Category: Print Edition

  • Growth through innovation

    Growth through innovation

    Andrew Hopkins, BAT’s head of manufacturing, talks about the challenge of building a globally integrated supply chain and the importance of flexibility in an increasingly competitive market.

    By George Gay

    Andrew Hopkins

    Facing fiercer competition and stricter regulations, cigarette makers are increasingly demanding of their equipment suppliers. Tobacco machinery must be fast, efficient and versatile—and of course reasonably priced. During the TABEXPO Prague Congress, Andrew Hopkins, British American Tobacco’s head of manufacturing, will discuss the criteria that matter to him and his colleagues when it comes to tobacco manufacturing lines. European Editor George Gay spoke with Hopkins in London, and he offered a preview of the issues likely to be raised during the machinery sessions at the Prague Congress.

     

    Speaking with Andrew Hopkins in December was something of a revelation. I had gone to Globe House, British American Tobacco’s (BAT) London head office on the afternoon of Dec. 23 having spent the morning reading the Internet’s latest batch of anti-tobacco news, ingesting on the train a dire lunch washed down with the even worse economic predictions of my newspaper, and then enduring a brisk walk along the Thames Embankment in typical English weather. I guess I was prepared for something of a gloomy interview, but Hopkins was keen to talk to me about innovation and opportunities.

    He reminded me of how BAT had announced to the City some time ago that it would make savings of £800 million ($1.28 billion) during the following five years, and he explained that these savings were being made largely by constructing an increasingly consumer-driven, globally integrated supply chain. “By doing this, we think we will be better configured to deliver innovation quickly to market; so building a truly integrated global supply chain is more about growth than productivity,” he said. “And we are very excited about that. We think that is a big opportunity for the group.”

    One of Hopkins’ remits in his capacity as head of manufacturing for the group, which takes in people, processes and technology, is to integrate, at a global level, manufacturing with the other supply chain functions, and with the commercial side of the business. Although a lot of work has been done already in optimizing local and regional operations, it is clearly a daunting task integrating manufacturing operations that produce, as well as other tobacco products, about 650 billion cigarettes a year in 45 cigarette factories around the world.

    In part, Hopkins gets to grips with these problems of scale by imagining the factories as a single, “virtual” factory operating on many sites, and by dint of BAT’s centralized system of acquisition of equipment and services, which, he says, has “enormous” advantages. Group procurement of machinery via the central manufacturing team allows the leveraging of scale, the driving of standardization, the mobilizing of best practices and the development of strategies with OEM suppliers.

    At the moment, BAT is looking at a number of projects linked to the global provision of service and spares support, and Hopkins told me he was interested in examining the possibility of developing a business model under which OEMs would do the maintenance on specific, mainly newer-generation equipment owned by BAT. But he added the proviso that such arrangements would be contingent on their delivering to BAT some value, which wouldn’t necessarily be directly financial.

    At this point, I couldn’t help asking whether such a development could lead to BAT becoming a brand owner for which its current OEMs made cigarettes. But Hopkins gave this idea short shrift, pointing out that BAT’s manufacturing capability provided the potential for its gaining a competitive advantage. “We think that the OEMs are very good at making equipment and that we’re very good at manufacturing cigarettes; it’s as simple as that,” he said.

    But in one way, simple it’s not, because BAT has a big portfolio of brands and products. Their growth strategy is based on four global drive brands (Kent, Dunhill, Lucky Strike and Pall Mall), which will drive more focus long term; however, since the company believes in “driving growth through innovation” additional complexity is expected to be created. Indeed, it is intent on driving innovation faster and further in the future.

    BAT, Hopkins said, had more brands and more SKUs than did its competitors, and this meant more manufacturing complexity, an average batch size that was estimated to be smaller than those of its competitors, and, therefore, the need for more machine changeovers.

    Given this manufacturing environment, BAT tends to look more to medium-speed makers and packers than to the very highest speed equipment. The group’s business was complex, Hopkins said, and it found that flexibility and responsiveness in the supply chain—because manufacturing was part of the supply chain—were more important than all-out, ultra high speed.

    Speed, as far as Hopkins is concerned, is more crucial in respect of speed to market. He is passionate about innovation, though adamant that innovations have to be right; they have to be delivered to the market on time, on specification and at a cost commensurate with the risk involved. And the products of that innovation have to be produced in such a way that they can be reproduced in other locations should that become necessary.

    An honors graduate in mechanical engineering, Hopkins started work with BAT’s corporate engineering department in Southampton in 1991, where one of his first projects saw him involved in testing high-speed cigarette makers. Since then, and prior to taking up his current job, his career has seen him appointed to increasingly senior positions in Hungary, Uzbekistan, Belgium, Zimbabwe, the U.K. (again) and Russia.

    I was keen to find out what had been the highlight of his career to date, but he was not to be drawn, preferring to speak of all of his appointments as hugely rewarding in respect of their business challenges and life-changing in respect of the cultural journeys they provided. The highlights just keep coming, he told me.

    But Russia must come close. When Hopkins arrived in the country, BAT had a 90-billion-cigarette capacity, which, under his leadership, was expanded to 120 billion in three factories. Hopkins and his team created an eastern Europe supply chain and integrated the Uzbek and Ukrainian factories into an eastern Europe cluster.

    “We drove the business growth through innovation in Russia harder than anywhere else in BAT,” he said. “ What it [the Russian market] taught me was that if we are going to innovate, we have to be first into the market and we have to be quick; so we need technology platforms that are going to work and that are flexible—that can handle a wide range of applications,” said Hopkins.

    Flexibility is a word commonly used by all of the major cigarette producers, but it is particularly true at BAT with its emphasis on limited-edition packs and new formats. So, I asked where we were on the journey toward true equipment flexibility.

    Generally, what had improved was the ability to change a pack, said Hopkins. With a king-size pack, it was a lot easier than previously to go from a square edge to a beveled edge or a round corner, to the point where this was regarded as a basic capability.

    But Hopkins said he was looking for more flexibility. “That’s a challenge for us and we’re talking to a number of OEMs about it,” he said. “And they’ve got some concepts and thoughts about how we could gain more flexibility without losing massive amounts of productivity. So that’s something we’re interested in.”

    With talk of the future, I took the opportunity to ask Hopkins what a state-of-the-art cigarette factory might look like 10 years from now.

    “I think in general there’ll be more automation,” he said. “I think there’ll be a lot more on-line, real-time quality checking, and more real-time, on-time information for operators at machine level—with more empowerment. For example, they might have direct connection to the consumer complaints database so that they can see what quality aspects they need to be looking for when they’re producing a batch.

    “I think we’ll pay even more attention to product integrity and repeatable quality; and there’ll be more of a move to a zero-defects environment.

    “And shop floor systems will have to be far better adapted to providing a lot more variety as more and more restrictions on advertising take place. We’ve got to adapt the business. Consumers like personalization; they like variation; they like new things. You see that in other products; so why not in cigarettes?

    “As I’ve said: innovation is what drives growth for BAT.”

     

     

    Andrew Hopkins will be speaking at TABEXPO about flexibility and other manufacturing-related topics. To sign up for the Congress, please visit www.tabexpo.org.

     

     

  • Committed to quality

    Committed to quality

    The EDAPS Consortium continues to live up to its Golden Leaf Award in the BMJ most committed to quality category.

    By Brandy Brinson

    After the Ukraine-based EDAPS Consortium won its Golden Leaf Award last year (See “And the winners are…,” Tobacco Reporter, December 2010), the company said it was ready to prove the quality of its products and solutions on new international markets, and that the award would encourage it to continue raising the bar for excellence in both the quality and security of its solutions for the tobacco industry. And indeed, since last November, EDAPS has been busy innovating to secure the collection of excise duties on tobacco products and protect against counterfeiting.

    Formed in 2004, the EDAPS Consortium is a global group of high-tech companies that possesses its own world-level scientific base and a highly technological production and service network. It says it is the only group in the world with in-house capabilities to produce and implement the most highly secure identification documents and corresponding electronic systems.

    Having implemented more than 300 major projects, EDAPS combines unrivalled expertise in securing documents and products by using unique proprietary technologies in the fields of lasers, polycarbonate, biometrics, demetallized holograms, electronic systems and contact and contactless chips, says Nataliia Kochubey, vice president of the EDAPS Consortium.

    EDAPS has 3,245 staff members, including 110 engaged in research and development. More than $250 million has been invested to create the EDAPS production and R&D infrastructure.

    The company is led by Alexander Vassiliev, who serves as chairman of the board. Iryna Obydenko serves as president of EDAPS. She is also deputy chairman of the board of the Commercial Industrial Bank.

    Tobacco

    EDAPS became involved in the tobacco industry through developing a comprehensive solution that uses forgery-proof tax and control stamps with holographic security elements (HSE), combined with a track-and-trace information system to secure the collection of excise duties as well as to curb tax stamp counterfeiting.

    In the production of the HSEs, EDAPS’ member company, Specialized Enterprise Holography, uses state-of-the-art technologies, including electronic lithography and advanced demetallization technology. EDAPS solutions have enabled government agencies to more than double excise tax collections from cigarettes and tobacco products. EDAPS can help the tobacco industry restore revenues being lost through illicit trade.

    EDAPS says its tax stamp solution offers:

    • superior security—a robust combination of a comprehensive electronic system, encrypted information, Public Key Infrastructure, on-paper advanced security features and enhanced holograms, which makes any forgery immediately and easily recognizable;
    • a comprehensive approach—includes proven enforcement methodology that addresses human psychology, regulatory framework ensuring issuance, circulation and verification of tax stamps on tobacco products;
    • ease of use—EDAPS tax stamps are printed or applied with no waste using universally available equipment that generally forms an integral part of packaging lines, making tax stamp authenticity easily verifiable and traceable (naked eye, via the Internet and SMS).

    Kochubey says the hologram is key for developing secure tax stamps. “The secure hologram is a major overt security element that cannot be reproduced using printing techniques. The employment of secure holograms considerably undermines counterfeit risk. Moreover, visual authentication of such holograms does not require any special skills, making holograms a reliable and convenient tool for prompt product authentication by both experts and ordinary customers, which similar holograms widely implemented in Euro banknotes testify to.”

    Tax stamps include:

    • Highly enhanced and holography-based security elements
    • Advanced security printing features
    • Unique number
    • Secure barcode technology
    • Options of low/no cost—sizable economic benefit.

    Along with HSEs, the EDAPS tax stamp embraces a wide range of security printing technologies: antiscanner background grids, pseudo-embossed images, micrographics, microtext, elements printed with visible and invisible UV inks, thermochromic ink and other security features. In addition, the tax stamp number is printed in special ink that changes its color when it is permeated through the entire layer of the stamp and is clearly visible on both sides.

