At least 66,554 ha of land had been put under tobacco in Zimbabwe as at the end of last week, according to a story in the Zimbabwe Herald quoting the industry regulator, the Tobacco Industry and Marketing Board (TIMB).
This season’s plantings are up by about 17.5 percent on those recorded at the comparable stage of the previous season, 56,623 ha.
Of the 66,554 ha planted this season, at least 51,998 ha comprised the dry land crop and the remainder the irrigated crop.
At the same time, the TIMB said that at least 80,327 farmers had registered to grow tobacco during the 2016/17 season, an increase of more than 14 percent on the 70,161 that had registered by the same stage of last season.
Of the registered growers, 38,217 are said to be communal farmers.
The Herald said that many farmers had been abandoning other cash crops for tobacco because of the favorable prices for tobacco.
Tobacco farmers sold $275.7 million worth of leaf during Malawi’s 2016 marketing season, reports Mavari Post.
Despite higher sales volumes, earnings declined because of high rejection rates and poor prices, according to Mark Ndipita corporate affairs manager at Auction Holdings Ltd.
In 2015, farmers earned $337 million from leaf sales.
The average price this season was $1.42 per kg, compared with last year’s $1.75 per kg.
The Tobacco Control Commission (TCC) attributed the decline in leaf prices to overproduction, which necessitated the extension of the selling season.
Burley tobacco production alone was in excess by 43 million kg, TCC Executive Director Albert Changaya said.
To prevent excess production in the 2016-2017 growing season, TCC announced it would enforce strict quotas on farmers.
At least 55,885 ha of land had been put under tobacco in Zimbabwe as at the end of last week, according to a story in The Herald quoting the industry regulator, the Tobacco Industry and Marketing Board (TIMB).
This season’s planting are up by more than 11 percent on those recorded at the comparable stage of the previous season, 50,151 ha.
Of the 55,885 ha planted this season, at least 41,487 ha comprised the dry land crop and the remainder the irrigated crop.
At the same time, the TIMB said that at least 80,173 farmers had registered to grow tobacco during the 2016/17 season, an increase of almost 15 percent on the 69,803 that had registered by the same stage of last season.
Of the registered growers, 38,153 are said to be communal farmers.
The Herald said that many farmers had been abandoning other cash crops for tobacco because of the favorable prices for tobacco.
Kentucky, which two decades ago was the most tobacco-dependent state in the US, farmers are planting less of the crop after growing health concerns have reduced demand, according to a story by Jen Skerritt for Bloomberg News.
Instead, they’re increasingly turning to hemp, marijuana’s legal cousin.
This year they more than doubled their sowings of hemp to become the No. 2 producer in the US, trailing Colorado.
Hemp is a variety of cannabis that contains less than 0.3 percent of tetrahydrocannabinol, or THC, the latter’s psychoactive ingredient. Hemp can be processed into more than 25,000 products, but the main uses include the production of rope, linens, food and personal-care products.
“The profit is promising,” said 32-year-old Giles Shell, who farms with his dad and brother on 200 acres 45 minutes south of Lexington, Kentucky. The family next year plans to dedicate 80 acres to hemp, land that for four generations was seeded with tobacco.
For a number of reasons, in 2014 only 33 acres were planted to hemp in Kentucky. But that figure rose to 922 acres in 2015 and to 2,350 acres in 2016, according to the state’s agriculture department.
That’s still a tiny amount compared with the 72,900 acres Kentucky farmers planted to tobacco in 2015, but Kentucky nevertheless accounted for almost 25 percent of the 9,650 acres grown to hemp nationally this year, according to data from the Hemp Industries Association.
Hemp’s potential is huge, said Steve Bevan, the chief executive officer of GenCanna, a Kentucky-based industrial hemp grower that is extracting oil from the plant to use in wholesale and retail products. The company plans to boost its production to 500 acres in 2017, up from 100 this year, he said.
“We’re going to need more plants, and we’re going to need more acres,” Bevan said.
Farmers are looking for alternatives as prices for other grains and commodities remain depressed and the tobacco market continues to decline, said Doris Hamilton, the industrial hemp program manager for Kentucky’s agriculture department.
Shell planted his last tobacco crop in 2015.
His neighbors are also trying to grow hemp, which Shell plans to buy and resell to GenCanna for processing.
“There’s a lot of growers in this area that are trying hemp, and it all starts from the flailing tobacco market,” Shell said. “Hemp is taking off.”
Malawi’s Minister of Labor, Youth, Sports and Manpower Development, Henry Mussa, has said that having the Tenancy Labor Bill in place would not, on its own, guarantee an improvement in the welfare of tenants, according to a story in The Nyasa Times.
Mussa was speaking in Lilongwe on Tuesday during a workshop on the bill at which delegates expressed mixed reactions to proposals to regulate or abolish the use of tenancy labor in tobacco production.
“What we are saying is that this system is not only evil, but also detrimental to the country’s development drive whose beacon lies in agriculture,” said Mussa.
“We cannot expect to effectively grow our economy when a large proportion of our farmers remain trapped under the poverty line,” he added.
Under the tenancy system, estate owners, usually called landlords, recruit farmers from distant districts to grow tobacco for them on their estates. The tenants are offered accommodation and food, and a cut of the earnings from sales.
The Tenancy Labor Bill was first drafted in 1995 and redrafted in 2005. It seeks to end the tenancy system widely regarded as highly exploitative.
According to a 2015 study by the Center for Social Concern (CfSC), tenants provide the largest labor input on tobacco farms, accounting for 63 percent of the labor required to produce tobacco and prepare it for sale.
However, the study – entitled Tobacco Production and Tenancy Labor in Malawi – notes that tenancy labor in its current practice is characterized by very low returns and often exploitative arrangements that marginalize and degrade workers.
Such conditions have given rise to complaints among tenants. The study found that 91 percent of complaints in labor offices are those reported by tenants against estate owners.
