Category: Leaf

  • Tobacco Earnings Reach Half Billion

    Tobacco Earnings Reach Half Billion

    Photo: Taco Tuinstra

    Zimbabwe has earned $500 million from tobacco sales since the start of the 2021 selling season, reports The Manica Post.

    Statistics released by the Tobacco Industry and Marketing Board (TIMB) indicate that the highest price offered for tobacco grown under contract this season is $6.70 per kg, up from $4 last year.

    According to estimates, at least 200 million kg of tobacco will be sold this season compared to 180 million kg, valued at $452 million, which were sold last year.

    Crop hectarage went up by 6.84 percent from 117,000 hectares during the 2019–2020 season to 125,000 hectares of crop this year.

    At day 60, at least 190 million kg valued at $500 million had been sold at an average price of $2.75, up from $2.44 last year.

    About 151 million kg, valued at $360 million, were sold during the same period last year.

    The TIMB has set the minimum support package that every contractor should provide to a farmer at $1,000 per hectare for smallholder farmers and $4,000 per hectare for commercial farmers.

  • Enduring Resilience

    Enduring Resilience

    Photo: Taco Tuinstra

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

    By Stefanie Rossel

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

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

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

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

    Hardy Kohl Jr.

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

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

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

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

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

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

    Quality Remains Key

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

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

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

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

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

    Aylin Bahcevan

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

    The Challenge of Logistics

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

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

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

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

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

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

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

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

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

    Supply Chain Challenges

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

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

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

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

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

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

    Spotlight: Macht Tabak

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

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

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

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

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

     

  • Tanzania: Leaf Prices Skyrocketing in Tabora

    Tanzania: Leaf Prices Skyrocketing in Tabora

    Photo: Taco Tuinstra

    Tobacco leaf prices in Tanzania’s Tabora region have risen tenfold to TZS4,000 ($1.72) per kg this growing season due to the availability of reliable buyers and the quality of the product, reports the Daily News.

    The price rise is a major incentive for small-scale tobacco growers in the region who are increasing their production levels to take advantage. Uyui District Executive Director (DED) Hemed Magaro noted that an increase in tobacco leaf firms have led to stiffer competition and higher prices for the best quality leaf. “There are at least five giant tobacco buyers in the region who led the addition of tobacco grades. This means that not only everybody sells, but at a reasonable price,” he said.

    What’s more, extension officers have been visiting farmers throughout the growing season, giving agronomical advice and related services. This has resulted in better quality leaf.

    Tobacco growers were elated by the firm prices. “Every farmer was crying last harvest season, but the situation is quite opposite at this moment,” said tobacco grower Good Nzola.

    Tanzania Tobacco Board Acting Director Stanley Mnozya said the presence of reliable buyers had improved the availability and quality of tobacco seeds.

    “We continue conducting farmers’ verification so that we can have an exact number and set proper means to serve them,” he said. “We have also made possible the availability of extension officers wherein a person serves at least 150 farmers. As a result, tobacco quality has been upgraded from 67 [percent] to 93 percent.”

  • AOI Promotes Grower Income Diversification

    AOI Promotes Grower Income Diversification

    Photo: AOI

    Alliance One Brazil has partnered with Bayer Crop Science to provide quality maize seeds and agronomic support to smallholder tobacco farmers in Brazil. Through the partnership, Alliance One Brazil’s goal is to help its contracted farmers diversify their income by strengthening the quality and yield of a crop that is complementary to tobacco.

    “Approximately 75 percent of our contracted Brazilian farmers produce maize along with tobacco,” said Helio Moura, AOI’s global agronomy director, in a statement. “By providing our contracted farmers with a high-quality agronomic package for maize, we are helping them improve the quality and yield of the maize crop.”

    “One of our company’s top priorities is the improvement of farmer livelihoods.”

    During the 2020 growing season, Alliance One Brazil implemented a pilot project with 2,300 farmers to evaluate interest in future program participation.

    The team found that farmers appreciated the support and guidance related to maize in addition to the ongoing support related to tobacco.

    As a result of the positive feedback from the farmers, Alliance One Brazil will implement this project across its full farmer base throughout the 2021 crop season.

    Over the next three years, Alliance One Brazil intends to expand the project to include other crops, and AOI will evaluate how the project could be expanded throughout the company’s global operations.