    New products

    EDAPS recently developed a track-and-trace system that facilitates the monitoring of excise duty revenues, stems illicit trade and promotes legitimate trade of excisable products.

    A distinctive and efficient security feature of a tax stamp is its individual serial number that is a combination of a regional and a unique multidigit code. This unique integrated code-facilitating track and trace of tax stamps throughout the supply chain is generated by the sophisticated database system.

    The track and trace system offers:

    • Tracking of the amount and origin of excisable products throughout the supply chain (from the production line to the point of sale, including options for aggregation assessment).
    • On-line and real-time reporting and accounting that reflects data on excisable products/tax stamps/tax revenues.
    • State-of-the-art and highly reliable data exchange technologies
    • Time and cost-effective solution.

     

    The track-and-trace system’s specificities of authentication include:

    • Naked eye: overt secure features not requiring the application of a special tool, skill or knowledge
    • Digital: serial number or barcode verification via the Internet, phone or SMS
    • Expert: extremely user-friendly detectors for performing forensic authentication

    Competitive edge

    Compared with its competitors, EDAPS says it is the only enterprise in the world that has in-house facilities and production lines for the issuance of tax stamps with HSEs. It also has a state-of-the-art database and verification technology as well as profound experience in addressing administrative and enforcement issues.

    EDAPS has acknowledged experience in rendering expertise and production capacity to automate the revenue tax collection system enhanced with high-security elements. A vital aspect that EDAPS has introduced into the revenue tax collection system is the possibility to deliver tax stamps, accompanying systems and services to ensure technically competent expertise, and software programming and project management, as well as to provide production machinery and tools, if required, and to offer training courses, which in fact represents a true turn-key solution.

    The EDAPS technology has a sound track record: One designed and implemented system promptly doubled excise tax collections. For three years from the project implementation date additional tax collections have reached almost $5 billion, which exceeds the amount annually collected through the traditionally applied tax stamp system.

    “Recovering billions of dollars in lost tobacco taxes has become possible only owing to a radically innovative approach of EDAPS—a comprehensive solution which integrates forgery-proof tax stamps incorporating various high-security elements into the robust automated tax control system,” says Kochubey.

    EDAPS has successfully implemented nationwide projects in Ukraine, with a population of 45 million, and in Kenya, with 39 million citizens. Since 2002, the EDAPS’ member-enterprise SE Holography has rendered technical support for the tobacco tax stamp control system supplied to the Ukrainian Ministry of Finance. Its efficiency was proven by 50 billion collections from tax duties. This system includes the issuance of tax stamps, the creation and administration of the system database, further maintenance and elaboration of enforcement methodology and technology. Consequently, Ukraine has decreased the spread of counterfeit tobacco products and raised the amount of excise revenues. As compared with 2008, the excise collections in 2009 grew by $400 million—an increase of 80 percent.

    The quality of the products and the experience of EDAPS on highly secure ID documents and IT systems have been recognized by organizations such as the ICAO, OSCE and Interpol as some of the best in the world. The EDAPS-produced De Beers Diamond Passport provides for the first time a forgery-proof certification of De Beers diamonds and jewelry items.

    Future devices

    There are many challenges to overcome moving ahead with security. Andriy Tymoshenko, director of production of SE Holograpy, says the global spread of holographic technologies seriously diminished faith in their reliability. “Massive production of counterfeited holographic security features in the Far East and Asia creates numerous problems in brand protection and document security. Thus it is necessary to look for other optical phenomena to create distinctive and easily recognizable features.” Looking ahead, she says the latest achievements in nanotechnology and materials science offer enough ideas to move forward.

    There is now a global trend to use more and more complex technological solutions in the development of security devices. Tymoshenko says, “This has to be not a simple aggregation of different proven solutions but creation of new products where components of different physical natures interact with each other. The most promising approach is the combination of RFID tags and diffractive optical elements. In this case the RFID antenna may be an integral part of the optical security feature.”

  • Beyond mechanization

    Beyond mechanization

    The potential and limitations of automation in the tobacco industry

    By George Gay

    There is what seems to be a fully automated system within my head that allows me to grasp what somebody is saying when they tell me they have just bought a blue car, even though they don’t provide information about the shade of blue. I have never understood how it works, but I seem to have somewhere in my brain a subconscious picture of a universal blue. I guess everybody does, so we are able to speak quite happily to one another about something being blue without having to be specific. In fact, it is only when we get specific that the disputes start. You turn up in your blue car and I complain that it’s green.

    I was reminded of this when recently I started to speak with a number of people about automation as it applies to the tobacco industry. It was possible to talk about automation quite freely until, suddenly, you became aware that perhaps what was being discussed was not automation as you knew it, but mechanization, or the application of IT systems, or something else entirely.

    Here is what Wikipedia has to say about automation: “Automation is the use of control systems and information technologies to reduce the need for human work in the production of goods and services. In the scope of industrialization, automation is a step beyond mechanization. Whereas mechanization provided human operators with machinery to assist them with the muscular requirements of work, automation greatly decreases the need for human sensory and mental requirements as well.”

    This is a good, clear definition, but it raises some issues when applied to the tobacco industry. If we insist on including the reduction of human work within the definition—and I have to admit that my “universal automation” probably does make such an inclusion—how can we explain the fact that further automation is being applied to tobacco factories where the head count reached a minimum some time ago?

    Head counts

    I guess the first thing I should say is that nobody I talked with mentioned the idea of reducing the number of people employed, at least not without being prompted to do so. Certainly, Andreas Kuemperling, who is responsible for business development at Siemens, was fairly dismissive when I mentioned that favorite vision of the 1980s: the tobacco factory without people. Theoretically, he said, such an idea was possible, but in practice it wasn’t realistic partly because you were handling a natural product and partly because the equipment was not 100 percent reliable—failures were possible. Today, Kuemperling added, machines were already taking decisions based on the rules of automation and software was becoming more and more important, but the final decision had to be left to a qualified operator.

    In fact, Tomasz Kramek, the business development manager at the Polish subsidiary of the ITM Group, made the point that in the recent past there had been instances where factory head counts had been allowed to rise slightly. Kramek, who was previously chief of ITM’s automation department, told me that 10-15 years ago there had been huge pressure, especially in respect of primary departments, to use every means of automation to reduce the number of people. But since then it had become clear that this was not always the best strategy because it could result in a reduction in the quality of the product.

    Kramek made me sit up at this point. There was clearly a conflict if one of the goals of automation was the reduction of people, but the reduction of people in primary departments beyond a certain level—a level that automation could apparently support—might lead to a reduction in product quality. After all, product quality maintenance, if not improvement, must also be one of the goals of automation.

    The difficulties arose in primary because it was thought at one time that the whole process could be controlled from a central room using sensors and monitors, Kramek explained. But this was probably a mistake—a step too far. Tobacco was a natural product and there was a need for experienced people who, from time to time, could touch the tobacco, examine it visually and smell it, and these were tasks that it was not possible to automate.

    This is not to say that labor reduction is not an aim of automation in tobacco factories. The situation varies from plant to plant, with those in the West generally being already automated while some of those in other regions still operate using considerable amounts of manual labor. Even in the West, there is still potential to reduce head counts slightly in some factories, especially in secondary departments, though whether such reductions would be an economic advantage is a moot point. Increases in automation might allow for the reduction of people, but they might also require the substitution of less qualified people with those more qualified, which might mean that there was little change in the wage bill.

    Skill levels also come into play in developing countries. Automation in these countries might be rejected on the grounds that particular factories do not have enough money to invest in such systems, and it might be rejected because of socio-political reasons, but it might also be a non-starter because of the unavailability of enough people with the skills to oversee highly automated systems.

    The true benefits

    So if there is no or little economic advantage to be had in reducing the number of people employed in a factory, why should a manufacturer introduce automation? Well, according to Kuemperling, the three main drivers beyond safety, which is a given, are productivity, efficiency and flexibility.

    Flexibility? Again, I was pulled up. Surely, automation is about a lack of flexibility—about imposing on machines a set of rules to ensure they operate in a predetermined, repeatable way? Not so, said Kuemperling; each automation or IT system was only as good as its design, and whereas a good design had to be based on rules, it had to be capable also of handling exceptions. Automation systems, for instance, could aid brand changes, calculating, among other things, at what time new blanks had to be sent from the store to the machine. But such preplanning had to be capable of taking into account the fact that things could go wrong; that there could be a materials break and a machine shut down. So if, as part of a complex production plan, when you were dealing with 20-50 manufacturing lines, you had to reorganize your production, automation systems capable of communicating through all levels could help the production management make the right decisions, on time.

    Planning and the organization of work flows were aspects of automation that were emphasized by Siemens, which, working across a very broad range of industries, has a portfolio of automation products that amounts to “several tens of thousands of components” and is able to offer the benefits of the cross fertilization of ideas from industry to industry. In fact Kuemperling made the point that in factories that were already highly automated, planning might be the one area where further automation was possible. There was room for such advances because planning was such a complex matter, he said. Whether you considered such planning to be automation or IT was a questionable point, he added, but it had to do with automation because you needed to generate real-time information and provide your planning to the machines.

    Kramek looked at the idea of flexibility from a different angle. Manual operations could be seen as being more flexible, he said, but such operations could raise question marks over the security of the process. With manual operations there was always the danger of wrong components being included in products and the uncertainty of whether this had indeed happened. Either way, this could be an expensive exercise. Automated systems, on the other hand, provided a full track of what had been included, where and when. In this way, they could minimize or even eliminate such mistakes, thus offering savings, especially given that the payback time on some of the equipment and systems was as little as a year.

    I find flexibility to be an interesting attribute of automation partly because I can remember the time when a reasonably observant smoker could notice differences between the cigarettes in a single pack that had been produced on a mechanized line. And, I know this is heresy but I quite like such differences, so I asked Christian Schulze, business development manager at Beckhoff Automation’s food, beverage and tobacco industry division, whether automation could be geared to produce, on the same machine, productively and efficiently, products that were different, one to the other.

    I have to say that he wasn’t greatly enamored of this idea, pointing out that this was not what automation was about, but he said that in theory it was possible. It was now possible to use small stepper or DC motors to change the operation of the machine while it was running. That was really easy, he said, so it would be possible to produce products that were different one to the other.

    Schulze though, was more interested in talking about the more practical sides of automation: the fact, for example, that it could be used to make existing machines faster and more productive while improving the quality of the output. This sort of thing was now possible because, using industrial PCs (IPCs), the cycle time or control time was 100 microseconds, 1,000 times faster than what could be achieved with a PLC. So, with more information, your product could be made a little better. Not hugely better, Schulze said, but perhaps 2-5 percent better in respect of material and energy usage and production speeds. Savings of even that magnitude, he added, given speeds of 400-800 packs a minute, by the end of the year added up to significant sums.