And the findings have moved the CfSC to call for the abolition of the tenancy labor system in the country. “In this day and age, current tenancy labor practices should be discouraged, if not abolished,” said CfSC director Father Jos Kuppens. “Evidence has shown that the tenancy labor problems cannot simply be wished away, something needs to be done.”
U.S. tobacco is generally regarded as the world’s best. The U.S. Tobacco Cooperative wants to ensure it also gets credit as such.
TR Staff Report
Founded in 1946, the U.S. Tobacco Cooperative (USTC)—a grower-owner cooperative comprising more than 750 member growers throughout North Carolina, South Carolina, Virginia, Georgia and Florida—has spent the past 70 years securing its status as a key player in the tobacco industry. And for the past several years, the Raleigh, North Carolina-based organization has undergone a series of significant transitions designed to help highlight U.S. flue-cured tobacco as the most sustainable and compliant tobacco crop in the world.
From officially changing its name in 2008 and renovating its headquarters building in 2015 to purchasing several new marketing centers in recent years, breaking ground on a new green storage facility in July and consistently hiring top talent, USTC has reinvented itself as a company and is changing the way the world views the U.S. flue-cured tobacco supplier and its members’ crops.
While USTC has made significant strides toward changing the industry’s perception of the company itself, its latest focus is on educating industry stakeholders on the intrinsic value of tobacco grown on U.S. soil versus crops grown outside the United States.
Stuart Thompson
“There are many benefits to the U.S. crop,” says USTC CEO Stuart Thompson. “Child labor here is virtually nonexistent. There is no deforestation. There is no problem with tobacco replacing food crops. Our growers abide by good agricultural practices. These are the largest commercial tobacco farms in the world. They are highly efficient, and our growers are precision farmers. We have a core group of very loyal growers who bring us the absolute very best tobacco that they have, and they do that every year. These growers have proven that, despite challenging weather conditions, they can produce year in and year out. We know the U.S. crop is the key ingredient in virtually all premium blends. It’s sustainable, it’s socially responsible, and it’s secure. Our hope is to highlight that to the global markets so that people will rely more on U.S. flue-cured tobacco.”
Although some in the industry are aware that the U.S. flue-cured crop is the highest-quality tobacco available today, according to Thompson, U.S.-grown leaf has not received sufficient recognition for its intrinsic value. So USTC has set its sights on promoting the benefits of U.S. flue-cured tobacco—benefits that are passed down from the grower level to the leaf suppliers to the manufacturers and, ultimately, to the consumers who purchase the products. U.S. growers self-finance, a burden borne by suppliers in many other origins along with the associated bad debts. The U.S crop is dollar-based, eliminating currency risk. Because of the sophistication of the U.S. grower base, suppliers do not have to maintain large agronomy teams to assist growers. All of these costs are borne by the U.S. growers and included in their green price.
USTC is not content to simply say that U.S. tobacco is the best; the company is backing its claim with data.
“You have to look at the United States and the resources that are here—in terms of water, land, food sufficiency and environmental protection—and then compare that to tobacco crops grown in lesser-developed countries, where there is population pressure, climate change, food shortages, and where water is becoming a critical issue,” says Jim Schneeberger, USTC’s vice president of business development. “In other countries, the questions are already being asked: ‘Why are our natural resources, like water, being used to grow tobacco rather than food?’ Overall, with our climate and environment in the U.S., we’re not sacrificing food crops to produce tobacco—and in many cases, tobacco complements other rotation crops. It’s very difficult when you have people struggling to produce food and they are being told, ‘Don’t grow your crop on the riverbank because it will cause erosion.’ For them, it’s not a choice. They have to grow that crop to survive.”
“I think something that we pass over is just the consistency and the size of the commercial farming operations,” says Thompson. “The grower base here in the U.S. is made up of precision farmers, and they are excellent at solving problems that happen in the field. At North Carolina State University, we have the pre-eminent tobacco research facilities in the world, which is an important resource for the tobacco industry.”
Because of the sophisticated techniques used to produce this crop, buyers who source their premium tobacco from U.S. farmers can rest assured that they will ultimately end up with their requirement each season.
”What this means is that the U.S. growers will produce the styles that are in demand year in and year out with what they need,” says Thompson. “So for manufacturers that are focused on having their consumers having a consistent experience, they need to think about sourcing tobacco from origins that are going to be consistent year in and year out. That’s why I think the U.S. crop is really key and that our customers would be wise to look to the U.S. to source more of their core grades.”
According to Schneeberger, this consistency is particularly important for manufacturers of premium brands with loyal followings that can’t afford to deviate from the high-quality blends their consumers are familiar with.
“The fact that we don’t have a lot of the issues that affect the lesser-developed countries is part of the intrinsic value of the tobacco in this market,” he says. “Manufacturers don’t have to worry about their brand’s quality being jeopardized or their brand integrity being put at risk because of the compliant production model here in the U.S. So we are really assisting the manufacturers secure their brand integrity by guaranteeing the integrity of our U.S. flue-cured crop.”
Although it’s simple to state that U.S. flue-cured tobacco is the best in the world, it’s imperative for leaf suppliers like USTC to substantiate such a claim with actual data gathered from the farms where the flue-cured crop is grown. USTC has taken several steps to prove their growers’ crop is top quality, the most significant of which is initiating independent third-party audits for 100 percent of its grower base.
“Many of our growers have multiple contracts that require high standards,” says Thompson. “We felt we needed to jump to the forefront in promoting the sustainability of the U.S. crop. So we took the position that we’d do 100 percent independent audits of all of our growers. And as far as we know, no other major leaf supplier in the U.S. is doing this. Several companies conduct 100 percent audits, but no one else does 100 percent independent audits.”
“It’s expensive for us, and it’s time-consuming for our growers to conduct those audits,” says Thompson. “We’ve also launched our own audit platform, where our own leaf department is doing assessments on every farm visit as well. We just don’t think the U.S. crop has been getting the credit for its sustainability and social responsibility that it deserves, and we want to highlight that. Whether buyers decide to purchase from us or not, we want them to recognize just how good the U.S. crop is.”
