platform, which was also introduced during the event, is a good example. It allows all parts of the filter combiner to communicate with one another, provides full access to date and facilitates decisionmaking.
The tobacco industry has changed significantly since ITM established its activity in Poland. But, as became clear during the Radom celebration, the company has evolved with the market, sometimes even developing new technologies that enable customers to manufacture products that don’t exist yet. As a result, ITM appears well-positioned to enter the next chapter of its history, no matter how turbulent the new environment may be.
Alliance One is keeping up with a rapidly changing tobacco industry.
By Goerge Gay
Pieter Sikkel
Pieter Sikkel, the president and CEO of Alliance One International, says that he can remember the first fax machine being delivered to the office where he was working in South Korea. And well he might. For those of us who were used to operating within the confines of the postal system, the office fax machine was a thing of wonder because it brought about a massive positive change to the way that we were able to send and receive documents.
Change is inevitable and Alliance One, which was born of change, seems now to have it in its DNA. The company emerged in 2005 from the merger of two major leaf dealers, Dimon Incorporated, which itself had previously absorbed a number of leaf companies, and Standard Commercial. The merger, if not inevitable, was certainly essential if the leaf suppliers were to keep abreast of the changing needs of tobacco manufacturers, which had also grown bigger through consolidations. The leaf supply business, Sikkel said, was becoming less specialized, more a business delivering a bulk product, albeit one with high standards; and that required scale. “And that is the business we are in today,” he added. “Quality is still key, but it is about the delivery of a quality product from bigger facilities in fewer markets, with full traceability and compliance. Without a certain degree of scale, it is very difficult to make the investments that are needed in order to provide that product.”
So consolidation has allowed Alliance One to make the required investments and adapt to an evolving industry, and Sikkel is confident that the ongoing changes the company is making will “enhance shareholder return on the consolidation.”
So why the optimism now? After all, it has been more than 11 years since Dimon and Standard brought together their combined 200 years of leaf experience. What has changed? Well just about everything. Alliance One has been able to redirect part of its focus by investing in areas that it could not have invested in in the past, partly because they did not exist. Crucially, it is no longer only a leaf supplier. “We’re in value-added products,” said Sikkel. “We have a cut-rag business here in the U.S. and in Jordan. We’re in the supply of tobacco for reduced-risk products, we’ve invested in e-liquids and cartomizer filling, and all the different modes and forms of nicotine consumption. So I strongly believe that there is success to come.”
Sikkel seems genuinely excited about the future, about where vapor products are headed and what will come next. He sees the emergence of a multi-faceted consumer who might have a cigarette in the morning, who might vape mango-flavored e-liquid during the day and who might try a heat-not-burn product in the evening. “It’s very interesting and it’s very exciting, and it produces a lot of opportunities when you open your mind to thinking where this is going to go in the future,” he said. “That’s what makes coming into the office every day quite exciting—trying to think what we can do next. This industry and our consumers are changing so quickly; how can we be sure we will be able to be part of that in the future?”
Growing the slice
Hang on though; since the world is witnessing a decline in the use of combustible tobacco products, the question arises as to whether Alliance One can maintain its current level of business, let alone grow it, by taking advantage of market changes that are occurring, in the main, rather slowly. Opportunities and potential make a less-than-nourishing gruel on which to nurture a brave new future. But Sikkel has a ready answer to this question because he sees growth potential also in Alliance One’s traditional business, whose sales currently account for only about 5 percent of the cost of the tobacco currently used in global cigarette manufacture. “Do we think overall global leaf requirements will decline: yes,” he said. “Do we think we can continue to grow in a declining leaf-requirement situation: yes.”
The way he puts it is that Alliance One can continue to grow in the space that it occupies, but that is a space that is going to change and that change is going to require new ways of thinking and new skills. And no doubt he is right. Although the leaf supply industry can look rather conservative from the outside, change has been driving it for some time. For instance, the focus in recent years has been on reducing the number of countries of origin: concentrating on those that offer the scale and efficiencies needed, while being able to keep abreast of the compliance issues that meet the changing expectations of customers, regulators and society in general
Of course, such a change has its risks, especially when mixed with other changes that have occurred and are occurring, and with built-in weaknesses in the supply chain, such as those associated with political uncertainties in some of the countries in which tobacco is grown. It is well known that tobacco manufacturers have reduced their inventories and that leaf suppliers are not in the business of holding large quantities of uncommitted stocks, and over the past few years in particular there have been significant weather-related issues that have reduced crops. Tobacco is hardy and will always produce a crop, but volumes can be reduced significantly by wet weather. The most recent El Nino event caused significant damage to tobacco crops in the U.S., and the most recent Brazilian crop was down by more than 30 percent because of heavy rainfall during the growing season. And now the industry is looking at an Indonesian crop that, again because of high rainfall, is down by probably 40 percent, with sun-cured tobaccos particularly badly hit.
The level of risk that the industry is facing depends to some extent on whether recent weather patterns, which have seen back-to-back El Nino/La Nina events, are part of a short-term or long-term change, though in either case there is little that can be done to mitigate the effects of such events when they do occur. But other risks are man-made and can be avoided given the will to do so. One such risk is that pushed by the World Health Organization’s Framework Convention on Tobacco Control (FCTC), which would like to see all countries forsake tobacco growing. This, however, is proving to be a hard sell to countries that can see the benefits of growing and exporting tobacco, which extend beyond the often-vital foreign exchange earnings. So far, no country seems to have stopped growing tobacco on the basis of the FCTC’s recommendations. As Sikkel points out; in many countries, tobacco is the most lucrative cash crop that a farmer can produce, and in other countries it is one of the top three most lucrative cash crops. And it is produced by many hundreds of thousands of farmers—farmers who vote and who are important to society, and to governments that want to persuade people to stay on the land producing crops efficiently.
Sustainability
Of course, ranged against the risks that tobacco production faces is the strategy of sustainability, which is not, as is widely believed, a new strategy, but a newly expanded, constantly evolving strategy. Sustainability and compliance are largely based on the Integrated Production System (IPS), explains Sikkel, and the IPS has been in operation in Brazil for almost 100 years. Under the IPS model, farmers sign contracts with buyers who provide production support that ensures tobacco is grown efficiently and with as little negative impact on the environment as is possible, and who guarantee to buy the farmer’s total crop at grade-based prices that are, where possible (some governments, including that of Malawi, do not make provision for this), agreed before planting. For his part, the farmer agrees to certain conditions that include employing only voluntary and age-appropriate labor on fair wages—conditions that are carefully monitored and enforced by buyers.
So the big change that has taken place in recent years is that this system has been expanded to include countries other than Brazil. In both Malawi and Zimbabwe, for instance, 80 percent of the tobacco sold is now grown on the basis of contracts. And for Alliance One, this means that there has been a massive change to the way it is structured. Ten years ago, the company had almost no field technicians in Africa, but today almost half of its global workforce is in the field as field technicians, agronomists and researchers.
And what does the contract system mean for the farmer? This is more difficult to get to the bottom of, but, if you look on the bright side, this year contract tobacco prices in Malawi were on average 31 percent higher than were auction prices. But one has to set this against the fact that contract prices there have been either flat or down for the past five or six years, and auction prices have been massively down. Again, on the bright side, IPS grower income and profitability are said to have been increased significantly despite the flat prices because of the 20 percent increases in yields and quality, and the significant decrease in labor requirements that the IPS has brought about. There seems, however, to be an unwritten law that says that prices and IPS gains are in an either/or relationship: that farmers cannot benefit from both. And in theory at least this seems troublesome because while IPS gains are undoubtedly most helpful to everyone involved, being grade-based, they seem to be at the mercy of the weather, which, as is described above, has recently been unhelpful.
