Category: Leaf

Tobacco Earnings Top $110 million

Photo: Taco Tuinstra
Malawi has earned $110.2 million from tobacco sales since the start of the marketing season 11 weeks ago, reports Xinhua News Agency
According to recent statistics from Auction Holdings Limited (AHL) Malawi, tobacco markets across the country have traded 72.7 million kg of leaf at an average price of $1.51 per kg.
Tobacco growers have expressed dissatisfaction with the current prices, but Tobacco Commission CEO Kaisi Sadala said he expects prices to increase as new buyers enter the country.
“The coming in of new buyers into the country means that there is going to be some kind of competition on the market hence the rise of prices; farmers should not lose hope, rather they should keep bringing their good quality products to the markets,” said Sadala.
Tobacco is Malawi’s biggest export crop, accounting for more than 50 percent of all foreign currency receipts.
July 10, 2020
Rethinking Business

Photo: Tobacco Reporter archive
The impact of the Covid-19 pandemic may endure after the crisis.
By George Gay
The Covid-19 pandemic has created a lot of problems for the leaf tobacco trade, problems that have ranged from irritations to major hurdles, but it has been reasonably even-handed with them. While one business might have been in a better position than another to deal with these problems because of, say, its contacts or the strength of its business model, all businesses have had to face similar problems.
This was brought home to me by a comment made by Rainer Busch of NewCo when he opined that nobody really knew how to do business in the current circumstances. In an email answer to a question about predicting future unmanufactured tobacco trade, he responded with a question of his own: Who knows what comes next? The additional level of doubt caused by the pandemic, he said, was an obstacle for everyone trying to forecast requirements and sales. Every company, he suggested, would be concerned about the future.

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Busch’s main problems so far have had to do with logistics. Movements within Europe had been difficult because travel restrictions and infection warnings had limited the availability of trucks, he said, a problem that had been exacerbated by closed border crossings. This had meant that, for a while, transport prices had risen significantly, though now [Busch’s email was dated May 22], with lockdowns easing, the situation was changing, and transport companies were having to compete for orders.
Looking at the wider picture, shipping problems had been caused initially by a lack of containers, which were bunkered in large quantities in China, and even now, some ports are still functioning only to a limited extent. At the same time, not being allowed to travel had changed tobacco business culture, said Busch, though he intimated that the industry was nothing if not innovative and flexible. Although it was usually necessary to visit the countries of origin to gain a full picture of crop quality and market conditions, business was still being conducted. Investments had been made in internet communications, and home office work had been introduced.

Initially, shipping problems were driven by a lack of containers, which were bunkered in large quantities in China. (Photo: Transcom Sharaf)
Protecting stakeholders
All companies that responded to TR’s request for information have relied on switching to remote working and conferencing, and it is alarming to consider what might have happened if the pandemic had struck in pre-internet days. Premium said in a June 1 email message that its primary response to the pandemic had been focused on protecting its employees and their families by conforming to or surpassing the requirements of the countries in which it operates. But, at the same time, it had been at pains to reassess the way it operated so as to find innovative ways of protecting its business interests, in part by replacing the traditionally crucial personal contacts with remote working and conferencing systems. For the time being, all nonessential business travel had been suspended while the company monitored the situation.
Protecting the interests of its staff and customers, however, has not been easy. Grant Readings said that at times it had been difficult to deal with regulations that differed from country to country, though he added that Premium had managed so far to keep its companies operating at a reasonable capacity by having its management teams stay vigilant and fully engaged with the authorities and other industry stakeholders in the countries in which they operated.

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Interestingly, Readings said the pandemic had not severely disrupted communications between the company’s agronomists and growers and that the company had interacted with the authorities and relevant stakeholders in Brazil, Malawi, Tanzania, Uganda and Zimbabwe to ensure that buying operations were secure and efficient while remaining transparent. Premium’s Brazil factory had been running at capacity, and the company was expecting that all processing in Argentina, Malawi, Tanzania, Uganda and Zimbabwe would continue with relatively little disruption. Keeping other facilities open and functioning was described as an ongoing challenge but one the company was determined to meet.
Most people have been affected by travel restrictions, and Readings said Premium’s customers had been unable to visit the various countries of origin to inspect tobacco as they normally would. For this reason, some disruption in ordering patterns was expected, and, potentially, the shifting of some product inspections to destination ports. At the same time, the reduction in available shipping routes and in the frequency of services on some of the available routes had led to longer-than-usual delays in shipping, but Premium indicated it was working with customers to minimize such delays.