Earlier this year, USTC broke ground for an expansion of its operations in Timberlake, North Carolina.
Social responsibility and sustainability may be the key focus of the new goals USTC has set forth, but for USTC, the focus on social responsibility and sustainability doesn’t stop at the grower level—it also spills over into the production process.
Earlier this summer, the company broke ground on a brand-new, $13 million green storage center in Timberlake, North Carolina, which will complement its current leaf processing facility.
“We continue to make investments with the goal of reducing our green conversion costs,” says Thompson. “We’re adding 150,000 square feet of green storage at that site, so the total facility will be just under 600,000 square feet. By investing in this new green storage facility, which will be up and running for the 2017 season, USTC is further reducing operating costs on a significant scale.
“With this addition, we’ll be able to store 10 million pounds at the plant, so if we need to make changes to the blends to meet a customer’s needs, we can do that right there. It will generate significant savings and process improvement.”
Perhaps the most notable aspect of USTC that sets the company apart from other leaf suppliers is their unparalleled investment in their growers. In the past five years, USTC has returned more than $42 million in patronage dividends to its members.
“People like our story, and they like our patronage,” says Thompson. “They like the idea that we work for growers. They like the idea that we send profits home. It’s very compelling. We look to maximize our profits and we look to maximize the amount that we can send back to our growers. That formula seems to be working well.
Whether they are investing in their growers by returning profits in the form of patronage dividends or purchasing new facilities to reduce operating costs, USTC is well-positioned to succeed in their goal of promoting U.S. flue-cured tobacco to those within the global tobacco industry.
“What we’d like people to do is to really think about us as the premium supplier in the U.S. Our larger customers consistently tell us that we score the highest in quality,” says Thompson. “Because we actually do what we say we’re going to do. We’re very transparent. We’re the real deal. If somebody wants the best U.S. leaf, which also happens to be the best in the world; if they want to get it from someone who is deeply committed to social responsibility; if they want to do business with someone that is financially sound; if they want to do business with somebody that is only interested in integrity—we’re the best match.”
Will organic tobacco be able to break out of its niche?
By George Gay
In writing about organic tobacco two years ago, I tried to imagine why a consumer might buy cigarettes made of such tobacco, given that they would presumably be more expensive than would the general run of cigarettes. I speculated, without much conviction, that there might be a taste factor, or at least a perceived taste factor. A more likely reason, I thought, was that smokers who were generally well-informed, altruistic and better-off financially might make the decision to switch to organic cigarettes on the basis that encouraging the production of organic crops rather than conventionally grown crops was good for the environment.
And then there was the health argument. Some people, we are told, either consciously or unconsciously, equate organic with health even in regard to tobacco. Most smokers, I think, would probably assume that the danger they face comes mainly from inhaling smoke produced by burning tobacco, whether that tobacco is organic or not, but, two years ago, I suggested that even some better-informed smokers might believe that, since organic cigarettes have fewer additives than do traditional cigarettes, and, since, as anti-tobacco activists tell us, the additives support the addictive nature of cigarettes, organic cigarettes would allow you to break your habit sooner and to reap the health rewards that earlier quitting promises to deliver.
I have to say that I wasn’t particularly convinced by this argument, but, taking a look at the internet the other day, I saw that this line of thought is more common than I had imagined. You can read testimonials by people who say that they have used organic tobacco to wean themselves off smoking. And perhaps they have.
In the middle of September, a story by Sara Chodosh on the Popular Science website, www.popsci.com, claimed that “[n]icotine needs you just like you need it.” “That sweet release of dopamine only happens if you really believe in it,” she wrote. “A new study in Frontiers in Psychiatry found that only smokers who thought that their cigarettes contained nicotine got the satisfaction of smoking. Anyone who was told they weren’t getting nicotine—even if it was a normal cigarette—was left unsatisfied.”
Is it, I wonder, such a big jump to say that people who smoke organic cigarettes believing them to be less addictive than traditional cigarettes are able to quit more easily than if they had stuck to traditional cigarettes?
If we accept for a minute that this is true, then we come up against the question of whether tobacco manufacturers should convert as many of their products as quickly as they can to organic tobacco. And at this point there are a couple of things to consider. One is whether quitting is easier with organic products because the way in which the nicotine is delivered is less addictive; the other is whether quitting is easier only because smokers—or that would surely have to be, some smokers—believe that that is so. In the first case, it would seem that the ethical approach for manufacturers, at least in so far as their customers are concerned, would be to go full out for conversion.
Don’t says so
But things become more difficult in the second instance because of the fact that, in some jurisdictions at least, it would not be possible to tell smokers that the tobacco they were smoking was organic. And in this case, providing smokers with organic products would be as pointless as winking at a girl in the dark.
Is this important? I think so. I have heard of one instance where a manufacturer gave up on an organic tobacco production project because it was not allowed—along with other manufacturers, of course—to mention in one of its major markets that the tobacco included in its cigarettes was organic.
Is this perhaps a case of unintended consequences? I often look at outcomes that are declared as unintended consequences and wonder whether there wasn’t more intention about them than meets the eye. But in this case, it might be that what has happened wasn’t foreseen. In not allowing a tobacco manufacturer to get across the organic tobacco messages, the rule makers might have ensured inadvertently that some smokers will take longer to quit their habit than they otherwise would have done. And at the very least they will have ensured that some tobacco will be grown conventionally rather than organically, with the environmental consequences that implies.
Incentives will be vital in determining whether organic tobacco will thrive or remain a marginal product.
The people I consulted on this issue had widely differing views. In one camp were those who, like Rainer Busch, shareholder and general director of NewCo, thought that organic tobacco had little future because, on an increasing number of markets, manufacturers would not be able to inform consumers about the tobacco’s provenance, starting in those more affluent markets where smokers were more likely to buy into the organic message. Others, such as John Wallace, principal of Leaf Only, thought that organic tobacco had a good future, partly because, come what may, the major manufacturers would want to make mention in their social responsibility reports of their conversion to such growing methods.