In part, sustainability is a matter of responsibilities that companies such as Alliance One owe to farmers and their communities, to customers, to governments and to their own ethical stances, but Sikkel sees it also as a matter of pride for the company and its employees. What Alliance One does today is very different to what it did in the past, he said. Today it is helping farmers improve yields and quality significantly, and it is monitoring farm conditions to ensure laborers are fairly treated. And it is supplying inputs and advice to help farmers produce food crops so as to ensure food security and another strand of income. “Who would have thought that we would have planted 55 million trees in Africa over the past five years,” said Sikkel. “So it’s a massive change, but, if you program it correctly, it doesn’t cause a massive increase in costs. We’ve found savings in other parts of the supply chain to take care of it. And our customers participate in it as well with financing, which helps us put in place things such as dams that make water more secure for many of the people we contract with.”
Managing risk
This is all very good, but it seems to swing us back to the question of risk. An apparent additional risk taken on by leaf suppliers, especially in the light of the recent reversals that have been seen in vertical integration. Although tobacco manufacturers might help with the financing of specific projects, such as the provision of dams and boreholes, there is a lot more going on here than that. To an outsider, making the IPS a success seems to be a massive undertaking. Leaf suppliers have to be prepared to work with hundreds of thousands of farmers in some of the poorest countries in the world, and to try to create sustainable supply chains under some of the most difficult conditions in which agricultural crops are grown. And Sikkel seems to agree up to a point. “We clearly have taken on more risk in the supply chain over the past 10 years,” he said. “Whenever we’re contracting a year in advance of purchasing, processing and shipping a product, rather than buying to order from an auction floor, we are taking on more risk. And there is always going to be a question about what is going to be the right reward for the additional risk that we take. Clearly for ourselves and for our shareholders I would like to see additional reward for all of the risk that we take. And that is what we continue to work on with our customers, to make sure that we have the right balance there.”
There is occurring too a rebalancing of demand for certain types of tobacco, with flue-cured in the ascendancy while burley and to some extent oriental are on the wane. This merely reflects cigarette consumption, which is, generally speaking, weakening at a faster rate in countries where American-blend products are consumed than in those where Virginia-blend products are most popular.
What is more interesting perhaps is that increasing bans on additives in cigarettes are having little to no effect on the types of tobacco in demand, though they are having some effect on varietal demand. And according to Sikkel this is partly down to the fact that there has been an increase in the production of “natural” cigarettes around the globe. “I think that this is partly what has caused the increase in interest in African burley, for example, which is a lighter product,” he said. “It has flavor, but it is a little more gentle in the smoking and easier to use in a natural cigarette. I think a lot of our customers have made those sorts of adjustments and that is why, too, Brazilian burley is in lesser demand than it was in the past and probably U.S. burley will be in lesser demand in certain markets than it was in the past.”
One other area where little change has occurred is in respect of big-leaf processing. Threshing—or extracting stem from tobacco—and drying, have changed little, though Alliance One has invested heavily in ensuring that it has scaled-up processing capacity in those countries where production is being concentrated and in equipment for the removal of nontobacco material. The company has done a lot of work, too, on looking at how equipment functions to improve throughput and the yields it achieves from taking in farmers’ tobacco to dispatching packed cases.
It has invested heavily in racking in its stores, also, so as to avoid stacking tobacco in piles on the floor, which can lead to mold, fermentation and a loss of yields. Depending on the market, racking can help improve yields by 1–2 percent and the quality of the finished product, which are important improvements given that tobacco accounts for 80 percent of Alliance One’s costs.
Of course, the above does not take into account the biggest change to processing techniques of the past 20 years: the switch from natural drying to soft drying of oriental crops. This has reduced dramatically the complexity of putting oriental into a useable form for manufacturers. And though for tobacco suppliers it meant investing heavily in equipment for their oriental factories, it offered the advantage of hugely reduced labor and handling costs, and reduced the time taken for crops to be stabilized and shipped.
Finally, to take this story back to its beginnings; Sikkel is clearly still taken with the changing face of communications. “If you look at our website today you can see the stories of what we are doing and achieving around the world; how we are getting out the true message about what tobacco offers to communities around the world,” he said. “I think that is a significant change. In the past, we bought tobacco and we sold it, but we never talked about the process behind it. And I suppose we didn’t have that much to share on a global basis as we didn’t have the data to back up the results we were achieving. Today we’re much better at documenting things. We can prove what we do and we can use that data to communicate with anybody around the world, whether they are with environmental organizations, human rights organizations or other bodies. And we try to be very transparent in what we do. We try to be very open. Where we have issues, we say we have issues and this is what we are doing to try to improve things.”
As BMJ turns 25, CEO Rahmanadi reflects on the challenges and opportunities ahead.
TR Staff Report
BMJ celebrated its 25 anniversary in November. Starting as small outfit in the 1990s, the Indonesian supplier of cigarette papers rapidly grew into a leading player in southeast Asia and throughout the world. Tobacco Reporter caught up with BMJ CEO Omar Rahmanadi and asked him about the company’s past, present and future.
Tobacco Reporter: What, in your opinion, have been BMJ’s greatest accomplishments over the past 25 years?
This is a difficult question, because BMJ has accomplished so much in many different aspects over the past 25 years. For example, our workforce has grown from only 68 people in the beginning to over 1,000 people now. This means that BMJ has created hundreds of jobs and has helped increase the prosperity of the local community. Furthermore, we have not only built a place merely to work, but also a place to develop a fulfilling career. We have also been recognized as a responsible manufacturer in environment sustainability. However, if I have to pick one, BMJ’s greatest accomplishment is the trust that we have gained from our customers over the past 25 years. We also understand that trust takes years to build, seconds to break and forever to repair; therefore we spare no effort to ensure that we always deliver excellent products and services.
How do you explain your company’s success?
Our success stems from our passion to serve the customers better. With that passion, we are committed to always listen, know and understand customers’ needs, so that we can continuously search for the perfect solutions.
How does BMJ set itself apart from the competition?
It is difficult to answer this question because we have been spending too much time working with customers and not enough time studying our competitors. I think this question is better to be addressed to our customers.
Is there much room for further innovation in tobacco papers? If so, which areas hold the most potential?
There is still some room for further innovation in cigarette papers. With stricter regulations on tobacco packaging, more emphasis will be placed on materials inside the pack. We are currently working on several new products, but I cannot disclose anything further. Stealing Donald Trump’s line, “I will keep you in suspense.”
What do you consider to be the greatest future challenges for the cigarette paper industry? And how is BMJ preparing for those challenges?
The main challenges are tighter regulations on cigarettes, for example: the obligation to use low-ignition propensity paper and adoption of plain packaging. This leads to decline in cigarette consumption, especially in developed countries. We are lucky that we are located in a part of the world where cigarette consumption was still growing, until recently. I think the growth still has potential to continue, because the purchasing power of the consumers is still growing. However, eventually growing health concerns will catch up to this part of the world, and that will put the brakes on cigarette consumption growth.
The only way to survive in the long term is by investing in innovation.
Where do you see BMJ in 25 years from now?
Twenty-five years from now, there will be fewer players in cigarette paper industry, and BMJ will be one among the few that are still serving cigarette companies. We will thrive as a strategic global partner for cigarette companies.
U.S. tobacco is generally regarded as the world’s best. The U.S. Tobacco Cooperative wants to ensure it also gets credit as such.
TR Staff Report
Founded in 1946, the U.S. Tobacco Cooperative (USTC)—a grower-owner cooperative comprising more than 750 member growers throughout North Carolina, South Carolina, Virginia, Georgia and Florida—has spent the past 70 years securing its status as a key player in the tobacco industry. And for the past several years, the Raleigh, North Carolina-based organization has undergone a series of significant transitions designed to help highlight U.S. flue-cured tobacco as the most sustainable and compliant tobacco crop in the world.