    The reference to existing machines above is an interesting one because it can be applied to refurbishments, something for which Beckhoff’s systems are said to be ideal. Beckhoff, said Schulze, used open, standard systems, so it wasn’t necessary to change everything on a machine that was undergoing refurbishment. New technology could be added but, at the same time, old technology could be retained where that was appropriate.

    Beckhoff uses its open systems to good advantage, also, in unifying technology. Exploring a further horizon of automation, Schulze mentioned how modern buildings—their heating/cooling systems, elevators and lighting, for instance—were automated using computer programs. And with Beckhoff’s systems it was possible to run the building and machine automation systems with the same program. This meant that you needed just one engineer to maintain the primary, secondary and building automation, so the major manufacturers, who currently used a separate engineer for their primaries, secondaries and buildings, could save on engineers.

    And, of course, automation doesn’t have to be confined within your buildings. It can be used for tracking and tracing individual products once they’ve left the factory, something that was future technology 10 years ago but that is standard now, said Schulze. Such systems, he added, were possible with a PLC but were expensive, whereas Beckhoff’s technology allowed the cost to be reduced.

    This I guess is automation on the grand scale, but automation can be highly valued, too, on the small scale. Kramek described how automation had been used to allow the expansion of the role of the lowly tobacco silo, without any physical changes being made to what essentially is a box. Whereas the traditional role of the silo had been to hold one type of tobacco, automation had allowed the inclusion of more than one type without mixing, and also the concurrent loading and discharge of different tobaccos from the same silo.

    Some years ago, this would have made as much sense as my idea about using automation to make products different, one to the other, but with the burgeoning of product portfolios, it obviously has application in today’s factories. Kramek told me that whereas some years ago a factory might be operating with only two or three blends, some now had to deal with 100-150 different recipes. In some cases, the smallest order from secondary was for the production of 1 million sticks.

    Perhaps in the end we will need automated cyborg machine operators to deal with such complexity—and of course it would help the cause if they were smokers.

     

     

     

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  • On demand

    On demand

    New printing technology simplifies primary, secondary packaging processes for Top Tobacco

    By Paul Schildhouse

    The roll-your-own cigarette and pipe tobacco industry is a small but growing segment of the tobacco industry. Sales have increased over the past five years, according to the U.S. Alcohol and Tobacco Tax and Trade Bureau. Since 1987, Top Tobacco, with headquarters in Lake Waccamaw, North Carolina, USA, has manufactured roll-your-own cigarette and pipe tobacco products for individuals who prefer to make their own cigarettes or smoke a pipe instead of purchasing machine-made products.

    Because Top Tobacco offers a variety of products, package sizes and package types, the company uses variable data printing solutions that allow it to customize both primary and secondary packaging and avoid storing preprinted materials. Top Tobacco utilizes small-character continuous inkjet printers, laser printers and large-character marking systems from Videojet Technologies Inc.

    Richard Hopkins, plant engineer for Top Tobacco, says the decision to use variable data printing systems has brought a huge advantage for Top Tobacco. Hopkins estimates the ability to print variable data on demand has increased uptime compared with previously used printing methods and has allowed Top Tobacco to purchase generic films, foils and shipping cases. Information required on each product is preprinted onto the packaging, but Top Tobacco no longer needs to store preprinted packages or cases for each product brand and size.

    Advantages

    Before installing continuous inkjet printers for primary packaging, Top Tobacco used a variety of printing methods for coding on polypropylene or foil pouches, including inked embossed rollers and hot-inked embossed rollers. The rollers required line operators to remove the typeset and change it for each new product on a production line. In addition, Top Tobacco had to devote warehouse space to storing preprinted corrugated cases in a variety of sizes to ship its products to retail outlets throughout the United States.

    “Having generic packaging requires less management of preprinted packaging to ensure the right packages are used every time,” Hopkins says. “Plus, we now use considerably less floor space to store a few case sizes instead of dozens of cases with different sizes and different information.”

    Requiring fewer preprinted cases and packaging has made it easier for Top Tobacco to forecast its packaging needs, so suppliers can be placed on a set schedule to regularly deliver more materials. This enables Top Tobacco to avoid unplanned orders for packaging materials.

    Ensuring fresh product

    Prior to distribution for retail sale, Top Tobacco packages cigarette and pipe tobacco into cans, polyethylene pouches or foil pouches, with product sizes ranging from 0.35 ounces to 1 pound. The cans and pouches are then packed into cardboard shipping cases, palletized and shipped to Top Tobacco’s distribution center in Glenview, Ill.

    Cans and pouches containing Top Tobacco’s products are imprinted with production date codes using Videojet 43s inkjet printers and Videojet 3320 laser coders. With the Videojet printers, dates can be automatically changed and Top Tobacco can print production dates that include hours and minutes, which was not previously possible with the rollers.

    The cartons used for shipping the cans and pouches of tobacco are coded by Videojet 2320 large-character printers. The cartons require printing on two adjacent sides, so one side of the box is printed first, and then the box is bump-turned to allow for printing on the adjacent side. The boxes are marked with product-specific alphanumeric codes and barcodes for tracking and production dates.

    “The date codes printed on each pouch or can are referenced by our sales force to ensure customers are getting the freshest product available,” Hopkins says. “Warehouse personnel check the date codes regularly to make certain that product is properly rotated through the warehouse during distribution to keep fresh product moving out to retail outlets.”

    The barcodes on the corrugated cases enable distributors to easily keep track of products entering and leaving the distribution center. Therefore, it is essential the codes are crisp and clear so barcode scanners can read the codes the first time without requiring multiple scans, which can hinder productivity.

    Intuitive interfaces

    All the Videojet printers are used continuously during Top Tobacco’s production hours. Each production line has its own set of printers, which are preloaded with variable data coding requirements for each product produced on that line. When a product changes on a line—which occurs approximately once per week—the operator needs only to select the job product code from the preloaded list.

    “Changing products is very simple with the Videojet printers,” Hopkins says. “The operators require very little training or assistance because selecting a job is about as easy as selecting a song on a jukebox.”

    In addition to the intuitive printer interface, Top Tobacco also appreciates the long periods between maintenance required by the Videojet printers. Hopkins notes that common maintenance tasks are easy to learn and perform as a result of the self-diagnostic features available on the printers. The printers display help screens to walk operators through routine maintenance, which reduces downtime that can shut down an entire production line.

    “Whenever you can decrease the amount of time a technician must spend with a piece of equipment, you have gained an advantage,” Hopkins says. “Since these printers need less attention from our technicians, our operators are able to handle product changeovers and our maintenance personnel can concentrate on other tasks.”

    Top Tobacco also consulted with Videojet when determining the appropriate printers to use on its production lines and to select the best inks for its substrates. For example, because the pouches can come in various colors, Top Tobacco uses both blue and black ink in the Videojet 43s printers. The blue ink shows up better on darker colors, and Videojet helped ensure the ink would be compatible with both the printer and the substrate.

    “Videojet has always been available to us whenever we’ve had challenges with new packaging or needed to consult a field technician,” Hopkins says. “The technicians are well-trained, and our representatives really know their products and have demonstrated a real dedication to ensuring we are investing wisely in our printing technologies. We feel like Videojet is a true partner.”

    By choosing variable data coding systems, Top Tobacco has been able to spend less time worrying about coding processes and packaging materials and more time focusing on its core service of producing and distributing fresh, quality tobacco products.

     

    Paul Schildhouse is secondary packaging product manager at Videojet Technologies Inc.

     

  • Fanning out

    Fanning out

    The Indian group of companies that includes Chaitanya Packaging now also supplies rotary dies for use on packaging and converting machines.

     

    By George Gay

     

    As I traveled with T.R. Prabhu, the chairman of a group of companies that includes Chaitanya Packaging, between some of his factories and godowns on the outskirts of Guntur, India, he made the point that somebody had to provide meaningful employment for the people who lived in the numerous and populous villages we were passing through.

     

    He made his comment after I had expressed curiosity about the rate of increase in the number and diversity of the businesses that made up his group. Prabhu had just mentioned that he was about to start a company that would build machinery, and I knew that the print was hardly dry on the business cards for his Diehard Dies Pvt. Ltd. enterprise.

     

    The group’s flagship business is the 19-year-old Tulasi Seeds, which produces vegetable seeds, with emphasis on chilies, and hybrid cotton seeds in a process that incorporates technology licensed from Monsanto. “We are the third-largest cotton seed company in India,” said Prabhu. “It’s all sold in India at the moment, but we are looking for opportunities to go to Africa.”

     

    Surprisingly for a man who controls a number of diverse businesses, Prabhu talks with expertise and in detail about each of them, almost as if he is in daily control of them all. And he speaks and acts with precision, often repeating what he has said in different ways to ensure the meaning is clear.

    Another of his enterprises cultivates about 400 acres of land with vegetables and fruit, especially lemons and mangoes.

     

    And, as is mentioned above, his new venture is Diehard Dies, which he started to put in place in November 2009. This company uses machinery imported from Germany and raw materials imported from Europe to produce flat and rotary dies for use on converting and packaging machines for folding cartons and corrugated boxes. Diehard Dies, Prabhu explained, was the first company in India to make such rotary dies.

     

    “In addition, we make flexible steel label-cutting dies, and we are the first company in Southeast Asia to do that,” he said. “This is a 100 percent export business.

     

    “Making flexible dies is a very difficult manufacturing process that requires a high degree of precision. The labeling industry is very automated and needs sophisticated dies. No other company in the Middle East or Africa can produce such dies, so my target comprises customers in all of the countries of these regions—50-60 companies in South Africa alone.”

     

    Diehard Dies offers also embossing blocks, gold-finishing bocks and Braille embossing dies in a range of materials including brass, copper and magnesium.

     

    Meanwhile, the group includes a company that manufactures stationery under the Tulasi brand name and what Prabhu describes as a “small” software company based in Hyderabad.

     

    Packaging

     

    But the number-two company in the group, measured in turnover, and the company of most interest to the tobacco industry, is Chaitanya Packaging, 65 percent of whose output is bought by tobacco companies.

     

    Chaitanya, which produces C48 cases under the Power-400 brand name, supplies 75 percent of India’s demand for these 200 kg cases, and exports them to Bangladesh, Dubai (for cut rag), Malawi, the Philippines, Tanzania and Turkey.

     

    Chaitanya started its C48-case exporting business with sales to Bangladesh about six years ago, and by last year some 40 percent of its output was destined for sale overseas. And perhaps that figure has increased by now. When I spoke with Prabhu, he was in discussions about possible export sales to Indonesia, Malaysia, Thailand and Zimbabwe.

     

    So was Chaitanya successful, I asked? “Yes,” was Prabhu’s short answer.