As usual, the reality probably lies somewhere between these two poles. In markets where manufacturers have been able to establish a brand as organic and where they still have an opportunity to do so, the momentum of those brands will probably carry them forward for a number of years, even if sometime in the future it is no longer possible to declare their organic credentials on or inside packs. American Spirit, owned by Santa Fe Natural Tobacco Company in the U.S. and by Japan Tobacco (JT) elsewhere, is an obvious example of such a brand.
But would manufacturers feel they ought to grow organic tobacco just to bolster their social responsibility reports, unless the cost of production fell significantly? Possibly not, but, on the other hand, since the move is in any case at least toward the use of pesticide-residue free (PRF) tobacco, perhaps this momentum will eventually propel them toward organic.
Momentum
In any case, there are sure signs that the production of organic tobacco is increasing, albeit steadily. Frederick de Cramer, business coordinator at Sunel, said that the production of organic Izmir, the only organic oriental tobacco grown in Turkey, would this year reach about 2,500 tons packed weight, of which Sunel would account for about 1,800 tons. Sunel produced 30–40 tons in 2012 and about 300 tons in 2013. In 2014 and 2015, with two other dealers involved in organic oriental in Turkey, volumes reached 1,500 tons and 2,000 tons respectively. This year, only two dealers were involved in organic oriental production in Turkey, but de Cramer is confident that production will lift above 3,000 tons within three years.
He probably has every reason to be confident. Having paid $5 billion for the non-U.S. rights to American Spirit, JT is likely to be aggressive in its marketing of this brand, which, on the U.S. market, under Santa Fe, seems to grow, steadily, year on year.
And if production of organic oriental is increasing, it seems logical that production of flue-cured and burley must be increasing too. Certainly, Wallace said demand for organic tobacco had been increasing year-on-year in line with the gravitation of consumers toward natural products of all types. And he said he believed that demand would continue to grow. Certainly, some U.S. farmers were being asked to grow more organic tobacco each year.
Wallace makes a good point. In North Carolina, for instance, organic farming of all types is increasing and organic tobacco farming is at the top of the league. According to the U.S. Department of Agriculture’s (USDA) National Agricultural Statistics Service’s (NASS) 2015 Certified Organic Production Report, which took in all known USDA-certified organic farms across North Carolina, last year the state’s 203 USDA certified-organic farms sold $82.4 million in organically produced commodities, including $56.6 million in crops sales and $25.8 million in sales of livestock, poultry and their products. “The top three commodities in certified organic sales were tobacco at $29.3 million, chicken eggs at $21.2 million, followed by sweet potatoes bringing in $10 million,” said Dee Webb, a North Carolina state statistician. “Organic farming continues to grow in North Carolina. We now rank 16th in the nation in total value of certified organic agricultural products sold from 203 certified organic farms.”
The 203 certified organic farms comprised 28,727 acres of land. Eighty-three percent, or 23,719 acres, is cropland, and 5,008 acres are in pasture or rangeland. And the future looks bright. An additional 3,074 acres are transitioning to organic production on certified farms. And of the 203 operators, 33 percent have been farming fewer than 10 years, and 44 percent have grown or raised certified organic products for fewer than five years. Eighty-six farms plan to increase production during the next five years and 75 farms expect to maintain production.
In an organic tobacco program, sunflowers serve as a trap crop for beneficial insects.
Keeping up
But even so, the question arises as to whether the supply of organic tobacco can keep pace with demand. De Cramer certainly thinks so, at least in respect of organic oriental, partly because of the approximate 20 percent higher income that growers can expect to earn by growing organically. This increased income has the advantage, too, of making it easier to convert the best farmers to this type of production. And in the U.S., according to Rick Smith, of Independent Leaf Tobacco Company, growers can expect to earn for organic tobacco about twice the per-pound price that they could for nonorganic tobacco.
The difference between the price premiums seems easily explained. While growers in the U.S. tend to be independent, so that some of the additional costs of growing organic tobacco would be borne by them, in Turkey the additional costs involved in organic tobacco production tend to be borne by the dealer overseeing the production. De Cramer explained that half of the farmers that grow tobacco in Turkey do not own their own land, so to ensure they keep their land on a long-term basis and thereby retain organic certification for it, a dealer such as Sunel has to support farmers in respect of land rent. The pesticides used in organic production are far more expensive than are traditional ones, he said, and the difference is absorbed by the company. Also, an independent certification company has to be employed to assess and check each plot of land and each farmer’s practices, in addition to the checks made by Sunel; and the extra costs involved in this certification process, those of residue sampling checks, and those of transportation and storage checks, are again borne by Sunel.
So farmers can be persuaded, but is there enough suitable land? Again the answer seems to be yes. Although it takes three years to certify land for organic production, the currently-modest increase in demand for organic tobacco means that this is not a huge problem. Anyway, as Smith pointed out, most large operations in the U.S. have land certified for other crops, and that it is those operations that will have to grow more organic tobacco, both flue-cured and burley. And they would do so if the price were right. In Turkey, of course, the availability of land is more fraught and forward planning is needed.
So the farmers can be persuaded and the land can be found, but who will buy this organic tobacco? The major manufacturers or their subsidiaries are the ones who are mostly using it or who are showing an interest, but most companies will have an eye on the situation. While organic tobacco at present makes up a tiny proportion of overall tobacco production, it garners a lot of attention because it is novel and initially difficult to produce, and because it sells for prices above those of nonorganic tobacco. No doubt many manufacturers are looking to see where organic tobacco might fit into their portfolios, initially in respect of cigarettes, though surely the argument for using it in smokeless tobacco must be even stronger.
Independent leaf merchants hold their own in an increasingly concentrated market.