From officially changing its name in 2008 and renovating its headquarters building in 2015 to purchasing several new marketing centers in recent years, breaking ground on a new green storage facility in July and consistently hiring top talent, USTC has reinvented itself as a company and is changing the way the world views the U.S. flue-cured tobacco supplier and its members’ crops.
While USTC has made significant strides toward changing the industry’s perception of the company itself, its latest focus is on educating industry stakeholders on the intrinsic value of tobacco grown on U.S. soil versus crops grown outside the United States.
Stuart Thompson
“There are many benefits to the U.S. crop,” says USTC CEO Stuart Thompson. “Child labor here is virtually nonexistent. There is no deforestation. There is no problem with tobacco replacing food crops. Our growers abide by good agricultural practices. These are the largest commercial tobacco farms in the world. They are highly efficient, and our growers are precision farmers. We have a core group of very loyal growers who bring us the absolute very best tobacco that they have, and they do that every year. These growers have proven that, despite challenging weather conditions, they can produce year in and year out. We know the U.S. crop is the key ingredient in virtually all premium blends. It’s sustainable, it’s socially responsible, and it’s secure. Our hope is to highlight that to the global markets so that people will rely more on U.S. flue-cured tobacco.”
Although some in the industry are aware that the U.S. flue-cured crop is the highest-quality tobacco available today, according to Thompson, U.S.-grown leaf has not received sufficient recognition for its intrinsic value. So USTC has set its sights on promoting the benefits of U.S. flue-cured tobacco—benefits that are passed down from the grower level to the leaf suppliers to the manufacturers and, ultimately, to the consumers who purchase the products. U.S. growers self-finance, a burden borne by suppliers in many other origins along with the associated bad debts. The U.S crop is dollar-based, eliminating currency risk. Because of the sophistication of the U.S. grower base, suppliers do not have to maintain large agronomy teams to assist growers. All of these costs are borne by the U.S. growers and included in their green price.
USTC is not content to simply say that U.S. tobacco is the best; the company is backing its claim with data.
“You have to look at the United States and the resources that are here—in terms of water, land, food sufficiency and environmental protection—and then compare that to tobacco crops grown in lesser-developed countries, where there is population pressure, climate change, food shortages, and where water is becoming a critical issue,” says Jim Schneeberger, USTC’s vice president of business development. “In other countries, the questions are already being asked: ‘Why are our natural resources, like water, being used to grow tobacco rather than food?’ Overall, with our climate and environment in the U.S., we’re not sacrificing food crops to produce tobacco—and in many cases, tobacco complements other rotation crops. It’s very difficult when you have people struggling to produce food and they are being told, ‘Don’t grow your crop on the riverbank because it will cause erosion.’ For them, it’s not a choice. They have to grow that crop to survive.”
“I think something that we pass over is just the consistency and the size of the commercial farming operations,” says Thompson. “The grower base here in the U.S. is made up of precision farmers, and they are excellent at solving problems that happen in the field. At North Carolina State University, we have the pre-eminent tobacco research facilities in the world, which is an important resource for the tobacco industry.”
Because of the sophisticated techniques used to produce this crop, buyers who source their premium tobacco from U.S. farmers can rest assured that they will ultimately end up with their requirement each season.
”What this means is that the U.S. growers will produce the styles that are in demand year in and year out with what they need,” says Thompson. “So for manufacturers that are focused on having their consumers having a consistent experience, they need to think about sourcing tobacco from origins that are going to be consistent year in and year out. That’s why I think the U.S. crop is really key and that our customers would be wise to look to the U.S. to source more of their core grades.”
According to Schneeberger, this consistency is particularly important for manufacturers of premium brands with loyal followings that can’t afford to deviate from the high-quality blends their consumers are familiar with.
“The fact that we don’t have a lot of the issues that affect the lesser-developed countries is part of the intrinsic value of the tobacco in this market,” he says. “Manufacturers don’t have to worry about their brand’s quality being jeopardized or their brand integrity being put at risk because of the compliant production model here in the U.S. So we are really assisting the manufacturers secure their brand integrity by guaranteeing the integrity of our U.S. flue-cured crop.”
Although it’s simple to state that U.S. flue-cured tobacco is the best in the world, it’s imperative for leaf suppliers like USTC to substantiate such a claim with actual data gathered from the farms where the flue-cured crop is grown. USTC has taken several steps to prove their growers’ crop is top quality, the most significant of which is initiating independent third-party audits for 100 percent of its grower base.
“Many of our growers have multiple contracts that require high standards,” says Thompson. “We felt we needed to jump to the forefront in promoting the sustainability of the U.S. crop. So we took the position that we’d do 100 percent independent audits of all of our growers. And as far as we know, no other major leaf supplier in the U.S. is doing this. Several companies conduct 100 percent audits, but no one else does 100 percent independent audits.”
“It’s expensive for us, and it’s time-consuming for our growers to conduct those audits,” says Thompson. “We’ve also launched our own audit platform, where our own leaf department is doing assessments on every farm visit as well. We just don’t think the U.S. crop has been getting the credit for its sustainability and social responsibility that it deserves, and we want to highlight that. Whether buyers decide to purchase from us or not, we want them to recognize just how good the U.S. crop is.”
Earlier this year, USTC broke ground for an expansion of its operations in Timberlake, North Carolina.
Social responsibility and sustainability may be the key focus of the new goals USTC has set forth, but for USTC, the focus on social responsibility and sustainability doesn’t stop at the grower level—it also spills over into the production process.
Earlier this summer, the company broke ground on a brand-new, $13 million green storage center in Timberlake, North Carolina, which will complement its current leaf processing facility.
“We continue to make investments with the goal of reducing our green conversion costs,” says Thompson. “We’re adding 150,000 square feet of green storage at that site, so the total facility will be just under 600,000 square feet. By investing in this new green storage facility, which will be up and running for the 2017 season, USTC is further reducing operating costs on a significant scale.
“With this addition, we’ll be able to store 10 million pounds at the plant, so if we need to make changes to the blends to meet a customer’s needs, we can do that right there. It will generate significant savings and process improvement.”
Perhaps the most notable aspect of USTC that sets the company apart from other leaf suppliers is their unparalleled investment in their growers. In the past five years, USTC has returned more than $42 million in patronage dividends to its members.
“People like our story, and they like our patronage,” says Thompson. “They like the idea that we work for growers. They like the idea that we send profits home. It’s very compelling. We look to maximize our profits and we look to maximize the amount that we can send back to our growers. That formula seems to be working well.
Whether they are investing in their growers by returning profits in the form of patronage dividends or purchasing new facilities to reduce operating costs, USTC is well-positioned to succeed in their goal of promoting U.S. flue-cured tobacco to those within the global tobacco industry.
“What we’d like people to do is to really think about us as the premium supplier in the U.S. Our larger customers consistently tell us that we score the highest in quality,” says Thompson. “Because we actually do what we say we’re going to do. We’re very transparent. We’re the real deal. If somebody wants the best U.S. leaf, which also happens to be the best in the world; if they want to get it from someone who is deeply committed to social responsibility; if they want to do business with someone that is financially sound; if they want to do business with somebody that is only interested in integrity—we’re the best match.”
It’s time for critics to recognize the tobacco industry as a partner, rather than an adversary, in the fight against illicit trade.
By George Gay
A few years back I was told off for having suggested that the price people pay for cigarettes should be aligned in direct relationship with their incomes; so the more a person earned the more she should pay for her cigarettes. The general drift of the complaint was how dare I suggest that a person who had studied diligently and worked hard so as to land a well-paying job should be penalized for such enterprise.
I tried to explain that my suggestion was aimed not at penalizing the better-paid person but at helping her by pushing the price of cigarettes to the point where she could no longer afford them, stopped smoking and enjoyed all of the health advantages that quitting offered. I was merely raising the bar of government strategy so that it encompassed too the better off.