Teleworking presents a challenge for a business that relies heavily on personal contacts and product inspections. (Photo: Taco Tuinstra)
Beyond the mitigation plans
Overall, and given the way that people’s lives have been hugely and negatively affected by the pandemic, the outlook for the leaf tobacco trade is generally optimistic. Readings said there had been no major slowdown in demand for leaf tobacco, and he wrote of a possible future increase in demand for flue-cured, stable demand for air-cured burley and increased interest in better-value dark fire-cured and oriental. Premium, he added, believed business could start to normalize in the next three months to five months [August–October].
In part, this optimism springs from the supply side since the major production countries of South America and Africa are still operational. On the demand side, Readings said, it was assumed that some of the bigger manufacturers were reviewing their requirements in light of whatever impact the pandemic was having on consumption while regional and smaller manufacturers were expected to increase their buying activities from about July as is traditionally the case.
Meanwhile, in a May 21 email comment that seemed to echo Busch’s remark about the difficulty in knowing what to do in the present circumstances, HN Ramprasad, chief executive of ITC Leaf Tobacco Business, made the point that while the Covid-19 pandemic struck quickly, giving businesses little time to respond, it also set challenges not covered by existing risk and mitigation plans.
Nevertheless, he said, ITC’s deep links with the farming community and its presence across the supply chain meant that it was able to act swiftly in supporting growers in crop production thereby ensuring the continuity of its operations all the while adhering to the Indian government’s health and safety directives.
When the government announced a lockdown on March 24, India’s internationally oriented leaf tobacco industry faced two different challenges. Flue-cured tobacco growers in Karnataka were preparing for their planting season while those in Andhra Pradesh had almost finished curing their tobacco and were getting ready for auction sales.
In Karnataka, ITC’s local field staff helped ensure there were adequate supplies of quality seeds and the village nursery areas needed to grow them, and it supported growers in respect of best practices in nursery management while in Andhra Pradesh, field staff concentrated on advising growers about the best way to store tobacco on their farms so as to maintain its color and quality.
Overall, ITC, which many years ago was in the vanguard of using computers to assist growers, leveraged its technology, including an ITC app, a dedicated WhatsApp group and one-to-one phone calls along with village-based field staff, to encourage best farming and safety practices. In addition, during the lockdown, ITC’s partnership project that sets up water plants in rural villages became even more important because, as well as providing a continuous supply of clean drinking water to more than 175,000 people, it meant that growers and workers didn’t have to travel outside their villages to fetch water for household purposes. To date, 140 water purification plants have been established to serve 200 villages.
ITC said that tobacco auctions had resumed after a 40-day lockdown in phases and amid heightened safety precautions, which meant that the pace of the auctions was slower than would normally be the case. However, the company’s warehouses and processing facilities were little affected once the necessary permissions were obtained to operate them with appropriate safety measures, which included the thermal scanning of workers, the wearing of face masks, the use of hand washing and sanitizers, and implementing social distancing rules. In fact, Ramprasad said that ITC’s processing factory had started as early as the first week of April, almost within a week after lockdown, demonstrating agility and resilience.”

Interstate movements of vehicles and port operations presented major challenges during the initial days of the lockdown in India. (Photo: Taco Tuinstra)
Constraints
Local transport also caused little problem given the implementation of official safety procedures, but interstate movements of vehicles and port operations presented major challenges during the initial days of the lockdown as vehicles were stopped by police at check posts. But the situation eased following appropriate representations, and ITC reported that, on the supply side, all activities were returning to normal at a much faster pace than had been expected.
On the other hand, said Ramprasad, the situation at end markets might take more time to return to normalcy. There were still operational issues at some destination ports, from increased restriction and documentation requirements to complete lockdowns. The reduced trading across the globe had resulted also in a reduction in the availability of containers and the number and frequency of ships.
Otherwise, from an export viewpoint, Ramprasad said the constraints had affected travel, the dispatch of samples and the acceptance of grade standards by customers. The auction market delays had meant that samples could not be sent on time to allow customers to confirm orders for the new crop, which could lead to a reduction in demand for 2020 India crop tobaccos, though the extent of such a reduction was difficult to estimate at the time.
Ramprasad said he expected the industry to experience a short-term slowdown due to the impact of the Covid-19 pandemic, but he said he was “hopeful of regaining full demand for Indian tobacco in [the] long run due to its versatility and ability to deliver consistent supply of superior sustainable product at competitive prices.”
There is no doubt, however, about the short-term damage that has been caused. Maddi Venkateswara Rao, director of the India-based, unmanufactured tobacco supplier, Maddi Lakshmaiah & Co. (ML Group), made the point that the pandemic’s effects would mean that every business would be negatively affected up to the end of this year and perhaps beyond and that tobacco was not going to be exempted.
In a May 25 email, Rao said the ML Group was still assessing the situation and that it was too early to conclude whether the aftermath of the pandemic would bring a downturn or upturn in demand for leaf tobacco. Much would depend upon the cultivation and consumption policies of the largest tobacco producer, China. But he added that, following the pandemic, there was a possibility that global cigarette sales would be affected and the ML Group, a supplier to the global market, was concerned about how this might turn out.