By Stefanie Rossel
In the unmanufactured-tobacco trade, periods of abundance and scarcity can follow each other in short succession. Following two years of global oversupply, the number of tobacco farmers in leading leaf-sourcing countries declined steeply during the 2015–2016 growing season.
In April, Star Tobacco International predicted that global leaf supply would shrink by up to 500 million kg in 2015–2016, a decline of 12 percent compared with the previous season. The shrinkage, the company believed, would help gradually restore balance in supply and demand.
The market has also been affected by other factors, however, including a strong U.S. dollar and El Nino-related weather conditions, causing some higher-quality tobaccos to be in short supply.
“Leaf production has been pretty much in line with expectations in the major origins with one surprise: The Zimbabwe flue-cured Virginia [FCV] crop closed slightly higher than 190,000 tons—some 30,000 tons higher than predicted in April,” says Star Tobacco CEO Iqbal Lambat.
Brazil, meanwhile, anticipated some 550,000 tons of FCV this season, 100,000 tons less than last year, according to Lambat. Due to the El Nino weather pattern, however, the crop came in around 450,000 tons of FCV. Brazil’s burley crop, meanwhile, was slashed in half, to 40,000 tons.
“These shortfalls have created a scramble for flavor FCV mostly on the Zimbabwe crop,” says Lambat. “The U.S. crop is currently in harvest and processing and is also expected to be short by 10 to 15 percent due to adverse weather conditions. Regarding quality, the Zimbabwe FCV is of higher nicotine, whereas the Brazil crop suffered from low nicotine content.”
Lambat notes that flavor styles have been in short supply despite Zimbabwe’s larger 2016 crop. “We expect this situation to become critical in 2017 due to the economic crisis in Zimbabwe and the sharp drop in tobacco seed sales for the current season.”
A resurgence in Brazilian FCV production toward 600,000 tons in 2017 would help stabilize the situation, according to Lambat, but he says it is too early to make predictions about that country’s 2017 crop.
“The global leaf volume has been considerably reduced, but this reduction has had little to no effect on the demand,” observes Rainer Busch, general director of NewCo.
“I think that the tobacco farmers and trade would rather remain with smaller crops and have the supply-demand situation balanced,” he says. “The situation of oversupply bears risks for the future of tobacco growth. Farmers will receive lower tobacco prices and will be unsatisfied. The trade will bear higher costs of holding bigger unsold inventories, and the needed competitiveness will lower their margin.”
In steady demand
Oriental, the highly aromatic, sun-cured leaf that gives American-blended cigarettes their characteristic taste, has also been hit by adverse weather. “The oriental crop in the classical regions of the Balkans and Turkey is expected to be reduced to almost 100,000 tons in 2016, due to dry weather conditions and, in some cases, farmers’ unwillingness to continue with tobacco crops,” says Nikos Tzoumas, managing director of Missirian in Greece.
The expected 2016 crop compares with 125,000 tons in 2014 and 109,000 tons in 2015. Production of oriental tobacco has been declining following the “decoupling” of EU subsidies in 2006. It is also suffering from urbanization, with young people in particular preferring city jobs over farm work.
But while oriental volumes are down, quality is up. “The dry conditions that prevailed throughout the season have given to the tobacco more body, flavor and aroma,” says Tzoumas.
The current volumes, notes Tzoumas, are below cigarette manufacturers’ known usage of oriental leaf, a situation that could put pressure on prices.
Dora Gleoudis, managing director of Nicos Gleoudis Kavex, points out that demand for classical oriental tobacco is still steady, with both dealers and growers holding minimal inventories, which is in direct contrast to FCV and burley tobaccos.
Manufacturers, she adds, have in recent years migrated more toward the use of flavors as a partial alternative to expensive classical oriental. With regulators pushing for the removal of tobacco additives, cigarette manufacturers may have to start using oriental again.
She is also encouraged by the trend toward “natural” cigarettes. Full-flavor FCV and classical oriental tobaccos could help cigarette manufacturers set their brands apart in the marketplace.
Important role
For all their individual differences, the leaf firms quoted in this article share one trait—they are independent entities operating in a market dominated by a handful of multinational companies.
Independence has advantages for both farmers and clients, according to Busch, particularly in crop situations like the current one. “Independent players are generally not contracting with farmers and trade only tobaccos which they know they have a purchaser for,” he says.
“In the case of NewCo, most of our [partner companies] bear a risk by supporting their society and traditional farmers. They buy historical volumes and do not fluctuate much with their quantities. Their historical clientele buffers their risk. Nonindependent leaf merchants have to commit to buy all of the crop from their farmers, which bears economic risk, since one part of the crop is not desirable and needs to be sold under cost to get it off the books.”
Because the decision-making process at independent leaf merchants tends to be short, they are also well-equipped to seize opportunities.
Star Tobacco was founded in 2008, at the height of the last major tobacco shortage. According to Lambat, the firm works only with small and medium-sized companies to ensure that the tobaccos it sells provide value for money. It offers tobaccos from a broad range of origins.
Star serves customers who lack the resources to travel the planet and examine alternative origins and grades. “Of paramount importance is to ensure security of supply, which requires a strong partnership with farmers and leaf processing companies,” he says. Today, Star serves 45 accounts in more than 30 countries.
Being among the smaller fish in the pond, however, also involves challenges, he points out, especially now that, in many societies, all things related to tobacco have been “denormalized.”
“Life as a tobacco company is getting harder,” says Lambat. “Banks are increasingly reluctant to service tobacco companies. In many cases, banks refuse to open letters of credit that cover tobacco shipments. The ‘tobacco’ word will need to be removed from corporate names going forward in an effort to rebrand. These challenges weigh heavier on smaller independent leaf companies than [on] the larger multinational dealers.”
Tzoumas fears that crop levels could be further impacted by shrinking cigarette volumes and increasing illicit trade.