    By providing the necessary support to enhance the crops that they are already growing, we are providing our contracted farmers with the tools they need to diversify their income.

    “One of our company’s top priorities is the improvement of farmer livelihoods,” Moura added. “By providing the necessary support to enhance the crops that they are already growing, we are providing our contracted farmers with the tools they need to diversify their income. In addition, crop diversification is becoming increasingly important as extreme weather patterns impact crop production. We are excited about the potential for this project and the potential for AOI to scale it at a global level in the future.”

    AOI is profiled in Tobacco Reporter’s June 2021 print edition.

  • Fearless Fighter

    Fearless Fighter

    Mayiwepi Jiti

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

    By Stefanie Rossel

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

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

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

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

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

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

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

    Rocky Road

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

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

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

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

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

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

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

    Successful Exporter

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

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

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

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

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

    Representing Farmers’ Needs

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

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

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

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

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

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

  • Beyond Volumes

    Beyond Volumes

    Photo: AOI

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

    By George Gay

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

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

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

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

    Sustainability and Compliance

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

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

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

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

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

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

    Research and Deployment

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

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

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

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

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

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

    Future-Proofing Farmers

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

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

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

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

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

    Pandemic Exit Strategy

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

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

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

  • Universal Corp. Reports Strong Fiscal 2021

    Universal Corp. Reports Strong Fiscal 2021

    Photo: Universal Corp.

    Universal Corp. reported sales and other operating revenue of $1.98 billion in the fiscal year that ended March 31, 2021, up 4 percent over the amount reported in the previous year. Operating income was up 17 percent to $147.8 million while adjusted operating income increased 22 percent to $172.9 million. Gross profit margin improved 80 base points to 19.5 percent.

    Tobacco operations sales and other operating revenues were $1.84 billion in fiscal year 2021 compared with $1.89 billion in 2020. Tobacco operations operating income grew 15 percent to $168.8 million.

    “I am pleased to report that our net income and diluted earnings per share, and our non-GAAP adjusted operating income for fiscal year 2021, are all up over 20 percent compared to fiscal year 2020,” said George C. Freeman III, chairman, president and CEO of Universal, in a statement.

    “Strong leaf tobacco shipments in the second half of fiscal year 2021, the addition of our plant-based ingredients acquisitions and favorable foreign currency comparisons all contributed to this improvement in our results.

    I am especially proud that we were able to deliver these results in the midst of the Covid-19 pandemic.

    “I am especially proud that we were able to deliver these results in the midst of the Covid-19 pandemic and would like to thank our employees, growers, customers and other partners for their support, adaptability and hard work that made this a successful year.”

    Leaf tobacco shipments, which started slowly in fiscal year 2021, accelerated in the second half of the fiscal year, according to Freeman. The company ended the year with leaf tobacco volumes that were just slightly below those in fiscal year 2020, in part due to some tobacco shipments that were delayed and will ship in fiscal year 2022.

    “As we move into fiscal year 2022, we currently expect global supply for flue-cured leaf tobacco to be in line with anticipated demand and for burley leaf tobacco to be in a slight undersupply position,” said Freeman. “We are continuing to monitor freight costs as the Covid-19 pandemic disrupted shipping patterns, which has resulted in cost increases due to limited container availability.”

  • Farmers Targeted by Dishonest Middlemen

    Farmers Targeted by Dishonest Middlemen

    Photo: Taco Tuinstra

    Many small-scale farmers in Zimbabwe complain they are being impoverished by merchants who are luring them into a debt trap.

    According to an article by AP, unscrupulous middlemen offer farmers loans to pay for fertilizer, seed and firewood for curing. In addition to repaying the loans with interest, farmers must sell the crop at a price set by the merchant, who then sells it to the highest bidder at auction.

    Farmers end up earning only a fraction of what the tobacco fetched at the sales floor.

    For more than 60 years, tobacco was a lucrative export crop from which white farmers profited. But after the year 2000 when President Robert Mugabe’s supporters began seizing white-owned farms, often violently, tobacco production plummeted. The flue-cured tobacco crop dropped from a 1998 peak of 260 million kg to just 50 million kg in 2008.

    Since then, tobacco production by Black farmers has grown. Before Mugabe’s land reforms, the bulk of the tobacco crop was grown on a few thousand white-owned commercial plantations. Today, it is grown by more than 145,000 small-scale Black growers. Zimbabwe’s tobacco crop is estimated to be 200 million kg this year, up from 180 million kg last year.