     

    And why was that? “We are continuously upgrading the box making machinery we use, which is imported from Taiwan,” he replied. “We are continuously modernizing so as to increase productivity and quality. Chaitanya is an ISO9001:2008 certified company.”

     

    And what about the group as a whole; was that successful too? “Highly successful because of continuous R&D to improve productivity and quality,” he said.

     

    Overall, the group’s annual turnover is about INR3 billion ($65 million). And that figure is expected to reach $100 million within about two years.

     

    As well as having a big turnover, the group is highly profitable, according to Prabhu, but at the moment this level of profitability is largely down to the seeds business. The packaging business was not particularly profitable because it competed in a very competitive marketplace and margins were thin, he said.

     

    Finally, I asked Prabhu how he saw the future of the tobacco industry as it related to his packaging business.

     

    “From what I see the tobacco industry will be doing about the same acreage in the next 10 years,” he said. “It may not grow overall, though I think it will grow year on year in India. So I foresee good business for Chaitanya Packaging. My target is to grow its sales turnover by at least 50 percent during the next two or three years. We can do it—with more competitive prices and better qualities.”

    That’s good news for Chaitanya, good news for the group and good news for locals looking for employment.

  • Long march

    Long march

    China remains the world’s biggest producer and consumer of tobacco products. Succeeding there requires an equally big commitment.

    TR Staff Report

    Despite growing health awareness and attempts to clamp down on smoking, the Chinese tobacco industry continues to thrive. Industry sales and government tax collections increased almost 17 percent in 2010, according to the State Tobacco Monopoly Administration. But those juicy figures don’t necessarily translate into easy money for foreign manufacturers and suppliers. As many have found, success in China requires patience, determination and a long-term commitment.

    The Chinese tobacco industry earned nearly RMB600 billion ($90.66 billion) from sales and taxes in 2010, up from RMB513 in its previous fiscal year. According to Research and Markets, there are about 410 million smokers in China, about one-third of the population. That means the country has more smokers than the United States has people. As China’s economy continues to grow, smokers are demanding more medium- and high-grade cigarettes, which carry higher profit margins and tax rates.

    In 2009, the government raised taxes on premium cigarettes (those costing more than RMB7) to 56 percent from 45 percent. The tax on lower-grade cigarettes jumped to 36 percent from 30 percent. As a result, the median price of a pack of cigarettes in China is now RMB5.

    At the same time, Beijing has come under pressure to address from health advocates to crack down on tobacco consumption. When China signed up to the World Health Organization’s Framework Convention for Tobacco Control, in 2005, it agreed to restrict smoking by 2011, in part through public smoking bans, price increases and higher taxes.

    But according to a recent report, Tobacco control and China’s future, China has fallen short of meeting its obligations.

    The report, which was issued by a group of Chinese health advocates, officials and economists, laments that China only last year announced a ban on smoking at primary and secondary schools. And it wasn’t until May that the government banned smoking in state-owned hospitals and government buildings.

    What’s more, compliance has been lax. The authors note that smoking remains rampant in hospitals and government offices, while attempts to ban advertising for cigarettes on radio, television and in newspapers have failed because of legal loopholes.

    The report attributes the lack of progress to an inherent conflict of interest: the STMA is responsible for both tobacco sales and the implementation of anti-smoking laws. The authors also cite widespread ignorance about the health risks of smoking.

    So despite efforts to clamp down on tobacco consumption, China is likely to remain the world’s single-biggest tobacco market for years to come, making it an attractive destination for Western tobacco companies and their suppliers, who are facing stagnating sales at home.

    But attractive is not the same as easy. Even though China joined the World Trade Organization in 2001, foreign cigarette makers are still finding it challenging to do business here. Tariffs remain high, limiting cigarette imports. Reported imports were valued at only $76.02 million in 2009, according to Research and Markets. Illicit traders, meanwhile, are doing brisk business: The value of the smuggled market is estimated at $5 billion annually.

    In 2005, Philip Morris International announced a deal to manufacture small quantities of Marlboro cigarettes under license in China. But the creation of joint ventures between foreign and Chinese cigarette makers remains off-limits, as does local production by non-Chinese companies. British American Tobacco learned this the hard way in 2003, when the STMA spoiled its plans to open a mainland factory.

    China justifies its restrictions on foreign tobacco investments by pointing to the saturation of the local tobacco market. There is no need for additional cigarette production capacity, according to the official line.

    If anything, the STMA wants production capacity to come down. Since the turn of the century, it has been closing unprofitable factories and encouraging less viable plants to merge into bigger, more efficient enterprises. The numbers of factories and cigarette brands have come down consistently in recent years. There are reportedly 30 factories today, compared with 150 several years ago. Research and Markets says the number of cigarette brands was 150 at the end of 2009, down from 758 in 2002.

    Domestic taste preferences also limit the appeal of international brands, which tend to be American-blend cigarettes. Chinese smokers prefer Virginia-style cigarettes, and sales of American-blend brands remain concentrated in the coastal, urban areas, where Western expatriates tend to live.

    Roger Penn, director of Mane’s tobacco business unit, says his company worked on developing an American-blend cigarette for China many years ago, but the concept never caught on. Even as Chinese consumers become more receptive to foreign trends, they are unlikely to embrace American-blend cigarettes in large numbers. Penn draws an analogy with Canada, another Virginia market. “Canada borders a major American-blend market, the United States, but Canadian smokers have not made the transition,” he says. In the wake of Canada’s ban on tobacco ingredients, a switch to American-blend cigarettes is more elusive than ever.

    While foreign suppliers to the tobacco industry face fewer restrictions than do foreign cigarette makers, they too find doing business in China challenging. Still, with the right combination of persistence and tact, it is possible to succeed, as the experience of some companies suggests.

    NCD Infrared, a supplier of moisture testing equipment, entered China in the 1980s and has managed to grow its business ever since. Today, the company has a market share of between 80 and 90 percent in China. Its Chinese division employs 40 people.

    “Perhaps the biggest challenge is finding the right partner,” says Ian Benson, sales and marketing director at NDC Infrared. “You need to invest in a mainland network,” says Benson. “Working through a Hong Kong-based agent is not enough.”

    After finding a suitable local partner, suppliers must show serious commitment. The relationship does not end with the sale. “The Chinese appreciate a long-term approach,” says Benson. “You must look after your installed base.”

    According to Benson, competing on price only is not a winning strategy in China. “The Chinese are extremely discerning customers. They want the best in the world. Our prices are higher than those of the competiton, yet we are still successful.”

    And it helps, of course, if your company offers products for which demand is rising. Take filters, for example. Chinese cigarettes contain higher levels of tar than those sold in many other countries. The majority of Chinese cigarettes have tar levels greater than 10 mg. In neighboring Japan and Korea, by contrast, 7 mg is the norm.

    The STMA intends to reduce the tar level of Chinese cigarettes by 0.5 mg every year. The challenge is reducing tar levels while maintaining the unique smoking characteristics of Chinese cigarettes. A relatively simple option would be to increase filter lengths, but this increases the use of materials such as cellulose acetate and thus increases cost.

    Filtrona has developed a number of solutions to address such concerns. The company’s ROA filter, for example, uses less raw materials but offers the same retention and pressure drop as a conventional mono-acetate filter. The company has also developed a technology to make paper taste like more expensive acetate. According to Filtrona’s sales director for China, Paul Morris, the modified paper filter has higher retention properties than does cellulose acetate, allowing Chinese cigarette manufacturers to economically reduce tar levels without compromising the natural taste characteristics of their cigarettes.

    China’s sheer size makes it a powerhouse in the tobacco industry—one that Western suppliers will go out of their way to court. But while much has been made of cultural differences, these are ultimately outweighed by the similarities. Like their counterparts in Europe and the United States, Chinese cigarette manufacturers want to offer superior products and stellar service—but at a price that does not break the bank.

     

     

  • Tax to the max

    Tax to the max

    The challenge of squaring public health with government revenue objectives

    By George Gay

    I think that I should declare an interest. It has to be said that I am not an objective observer when it comes to taxation. I tend to the view of the 19th century French economist Frédérick Bastiat, who apparently defined taxation as state-sanctioned plunder. Don’t get me wrong—I am quite prepared to admit that governments have to indulge in a little plundering. I just wish they would be more open about it.

    In the normal way of things, marauders storm ashore, sack part of your village and plunder much of what isn’t nailed down, but they leave enough standing to allow regeneration—so there will be something to plunder when they return. And, to be fair, governments largely follow the marauders’ code on plunder. They take just enough to render their victims too weak to protest but strong enough to continue indulging in all of those pursuits that are taxable—every pursuit you can think of, that is.

    Tobacco taxation is a different matter, however, because here governments have been plugging the idea that their policies constitute a moral crusade, and there is nothing so crushingly pitiless as a moral crusade. In this case, the marauders’ code can be consigned to the flames because governments are increasing taxes on tobacco not to fill the holes left in their coffers by profligate spending, you understand, but because they want to help the very people they are taxing. It almost brings a tear to your eye.

    But not quite. There’s something odd about this moral crusade. The line we are fed is that taxation is raised to the point where people can no longer afford to consume tobacco products, and, because consuming tobacco is bad for them, their not being able to do so must offer a benefit. Under a system of “tax to the max,” the sinners are saved and proudly take their places behind the gleaming banner of health and vitality.

    Assumptions

    The first thing that has to be said about this nonsense is rather obvious but is nevertheless worth saying. This tax to the max policy is based on the view that one group of people know best and must be allowed to impose the totality of their beliefs on another group; it is, after all, a crusade. And it seems to stand no matter how much evidence comes to light to question these beliefs.

    Following on from that, a few people, I think, would agree with me that the decision to launch such crusades are made with those in the vanguard having exaggerated the negative aspects of tobacco consumption—sometimes grossly so—and ignored the positive aspects of it. And more than a few people would agree that the crusade is launched on the assumption that—against all the evidence put forward by the crusaders themselves—tobacco consumers are able to give up these products.

    One common riposte to this last criticism has it that addicted consumers who are no longer able to afford to buy tobacco products can avail themselves of quit products, sometimes at no direct cost to them, though the success and failure rates of these quit products are normally not mentioned.

    But this is not quite right. The evidence coming out of Japan at the moment would tend to indicate that these products are not always around when they’re needed. Writing in The New York Times last month, Hiroko Tabuchi described how Japanese health professionals and many of the nation’s smokers were grumbling because, three months after the imposition of a massive tax rise on cigarettes, it was still difficult to get supplies of Pfizer’s quit-smoking drug Chantix.

    I don’t think that you have to be a cynic to wonder why, given that one of the stated aims of the tax hike had been to get people to quit, the government did not work with the providers of quit products to ensure adequate supplies; or am I expecting too much?