“Cigarette sales going down is a tendency that needs further study, as it is hard to determine the real drop in consumption in an increased illicit-sales environment around the world,” he says. “Should this tendency prove to be real, all markets, including oriental, will have to adopt crop levels to the new demand. Such a change may result in a slimmer list of oriental varieties and districts in the future. As demand and production go hand to hand, such a trend may lead to lean and more sustainable crop designs. A lot of factors will influence the decisions to be taken.”
In the oriental tobacco supply chain, working closely with the famers creates obligations and opportunities for both sides, says Tzoumas. His company cooperates with major cigarette manufacturers to improve the sustainability of leaf production, implementing good agricultural practices and good agricultural labor practices, among other programs.
Challenges are manifold, he adds, ranging from responsible sourcing to socioeconomic balances within farmers’ communities and flexible crop sizes to market and crop competitiveness. “As this is a great target to meet, we focus on planning crops ahead, mechanization in all stages—enhancing harvesting and curing—and commitment from our stakeholders.”
Mechanization and increased efficiency in oriental leaf production have been topics of discussion for many years. Significant progress has been made, according to Tzoumas. The industry has focused particularly on harvesting and curing, as these activities account for a major share of the tobacco production cost. “The oriental harvesting machine has been completed after many years with a lot of resources placed in R&D and testing,” says Tzoumas. “As of next year, a commercial model will be available, which can change the picture of the oriental production in the future.”
Gleoudis is less upbeat about the impact of mechanization: “Even if these mechanized trials prove successful, the resultant cost savings might still be marginal,” she says.
Crop and inventory financing, social-responsibility programs, traceability requirements and ever-stricter controls on crop protection agents place an increasingly prohibitive strain on leaf companies’ already decreasing margins, according to Gleoudis.
“The volumes required to spread these costs are significant, but being independent, we are well-placed to adapt to changing market conditions. For instance, committing to the production of organic tobacco, as we have done in Greece, is testimony that specialization in niche tobaccos and diversification in traditional tobaccos is what keeps independent dealers going.
“Established in 1927, Nicos Gleoudis Kavex will celebrate its 80th anniversary next year and is now managed by the third generation. Together with older and more recent establishments, independent companies play an important role in supplying the global leaf market.”
A straight deal
Like the companies quoted in the main article, Leaf Only is an independent tobacco dealer. Uniquely, however, the company caters to both the retail and wholesale leaf market. Established in 2009 and based in Connecticut, USA, the company sells a large variety of tobacco leaves, including cigar wrappers, binders and fillers, as well as unprocessed cigarette tobacco and pipe and hookah tobacco.
“Since we deal with mainly small to medium-sized clients, one of our personal challenges is managing customer expectations,” says John Wallace, Leaf Only’s principal. “Customers are so used to processed products that they expect the same type of quality from an agricultural commodity. A big part of our job is educating our customers and keeping expectations realistic. But there is a silver lining to every dark cloud, and the fact is that tobacco is still a top commodity with a huge demand. Consumers from around the world still love their tobacco despite increased regulation and health concerns. There is still plenty of money to be made for leaf suppliers that are willing to bob and weave amongst the ever-changing strikes of the industry.”
Wallace expects continued growth. “The reason for this is two-fold: One aspect is the fact that consumers don’t want to be controlled by their governments and forced to pay taxes on products that they can manufacture with their own two hands. It’s not much different from buying grapes to make your own wine or buying hops and barley to craft your own beer. Why pay upwards of eight times the price for something that with a little hard work you can make yourself!”
The other aspect, he adds, is the fact that now, more than ever, consumers are gravitating toward natural, additive-free products. “Buying leaves grown on a farm is about as ‘all natural’ as you can get. For retail customers, there is no wondering what’s in the products they make. … They start with the raw ingredients and decide themselves what to add. We even have organic options available for consumers who want to take it to the next level and even avoid food-grade pesticides. We have seen an increase in organic sales year after year, which confirms this reason for overall growth.”
Tanzania’s transformation into a prominent leaf tobacco supplier has been a process rather than an event—and it continues today.
By Taco Tuinstra
The road to Morogoro in 1997.
When Tobacco Reporter first traveled to Tanzania in 1997, the road from Dar es Salaam, the country’s administrative capital, to Morogoro, its tobacco capital, was in poor shape, with potholes deep enough to wreck even the toughest suspension.
Few drivers adjusted their speeds to road conditions, however. We witnessed multiple fresh accidents during the 200 km (124 miles) journey; not the occasional fender-bender like you might expect in Europe or the United States, but major incidents, with full-sized freight trucks lying upside down, their cargos scattered over the road. And that was before it started raining.
As thunder clouds gathered, entrepreneurial villagers gathered alongside the road, ready to offer their services to stranded motorists. For a small stipend, they would help push stalled cars or, if that failed, carry the hapless passengers to higher, drier ground. Fortunately, our rugged Toyota Land Cruiser—the tobacco industry’s vehicle of choice in many remote sourcing areas—never required such assistance, but it still took the better part of the day to reach our destination.
By comparison, today’s travelers have it easy. The road has been paved and, presumably, equipped with better drainage, although you must still be alert for unexpected moves by fellow motorists—the drivers of Tanzania’s long-haul buses have a reputation for particularly reckless behavior. If you can get up early enough to avoid Dar es Salaam’s notorious rush hour, however, you should be able to make it to Morogoro in less than three hours.
The road to Morogoro in 2015. Note the bags of charcoal offered for sale on the roadside. While charcoal production is believed to account for the lion’s share of deforestation in Tanzania, critics blame tobacco farmers, who use wood for curing.
Transformation
For a tobacco man, it’s a journey well worth making because Tanzania’s industry has changed beyond recognition. At the turn of the century, the country produced less than 20 million kg of flue-cured Virginia (FCV) tobacco. In 2010–2011, Tanzanian farmers harvested a record 122.9 million kg. The 2010–2011 season was exceptional for several reasons, but the trend has been irrefutably upward, with this year’s crop expected to be 90 million to 100 million kg.