As of mid-May, major leaf producing countries, such as Tanzania, were still operational (Photo: Taco Tuinstra)
Lasting impact
But that is for the future. Leaf businesses have suffered substantially already. Rao described how during India’s lockdown, the ML Group’s tobacco operations had come to a standstill—from purchasing to processing and shipping. Although some relaxations of India’s lockdown, originally set to last until the last day of May, were allowed from about May 10, in general, it was not possible to meet growers or others involved in the tobacco business, and no auctions were held.
Processing of leaf had been interrupted, which meant keeping unprocessed stocks in the company’s warehouses, something that would impact costs and therefore sales. It had been impossible to keep facilities open because it was not possible to guarantee the safety of workers, who were advised to stay at home during the lockdown and to take all precautionary measures by following government guidelines. By virtue of their nature, said Rao, tobacco operations could not be done sitting at home online.
Travelling had been seriously disrupted by the lockdown, said Rao, and there had been no new movements of cargo either by road or ship. The ML Group had faced difficulty in supplying customers with documents relating to tobacco already in transit, and it had had further difficulty in obtaining documentation, such as phytosanitary certificates. Subsequently, financial inflows and outflows were disrupted.
But perhaps there is light at the end of the tunnel. Shortly before Rao responded to TR’s questions, lockdown relaxations had seen the resumption of about 30 percent of public transport and the ML Group was able to resume processing operations on a limited scale, adhering to government guidelines in respect of physical distancing and by providing personal protective equipment, including masks and sanitizers.
Finally, looking to the future, Busch, whose comments opened this piece, thinks that the experience of the pandemic will have a permanent, or at least long-term, impact on the future of the leaf business, with fewer trips being made and more work from home being allowed. “Fortunately, we have our representatives and partners in most origins and are therefore always up to date on information about crop qualities, market developments and availabilities,” he said. “I miss being able to visit the origins to do my own crop evaluation, but the team does an excellent job of keeping me up to date.”
While in retrospect the pandemic will of course be seen in a highly negative light, perhaps some good will be gleaned from it. Perhaps in being forced to reassess how it does business, the leaf industry, for instance, will identify areas where its operations could be improved. Certainly, any reduction in air travel would be a welcome boon for the environment, which is a woefully underestimated pandemic.
George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.

July 1, 2020
Andhra Pradesh to Intervene in Tobacco Auctions

Photo: Taco Tuinstra
The government of Andhra Pradesh said it will intervene in the tobacco auction to address pricing problems, reports The New Indian Express.

“In the next two [days] to three days, a special committee will be formed to solve tobacco farmers’ problems,” said Andhra Pradesh Chief Minister Y.S. Jagan Mohan Reddy on June 18.

In addition to fixing minimum prices for all tobacco qualities, the state government will require all licensed traders to participate in the auctions.

Nearly 20 million kg of low-grade and medium-grade varieties of tobacco, which account for most of the produce, have been rejected by traders this year. Growers also complained that buyers were staying on the sidelines. Of the 920 companies licensed to buy tobacco, fewer than 15 were participating in the auction, the growers said.
June 22, 2020
Karnataka Surpasses Tobacco Cultivation Ceiling

Photo: Tobacco Reporter archive
Tobacco growers in Karnataka, India, sold 106 million kg of leaf this season—6 million kg above the officially sanctioned 100 million kg for 2020, reports The Hindu.
Tobacco sales in the state were suspended in March due to the coronavirus lockdown and resumed on May 20. Auctions concluded this week across the four platforms in Mysuru.
To prevent overproduction, the Tobacco Board of India each year declares a maximum crop size. Excess cultivation is penalized with a fine of INR2 ($0.03) per kg and 7.5 percent of the sales’ proceeds. If the volume of excess tobacco exceeds 10 percent of the authorized crop, the penalty increases to 15 percent of the sale proceeds.
Javare Gowda, president of Karnataka VFC Tobacco Growers’ Federation, said this year’s average price of tobacco was INR10 less than last year’s INR136 per kg.
Anticipating a decline in demand due to the Covid-19 crisis, the Tobacco Board has lowered the size of next year’s authorized crop to 88 million kg from 99 million kg.
Referring to the collapse of tobacco prices in neighboring Andhra Pradesh—where farmers have been burning their bales to protest low auction prices—Gowda urged Karnataka tobacco growers to heed the limits set by the board.
June 18, 2020
Zimbabwe: Tobacco Earnings Double From Last Year’s