    Still; the shortages might have been a mixed blessing for some. On the same day as the Tabuchi story, Kent Faulk was describing in The Birmingham Post how nationwide in the U.S. 1,200 lawsuits were being brought against Pfizer in relation to Chantix. Smokers and their families allege that Chantix left would-be quitters with a variety of psychological problems, allegations that Pfizer denies.

    Bankrupt crusade

    One thing that is certain is that the outcome of the moral crusade isn’t guaranteed; otherwise, given the figures often quoted for the number of people who “want” to quit tobacco, it would be easy for a government to put the taxation on tobacco products up by a million percent, hand out quit aids and watch the massed ranks of crusaders lead all of the former tobacco users into the promised land.

    So what is wrong here? Well, just about everything, but I want to look at only a couple of issues. Firstly, if you want to examine how bankrupt is the moral crusade that is built upon the policy of tax to the max, you need look no further than Canada, though what has happened there has happened in some other countries also, to a greater or lesser extent. Canada’s tobacco taxation policies have encouraged the illicit trade to such an extent that, overall, this trade now accounts for about one-third of the market. In one province, it accounts for nearly 50 percent of cigarette sales.

    The general response to this situation is not to reduce tobacco taxation but to try to increase enforcement and, presumably, in the process, criminalize rising numbers of people. You have to wonder at what point the authorities will admit that the volume of illicit sales indicates that a significant minority of the country’s population believes that tax to the max policies are unfair. At what point will they wonder if these people haven’t got a case? At what point will they ask themselves whether putting more and more people on the wrong side of the law truly represents a moral crusade? At what point will they be moved to reconsider what sort of a society they want to foster?

    I fear it will be a long time. This is not the first time in recent memory that Canada has found itself in a similar situation. And, coincidentally, as I was writing this piece, Imperial Tobacco Canada issued a press note lamenting the Minister of Health’s decision to abandon her commitment to tackle the nation’s contraband.

    The press note said that the Royal Canadian Mounted Police had reported recently that there were now 50 illegal cigarette factories and more than 300 smoke shacks selling tobacco on First Nations reserves in Canada.

    After announcing in September that tackling illegal tobacco was her priority, the note said, special-interest anti-tobacco groups, most of them funded by her own department, lobbied the minister heavily to focus on increasing the size of health warnings on legal products.

    “Three months ago, the minister of health said illegal tobacco was her priority,” said a clearly frustrated John Clayton, who is vice president for corporate affairs at Imperial. “However, she has done nothing to crack down on the illegal trade since then. Instead, she caved in to the pressure of a handful of anti-tobacco groups.”

    Questions

    At first sight, the phrase “tax to the max” looks straightforward enough, but stare at it for long enough and a number of questions start to arise. Two obvious questions are: What is the max and who determines what is the max? But, to me, the most interesting question is, what is tax? In the EU and elsewhere, tobacco consumers are being forced to pay hundreds of millions of euros to fund various initiatives to combat the illicit trade in tobacco. I’m not sure what this money is called by those who receive it—whether it is referred to as a penalty, fee, contribution, bonanza, lottery prize or whatever—but, basically, it is a stealth tax levied on the consumers of licit products that is handed over to various agencies to fund seemingly predictably unsuccessful attempts to reduce the illicit trade in tobacco that is a direct result of the price of cigarettes being too high. Is this rational? Is this fair? Is this all part of the moral crusade? To me it looks like a dog chasing its tail.

    Meanwhile, in the U.S., most consumers of licit products are made to make payments—through the manufacturers of the products they consume—under the Master Settlement Agreement (MSA), though, as far as my memory serves me, no tobacco consumer ever agreed to making such donations. Again, this is put forward as being part of some moral crusade, but it is far from that. The agreement is spun as being a punishment on the tobacco manufacturers, but, again, it is not; it is a tax on tobacco consumers. And it wouldn’t be so bad if all or at least most of the money raised from this tax went to fund tobacco control programs, as you might rightly expect, but it does not.

    By the way, if you aren’t convinced that MSA payments are just taxes by another name, you would do well to check out what is going on in Texas at the moment. According to a story by Gary Scharrer for the online version of The Houston Chronicle, Texas is one of two states (the other being Florida) that are parties to the MSA but that don’t require companies that were not signatories to the agreement to participate in it.

    But Texas has a problem: a budget deficit of more than $20 billion, according to recent estimates; so Altria has suggested that part of this hole could be plugged by drawing the non-participating companies into the “agreement.”

    Here is what Scharrer quoted Justin Phillips, a spokesman for Global Trading, a small tobacco wholesaler based in Enid, Oklahoma, USA, as saying: “The big tobacco companies are trying to shift the market share to their favor by placing a tax [my emphasis] on smaller companies that were not involved in the (late 1990s) settlement.”

    As is hinted at above, the max in tax to the max cannot be limitless. The max is simply the level that allows governments to wheedle as much money out of tobacco consumers as they possibly can, but it involves a difficult calculation. Governments have to be on their guard that they don’t overstep the line of diminishing returns—the point at which the theoretical increase in revenue from increased taxes is wiped out by people refusing to buy tax-paid products. So what this means is that in those jurisdictions where tobacco tax is purportedly increased to the max to try to stop people smoking tobacco, tax levels are largely determined by the strength of the illicit trade. The moral crusade is being led by gangs of criminals. Quite.

    Bailouts

    At this point and somewhat uncharacteristically, I’d like to take a diversion to examine what seems to me to be an inconsistency in many governments’ taxation policies. As is described above, these governments say they increase the taxation that has to be paid by the consumers of tobacco products because those consumers are addicted to a product that has a negative effect on the health of society. The thrust of these increases is aimed at breaking the bonds of this addiction and thereby increasing the health of the community.

    The trouble here is that there is at least one other group of people who may be closely equated with tobacco consumers but who are treated in a completely different way. I’m talking, of course, about a certain class of banker. These bankers are addicted to a product that—as has been proved beyond any question in the recent past—has a negative effect on the health of society. But the reaction of governments in this case is not to try to break the bankers’ addiction to greed but to feed it. Although governments wouldn’t dream of handing tobacco products to nicotine addicts, they seem not to think twice about throwing money at those addicted to greed.

    Why is there this divergence of approach? It’s difficult to say, but the only real difference that I can see between the tobacco users and the bankers is that the former are, in the main, relatively poor financially and therefore powerless, while the latter are relatively rich financially and therefore powerful.

    Ireland is one country where smokers have been pilloried and taxed to the max and beyond, and where the bankers have failed comprehensively; so in the normal way of things, the former are helping to bail out the latter. I have written elsewhere in this issue about Ireland, but the story from that country is so monumental that it bears repeating. At the end of last year, the Minister of State for Health, Áine Brady, told the Dáil that currently 29 percent of the population smoked despite a ban on tobacco smoking in public places, the abolition of packs of fewer than 20 cigarettes, the ending of in-store displays and advertising, and the retail price of cigarettes being, at €8.55 ($11.06) a pack, “the highest in the world.” In 2004, 27 percent of the population smoked.

    Clearly, not only does the tax to the max crusade against tobacco fail the test of morality, it fails the test of efficacy. It is a failure, but that won’t make any difference. Most governments seem not to be concerned about such failures.

    At this point, it would be interesting to turn the focus to Japan, where, normally, they seem to take an orderly approach to things, including tobacco taxation. Well, that was the case until last year when, in the run-up to an unprecedented tax increase on Oct. 1, which, together with a manufacturer’s increase by Japan Tobacco, raised the retail prices of some brands by 40 percent, the market was thrown into chaos.

    In September, cigarette sales, at 37.4 billion, were up by 88 percent on those of September 2009, due to a last-minute rush ahead of the excise increase. But sales were said to be down by 70 percent in October, and one estimate had it that this year they could be down by 17 percent to 180 billion. They could even fall to 165 billion.

    You have to wonder what would convince a government to decide—it cannot have been unaware of the consequences—to create such chaos in a market where it has the major financial stake. The charitable interpretation might be that it genuinely wanted to cut smoking in a country where a lot of men continue to indulge in the habit. And, to be fair, if this were the intention, then it has been successful, at least for the time being. Although about 20 percent of people who quit smoking in light of the Oct. 1 tax hikes quickly returned to their habit, by the beginning of November 62 percent of those who stopped smoking due to the price increases had not smoked a single cigarette in the meantime.

    I’m still not convinced, however. Call me cynical, but I have a funny feeling that this will end up doing little else but increasing the government’s revenue from tobacco taxes. Still, I’m willing to eat my words if it turns out that both the incidence of smoking and tobacco tax revenue fall.

     

     

  • After Uruguay

    After Uruguay

    The FCTC Conference of Parties’ recent meeting has put the spotlight back on tobacco ingredients. But the case for a ban remains flimsy.

    By John Luik

    With the fourth session of the Conference of the Parties to the World Health Organization’s Framework Convention for Tobacco Control (FCTC) in Punta Del Este, Uruguay, at the end of November, cigarette ingredients have again assumed center stage in the tobacco control playbook.

    While the session dealt with a variety of issues, the most important was without doubt Article 9 of the FCTC—regulation of the contents of tobacco products. Article 9 states, “The Conference of the Parties, in consultation with competent international bodies, shall propose guidelines for testing and measuring the contents and emissions of tobacco products and for the regulation of these contents and emissions.”

    According to the WHO press release of Nov. 20, the conference decided that “flavoring ingredients that increase attractiveness of tobacco products should be regulated in order to reduce the number of new smokers, especially among youth.”

    According to the working group on Articles 9 and 10, “Tobacco products are commonly made to be attractive in order to encourage their use. From the perspective of public health, there is no justification for permitting the use of ingredients, such as flavoring agents, which help make tobacco products attractive.” Based on this claim the working group recommended that “Parties should either prohibit or restrict ingredients that may be used to increase palatability, such as sugars and sweeteners, flavoring substances, and spices and herbs …. Parties should prohibit or restrict ingredients that have coloring properties, such as inks and pigments ….”
    Nothing new

    While ingredients are only now attracting significant attention, the issue is not new. In July 1999, AHS/UK issued the report Tobacco Additives: Cigarette engineering and nicotine addiction, written by Clive Bates and Martin Jarvis of the United Kingdom, and Greg Connolly of the Massachusetts Tobacco Control Program, who is now a member of the Food and Drug Administration’s Tobacco Scientific Advisory Committee.

    In that report, the authors noted that EU regulations permitted “over 600 additives” to be used in the manufacture of tobacco products under a loose and decentralized regulatory framework. “Although tobacco additives are generally screened for their direct toxicity, there is virtually no assessment of the impact additives have on smoking behavior or other undesirable external consequences.”