Quality has improved, too. “I remember Tanzania tobacco being mostly filler leaf,” says Alex Tait, leaf and sales director at Alliance One Tobacco Tanzania (AOI), who previously worked in Zimbabwe. “Now Tanzania produces the full range, from filler to semi-flavor/flavor styles,” he marvels.
“In the 1990s, ‘Tanzania’ was a two-color crop,” echoes Rob Glenn, general manager of JTI Leaf Service (JTILS), which started operations in Tanzania only recently. “Today, the country produces a good quality, with the ripe, semi-flavor styles that are liked by blue-chip customers.”
Importantly, Tanzanian tobacco today is striving hard to meet requirements in terms of regulatory compliance.
Needless to say, the changes did not happen overnight. As stakeholders repeatedly pointed out during Tobacco Reporter’s visit, the transformation of Tanzania’s tobacco industry has been a process rather than an event. It has been the result of a concerted effort by all stakeholders to improve the reputation of Tanzanian leaf, which plays a key role in the country’s economy.
Tobacco is the No. 1 foreign exchange earner among all of Tanzania’s traditional cash crops, raking in more than $100 million per year. In addition, it is a leading source of employment. There are nearly 100,000 tobacco farmers in Tanzania, according to the Tanzania Tobacco Board (TTB). Add to that farm laborers, factory workers and people working in support industries—plus all of their dependents—and you get an idea of the industry’s significance.
The golden leaf arrived in Tanzania from Malawi in the 1930s. Cultivation started in the south of the country but gradually spread to other regions. Over time, Tabora evolved into the biggest production center; today, the region accounts for 60 percent of Tanzania’s production. Some 95 percent of Tanzanian leaf is FCV. The country still grows dark fired varieties in Songea, but volumes have dwindled rapidly as the global market for that style continues to decline.
But while tobacco production spread to multiple regions, leaf processing concentrated in Morogoro, an area oddly ill-suited for tobacco cultivation due to its climate (too hot) and elevation (too low). Part of that was due to logistics: The vast majority of Tanzanian leaf is exported, and all roads from the growing areas to the port pass through Morogoro. The other reason was Morogoro’s relatively high level of development. “You need ample supplies of water and electricity to run a tobacco processing plant,” says David Crowhurst, factory director at Tanzania Tobacco Processors Limited (TTPL), the Tanzanian processing subsidiary company of Universal Leaf Tobacco Co. (ULT) Both are more readily and reliably available in Morogoro than they are in Tabora and other growing areas.
Tobacco research centers such as Torita and Urambo have played a significant role in the development of Tanzanian leaf.
The separation of growing and processing is also an attribute of the current legal framework; it’s against the law to export green tobacco. Unlike other cash crops in Tanzania, tobacco promotes local agro-processing, creating additional employment.
This situation has helped spread the wealth generated by tobacco, but it also left the tobacco industry with a massive area of operations. Whereas the vast majority of Zimbabwean tobacco is grown in a comparatively small area around Harare, Tanzanian tobacco is scattered far and wide. The leaf-growing area in Tanzania is the size of Germany, according to Glenn—but without a German-style Autobahn network. Tabora and Morogoro are almost 700 km apart, and though this road, too, has improved, some stretches apparently still resemble the Dar es Salaam-Morogoro “highway” of the 1990s.
Along the more desolate parts of this route, security is an issue. Rather than driving directly from Morogoro to Tabora, Tobacco Reporter was advised to fly from Dar es Salaam to Mwanza, on the southern shores of Lake Victoria, and continue to Tabora by road from there. This would significantly lessen the risk of highway banditry. Tobacco truckers don’t have the luxury of taking such a detour, of course, but apparently the danger to them is lower because the robbers are more interested in cash and electronic gadgets than they are in unprocessed tobacco leaf—even if the leaf passing through their territories is of a higher quality than ever.
The tobacco produced today more closely matches what merchants want to buy
Reform
Asked about the Tanzanian tobacco industry’s remarkable growth, stakeholders cite three factors: economic liberalization, effective extension services and the eagerness of Tanzania’s farmers to learn. The decline of Zimbabwean tobacco production after 2000, as a result of political instability in that country, provided an opportunity for Tanzania as well.
After independence in the early 1960s, Tanzania initially pursued a form of socialism, collectivizing farms and nationalizing industries. The TTB’s predecessor, the Tanzania Tobacco Processing and Marketing Board (TTPMB), supplied tobacco farmers with inputs such as seeds, fertilizers and crop-protection agents. After the crop had been grown, the TTPMB would deduct the cost of its inputs from the tobacco price. What remained was income for the farmer. As it name implied, the TTPMB was also responsible for processing and marketing the crop. The board operated a tobacco processing factory in Morogoro.
The system did not work well, however. Because of extensive bureaucracy and a lack of funds at the TTPMB, farmers often received their inputs too late or not at all. There were als
Urambo Seed Farm manager Michael Mshaga inspects a batch of tobacco.
o difficulties with payments.
Things changed in the 1990s, after the Soviet bloc collapsed and many former command economies started embracing free-market policies. “Government has no business doing business,” President Benjamin William Mkapa famously declared after his election in 1995. The state got out of the tobacco trade, reforming its tobacco board and selling its processing factory (ULT won the bid; AOI later built its own factory). The newly created TTB would focus on regulation, administering one of the world’s most intricate tobacco-marketing systems.
The Tanzanian leaf tobacco industry is dominated by small-scale farmers, with an average plot size of 0.7 hectares. To increase their leverage at the negotiating table, growers organize themselves in “primary societies,” which in turn belong to corporate unions. There are 148 primary societies and seven corporate unions in Tanzania. The buyers include ULT’s local trading subsidiary—Tanzania Leaf Tobacco Co. (TLTC)—AOI, Premium Active Tanzania and JTILS. China’s state tobacco monopoly, too, has recently shown an interest in Tanzanian leaf, but experts caution against inflated expectations, as Chinese buyers tend to be selective.