At this point the person who had been telling me off looked at me as if I were mad and changed the subject.
What does this true story indicate? To me it suggests that there is at least one person who doesn’t buy into the idea that the primary reason why governments raise cigarette taxes is to improve public health. And I get the feeling that he isn’t alone.
So it’s about the money, about government revenues? In part. For instance, in July, a smoker in the U.S. state of Pennsylvania raised a question that should be asked often and loudly but rarely is: Why should smokers pay a disproportionately high level of taxation? Writing on www.pennlive.com, Nancy Eshelman said that she had smoked for more than 50 years and, during that time, “dropped a lot of money into the state coffer.”
“I don’t mind paying tax on my cigarettes,” she wrote. “But why should I, and other smokers, provide nearly two-fifths of the new revenue that will balance the state’s new budget?”
Making choices
But there’s more to tax increases than money and health. For one thing, they have to do with the fact that, in the minds of some people, there can be no redemption for tobacco sinners. And they have to do with the fact that some people make their choices not on the basis of what they like the most but on what they dislike the most.
This way of choosing was evidenced by the Brexit vote and by reaction to the U.S. presidential campaigns. And it is evident in the vapor debate—it’s better to stick with smoking than allow tobacco manufacturers to take the moral high ground with their newfangled vapor devices.
And in respect of the illegal trade in tobacco products, there seems to be a theme running through the narrative suggesting that some in the anti-tobacco field would sooner that this trade carried on if the alternative required working with tobacco manufacturers.
In September, a brand security consultant said the World Health Organization (WHO) would rather focus on easy targets, such as licit tobacco companies, than on the illegal trade in tobacco products, according to a story by Connor D. Wolf published on InsideSources. Former U.S. federal agent Thomas Lesnak warned that the WHO’s political agendas and secret meetings had resulted in an echo chamber of dangerous policies. “No one really wants to talk about what the facts are, what the real numbers are,” Lesnak said. “It’s easy to say I’m against the big tobacco companies. Politically it’s smart. There’s no downside to it except you’re ignoring what’s really going on out there.”
Also in September, a report by the Australian Institute for Progress (AIP) said that the November meeting of the Conference of the Parties (COP) to the WHO’s Framework Convention on Tobacco Control (FCTC) would lack the transparency and dialogue that underpin United Nations values. The report was launched by the former Australian government minister Gary Johns.
The seventh FCTC COP, which was set to be held in Delhi, India, on Nov. 7–12, just after this magazine’s November issue was due to be published, was refusing entry to relevant stakeholders or media to discuss new developments that could save lives around the world, the AIP said in a story issued through PR Newswire. “The WHO FCTC is a closed shop which uses exclusion to silence debate,” Johns was quoted as saying.
Perhaps this is part of the reason why, according to a Taxpayers Protection Alliance (TPA) report in October, numerous countries have opted not to pay their obligations to the WHO FCTC. “As of July 15th, 142 of the 180 FCTC member countries, nearly 80 percent, had outstanding obligations,” the TPA said. “The FCTC has faced criticism for banning journalists at its meetings, malpractice, stifling debate, lacking transparency and being profligate with public money.”
And perhaps the criticisms are starting to get through. Also in October, though before the TPA report came out, Vera Luiza da Costa e Silva, head of the Secretariat of the FCTC, wrote in a Huffington Post blog that some sessions of the international tobacco control meeting due to be staged in India would be held in public. But da Costa e Silva said that the parties to the Delhi meeting could not sit at the negotiating table with the people who had caused the global disaster of tobacco use because the tobacco industry had lied.
Startling inefficiency
So no redemption for the tobacco sinners, which seems to mean that the future looks bleak because, as is suggested above, the FCTC, working on its own, is stuck inside an echo chamber—and one of startling inefficiency.
In September, Philip Morris International expressed concern that, four years after its adoption, an international protocol aimed at eliminating the illegal trade in tobacco products had not entered into force. The Protocol to Eliminate Illicit Trade in Tobacco Products, developed under the FCTC, was adopted in November 2012. The protocol, PMI pointed out, must be ratified by 40 FCTC signatories to enter into force, but, after almost four years, only 20 signatories, 19 countries and the EU, had ratified it.
“PMI has been a supporter of the anti-illicit trade protocol since its adoption in 2012,” said Alvise Giustiniani, head of PMI’s anti-illicit trade department. “The WHO’s protocol paves the way for solutions that have already been proven effective in the EU—such as tracking and tracing, and due diligence procedures—to be implemented as common practice around the world. We believe the protocol is a significant step forward towards creating a global solution for the problem of the illegal and unregulated tobacco trade. It is concerning that, four years after its adoption, the protocol has not entered into force. As the protocol presents a promising framework to fight the tobacco black market around the world, this is a missed opportunity.”
But, in fact, even the EU has not covered itself in glory recently in respect of the illegal trade in tobacco products. For a number of years it has had in place anti-illegal trade agreements between the four major multinational tobacco manufacturers, the EU Commission and member states aimed at cracking down on the illegal trade in cigarettes. The agreements have required the four companies to secure their supply chains through marketing and tracking-and-tracing systems, and to make two types of payment to the European Commission and the member states of the EU. These payments consisted of annual fixed sums payable from 2004 up to 2030, ranging from $200 million to $1 billion, and “seizure payments” equivalent to 100 percent of the evaded taxes for seizures of genuine (not counterfeit), diverted products above quantities of 50,000 cigarettes in one haul, rising to 500 percent if total annual seizures exceed 150 million to 450 million cigarettes.
However, the commission decided in July not to extend the 12-year agreement with PMI, the oldest agreement and the first to come up for renewal, saying that it would instead focus on provisions of its new Tobacco Products Directive and WHO protocols to continue the battle against the illegal tobacco trade. That, I take it, is the WHO protocol that is still reverberating around the echo chamber.
The commission decision seems to have been irrational. A commission report assessing the agreement with PMI in February concluded that the deal had “effectively met its objective of reducing the prevalence of PMI contraband” but questioned its “continued relevance,” according to a story on www.euobserver.com. During the period of the agreement, the volume of genuine PMI cigarettes seized by EU member states between 2006 and 2014 was said to have declined by about 85 percent. And PMI was said to have used the agreement “on multiple occasions” to give anti-fraud authorities in the EU “information of direct investigative value.”
But the report said, “It can also be argued that PMI’s incentives in this type of assistance to enforcement might as well be independent from the existence of the PMI agreement.” The report said also that while the deal might have worked well in the past, the “market and legislative framework has changed significantly since the entry into force of the agreement” in 2004, with many of the rules in the agreement now part of EU law and some parts of the deal contradicting international obligations. But the clincher, I imagine, was the report’s acknowledgment of criticism that the agreement allowed a cozy relationship between companies and the EU.
What strikes you here is that the agreement clearly worked and that it could probably have been made to continue to work, with agreed changes to cover the new market and legislative framework—but anything rather than work with a tobacco company, to stay in a relationship with a tobacco company that could be conceived of as cozy but in reality was probably a working relationship.
The agreement certainly worked. Margarete Hofmann, policy director of the EU’s anti-fraud office OLAF, sent a briefing paper to political advisers in the European Parliament on March 7 stating that the existing agreements with the four major tobacco companies were the “best instruments” to combat cigarette smuggling at the international level. According to a story by Quentin Aries and James Panichi for www.politico.eu, documents accessed by Politico revealed that Hofmann had warned that a failure to renew the deal with PMI would hurt law enforcement agencies’ short-term anti-smuggling capability.
But the “cozy” relationship was the issue. An Irish member of the European Parliament, Nessa Childers, in an opinion piece in The Parliament Magazine, said that the “infamous” PMI agreement should be confined to the dustbin of public policy history. “We have empowered the industry to self-police cigarette smuggling without independent verification,” she said. “Therefore, it will come as no surprise that the vast majority of seizures are declared as counterfeit. If they were not, then the industry would owe the exchequer duty on the smuggling of their own wares.”