Photo: Taco Tuinstra
Zimbabwe has earned US$117 million from leaf sales since the tobacco season opened on April 29, according to the Tobacco Marketing and Industry Board (TIMB). Farmers have sold 51.66 million kg to date.
This year’s season was characterized by delayed rains and prolonged drought.
The TIMB said sales increased twofold from $46.83 million earned from 26.70 million kgs of the golden leaf sold in the comparable period last year.
Average price at both auction and contract floors stood at $2.26 per kg, nearly 30 percent higher than during the comparable period of the 2019 marketing season.
Despite the comparatively good prices, farmers are concerned about their income.
Half of their crop is paid at a fixed exchange rate of US$1:$25. The other half is paid into local currency bank accounts at the pegged interbank rate and they feel the huge gap between the official and black market rates might affect their viability since many of their suppliers use the black market rate when calculating prices.
Tobacco is Zimbabwe’s second largest foreign currency earner after gold.
June 5, 2020
U.S. Customs Clears Malawi Imports

Tobacco being prepared for export in Lilongwe. Photo: Taco Tuinstra
U.S. Customs and Border Protection (CBP) modified a withhold release order (WRO) such that tobacco imported from Malawi by Alliance One International will be admissible at all U.S. ports of entry effective June 3, 2020. CBP previously prevented these tobacco imports from entering the United States based on reasonable suspicion that they were produced using forced labor.
CBP modified the WRO based on a rigorous evaluation of Alliance One International’s social compliance program and efforts to identify and minimize the risks of forced labor from its supply chain. These actions produced evidence that sufficiently supports Alliance One International’s claim that the tobacco produced and harvested from their farms does not use forced labor.
The WRO continues to apply to imports of tobacco from Malawi by any company that has not demonstrated to CBP that there is no forced labor in its supply chain.
“CBP recognizes the impact that withhold release orders have on importers and exporters, therefore we diligently work to carefully and thoroughly review petitions and admissibility requests,” said Brenda Smith, executive assistant commissioner of CBP’s office of trade. “If companies demonstrate that there is no forced labor in their supply chain, we will modify the withhold release order to exclude them.”

June 4, 2020
Silent Auction
Rules on social distancing make for a very different tobacco marketing season in Zimbabwe this year.
By Thulani Mpofu

Photos: Taco Tuinstra
All tobacco grown in Zimbabwe since 1936 has been sold at open auction and contract floors in Harare with thousands of growers thronging the southern end of the capital from March to August yearly to sell the “golden leaf.”
Some growers traveled to Harare for hundreds of kilometers sitting precariously on top of tobacco bales loaded in small lorries while others from nearby villages brought theirs in ox-drawn carts. Many slept for days in queues out of trading floors awaiting their turns to sell their tobacco.
Vendors selling food, clothing, radios and cellphones among other items plus agents for formal businesses selling farm inputs, vehicles and insurance policies added to the commotion around the tens of contract floors where contracted growers delivered their crop and the three open auction floors that serve self-funding growers. Bars nearby would remain open late serving growers who were known for lavish spending around their once-in-a-year paydays. Pickpockets, sex workers and beggars found business there too.
The Covid-19 pandemic has upended it all this marketing season.

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To promote social distancing, trading floors have been decentralized from Harare to tobacco growing localities while trading floors that remain in the city do not allow more than 20 growers inside at any time.
Voedsel Tobacco International, a local contractor, has taken advantage of the decentralization to invest in a trading floor in Marondera, a small town 76 km northeast of Harare.
“This is Marondera’s first tobacco trading floor and our first out of Harare,” Innocent Mahufe of Voedsel Tobacco International told Tobacco Reporter.
“Because we are a contractor, ours is a contract buying floor. We are in Marondera to be closer to the farmer and decongest our main floor in Harare. In total, we have 16,000 farmers under contract, and of that number, we expect Marondera to serve 5,000 farmers in Mashonaland East [whose provincial capital is Marondera] and Rusape [in neighboring Manicaland Province].”
At the new trading floor that was opened on May 1, Voedsel Tobacco employed three qualified nurses who check temperatures for all staff and farmers who call in to deliver their tobacco.
“The nurses also sanitize our clients; they oversee the disinfection of the buying floor to ensure [the] utmost hygiene,” said Mahufe. “We also have an isolation room on site just in case anyone is found to be unwell. Social distancing is a must; the same with wearing a mask. We are fully compliant with government regulations to fight Covid-19.”