    According to ASH, most additives were not used prior to 1970 and most are “not necessary.” The primary concerns that emerged from the report were that additives 1) posed a potential risk to users; 2) increased the addictiveness of cigarettes through “free nicotine” and 3) increased the attractiveness of cigarettes, particularly for children.

    The report argued that in response to the ineffective regulatory regime for additives—it referred to the 1997 U.K. voluntary agreement—a new regulatory framework was needed in which “the manufacturer is obliged to demonstrate that no additional harm arises from tobacco product design decisions such as the use of an additive. This should include the impact of additives on smoking behavior, passive smoking and fire risks.” Included in this new regulatory framework would be the 1) disclosure of all additives, 2) disclosure of the purpose of all additives, 3) disclosure and all research on all additives, and, most significantly, granting regulators the “power to challenge any of the existing 6,000 additives currently allowed and to have them removed until the manufacture is able [to] show that no extra harm to the public arises as a direct or indirect result of the additive.”

    The ASH report gained considerable traction as a blueprint for ingredient regulation. For example, a 2001 report prepared for the New Zealand Ministry of Health by Jeff Fowles proposed that New Zealand adopt a “regulatory framework for tobacco additives along the lines proposed by Bates et al.”

    According to Fowles, the tobacco industry would need to justify the use of additives that have a pharmacological effect, numb peripheral nerves (menthol for instance) or affect the absorption of nicotine.

    In a 2003 article in Tobacco Control, Borland argues that the harmfulness of tobacco products can be reduced in three ways—“by making it less toxic per unit used; by making it less addictive per unit used; and/or making it less palatable.” He asserts that the “regulatory framework needs to progress on all three.” In the mind of the anti-tobacco movement, ingredient regulation would address all three of Borland’s objectives: If one accepts the charges about ingredients, it would make cigarettes less toxic, less addictive and less palatable (read: attractive) to smokers.

    By far the biggest push to the ingredients regulatory bandwagon came in 2009 when the Canadian government passed bill C-32, which was so broadly drafted that it would cover all flavorings in cigarettes sold in Canada. The ban effectively banned the sale of American-blend cigarettes in Canada. In the United States, meanwhile, the FDA was given regulatory authority for the ingredients issue. The legislation required the immediate removal of certain flavors along with the mandate to examine and decide on the use of menthol.

    Lacking legitimacy

    While the ASH and Fowles reports called for ingredients regulation at the national level, the FCTC has been driving regulation on a global scale. Part of the problem is that anti-tobacco activists don’t seem to understand how cigarettes are produced. Unable or unwilling to distinguish between characterizing and noncharacterizing flavors, they have argued to ban both.

    However, banning noncharacterizing flavors would do little to advance the cause of public health. The flavors give cigarettes no distinctive taste yet are essential in the production of American-blend cigarettes, which account for the majority of cigarette sales outside of China. Is it a coincidence that the noncharacterizing flavors that would be banned under some proposals are used in the leading tobacco brands?

    But amid this regulatory fever, the fundamental question remains as to whether any of these claims are justified. Is there a case for the regulation of tobacco ingredients? The working group on Articles 9 and 10 cites four reasons for regulation: the ad hoc and ineffectual nature of the current regulatory scheme; the toxicity of certain ingredients currently used in cigarettes, the fact that certain ingredients make cigarettes more attractive, particularly to young smokers; and the role of ingredients in promoting and maintaining cigarettes’ addictiveness.

    While these are the “stated” problems, the deeper issue is that the ingredient issue offers the anti-tobacco movement a powerful way to control and ultimately change the composition of cigarettes, in effect to make them fundamentally unattractive. And this has the potential to be a more serious threat to the industry than, for instance, plain packaging. But just how legitimate are these claims about ingredients?

    First, the claim that the existing regulatory framework is loose, ad hoc and ineffectual is at variance with the facts. In the U.K. for instance, the voluntary agreement requires manufacturers to supply the Department of Health with a list of all ingredients and the reasons for their use. Moreover the current regulatory framework for ingredients is regularly updated. Germany has banned two ingredients in the past nine years, while allowing the use of other ingredients for only limited periods.

    Second, the claim that ingredients increase the toxicity of cigarettes is not supported by scientific evidence. Over the past 20 years, industry experts have published some 20 different ingredients toxicology studies. Lemus et al. published a study of the toxicological properties of cigarettes with varying amounts of vanillin in 2007 (Inhalation Toxicology) and Renne et al. published a study of the toxicological effects of flavoring and casing in mainstream smoke. (Inhalation Toxicology, 2006)

    British American Tobacco has published a series of scientific studies examining the toxic effects of 482 ingredients. None of these published studies has supported the claim that ingredients represent an additional toxic risk to smokers or nonsmokers. In a recent review of the ingredient most commonly a focus of regulatory concern, menthol, Daniel Heck from Lorillard found “that menthol employed as a cigarette tobacco flavoring ingredient does not meaningfully affect the inherent toxicity of cigarette smoke.” (“A review and assessment of menthol employed as a cigarette flavoring ingredient,” Food and Chemical Toxicology 2010)

    Third, there have been no credible scientific studies supporting the claim that certain ingredients make smoking more addictive. Indeed, the scientific and regulatory consensus about addiction is that it is nicotine, not some other ingredient that leads to addiction. Indeed, the ASH study does not cite any published scientific studies confirming that cigarette ingredients in some way “engineer” tobacco addiction.

    Furthermore, the recently completed report on the Addictiveness and Attractiveness of Tobacco Additives by the EU’s Scientific Committee on Emerging and Newly Identified Health Risks (SCENIHR) published on Nov. 12, 2010, found no evidence that current tobacco ingredients have rewarding or reinforcing properties or are in themselves addictive. As the report notes, “In the peer-reviewed scientific articles assessed, there is no documentation for certain individual additives to cause addiction directly.” (p. 41)

    Fourth, the claim that certain ingredients make smoking more attractive, particularly to children, is questionable on at least four grounds. First, the entire concept of attractiveness, as used in the ingredients debate, is both vague and unscientific, something that the SCENIHR report itself acknowledges when it notes that it is “necessary to perform experimental studies to assess the attractiveness of tobacco additives objectively.” But there are currently neither scientific criteria of what constitutes attractiveness nor studies demonstrating that certain ingredients promote or enhance attractiveness. Indeed there are no animal models that would allow for the assessment of attractiveness. As SCENIHR notes, “It remains difficult to distinguish the direct effects of these additives from the indirect effects such as the marketing towards specific groups.” The risk is thus that a subjective notion without scientific foundation—attractiveness—is being used as a convenient way to ban certain ingredients.

    Second, there are no scientific studies linking smoking initiation with certain cigarette ingredients. Indeed, there are no studies showing that removing certain ingredients will make cigarettes less attractive to young people and reduce youth smoking. There are thousands of studies of youth smoking, yet none of these studies suggest that young people begin smoking because of the effect of certain cigarettes ingredients in making smoking attractive.

    Third, there are no scientific studies establishing that smokers find it more difficult to quit or fail to quit because of certain cigarette ingredients.

    Fourth, current prevalence levels and smoking patterns refute the “ingredients make smoking more attractive” argument. For example, if ingredients make smoking more attractive, one would expect to find higher prevalence rates in countries with cigarettes containing more flavor ingredients. Yet this is not the case. In France, Italy, Denmark and Switzerland, the tobacco market is dominated by cigarettes with high levels of ingredients, yet these countries have lower rates of smoking prevalence than the United Kingdom, where smokers prefer cigarettes with fewer flavorings. The world’s largest tobacco market, China, is dominated by Virginia cigarettes, which depend less on ingredients than do American-blend cigarettes.

    The Winston problem

    Finally, there is the “Winston problem” pointed out by Michael Siegel (The Rest of the Story, July 27, 2010). Winston cigarettes are “100 percent tobacco with no additives.” To heath activists, this should make them more acceptable than other cigarettes. However, anti-tobacco campaigners went “beserk” over Reynolds’ advertising campaign, complaining to the Federal Trade Commission, which forced Winston to carry a disclaimer noting, “No additives does not mean a safer cigarette.”

    But according to the claims of the activists about additives and toxicity, this is precisely what removing additives should accomplish. More crucially, no additives should mean a cigarette that is substantially less appealing to smokers, particularly young people, according to this logic.

    As Siegel notes, “Here then, is the fascinating conundrum for the WHO and the FCTC working groups. If they argue that there is a public health justification for banning all cigarette additives, then they must acknowledge that Winston cigarettes are a significant public health advancement …. On the other hand, if they refuse to acknowledge that Reynolds’ Winston cigarettes are a public health advancement, then they are admitting that there is no public health justification for their proposed regulations that would ban all cigarette additives.”

    While ingredient regulations have little scientific support, one can nevertheless foresee their potential effect in terms of the tobacco marketplace and product innovation. In the marketplace, ingredient regulation could easily lead to the growth in the illicit trade since there will be a substantial demand for and profit to be made in supplying smokers with traditional products.

    The assumption behind radical changes in tobacco ingredients is that smokers will simply accept them because they have no other choice. But this is folly. There is an enormous illicit tobacco market that has the ability and the incentive to provide smokers with precisely the sort of cigarettes they want- irrespective of any FCTC regulation. What the anti-tobacco activists fail to understand is that they cannot change the preferences of smokers by regulatory fiat.

    In terms of product innovation, particularly the development of reduced exposure/risk products, the inability to use ingredients, particularly sugars, will make it more difficult for these products to achieve mass market appeal. This is because flavorings are necessary to compensate for the lower tar levels that these products will likely have. Reduced exposure products with greater harshness and an unattractive taste will hardly fulfill the public health objective of harm reduction.

    Of course, this may well be the real objective of the anti-tobacco movement. The goal might be to make both conventional cigarettes and reduced exposure products so unattractive that fewer smokers will choose to smoke them. In this sense the arguments about toxicity and addictiveness are simply red herrings designed to divert attention from the larger project of engineering unpalatable cigarettes through substantially changing ingredients. An expansive reading of Article 9 of the FCTC might sanction this.

    The trouble with this is that it amounts to prohibition by another name. But prohibiting tobacco, either directly or by stealth, is neither possible nor desirable, as even the most dedicated anti-tobacco regulator must recognize. Unfortunately the absence of science, hidden agendas and disregard for unintended consequences on display at Punta Del Este strongly suggest that they don’t.

     

     

  • Ground-breaking

    Ground-breaking

    Cross Creek’s seeds offer unparalleled disease resistance.

     

    By Brandy Brinson

     

    When tobacco plants grown from Cross Creek’s seeds break ground, they are more likely to resist diseases and nematodes than plants grown from other seeds. The company has collaborated with international breeders to develop flue-cured and burley varieties that are showing resistance at previously unheard-of levels.