What Childers implied, however, was at odds with the commission’s view. The commission had previously said in answer to a parliamentary question that there had been no evidence of incorrect reporting by tobacco manufacturers in relation to the provenance of cigarettes seized within the EU. “It is important to note that there has been no evidence of incorrect reporting by the manufacturers,” the commission said as part of its answer. “One particular member state has verified 123 assessments made by manufacturers and not found any error.”
In the past, we in the tobacco industry did and said a lot of things that were indefensible, and I still think—and sometimes point out—that there are issues that we still get wrong and don’t act on quickly enough to put right. But in respect of the illegal trade, it is about time that the WHO and the EU came down from their self-righteous high horses and started to recognize that it is the tobacco industry that can be the most effective partner in combatting the illegal trade in tobacco.
Will organic tobacco be able to break out of its niche?
By George Gay
In writing about organic tobacco two years ago, I tried to imagine why a consumer might buy cigarettes made of such tobacco, given that they would presumably be more expensive than would the general run of cigarettes. I speculated, without much conviction, that there might be a taste factor, or at least a perceived taste factor. A more likely reason, I thought, was that smokers who were generally well-informed, altruistic and better-off financially might make the decision to switch to organic cigarettes on the basis that encouraging the production of organic crops rather than conventionally grown crops was good for the environment.
And then there was the health argument. Some people, we are told, either consciously or unconsciously, equate organic with health even in regard to tobacco. Most smokers, I think, would probably assume that the danger they face comes mainly from inhaling smoke produced by burning tobacco, whether that tobacco is organic or not, but, two years ago, I suggested that even some better-informed smokers might believe that, since organic cigarettes have fewer additives than do traditional cigarettes, and, since, as anti-tobacco activists tell us, the additives support the addictive nature of cigarettes, organic cigarettes would allow you to break your habit sooner and to reap the health rewards that earlier quitting promises to deliver.
I have to say that I wasn’t particularly convinced by this argument, but, taking a look at the internet the other day, I saw that this line of thought is more common than I had imagined. You can read testimonials by people who say that they have used organic tobacco to wean themselves off smoking. And perhaps they have.
In the middle of September, a story by Sara Chodosh on the Popular Science website, www.popsci.com, claimed that “[n]icotine needs you just like you need it.” “That sweet release of dopamine only happens if you really believe in it,” she wrote. “A new study in Frontiers in Psychiatry found that only smokers who thought that their cigarettes contained nicotine got the satisfaction of smoking. Anyone who was told they weren’t getting nicotine—even if it was a normal cigarette—was left unsatisfied.”
Is it, I wonder, such a big jump to say that people who smoke organic cigarettes believing them to be less addictive than traditional cigarettes are able to quit more easily than if they had stuck to traditional cigarettes?
If we accept for a minute that this is true, then we come up against the question of whether tobacco manufacturers should convert as many of their products as quickly as they can to organic tobacco. And at this point there are a couple of things to consider. One is whether quitting is easier with organic products because the way in which the nicotine is delivered is less addictive; the other is whether quitting is easier only because smokers—or that would surely have to be, some smokers—believe that that is so. In the first case, it would seem that the ethical approach for manufacturers, at least in so far as their customers are concerned, would be to go full out for conversion.
Don’t says so
But things become more difficult in the second instance because of the fact that, in some jurisdictions at least, it would not be possible to tell smokers that the tobacco they were smoking was organic. And in this case, providing smokers with organic products would be as pointless as winking at a girl in the dark.
Is this important? I think so. I have heard of one instance where a manufacturer gave up on an organic tobacco production project because it was not allowed—along with other manufacturers, of course—to mention in one of its major markets that the tobacco included in its cigarettes was organic.
Is this perhaps a case of unintended consequences? I often look at outcomes that are declared as unintended consequences and wonder whether there wasn’t more intention about them than meets the eye. But in this case, it might be that what has happened wasn’t foreseen. In not allowing a tobacco manufacturer to get across the organic tobacco messages, the rule makers might have ensured inadvertently that some smokers will take longer to quit their habit than they otherwise would have done. And at the very least they will have ensured that some tobacco will be grown conventionally rather than organically, with the environmental consequences that implies.
Incentives will be vital in determining whether organic tobacco will thrive or remain a marginal product.
The people I consulted on this issue had widely differing views. In one camp were those who, like Rainer Busch, shareholder and general director of NewCo, thought that organic tobacco had little future because, on an increasing number of markets, manufacturers would not be able to inform consumers about the tobacco’s provenance, starting in those more affluent markets where smokers were more likely to buy into the organic message. Others, such as John Wallace, principal of Leaf Only, thought that organic tobacco had a good future, partly because, come what may, the major manufacturers would want to make mention in their social responsibility reports of their conversion to such growing methods.
As usual, the reality probably lies somewhere between these two poles. In markets where manufacturers have been able to establish a brand as organic and where they still have an opportunity to do so, the momentum of those brands will probably carry them forward for a number of years, even if sometime in the future it is no longer possible to declare their organic credentials on or inside packs. American Spirit, owned by Santa Fe Natural Tobacco Company in the U.S. and by Japan Tobacco (JT) elsewhere, is an obvious example of such a brand.
But would manufacturers feel they ought to grow organic tobacco just to bolster their social responsibility reports, unless the cost of production fell significantly? Possibly not, but, on the other hand, since the move is in any case at least toward the use of pesticide-residue free (PRF) tobacco, perhaps this momentum will eventually propel them toward organic.
Momentum
In any case, there are sure signs that the production of organic tobacco is increasing, albeit steadily. Frederick de Cramer, business coordinator at Sunel, said that the production of organic Izmir, the only organic oriental tobacco grown in Turkey, would this year reach about 2,500 tons packed weight, of which Sunel would account for about 1,800 tons. Sunel produced 30–40 tons in 2012 and about 300 tons in 2013. In 2014 and 2015, with two other dealers involved in organic oriental in Turkey, volumes reached 1,500 tons and 2,000 tons respectively. This year, only two dealers were involved in organic oriental production in Turkey, but de Cramer is confident that production will lift above 3,000 tons within three years.
He probably has every reason to be confident. Having paid $5 billion for the non-U.S. rights to American Spirit, JT is likely to be aggressive in its marketing of this brand, which, on the U.S. market, under Santa Fe, seems to grow, steadily, year on year.
And if production of organic oriental is increasing, it seems logical that production of flue-cured and burley must be increasing too. Certainly, Wallace said demand for organic tobacco had been increasing year-on-year in line with the gravitation of consumers toward natural products of all types. And he said he believed that demand would continue to grow. Certainly, some U.S. farmers were being asked to grow more organic tobacco each year.
Wallace makes a good point. In North Carolina, for instance, organic farming of all types is increasing and organic tobacco farming is at the top of the league. According to the U.S. Department of Agriculture’s (USDA) National Agricultural Statistics Service’s (NASS) 2015 Certified Organic Production Report, which took in all known USDA-certified organic farms across North Carolina, last year the state’s 203 USDA certified-organic farms sold $82.4 million in organically produced commodities, including $56.6 million in crops sales and $25.8 million in sales of livestock, poultry and their products. “The top three commodities in certified organic sales were tobacco at $29.3 million, chicken eggs at $21.2 million, followed by sweet potatoes bringing in $10 million,” said Dee Webb, a North Carolina state statistician. “Organic farming continues to grow in North Carolina. We now rank 16th in the nation in total value of certified organic agricultural products sold from 203 certified organic farms.”