Zimbabwean authorities are keen this year to avoid the clusters of people like this one at the Harare Tobacco Sales Floors in 2018.
Because of tobacco’s central role in Zimbabwe’s economy, the leaf selling season is a huge moment for the country and always presided over by the national president, his deputy or a delegated minister. This year, the event was delayed from mid-March to April 29 to enable trading floors to set up systems that promote high personal hygiene and social distancing in response to the Covid-19 pandemic. By May 10, Zimbabwe had 36 Covid-19 cases, nine recoveries and four deaths. President Emmerson Mnangagwa declared the disease a national disaster and ordered a seven-week national lockdown beginning March 30.
Tobacco, affectionately known locally as the “golden leaf” not only because of its color when cured but also because of its high export potential, is Zimbabwe’s most lucrative crop and the second biggest foreign exchange earner after gold. In 2019, it generated $747 million in exports mainly to China, South Africa, the United Arab Emirates and Belgium, according to the regulator, the Tobacco Industry and Marketing Board (TIMB). Africa’s largest flue-cured Virginia tobacco growing nation and the world’s fourth biggest after China, Brazil and the U.S. produced 256 million kgs of the crop in 2019, a record since commercial tobacco growing started in the country in the 1890s.
However, because of erratic rainfall, the TIMB expects output to fall to between 225 million kgs and 230 million kg this year. The regulator says 148,084 farmers grew tobacco in the October 2019 to March 2020 farming season. Were it not for Covid-19, this mass of people would have traveled to Harare from the beginning to the end of the marketing season.
“Circumstances demand that we sell tobacco differently this year. This is a big crop for the economy, but the health of the people is supreme,” said Mahufe, whose company is planning to set up three more contract buying floors at Mvurwi and Karoi in Mashonaland West Province as well as at Rusape.
Two weeks prior to the start of the trading period, the TIMB ordered the three licensed tobacco auction floors—Tobacco Sales Floor, Boka Tobacco Floors and Premier Tobacco Auction Floors—and the 65 buyers and contractors to decongest their premises in Harare and decentralize their operations to the four major tobacco growing provinces—Mashonaland West, Mashonaland Central, Mashonaland East and Manicaland. They are bound to set up on-site isolation facilities, provide alcohol-based hand sanitizers and running water.

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A farmer will be allowed to deliver tobacco for sale only once per week. Those selling fewer than 100 bales are barred from attending the sale of their crop but should appoint a representative who will represent other growers to be able to consolidate farmers’ bales to at least 100 and then to deliver them to the auction or contract floors. Farmers and their representatives entering the trading floors must be screened for body temperature and their identification and contact details must be recorded to facilitate easier contact tracing should the need arise in the future. Informal markets were banned.
Nigel Foto who farms in Macheke, 35 km east of Marondera under contract from Voedsel Tobacco International, is happy having sold 43 bales between $4 per kg and $5.60 per kg since May 1, but he would have wanted to sell his crop himself not through a representative.
“It’s a Catch-22 situation,” he said.
“Everyone must be careful with this disease, but to be forced to sell my tobacco in my absence is concerning. This is my sweat. I must be satisfied that it is rewarded as it should, but if I am represented by someone else, I cannot be convinced 100 percent that I got a fair price.”
Berean Mukwende, president of the Zimbabwe Farmers’ Union, is equally worried over the integrity of middlemen.
“The farmer must pay his representative whose reliability a farmer may not know. This is an extra cost to the farmer,” he said.
“I hope that will be reconsidered. Authorities must consider that small farmers, in their large numbers and few bales, contribute the bulk of national tobacco output. So their concerns must be heard.”

Zimbabwe has decentralized its tobacco sales this year to prevent large gatherings.
Andrew Matibiri (left) and Rudo Boka at the Boka Sales Floors
Official statistics indicate that 85 percent of tobacco growers in the country are small-scale producers who plant an average of one hectare under the crop yearly, reaping about 25 bales per hectare. They normally deliver a few bales at a time spread over the marketing season in an effort to capitalize on periodic price increases.
TIMB Chief Executive Andrew Matibiri said nine days into the marketing season that the anti-Covid-19 measures were doing well, with personal hygiene and isolation facilities in place and social distancing being upheld at trading floors.
“We have so far licensed four companies to decentralize to Karoi, two to Mvurwi, one to Marondera and two to Rusape,” he told Tobacco Reporter on May 8.
“Indications are that there will be two more companies buying in Karoi and one more in Mvurwi. In terms of hygiene, handwashing and so forth, we are satisfied that auction and contract floors are complying. Yes, all these present extra expenses as companies are having to lease or buy space at new sites as well as to put in place health systems, but we have no choice because of this disease.”
Minister of Agriculture Perrance Shiri, who was the guest of honor at the launch of the 2020 marketing season, said decentralized tobacco sales help growers cut transport costs and decongest the main trading floors in Harare.
“Please be consistent in turning your practical guidance into action to avoid continued spread of the disease. I urge everyone to continue to implement these guidelines up to the end of the season even after the lockdown is finally lifted in order to avoid resurgence in cases,” he said.
Deliveries were slow in the first nine days of the trading season partly because of restrictions in movement and farmers still familiarizing themselves with the new guidelines. Average prices were, however, higher this season than in 2019, according to the TIMB.
Tobacco farmer Monica Chinamasa said the quality of the crop that is delivered in the early stages of the trading period is typically poor as farmers sell the crop starting with the lower leaves that tend to be of poor quality thus attracting a low price and progressively reaping the leaves higher up the crop, which tend to be of higher quality and thus cost more.
Social distancing is the way to go in fighting Covid-19, she said, adding that the same holds true for decentralized sales.
“Authorities must be thorough with the regulations as this is all about people’s health, but my fear is on the sales representative,” she said.
“Yes, it is the farmer who chooses him, but that person cannot represent the farmer fully, especially when it comes to the price of my crop. Ideally, the farmer must be present when his or her bales are being sold.”
June 1, 2020
Feeling Their Pain
The International Tobacco Growers Association is campaigning to help noncontracted farmers cope with the coronavirus pandemic.
TR Staff Report