    “We are now finally able to introduce varieties with increased yield, quality and disease resistance,” says Sam Baker of Cross Creek Seed. “Our collaboration with international breeders has allowed us to stockpile germplasm and use private breeding lines to release these varieties.”

    Sam’s brother Ed Baker says, “We have tons of flue-cured varieties offering nematode resistance at rates never been seen before. And the burley we’ve introduced has more resistance to bacterial wilt or Granville wilt than any other burley variety in the world.”

    This U.S.-based company in Raeford, North Carolina, was started as a tobacco farm by the Bakers’ father, Eddie Baker, and has evolved into a seed company. Today, Cross Creek Seed is a fully integrated seed company that grows, cleans, pellets and packages its own seed. The company produced seed for Northup King, Novartis, Syngenta and Gold Leaf Seed Company long before it became an independent seed enterprise.

    Cross Creek still maintains its family roots even though it is gaining a greater international presence. “We’re unique in that we’re a privately owned company—we are not owned by a big multinational conglomerate—that offers services and varieties on the international stage not found in smaller companies,” says Sam. Cross Creek Seed works with its partner coating company Cross Creek Coating, also in Raeford, to provide a melt-coat pellet that sets the standard for tobacco pellets.

     

    Special varieties

    The flue-cured varieties CC35, CC 13 and CC 33 were released about three years ago. The need for superior nematode resistance, brown spot resistance and varieties that are slow ripening is especially great in southern Africa—particularly Zambia, Malawi and Tanzania—as well as in Kenya. Tests in Zambia were recently completed and sales have increased dramatically ever since, says Ed. Tests in Malawi are now being conducted.

    The demand for disease-resistant burley varieties is especially prevalent in the burley growing regions of Guatemala and the Philippines, where there are severe problems with wilt, says Sam. Previously, he says there was “nothing on the market to compensate for it.”

    He says that historically, on a scale of 1 to 10, burley varieties had a rating of 2 or 3 for wilt disease resistance. “Ours has a 9.4-9.7 on disease resistance.”

    The success in the field has caused Cross Creek’s sales to surge 500 percent from the first year to the second year. They expect sales to double again this year. “These products have taken our international sales from one-fourth of our total sales to 40-45 percent,” says Ed.

     

    K 326

    The forefather of today’s flue-cured products is the K 326 seed. “It’s an oldie but a goodie,” says Sam. “It’s the backbone of every flue-cured product and one of the most planted varieties in the world. It still makes up a huge market share for us.”

    Cross Creek’s reputation for selling a quality K 326 product is the reason the company has been able to gain a foothold in the market and expand its market share, says Sam. Bill Earley, breeder of K 326, is considered the father of modern flue-cured tobacco and was an integral part of Cross Creek Seed. Earley chose Cross Creek Seed to plant the very first crop of K 326, where it has been produced ever since. Earley became an exclusive consultant to Cross Creek in 2000 because he believed the company had the experience and quality control to continue producing the K 326 he expected as the breeder. This belief was well–founded, as Cross Creek Seed has never had a complaint about off-type plants in K 326, says Sam.

    “That was our building block. When we started, initially people could see that ours was the only true and original type on the market. That’s the reason we’ve been able to grow our market share,” says Sam.

    After Earley passed away in 2006, Sam says that left only one other person who was as knowledgeable about K 326—Eddie Baker. “My father knows more about K 326 than anyone on the planet because he has grown it, studied it and looked after it for 30 years, longer than any other breeder or producer in the world.”

    Expansion

    Today, Cross Creek continues to grow. The company now has active sales and ongoing trials in 27 countries.

    Cross Creek commercially offers about 40 different flue-cured lines, 11 varieties of burley and 10 varieties of dark air-cured, as well as Wisconsin-type, Maryland-type—“just about any type of tobacco,” says Sam—and additional varieties of all types in various trials. In 2006, Cross Creek Coating was recognized as having an organic tobacco pellet and plans on offering certified organic tobacco seed and pellets for sale shortly. Burley varieties sold have been screened for low converters, and all varieties are tested for GMO.

    The company is well-prepared to handle expansion. Seeing a growth rate of 500 percent in one year might leave some companies scrambling to keep up, but Cross Creek has managed the growth with ease. “Seed production has never been an issue for us,” says Sam.

    The real challenge lies in meeting customers face to face, something the company believes in. Ed and Eddie are busy circling the globe—going to Africa this month, Argentina next, through eastern Europe the next and back to Asia after that.

    “That’s been the biggest challenge,” says Ed. “The issue of production is in place, the issue of shipping is in place.” He says making contacts in person is the most important part of doing business. “There’s so much advertising on paper that people are skeptical. If you go have a face-to-face meeting, it shows a belief and a confidence in your product that doesn’t necessarily translate on paper.” Being in constant contact with customers is important to Cross Creek.

    As demand increases, the company may expand its production overseas. “Everything for the U.S. is produced in the U.S.,” says Ed. For the international markets, Cross Creek also produces some in Africa and in Chile as well.

    “I do see potential for increased production outside the U.S.,” he says. While production outside the U.S. can be less expensive, he says that more importantly, some places are stricter on imports from the U.S.

    For example, Sri Lanka has restrictions on U.S. seed due to blue mold concerns. There is no blue mold in Chile, so seeds produced in Chile can be shipped to Sri Lanka. Another issue is import tariffs—there are large import tariffs on U.S. shipments to some African countries.

     

    Steam sterilization

    A side business that Cross Creek has been developing in the U.S. involves the sterilization of trays. Farmers have traditionally used methyl bromide to clean their trays, but as it is being phased out, steam offers a good alternative. More U.S. farmers are turning to steam as methyl bromide becomes more restricted and expensive. The price is expected to double this year.

    The business was born out of necessity for Cross Creek’s own production. “We have so many acres of transplants, we had to guarantee that the quality remains constant,” says Ed. “Steam sterilization is the hot new thing.”

    The company engineered a new, efficient tray-washing device. They also poured a concrete slab and placed three refrigerated, insulated trailer units on it. They removed the cooling systems and installed a commercial heater on a 2-inch gas line to run the units at the same time. The water is heated for 30 minutes to steam the trays at 160 degrees Fahrenheit for one hour. Once the trays are steamed, they are sealed in plastic until they are ready for use.

    Cross Creek is not only steaming its own trays but has developed a business steaming other farmers’ trays as well. This year, about 10 farmers will bring their trays to Raeford for steaming, and Ed expects to expand that business next year.

    The company is also selling the steam sterilization units. Next up will likely be a portable sterilization unit that can be transported to various farms.

    Steam sterilization is conducted during winter months, while seed production is ongoing year-round—growing in the summer months, cleaning in the fall, pelleting and packaging in the winter and seeding in the spring. Tray sterilization must be conducted during the U.S. winter months from mid-December through mid-February when heat and humidity are not issues.

    Ed says this wasn’t supposed to be a side business; it just developed naturally as Cross Creek aims to be a full-service provider.

    The need for this type of technology could expand outside the U.S. as more countries move toward float-tray technology. “When the methyl bromide runs out, they will have to go to some type of float bed system; they will be forced into greenhouse technology,” says Sam. Farms would do well to look to Cross Creek as an example.

  • Lonely Leader

    Lonely Leader

    Photos: Taco Tuinstra

    In March of 2005, Tobacco Reporter’s editor, Taco Tuinstra, visited the Himalayan Kingdom of Bhutan. His editorial assignment was to prepare a firsthand report from the world’s only smoke-free nation. Taco’s personal goal was to prove wrong his publisher, Noel Morris, who had bet that he wouldn’t dare light a cigarette in the central square of Bhutan’s capital, Thimphu.

    Bhutan was the world’s first country to ban tobacco. Will it remain the only one?

    By Taco Tuinstra

    As Druk Air flight KB127 starts its descent into Paro airport, a passenger in the back of the cabin screams in terror. The gray clouds have abruptly given way to towering mountains left and right—the foothills of the Himalayas—and the pilot must make a series of sharp turns to avoid collision.

    I, too, am starting to lose my nerve, but not because of the stomach-turning approach. Druk Air recruits its pilots from the British and American air forces, and surely these flyers are accustomed to more hair-raising maneuvers than landing a civilian jet in a quiet mountain country.

    Besides, after nine years at Tobacco Reporter, I take the risks of international air travel in stride. I have survived a Russian airliner carrying more passengers than seats; a lightning strike at 20,000 feet; and, en route to a tobacco auction in Malawi, a chicken (or something else with feathers) flew into the engine of “my” plane, just as the pilot revved up for take-off. Set against such horrors, what is a bit of turbulence?

    Rather, the source of my anxiety resides in my carry-on bag—a pack of Krong Thip cigarettes purchased that morning prior to departure from Bangkok. In compliance with Thai law, the pack carries a disturbing picture of what my lungs might look like if I smoke too many of its contents, but that doesn’t worry me, either. I am well aware of the risks of smoking; and besides, to fulfill my personal mission, I have to smoke only one cigarette.

    I am nervous because I am about to enter the Kingdom of Bhutan, the world’s only country with a nationwide ban on tobacco sales and public smoking. The customs declaration form still shows an allowance of 200 cigarettes per traveler, but that paragraph has been crossed out with ballpoint, suggestion that the information has recently become outdated. There is no mention of any new allowance or of what might happen to people caught violating the rules.

    To ease my mind, I re-read an article in the in-flight magazine that describes Bhutan as a peaceful Buddhist country, with friendly people and a benevolent king. But my thoughts drift to the novel Lost Horizon, James Hilton’s classic about a group of air travelers who crash near Tibet and are taken to an idyllic, hidden mountain resort, Shangri-la—only to find that they may never leave. Travel experts have likened Bhutan to Shangri-la, and I am not certain whether to draw comfort from that comparison now.

    As the plane touches down, a group of relieved passengers burst into applause. I, on the other hand, start to sweat. Noel might win this bet.

    Photo: Jiali Chen | Dreamstime

    Smoke-free society

    I have come to Bhutan to see what a smoke-free society looks like. Is it the utopia the public health movement makes it out to be, or is it a make-believe paradise with an Orwellian tinge, like Hilton’s Shangri-la?

    One thing is certain: Bhutan’s experiment is unprecedented in modern history. Even as governments around the world step up their anti-smoking rhetoric, none seems prepared to take the argument to its logical conclusion.

    None except Bhutan. While ratifying the World Health Organization’s Framework Convention on Tobacco Control (FCTC) in August 2004, the country’s national assembly announced that it would go beyond the treaty’s proposed tax hikes and advertising restrictions and declared tobacco illegal.

    After a three-month transition period during which shopkeepers were allowed to exhaust their stocks, the ban became effective in December 2004, with authorities in Thimphu igniting bonfires of unsold cigarettes and stringing banners across the main thoroughfare exhorting people to kick the habit.