The 203 certified organic farms comprised 28,727 acres of land. Eighty-three percent, or 23,719 acres, is cropland, and 5,008 acres are in pasture or rangeland. And the future looks bright. An additional 3,074 acres are transitioning to organic production on certified farms. And of the 203 operators, 33 percent have been farming fewer than 10 years, and 44 percent have grown or raised certified organic products for fewer than five years. Eighty-six farms plan to increase production during the next five years and 75 farms expect to maintain production.
In an organic tobacco program, sunflowers serve as a trap crop for beneficial insects.
Keeping up
But even so, the question arises as to whether the supply of organic tobacco can keep pace with demand. De Cramer certainly thinks so, at least in respect of organic oriental, partly because of the approximate 20 percent higher income that growers can expect to earn by growing organically. This increased income has the advantage, too, of making it easier to convert the best farmers to this type of production. And in the U.S., according to Rick Smith, of Independent Leaf Tobacco Company, growers can expect to earn for organic tobacco about twice the per-pound price that they could for nonorganic tobacco.
The difference between the price premiums seems easily explained. While growers in the U.S. tend to be independent, so that some of the additional costs of growing organic tobacco would be borne by them, in Turkey the additional costs involved in organic tobacco production tend to be borne by the dealer overseeing the production. De Cramer explained that half of the farmers that grow tobacco in Turkey do not own their own land, so to ensure they keep their land on a long-term basis and thereby retain organic certification for it, a dealer such as Sunel has to support farmers in respect of land rent. The pesticides used in organic production are far more expensive than are traditional ones, he said, and the difference is absorbed by the company. Also, an independent certification company has to be employed to assess and check each plot of land and each farmer’s practices, in addition to the checks made by Sunel; and the extra costs involved in this certification process, those of residue sampling checks, and those of transportation and storage checks, are again borne by Sunel.
So farmers can be persuaded, but is there enough suitable land? Again the answer seems to be yes. Although it takes three years to certify land for organic production, the currently-modest increase in demand for organic tobacco means that this is not a huge problem. Anyway, as Smith pointed out, most large operations in the U.S. have land certified for other crops, and that it is those operations that will have to grow more organic tobacco, both flue-cured and burley. And they would do so if the price were right. In Turkey, of course, the availability of land is more fraught and forward planning is needed.
So the farmers can be persuaded and the land can be found, but who will buy this organic tobacco? The major manufacturers or their subsidiaries are the ones who are mostly using it or who are showing an interest, but most companies will have an eye on the situation. While organic tobacco at present makes up a tiny proportion of overall tobacco production, it garners a lot of attention because it is novel and initially difficult to produce, and because it sells for prices above those of nonorganic tobacco. No doubt many manufacturers are looking to see where organic tobacco might fit into their portfolios, initially in respect of cigarettes, though surely the argument for using it in smokeless tobacco must be even stronger.
A new weight-measurement technology addresses some of the shortcomings associated with traditional systems.
By Arek Druzdzel and Arne Wieneke
The production of specialty filters and next-generation tobacco products requires precise measurements to ensure the quantities of raw materials applied are consistent with the brand formulations. Product quality parameters must mean the same to everyone in the production process. They must also comply with industry quality standards and local government regulations. Traditional scales with load sensors have limitations, however. This article will discuss the benefits of novel, contactless measurement systems.
Traditional methods of weight measurement are based on comparisons with accepted standards. Over the past 200 years, the kilogram has become such a standard. In the International System of Units, it is defined as a mass standard and is used as a base for weight measurements worldwide. Unlike other base units in the system, the kilogram is defined as an artifact: a chunk of metal, for comparison and reference, which is stored in Sevres, France.
For single measurements under laboratory conditions, using a standard mass in calibration procedures on load cells is sufficiently precise and repeatable. However, load cells require frequent maintenance and calibration, which is a disadvantage when fast and accurate measures of single milligrams and micrograms are required during the production process. Under such conditions, correct adherence to regulations and production targets might not be ensured at the same time.
For starters, scales with load cells require adjustment to the geographical location; otherwise the weight is measured incorrectly. This is because scales measure weight, which is then translated into mass, taking into account the local gravity force.
The mass-reading error is caused by variation in the gravitational acceleration and the resulting gravity force (weight), which varies around the world. For an object of a given constant mass, its weight depends on both latitude and altitude of the location of the measurement device. Diagram 1 shows the variation in gravitational acceleration around the world, at a constant altitude of 100 meters above sea level.
The gravitational acceleration at the equator amounts to approximately 9.78 meters per second squared (m/s2 ), while at the poles it is approximately 9.832 m/s2, resulting in a discrepancy of 0.052 m/s2, or 0.53 percent.
Additionally, gravitational acceleration is affected by altitude, the tilt of earth’s rotational axis, precession, equatorial bulge, etc. Gravity-related effects apply when, for example, calibrating weight measurement devices to a mass standard. The greater accuracy required, the more time and effort are needed for scale calibration and measurement.
Furthermore, measurement precision and accuracy of scales and load cells change with time from the last calibration, as they depend on elastic properties of materials in load cells, environmental conditions and other components of a weighing system.
This discrepancy causes variation in weight readings when an object of a given mass is measured at different latitudes and altitudes. Scales compensate for this error by providing reference masses for pre-calibration. Evidentially, this calibration becomes critical when quickly measuring small masses—e.g., in the milligrams range—requiring more frequent calibration to ensure reliable measurement in line with regulations.
Moving away from the laboratory environment to the production environment, more factors start influencing the weight measurement of small masses. Machines vibrate, causing slow measurements and/or potentially incorrect readings; potent products require contained handling inside closed chambers, which in turn require controlled ventilation and frequent cleaning; products may vary in water content during processing where the dry weight is in focus. Accumulation of these factors limits the useable range of accuracy of load cells. Sometimes they even make it impossible to measure small masses accurately and quickly.
Furthermore, in the next-generation products primary department, substances are added and/or mixed in a way that does not permit the on-line monitoring of those processes. It happens mainly because the process yields a variety of quality-related issues, depending on the product’s dry mass and moisture content, its morphology, and whether the process is closed or continuous.
Such applications may prevent the use of load cells, leaving manufacturers only the options of off-line sampling and indirect weight estimation. These issues become even more challenging in the secondary department, where cartomizers, atomizers and other small containers are filled with novelty products, frequently in a pre-defined sequence. The off-line monitoring of small weights is not desirable, because it represents only products sampling, leaving thousands of product units uncontrolled.
Removing gravity and ambiance from the equation
Overcoming the described challenges requires a time-stable and gravity-independent measurement system, capable of measuring the mass of objects on-line—i.e., the amount of substance instead of weight of fast-moving objects, such as vials, capsules, liquids or powder. Such measurements would be identical around the world and independent of the external factors, allowing not only for tight and on-line monitoring of substances but also for direct data comparison.
Over the past years, Aiger Group has developed such a novel system and successfully installed it in a number of factories around the world. The system emits a local energy field, which is alternated as substances pass through it. Once measured, the signal can be instantly converted to mass or the local weight units. Knowing exactly the quantity of the substance dosed—that is, the mass of an object—the dosing-measuring combination is automatically calibrated to the conditions of the measuring device’s location, without the risk of overdosing or underdosing due to the earlier described factors.
As only the substance changes the output signal, the signal is ambience-independent and allows for positive, on-line process control. Also, the sensor signal data processing is fast enough for closed-loop control.
Aiger has built an industrial version of the described system and verified it with a variety of small objects, including pharmaceutical capsules in the 150 mg to 700 mg range, as well as with the micro-dosing of powders from 1 mg to 100 mg into various types of containers. The system has a proven stable precision and accuracy within one sigma ranging from 0.25 percent to 3 percent, the dispersion depending mainly on materials structure and morphology.
Most important for production environments, the proposed system ensures quick, precise and accurate mass measurement of a wide range of objects, with no need for major system adjustment, special environmental conditions, leveling, isolation from vibration and ventilation, or prolonged measuring time. The system has no moving or flexing elements, hence it is free from the disadvantages associated with load cells.