Photo: Taco Tuinstra
While the multinational cigarette makers are likely to emerge from the coronavirus pandemic with only minor bruises, some of their suppliers are in dire straits. For noncontracted tobacco farmers, who rely on busy sales floors and healthy farm hands to ply their trade, the crisis has been downright devastating. The International Tobacco Growers Association (ITGA) has started a campaign to alleviate their suffering. Using an appropriately socially distanced method of communication—email—Tobacco Reporter asked the organization about its initiative. Because the answers were compiled by a team, ITGA requested we attribute them to the organization rather than an individual.
Tobacco Reporter: Which leaf-producing countries will be hit hardest by the coronavirus pandemic?
ITGA: So far, the most affected is India due to the Andhra Pradesh marketing season disruption. The tobacco auctions were active both in Karnataka and Andhra Pradesh. The auctions were suspended in the two regions; however, in Karnataka, the auction was close to its ending date, while in Andhra Pradesh the marketing season had recently started, so the impacts of the suspension will be felt there more severely. The lack of international leaf dealers—especially from China—due to traveling restrictions during the Karnataka auctions was one of the reasons for prices not being higher.
The difficulty of storing tobacco will affect Andhra Pradesh. The region’s tobacco production may suffer critical reductions due to this unforeseen situation. The decreased demand due to tobacco companies not being deemed “essential” will also affect tobacco growers by causing financial losses due to the erosion of both the quantity and quality of the production. In Andhra Pradesh, only 5 percent of the tobacco was sold [in early May] compared with 50 percent last year. The tobacco manufacturers and tobacco businesses had to close, and demand for tobacco products has been estimated to have decreased by 20 percent.

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In South America, after a period of suspended operations, tobacco manufacturers and leaf dealers have resumed their operations and the activities are in full swing. In Argentina, the regional governments have put in place strict regulations to protect everyone involved in the marketing season. Dialogue between tobacco associations and tobacco companies has progressed with a deal having been struck for the tobacco purchased in the Misiones region, with a 59 percent price adjustment compared to the one paid last year. Argentina stands out for the macroeconomic difficulties the country was already facing; together with the Covid-19 disruption, that is sure to affect tobacco growers directly. The closing of the tobacco factories has caused shortages of cigarettes and tobacco cooperatives to be stuck with unsold tobacco.
Afubra, the national tobacco growers’ organization of Brazil, has downgraded the value of tobacco products. The drought felt in southern states during December 2019 and January 2020 caused losses in the Rio Grande do Sul of around 16 percent. Both Argentina’s and Brazil’s tobacco associations have made a plea to tobacco manufacturers for an advance on the price of the tobacco bought that would be deducted from the final sale price. Tobacco growers would use the revenue to finance wages, inputs and other expenses during this period.