    Cautioning people to take its decision seriously, the government announced hefty fines for violators. Shopkeepers caught selling cigarettes risk losing their business licenses and can be fined up to $220, a hefty sum in a country with a per-capita income of $660. Two months later, and perhaps a tad redundantly, given that cigarettes were no longer legally available, Bhutan banned smoking from all public places. The only place where smokers may still light up is at home.

    Bhutan’s bold move is significant not only because it is unprecedented, but also because it renders obsolete one of the tobacco industry’s most effective defenses. For many years, cigarette companies have silenced their detractors by reminding them that tobacco is a legal product everywhere. If tobacco is truly the evil weed its critics purport, governments should ban it—which of course they never did, conscious of the impracticalities and loss of tax revenues associated with such a measure.

    Until now.

    A world apart

    One of the reasons Bhutan managed to pull off what other countries can seemingly only pay lip service to might lie in its isolation, both geographically and culturally. Wedged in the Himalayas between China and India, Bhutan remains a closed society that regards outside influences, including smoking, with suspicion.

    This becomes apparent the minute you start planning a visit—you can’t just buy a ticket and go. One would expect an impoverished yet stunningly beautiful country like Bhutan to welcome tourists with open arms—and count the dollars. Yet Bhutan didn’t even permit tourism until 1974, and the government continues to restrict its numbers (only 9,000 people visited in 2004), willfully forgoing significant amounts of revenue. Visitors are required to purchase tours with strictly supervised itineraries and pay all expenditures in advance.

    The only way for me to experience the world’s first and only smoke-free society was to sign up for a guided tour of Dzongs and local festivals. Not that I minded, of course. Bhutanese culture is quite fascinating and its natural beauty unrivaled. But it also limited my freedom as a journalist. For example, when the agenda called for a tour of Thimphu’s textile museum or a visit to a shrine honoring Guru Rinpoche, the saint who brought Buddhism to Bhutan, I could hardly insist on visiting the health ministry instead. Blessed with a direct mandate from God, King Wangchuk would probably have felt little inclination to justify his policies to Taco Tuinstra from Tobacco Reporter, anyway.

    Nonetheless, between temple visits and scenic drives, I managed to get a good feel for life in a smokeless society by speaking with several current and former smokers, a few shopkeepers and a police captain. I also talked at length with my guide, Gopal Wanghug, an ex-smoker who says the ban forced him to kick the habit because, even though cigarettes are still available on the black market, they have become quite expensive. Despite the discomfort associated with quitting smoking, Wanghug says he and many other Bhutanese smokers support the ban. I couldn’t determine whether, as a state employee, he felt he had to defend the official line, or whether his feelings were genuine.

    Despite my waving of increasingly larger wads of cash, the shopkeepers I spoke to insisted they carried no undocumented inventory for smokers willing to pay the right price. Captain Dorji Tshering of the Thimphu police force said that, personally, he had not caught any vendors selling illegal cigarettes, but he knew of colleagues who had. A private security guard later boasted that “rules are meant to be broken,” but he didn’t light up in my presence, professing he had left his cigarettes at home.

    Shangri-La

    While each of my conversation partners had his own perspective, they all agreed that only in Bhutan could a government get away with a blanket tobacco ban. The country, they said, is different.

    They might be on to something. Through most of its history, Bhutan has marched to its own peculiar drumbeat. The country’s first paved roads date from 1961. Before 1986 it had no banks. Until 1999, there was no television or access to the Internet. Mobile phones, too, are a recent phenomenon, although transmission towers continue to be greatly outnumbered by Buddhist prayer flags. Thimphu still advertises itself as the only national capital without a traffic light.

    The government is governed by a king, who is regarded as an incarnation of God and as such is universally obeyed. While other nations fret about their gross domestic product, impoverished Bhutan emphasizes “gross national happiness.”

    And it’s not just smoking that’s banned. To preserve its pristine environment, Bhutan prohibits the use of plastic bags and sales of secondhand cars, which emit more pollution than do new vehicles. Environmental protection ranks high among government priorities and may have played a role in the decision to ban smoking. It’s interesting to note that when Thimphu authorities torched unsold cigarettes in the days before the ban took effect, their superiors quickly put an end to the practice, complaining about air pollution. 

    Wanghug, my guide, also told me that, while anti-tobacco sentiments are a recent phenomenon in most Asian countries, they have deep roots in Bhutan. Last year’s widely published announcement was merely the culmination of an anti-smoking policy that had been growing progressively stricter for years. Prior to the nationwide ban, tobacco sales had already been banished in 18 of the country’s 20 dzongkags. The new rule only extended prohibition to the last holdouts—the capital district of Thimphu and the eastern district of Samdrup Jongkar. Sales of tobacco products in duty-free shops have been banned since January 2003.

    In fact, Bhutan’s anti-tobacco tradition can be traced to the nation’s creation. The founder of modern Bhutan, the warrior monk Shabdrung Ngawang Namgyal, enacted the first ban on public smoking when he outlawed the use of tobacco in government buildings in 1629. Guru Rinpoche, Bhutan’s spiritual father, believed that the tobacco plant sprang from the menstrual blood of a female devil who wished for an intoxicant that would obstruct religious practice. Although Buddhist scholars suspect Rinpoche may have been referring to opium, the government clearly felt comfortable extending his concerns to tobacco.

    Unlike governments in other countries, Bhutan didn’t have to worry about alienating voters or special interest groups. Bhutan neither grows tobacco nor manufactures cigarettes, which means there were no tobacco farmers or cigarette factory workers to placate. Tax revenues weren’t much of a concern, either. Smokers account for less than 5 percent of a population that is estimated at less than 2 million. The use of chewing tobaccos is reportedly more widespread, but there are no reliable statistics. Many Bhutanese prefer chewing betel nut, a stimulant that turns saliva red and that, like tobacco, has been linked to health problems. Needless to say, the sale and consumption of betel nut remains legal.

    Bhutan’s remote location, combined with its small population, has made the country uninteresting to multinational cigarette makers pursuing economies of scale. As a result, the most popular cigarette brand in Bhutan was not Marlboro or Mild Seven but Wills, which is manufactured by ITC in neighboring India. Even so, the declared value of all tobacco imports from India was only 200,000 ngultrum—a mere $400—in 2003, according to Kuensel, Bhutan’s English-language newspaper. How much tobacco entered—and continues to enter—Bhutan unofficially remains anyone’s guess.

     

    Setting a precedent

    Is Bhutan as different as my sources suggest, or should the tobacco industry be concerned about other countries copying its policies? The Bhutanese government clearly wishes for the latter. During a meeting of health ministers at the WHO in Geneva, Bhutan’s secretary of health, Sangay Thinley, expressed hope that Bhutan’s example would prompt other countries to follow suit.

    So far, that hasn’t happened. Even a WHO official, while praising Bhutan’s initiative, admitted that a blanket ban might prove impractical in other countries. Indeed, Bhutan’s northern neighbor, China, is home to one-third of the world’s smokers and its government is said to derive almost 10 percent of its revenues from taxes on tobacco products. Following its ratification of the FCTC, China will likely place more restrictions on its tobacco industry. Considering the tobacco industry’s enormous economic clout in that country, however, it is safe to assume that Beijing will not slaughter the goose that lays it golden eggs.

    South of the border, the Indian government, too, has ratified the FCTC, restricted tobacco advertising and limited smoking in public places. A blanket sales ban appears unlikely, however, as bidi cigarettes continue to enjoy wide popularity among smokers and the bidi industry employs millions.

    Farther from home, countries such as Ireland and Italy have passed far-reaching public smoking restrictions, but they are not outlawing tobacco sales as such.

    Perhaps the country that is closest to following Bhutan’s example is South Korea, where a health-minded member of Parliament has been collecting signatures to prohibit domestic manufacturing of cigarettes within a decade.

    Nevertheless, while Bhutan is an unusual place and its cigarette market tiny, the industry would be unwise to dismiss its radical experiment completely. For example, nine cancer centers in Asia recently signed an agreement to work with their respective governments to ban tobacco. The group is not comprised of eccentric mountain kingdoms like Bhutan, but of leading industrial nations, including Singapore, Japan and China.

    Anticlimax

    My editorial mission was a success: I experienced life in the world’s first smoke-free society and realized that it will probably remain the only one for the foreseeable future. But what about my personal assignment; was it successful also? Here’s what happened: When a customs officer told me to open my bag, I lit a cigarette, blew smoke into his face and lectured him on smokers’ rights and the importance of mutual tolerance. Persuaded by my compelling arguments, the official called the royal palace. King Wangchuk, embarrassed about his mistake, revoked the ban that very day.

    Okay, I made that up. Instead, increasingly concerned about an involuntary extended stay in Shangri-la if someone were to search my bags, I silently conceded defeat before I even left the airplane. As the passengers shuffled toward the exit, I sneaked the cigarette pack into the seatback pocket of a first-class traveler—so authorities wouldn’t be able to trace me via my seat number if they found the pack. I met my guide and toured the country, which, as described in Druk Air magazine, was stunningly beautiful and full of friendly people.

    Then, on the last day of my stay, as I was packing my suitcase, something fell out the pocket of a shirt I hadn’t worn during the trip. It was a cigarette! Or rather, it was a pen shaped like one; a promotional gimmick that Tobacco Reporter once gave away at trade exhibitions.

    The “cigarette” looked remarkably realistic; it even had “ash,” which doubled as the pen’s cap. I told my guide I wanted to run a quick errand before driving to the airport, and rushed to Thimphu’s central square, which was only a block away from our hotel.

    Standing on in the middle of the square, I hesitated again, having to remind myself that I wasn’t breaking any laws. I stuck the pen in my mouth, cupped my hands around the end as if I were lighting a real cigarette, and then pretended to smoke.

    I looked around triumphantly, but nothing happened. The passersby just ignored me. Then, five young boys entered the square to play football. As they walked by, the tallest one whispered something to his friends and they giggled. But after the last boy had passed, he suddenly turned around and gave me the thumbs-up sign.

    What a victory. I had defied the world’s strictest anti-smoking regime and the local population worshipped me as a hero defending their rights. Well, maybe not. Perhaps the thumbs-up sign means something else in Bhutan than it does in western Europe or America. I should probably count myself lucky if Noel allows a fake cigarette to win the bet.

    Taco Tuinstra is Tobacco Reporter’s editorial director.Based in Raleigh, North Carolina, USA, he coordinates the work of staff writers and contributors.On his watch, Tobacco Reporter has won several awards for editorial excellence.Since joining the magazine in 1997, Taco has visited more than 75 countries to meet industry representatives in their markets and to report tobacco news firsthand.