Aiger’s new technology is developed for the production of next-generation products that require compliance with pharmaceutical regulations. Not only does it ensure 100 percent product control by a gravity-independent weight measurement system, but it also documents all values for in-detail analysis. Equally important, the technology also helps maintain brand consistency.
Arek Druzdzel is business development director at Aiger Engineering. Arne Wieneke is business development manager at Aiger.
Announcing the winners of the 2016 Golden Leaf Awards
TR Staff Report
Tobacco Reporter announced the winners of its 2016 Golden Leaf Awards during the Global Tobacco & Nicotine Forum gala dinner in Brussels. Recipients accepted trophies for their accomplishments in five categories—Most impressive public service initiative, Most promising product introduction, Most exciting newcomer to the industry; Most outstanding service to the industry and BMJ most committed to quality. The Golden Leaf Awards are sponsored exclusively by BMJ.
British American Tobacco won a Golden Leaf Award in the “Most impressive public service initiative” category for its Science & Technology 2015 Report.
For a number of years, BAT has been raising awareness about tobacco science and its research in support of tobacco harm reduction. The company strives to be open and transparent about its research, exploring traditional methods of science communications, as well as new approaches.
The Science & Technology 2015 Report details BAT’s significant progress in the science of tobacco harm reduction over the past year. The report solidifies the company’s approach taken on reduced-risk substantiation of next-generation products, the priority of product stewardship across the risk spectrum, plant biotechnology, aerosol science and more.
The report’s format has evolved significantly, with the introduction of new research fields and communications platforms, such as an interactive PDF and a downloadable e-book.
By showcasing the science through his report, the company can continue an open dialogue with regulators, public health representatives, scientific peers and other interested parties.
In March, the American Chemical Society published excerpts of BAT’s report in its publication Chemical & Engineering News, distributing the information to approximately 160,000 chemists worldwide—a new audience.
This “supplement” represents a first for the tobacco industry, and the widest circulation of a tobacco-industry scientific report to date. Most promising new product introduction
Mane has won a Golden Leaf Award in the “Most promising new product introduction” category for its contributions to the development of new product segments such as crushable flavored capsules and cigarette side-stream aromatization.
For many years, Mane’s Tobacco Business Unit has been at the forefront of technical innovation in flavoring systems for tobacco and, more recently, electronic tobacco-related products.
Some of the evolved technologies have been key in establishing new segments, including emanates (beta-cyclodextrin complexes) and molecular encapsulation technology, for use in cigarette wrapper paper for side stream aromatization.
Most notably, the companies’ efforts have also contributed to the success of crushable capsules in cigarette filters that allow consumers to flavor the mainstream smoke according to their individual preferences. Initially considered an interesting niche product, such crushable filters have since become a major segment in many markets—and one that is still growing.
These new products cater perfectly to the general trend toward increasingly personalized products that has in recent years also become evident in the tobacco market. Over the past 20 years, Mane has invested heavily in product development, taking into account not only rapidly changing consumer preferences but also the increasingly strict regulatory climate.
The crushable flavored capsules are a perfect example of its commitment to deliver the quality, flavor and choice that modern consumers desire.
The Moon Group won a Golden Leaf Award in the “Most exciting newcomer to the industry” category.
Founded in 2010 and based in Shanghai, the Moon Group has established itself quickly as a global leader in roll-your-own tobacco papers.
Backed by expertise and resources of Hengfeng Paper, the Moon Group has an unparalleled supply chain, along with strong, independent R&D capabilities in the field of RYO papers. The Moon Group can provide RYO big rolls, bobbins—with or without glue and watermarks—and booklets of all kinds and sizes. The company can also provide OEM service.
The Moon Group recently set up its first factory, with advanced fully automatic production lines from Europe.
With a production capacity of 100 million booklets a year, the company is now the biggest manufacturer of RYO papers in China. While production capacity is important, the Moon Group’s primary focus is on quality and sustainability, as evidenced by its factories’ ISO 9001 and FSC A000525 certifications.
Committed to product quality and customer service, the Moon Group strives for win-win partnerships with its clients for the long term.
The Moon Group is also the exclusive distributor of Republic Technology’s OCB brand in China. The firm aims to offer an ever-greater selection of styles and qualities to its customers.
Coley Ryan Perique Tobacco has won a Golden Leaf Award in the “BMJ most outstanding service to the industry” category for Perique tobacco.
Perique is a unique type of tobacco that is grown exclusively on a small swath of land near New Orleans, Louisiana, USA.
It is used as a “condiment tobacco” to make nearly 100 different brand-name pipe tobacco blends from around the world. Tobacco blenders prize perique for its ability to add a delectable nuance to their blends.
Perique’s existence has been in jeopardy more than once—first in the late 1990s and again in 2005, when the only remaining firm handling Perique was about to close its doors.
Recognizing the unique value of perique, Mark Ryan, president of Daughters & Ryan Tobacco in Kenly, North Carolina, USA, purchased the L.A. Poche Perique Tobacco Co. and a new era for Perique began.
To protect and build the product reputation, he established best practices from seed to finished product.
Every leaf handled is hand-stemmed and turned a minimum of three times. The tobacco is fermented anaerobically under high pressure in oak whiskey barrels for a minimum of 12 months before it is ready for sale.
Daughters & Ryan can rightly claim to have preserved the culture, history and tradition of Perique for tobacco lovers worldwide. BMJ most committed to quality
Nicopure Labs has won a Golden Leaf Award in the “BMJ Most committed to quality” category for its unwavering commitment to the safety and integrity of its products and manufacturing processes.
Since its creation in 2009, Nicopure Labs has invested significant efforts and resources in developing the purest, best-tasting and highest-quality e-liquids.
Headquartered in Florida, the company sources its ingredients exclusively from reputable U.S.-based suppliers.
To guarantee the integrity of its manufacturing process, Nicopure Labs blends its liquids in a state-of-the-art, ISO 7 cleanroom environment.
The company’s production processes are highly automated and closely supervised by closed-circuit monitoring equipment.
Recognizing that safety and integrity are ongoing commitments, the company has invested heavily in additional cleanroom capabilities. A new such facility, co-designed with a leader in pharmaceutical construction, is in the process of being completed.
Committed to consumer safety, Nicopure Labs uses only USP FEMA/GRAS flavorings. Its products are free of diacetyl and acetylpropionyl-free. All e-liquids are tested by a third party using advanced technologies such as high-performance liquid chromatography and nuclear magnetic resonance spectroscopy.
In addition, Nicopure Labs routinely tests incoming products and materials in-house.
Further demonstrating its commitment to professionalism, Nicopure Labs was the first U.S. e-liquid manufacturer to provide child-proof bottles with best-by dating and lot numbers, along with tamper-resistant seals—in advance of regulatory requirements, such as the Child Nicotine Poisoning Prevention Act of 2015.
Despite its unique culture and geography, Central Asia presents to the tobacco industry the same challenges and opportunities as do many other markets.
By Shane MacGuill
Currency devaluations have made imported cigarettes less affordable throughout Central Asia.
Having looked in my last offering for Tobacco Reporter at the potential-laden Iranian market, I turn my attention in this piece to the neighboring Central Asian region and, in particular, its major markets of Kazakhstan and Uzbekistan. Historically—at least in recent decades—the region has not been seen as a high profile tobacco consumer with relatively little attention focused on it by international manufacturers. However, this is changing. As a collective, the five nations of Central Asia (Uzbekistan and Kazakhstan plus Tajikistan, Kyrgyzstan and Turkmenistan) boast a population in excess of 65 million people, putting the region on a par with larger European countries in terms of the scale of the user base.