Because the tobacco market in Andhra Pradesh was suspended shortly after it had commenced, the disruption there will be felt severely. Photo: Taco Tuinstra
In African countries such as Zimbabwe and Malawi, which both depend heavily on tobacco as a foreign exchange earner, tobacco auctions have been suspended and then opened amidst the Covid-19 crisis. What impact do you expect for farmers due to the delay?
The Malawi Tobacco Commission had announced at the beginning of April that excessive rainfall and the lower prices during last year’s campaign had affected the 2019 to 2020 tobacco crop. Tobacco output was estimated to decrease by 6.62 percent to 155,000 tons. There were growing concerns that if the marketing season were to be delayed further into the future that the tobacco could suffer in return due to the lack of facilities to adequately store tobacco for longer periods of time. An extended delay would result in part of the production to be lost, which would have an extremely negative impact on the livelihoods of those who rely on tobacco as a source of income.
In Zimbabwe, the marketing season had been delayed before the Covid-19 [virus] became an issue in the country. Episodes of rainfall close to the beginning of the marketing season allowed for the crop to recover from episodes of drought that it faced earlier in 2020. The Tobacco Industry and Marketing Board has assessed that tobacco output will reach 225,000 tons, a decrease of 13 percent from last year’s production. The tobacco output was initially expected to be significantly lower due to decreased growers’ registrations and tobacco seed sales.
Both Malawi and Zimbabwe are highly dependent on tobacco as a source of foreign exchange—a reality that the Covid-19-induced economic crisis will surely worsen. Therefore, this year’s marketing season must be a successful operation so that the livelihoods of the millions involved in tobacco growing do not suffer dramatically. Although, it is premature to assess the impact of the Covid-19 pandemic on the African marketing season. The auction and contract floors opened with higher measures of hygiene and protection with the aim to protect tobacco growers, leaf dealers and everyone involved in the sales. In Zimbabwe, even though the first bale received a lower price than last year—$4 versus $4.50—the amount of tobacco sold and the revenue generated on the first day was higher. Tobacco growers don’t usually send their best tobacco at the beginning of the season to better understand how prices will progress, thus saving the best for last. In Malawi, the introduction of a new bidding system has been singled out as the reason behind the higher rejection rates. As farmers adapt to this new system, rejection rates will likely decrease. Tama Farmers Trust and ITGA President Abiel Kalima Banda has called for a stakeholder meeting to address the problem and find a solution.

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Most tobacco sales today take place under growing contacts. To what extent do you expect the current crisis to change this?
Most of the tobacco growing is done through contracts; however, there is still a significant number of independent farmers. The trend of the increasing share of contract growers will persist or become even more evident. The Covid-19 pandemic will only exacerbate the differences between contracted and noncontracted growers. Independent farmers are much more exposed to the effects of the coronavirus as they don’t benefit from the tools and support the companies provide, while contracted growers are assisted by the companies with both knowledge and supplies. With the closing or demand turbulence of the auction floors or demand disruption, the only growers that are certain that their tobacco will be bought are the ones subject to contracts. That is the main reason behind our campaign—#Togetherwecare—to support the tobacco growers that are most undefended against a threat of this nature.
What impact do you anticipate from the coronavirus crisis for the supply-demand of leaf tobacco?
Tobacco production has been decreasing over the past few years as an effect of the lower demand for tobacco products. Tobacco growers are adapting to this situation by lowering the area under tobacco production. Due to weather events both in Brazil and Zimbabwe, the estimate for tobacco output has been adjusted downward from what was initially projected. As ITGA members are spread around the globe with significant economic and cultural differences, the ability to adapt and to respond to situations differs from country to country. Regarding the market adjustment, only when the marketing seasons are well underway can the effects be correctly assessed. The main Asian tobacco markets of China, India and Indonesia are key to understand if major demand shock will occur. For India, a 20 percent demand reduction has been estimated while Philip Morris International has confirmed a significant reduction in the Asian markets. Indonesia has also introduced minimum price regulation that may exert more pressure on the lower end of the market. With the economic effects following the pandemic with higher unemployment rates, smokers usually change to cheaper brands, an effect that is negated with the minimum price.
How will this affect cigarette manufacturers, most of whom claim to have sufficient stocks?
Tobacco manufacturers are not to suffer from reduced sales due to the nature of tobacco products demand. The consumption of cigarettes, heated-tobacco units and other types of nicotine-delivery systems is not expected to be affected by the coronavirus. Analysts from the Jefferies Investment Bank have characterized tobacco stocks as being “recession-proof,” the reason for this being that smokers are less worried about health concerns. Smokers have been bombarded with ever-increasing warnings for a long time and have developed a certain immunity to health warnings. Also, the link between anxiety and the use of tobacco products has been the subject of many studies, and the fact that a relevant percentage of the world’s population is being motivated to stay at home can increase the levels of anxiety which would lead to an increase of the consumption of tobacco products. Tobacco manufacturers have reported strong first-quarter results with important revenue growth. The tobacco operations are spread throughout the world although the main manufacturing centers are in the regions that were most affected by the pandemic, with several operations having closed for some time. The main tobacco companies have, however, reiterated that the supplies of tobacco products are sufficient for up to two months.