    At the heart of the problem is the inability of resettled farmers to raise their own finance through banks. Banks fear that they will be left holding a piece of paper if a farmer fails to repay.

    Before the land reforms, Zimbabwe’s commercial banks gave loans to white farmers so they could purchase inputs for their crops. But the banks pulled out years ago because the government has not issued transferable ownership deeds to the Black farmers resettled on the formerly white-owned land. This means they have no collateral to secure commercial bank loans.

    At the heart of the problem is the inability of resettled farmers to raise their own finance through banks, said economist and analyst John Robertson.

    “Banks fear that they will be left holding a piece of paper if a farmer fails to repay. They can’t touch the land,” said Robertson.

    While many farmers are contracting with reputable leaf merchants who buy tobacco directly for their customers, the difficulty of securing bank loans leaves others vulnerable to predatory middlemen.

    The government says the solution lies with a state-owned Land Bank launched in April, which would loan farmers money for their tobacco crops at reasonable rates.

  • U.S. Clears Malawi Imports from Premium

    U.S. Clears Malawi Imports from Premium

    Photo: Taco Tuinstra

    U.S. Customs and Border Protection (CBP) has modified an existing “Withhold Release Order” on imports of tobacco from Malawi.

    Effective May 21, 2021, certain tobacco imports from Premium Tobacco Malawi Limited (PTML) will be admissible at all U.S. ports of entry. This modification applies only to tobacco harvested by club growers in Malawi. CBP previously prohibited the entry of these imports into the United States based on reasonable suspicion that they were produced using forced labor.

    CBP issued a Withhold Release Order on tobacco imports from Malawi in November 2019 due to information reasonably indicating that the tobacco is produced using forced labor and forced child labor. The Withhold Release Order continues to apply to imports of tobacco from Malawi by any company that has not demonstrated to CBP that its supply chain is free of forced labor.

    CBP modified the November 2019 Withhold Release Order based on a rigorous evaluation of PTML’s social compliance program and efforts to identify and minimize the risks of forced labor in its supply chain. These actions produced evidence that sufficiently supports PTML’s claims that tobacco from club growers (smallholder growers that use little or no farm worker labor) is not grown and harvested using forced labor or forced child labor.

    “CBP’s forced labor enforcement efforts continue to effect positive change for workers around the globe,” said John Leonard, acting executive assistant commissioner of CBP’s Office of Trade. “Eliminating forced labor from our supply chains prevents the abuse of vulnerable workers, safeguards the competitiveness of law-abiding businesses and protects consumers from unethically made products.”

    This is the third time that CBP has modified the Withhold Release Order on tobacco from Malawi. The agency modified the Withhold Release Order in June 2020 to allow imports of tobacco from Alliance One International and again in August 2020 to allow imports of tobacco from Limbe Leaf Tobacco Co. Both entities fully addressed CBP’s concerns about the use of forced labor in their production processes.

  • Brazil: Farmers Benefit from Diversification

    Brazil: Farmers Benefit from Diversification

    Iro Schunke
    (Photo: Taco Tuinstra)

    Brazilian tobacco growers who adhered to the winter crop within the Corn, Bean and Grazing Land after Tobacco Harvest Program benefited from the high value of the grains this year. This is demonstrated by the survey conducted by the Interstate Tobacco Industry Union (SindiTabaco), which promotes the crop diversification program in southern Brazil.

    The area devoted to corn, bean and soybean soared 22 percent in the southern region compared with last year, reaching 144,222 hectares. On the other hand, the area devoted to grazing land dropped 27 percent to 25,572 hectares. Due to weather conditions, productivity rates dropped 34 percent on average, resulting in a total crop production volume of 580,442 tons.

    The estimated extra revenue amounts to BRL933 million ($174 million), up 47 percent from 2020, when farmers earned BRL634.2 million from the cultivation of grains and grazing land.

    “Diversification is always a good option for the farmers, as it makes it possible for them to earn money from different activities,” said Iro Schunke, president of SindiTabaco, in a press note. “In 2021, we observed a preference of the farmers for the cultivation of grains to the detriment of grazing lands, which resulted into higher earnings, and the credit goes to the good moment these commodities are experiencing within Brazilian agribusiness.”