In population terms, Uzbekistan and Kazakhstan (in that order) are the largest markets in the Central Asia region, with a combined population of close to 50 million people. They are also the only two markets of the five in Central Asia in which Euromonitor conducts direct research. While each, in theory, represents a growth opportunity for tobacco manufacturers (at least in value terms), conditions are complicated by demographic, political and economic factors, and the efforts of government in each to exert greater control over the tobacco consumption of its citizens.
Uzbekistan
The single largest market, Uzbekistan, with a very gradually declining smoking prevalence of 23 percent, has a cigarette-consuming population of more than 4 million people, the vast majority of whom are males, and a legal cigarette market size of about 10 billion sticks in 2015. However, over the last 5 years, the national government has attempted (with relative success) to depress the consumption of tobacco products in Uzbekistan. A series of laws and regulations, within the framework of the Ministry of Health’s anti-tobacco policy, have tightened the regulatory environment, challenged domestic and international manufacturers, and led to double digit declines in the sale of cigarettes in the market since 2010.
In recent times, the tobacco category in Uzbekistan has also faced challenges stemming from the country’s macroeconomic fortunes, specifically the instability caused by the fallout from Western economic sanctions against Russia, with whom the country has close economic ties. Last year’s sharp depreciation of the national currency, the som, against the U.S. dollar presaged higher prices for most products, particularly imported ones. Moreover, consumer purchasing power was indirectly affected by the devaluation of the ruble, due to a significant drop in the value of the remittances sent by many Uzbek migrant workers in Russia to their families at home. Consequently, an unfavorable economic environment had a negative influence on the sales dynamics of many industries, including tobacco.
British American Tobacco Uzbekistan (UZBAT) is the clear market leader with more than 90 percent volume share, primarily through Pall Mall and Kent. A sharp excise hike on imported products in 2014 and the 2015 devaluation of the som against the dollar has allowed it to strengthen its already dominant position in the market as the resultant drastic unit price growth for imported brands (particularly in the context of increased economic personal hardship and a shift to lower value brands) makes it harder for them to compete against BAT’s portfolio, manufactured domestically in a facility in Samarkand.
In recent years, the government’s anti-tobacco policy and stronger control over sales of tobacco products forced many retailers—particularly supermarkets and kiosks—to suspend tobacco sales due to their proximity to educational, sport and religious institutions. Consequently, independent small grocers remains the most popular channel – driven by the high penetration and the convenient positioning of such outlets.
Fundamentally, demand for cigarettes in Uzbekistan is expected to exhibit a gradual decline over the forecast period as growing health concerns among consumers and the government’s anti-tobacco policies increasingly produce the sluggish consumption environment typical of more developed tobacco markets. Furthermore, the expected continuing outflow to Russia of male Uzbekistanis, the primary consumers of tobacco, as labor migrants will also lead to contraction in the market over the next five years.
Kazakhstan
To the north of Uzbekistan, in Kazakhstan, male smokers also play a key role. In fact, at 43% in 2015, male smoking prevalence there is comfortably within the world’s top twenty markets for smoking incidence among men. However, the trend has been one of considerable decline – down from just under 30% (for total smoking prevalence) in 2010 to the mid-twenties by 2015. And very similar dynamics to those in operation in neighbouring Uzbekistan mean this trend is likely to continue.
According to Euromonitor data, the consumption of cigarettes declined by 10 percent in retail volume terms in 2015 contributing to a 15 percent contraction between 2010 and 2015. The main drivers for these volume losses are growing health awareness amongst Kazakhs, the decreased purchasing power of consumers caused by currency devaluation and increased excise duty (the government introduced a minimum retail price in 2007, which has significantly increased the value pool, even as volumes slip). As a result, existing smokers appear to be consuming less and fewer new smokers are entering the category, with many young adults opting to consumer water pipe tobacco rather than cigarettes. There has also been evidence of a growing interest in vapor products,, though this is still a niche category and its development is so far limited to large urban areas.
Two major interlinked trends in the Kazakh cigarettes market since 2010 are the shift of consumer preference both to economy products and to slimmer, queen-sized variants. The economy price band has grown share by 5 percent between 2010 and 2015, reaching more than 46 percent of the market last year. This trend was amplified in 2015 by the increase of the minimum retail price of a 20 cigarettes from 200 Kazakhstani tenge to 220. The severe devaluation of the tenge has also significantly reduced the purchasing power of the population. As a corollary, manufacturers have increasingly launched and consumers are increasingly favoring compact/queen-sized cigarettes that have the same length as king-size, but which are thinner, although still not slim, e.g. L&M Compact and West Compact.
The Kazakh cigarettes market is considerably more competitive than in neighboring Uzbekistan. In 2015, Japan Tobacco International (JTI) Kazakhstan TOO overtook Philip Morris International (PMI) to became the leading player, with a share just under 40 percent. Between them, JTI and PMI make up just shy of 75 percent of the market, with British American Tobacco (BAT) and Imperial Brands splitting a further 20 percent. Despite JTI’s recent success with its portfolio (specifically LD, which has seen significant share growth since 2010) PMI’s Bond Street remains the country’s leading brand with 23 percent of the market in 2015. LD, Sovereign and Winston from JTI and BAT’s Kent make up the remainder of the top 5 ranking.
In terms of distribution, independent small grocers’ outlets, usually situated on the first floor of private houses are the most popular places for Kazakhs to buy cigarettes. These stores are by definition integrated into local communities and generally stock a very broad range of economy and midpriced brands, allowing consumers easy access to cigarettes in circumstances in which they do not have wider retail missions. OTP products such as cigars, cigarillos and smoking tobacco are mainly purchased at tobacco specialists’ stores. In the realm of vapour products, as in other markets, there has also been a growing trend towards internet retailing. Half of all sales of vapor products are estimated to be made online in Kazakhstan, assisted by the category’s penetration in higher density urban areas.
Broadly speaking, over the next four to five years, it is expected that the consumption of cigarettes in Kazakhstan will continue to decline, potentially at a rapid rate. Weaker purchasing power, in tandem with higher excise is set to drive some consumers out of the category altogether or into the illicit trade. Younger adult consumers may also opt for the use of water pipe tobacco over cigarettes while consumption of vapour products may further erode consumption of cigarettes, particularly in large towns and cities, although the relatively high price of these devices remains a significant limiting factor on their future growth.
Rest of region
The three smaller markets that make up the Central Asian region, Tajikstan, Kyrgyzstan and Turkmenistan, currently exhibit broadly similar trends in terms of penetration of tobacco use, excise and regulation. According to Tobacco Atlas, the respective rates of male smoking prevalence are 30 percent, 35 percent and 37 percent, while the tax burden is lowest in Tajikstan at just 3 percent and 16 percent in both Kyrgyzstan and Turkmenistan. Tajikstan and Kyrgyzstan each have a regulatory environment that would be regarded as weak in an international context, even within the context of the region.
In Turkmenistan, the picture is more complex. The authorities there, for many years, have been vociferously anti-tobacco with a range of restrictive regulations in place. However, it is not always clear how well this regulation is enforced and excise burden there remains low. Earlier this year an intervention by the country’s President Berdymukhamedow made international headlines as a “total ban on tobacco,” but it is plausible that this was a mischaracterisation of a structural reorganization of the distribution landscape. Several international diplomatic sources currently make reference to the availability of tobacco through state-controlled outlets.
If the situation in Turkmenistan is difficult, Tajikistan and Kyrgyzstan, while smaller markets, with their own political and administrative differences, arguably offer greater growth potential than their larger regional peers, at least to the extent to which they are slower to exhibit the kind of trends in tobacco control policy and macroeconomic travails becoming prevalent in these neighboring countries. With a combined population of around 15 million people, assuming the average male prevalence remains close to 30 percent, in the short to medium term this represents a smoking population comparable to Kazakhstan’s in size but within a less onerous regulatory and excise context.
Shane MacGuill is head of tobacco research at Euromonitor International.