The goal of the ITGA’s #Togetherwecare campaign is to support the tobacco growers that are most vulnerable to the Covid-19 threat. Image: ITGA
Is the crisis an opportunity to rethink established supply chains and processes in the leaf-producing sector?
Without doubt, this has been one of the most challenging quarters in recent history. The Covid-19 pandemic has affected the world as a whole. One of the side effects of the pandemic has been its ability to disrupt the global supply chain. Globalization affected the way companies and industries operate. Supply chains have evolved to a planetary dimension and it is common to consume products that are produced half a world away. Despite the disruption to the global supply chain, the trend of moving tobacco production from developed countries to developing countries is not expected to change. The reasons behind moving the sources of tobacco have not changed with the pandemic. The pressure on tobacco products demand means companies will continue to lower costs along the entire value chain. As tobacco volumes will not increase, companies can search only for efficiency and margins gains.
Please elaborate on ITGA’s campaign to help small, noncontracted growers.
The ITGA has been in close contact with its members to assess the difficulties that this pandemic has been posing. Despite the global character of the outbreak, certain difficulties are particular to each region. Our members in the most affected regions have highlighted that they are starting to notice a lack of inputs for tobacco farming and that travel and transport restrictions have impacted the regular operations of growing tobacco. As tobacco is a labor-intensive product, any disruption to the movement of workers or to the hiring process could disrupt the harvesting season. The difficulty in earning a work visa or blocking the travel particularly affects products that rely on seasonal migrant workers. Our campaign is focusing on raising awareness and bringing basic equipment to smallholder farmers. Prevention and information are key at this phase to avoid a much more uncontrollable situation in these countries with fragile health systems and infrastructures. We have been seeking support since early April in view of the start of the selling season, which was delayed until the last week of April in Malawi and Zambia and the beginning of May in Zimbabwe. Coordination in these three countries has been outlined. It is very unfortunate that the ITGA acted in advance, foreseeing the free movement of noncontracted growers and inappropriate gatherings between farmers lacking basic protective equipment, but our plans in coordination with our members are set back in the absence of support.

As ITGA members are spread around the globe with significant economic and cultural differences, the ability to adapt and to respond to situations differs from country to country. Photo: British American Tobacco
It is imperative that the sector unites to protect the chains most exposed to the difficulties highlighted by Covid-19. As studies show, tobacco is grown as a cash crop in a multi-production system. Most tobacco growers do not exclusively produce tobacco. As other sectors and supply chains are disrupted by the outbreak, the noncyclical nature of the tobacco sector and its ability to outperform other industries during economic slowdowns is key to reinforcing the role of tobacco as the source of income for many growers.
June 1, 2020
Universal Ups Dividend Despite Headwinds

Photo: Universal Corp.
Universal Corp. reported net income for the fiscal year ended March 31, 2020, of $71.7 million, compared with $104.1 million for the prior fiscal year. Excluding restructuring and impairment costs and certain nonrecurring items, net income declined by $25.3 million. Operating income was $126.4 million for the fiscal year, down from $161.2 million for the fiscal year ended March 31, 2019.
Results reflected earnings declines in Universal’s North America and Other Regions segments, partially offset by earnings improvements in the company’s Other Tobacco Operations segment.
George C. Freeman III
“We could not have predicted that we would be closing out our fiscal year in the throes of a global pandemic,” said George C. Freeman, III, chairman, president and CEO of Universal.
“Uncertain market conditions, mainly driven by the ongoing Covid-19 pandemic, led to extreme weakening of the Indonesian rupiah, Brazilian real and Mexican peso relative to the U.S. dollar, all of which experienced double-digit depreciation during the month of March.”
These currency weaknesses were the primary drivers for unfavorable currency comparisons, according to Freeman.
“Towards the end of our fiscal year, we also saw some shipment delays in certain regions due to the Covid-19 pandemic and slower customer orders, which increased our uncommitted inventory levels,” said Freeman.
“In addition, as we have discussed throughout the fiscal year, our results for fiscal year 2020 have been negatively impacted by lower carryover volumes compared to fiscal year 2019, mainly in North America and Africa. Our gross margins for fiscal year 2020, however, remained relatively flat compared to fiscal year 2019.”
While some of Universal’s processing facilities experienced partial or total closures due to Covid-19, nearly all operations have resumed with measures to protect employees against infection, according to Freeman.
In related news, Universal declared a quarterly dividend of $0.77 per share, payable August 3, 2020.
“Today’s dividend increase is a milestone for our company,” said Freeman. “It is our 50th consecutive annual dividend increase, and we are very proud of this achievement. It represents the continuation of our strong record of returning value to our shareholders through our consistent dividend delivery. We have raised our common dividend every year since 1971.”
Universal’s annual meeting of shareholders will take place August 4, 2020.
May 28, 2020
Malawi Farmers Pull Leaf, Citing Below-Cost Prices

Photo: Taco Tuinstra
Farmers from Dowa and Lilongwe have pulled their tobacco from the auction floor due to low selling prices.
The average selling price of the tobacco has been $1.10, which farmers say is not enough to cover production costs. The farmers have reached out to officials from Limbe Leaf Tobacco and the Tobacco Commission.
“These buyers are leaving us in slavery,” said Bazale Mobayana, one of the farmers. “They are leaving us with huge debt to settle because with these low prices, we cannot be able to repay back the loans we took from commercial banks and other financial lending institutions.”
May 18, 2020