Growers and buyers come together in the Tanzania Tobacco Council (TTC), pursuant to Tanzania’s tobacco laws and regulations, to confirm minimum prices per grade and debate industry issues. Agreements are reached by consensus and the TTB serves as an umpire. Prior to the season, the TTB and other stakeholders jointly analyze and determine the cost of production, recommend an appropriate margin and then confirm a minimum price per grade for TTB publication. This way, the farmer will know the minimum he or she will receive for a given quality of tobacco before the season has even started. Because classification is all-important, the system includes elaborate checks and balances, as well as arbitration procedures in case of disagreement.
Stakeholders say they spend lots of time in meetings, talking “endlessly” to reach consensus, but overall, they appear happy with the setup, which provides a government-mandated, transparent and effective framework. “The key is acceptance,” says Glenn. “Here is a process that everybody understands. It is time-consuming but it works.”
Extension
Taking advantage of economic liberalization, the tobacco industry set out to improve agronomic practices. Initially, the tobacco buyers provided their respective contracted growers with finance, inputs and agronomic advice, but like the TTPMB before them, they found it tough going. There were problems with side-marketing (when a farmer contracts with one company but sells to another) and loan recovery. The quality left much to be desired, too. “There was a disconnect between what we wanted to buy and what was produced,” says Richard Sinamtwa, group corporate affairs director at TLTC.
In 1999, TLTC and AOI’s predecessor companies, with the blessing of the government, created a structure to help address some of these issues—the Association of Tanzania Tobacco Traders (ATTT). The ATTT provides extension services and logistical support to some 53,000 farmers, allowing the tobacco merchants to focus on their core business of buying, processing and exporting tobaccos.
While TLTC and AOI are currently its only shareholders, others are welcome to join, and the association’s services are available to all players. (Farmers, through their unions, have also been invited to apply for membership.) “We are a neutral middleman; competitive issues stay off our radar,” stresses Alex Gagiano, general manager of the ATTT, which takes great care to protect each client’s confidential and proprietary information. “We are here purely to help train farmers.” JTILS is a client while Premium, which sources most of its tobaccos in Mbeya in the south of the country, has opted to stick with its own crop-development program.
Virtually everybody interviewed agreed that the ATTT has been a major driver behind tobacco’s transformation in Tanzania. “ATTT should get lots of credit,” says Bruce Coleman, agronomy projects, STP, SRTP and GAP manager at TLTC. With a staff of 1,000, including 600 field technicians, the organization covers an area of 300,000 square kilometers.
Traditionally, the ATTT’s training sessions have focused on good agricultural practices, advising farmers on the correct dosages of fertilizer and proper topping heights, for example. In recent years, however, the emphasis has shifted toward sustainability and compliance. “Today, I spend 75 percent of my time on sustainability issues,” says Gagiano. “Only 25 percent is dedicated to traditional crop and administrative duties.”
AOI’s Alex Tait and Hamis Liana. The country’s tobacco-growing area is said to be the size of Germany.
The sustainability file includes forestry, agricultural labor practices, water and soil management, with forestry and agricultural labor practices demanding the greatest amount of attention. “Trees are now as important a crop as tobacco,” says Gagiano. Tanzania’s tobacco farmers use wood for curing, and the tobacco industry has been blamed for deforestation. Even though studies suggest the lion’s share of forest loss in Tanzania is due to charcoal production for domestic applications, industry representatives agree that the industry must do its bit to address the problem.
The tobacco industry provides farmers with tree seedlings and encourages the regeneration of natural forests, but changing habits can be a challenge. Many farmers don’t see the problem; they think there are plenty of trees. But others are starting to appreciate the issue. “Growers realize they now have to walk further to get their fire wood,” says Gagiano. Under the motto “No trees, no tobacco,” buyers have made tree planting, as well as the adherence to good agricultural practices, a condition of every tobacco contract. “The goal is for farmers to be self-sufficient in curing wood by 2020,” says Gagiano. The focus is also on curing methods, promoting the most efficient barn technology to limit wood use.
The tobacco processing factories, too, are doing their share to decrease their environmental footprint. TTPL, for example, is in the process of installing a biomass boiler, which is expected to reduce carbon emissions by 90 percent. The boiler will run on waste generated by a nearby teak timber plantation.
The other big compliance issue is combatting child labor. The industry in Tanzania goes to great lengths to ensure that farmers adopt good agricultural labor practices and send their children to school. If a farmer is caught with underage workers in his field, he can lose his growing contract.
Much revolves around education, according to Coleman. One aspect of compliance, for example, is ensuring farm laborers receive at least the minimum wage. But if farmers don’t know there is such a law, they can hardly be expected to adhere to it. Despite the challenges, Gagiano says considerable progress has been made, and many growers are already in full compliance, which is a remarkable achievement considering the ATTT’s vast territory and large number of clients. “When talking about sustainability, you will not find a single NGO with such extensive coverage in Tanzania,” he says.
The Tanzanian tobacco industry’s efforts to produce a high-quality, sustainable crop have also benefited from the work of two tobacco research institutions—the Tobacco Research Institute of Tanzania (Torita) in Tabora, and TLTC’s Urambo Research and Seed Farm. Torita was established in 2000 to partner with stakeholders and promote good agricultural practices in tobacco production, curing, primary processing and environmental conservation.
Among other contributions, the institute, in collaboration with the Tanzania Official Seed Certification Institute, has released and registered new, higher-yielding tobacco seed varieties and facilitated the evaluation of suckercide. Torita is also exploring ways to make curing barns more efficient because, as Torita director Jacob Lisuma points out, “A good crop is worthless without proper curing facilities.” Torita research has also shown that, contrary to what critics suggest, tobacco remains the most profitable cash crop for Tanzanian farmers. In 2012, the institute helped disprove suggestions that tobacco growing was negatively affecting honey production in Tabora. As it turned out, the rumor had been started by Kenyan honey traders looking for a deal.
The Urambo Research and Seed Farm performs similar work as well as other research and development activities, focusing on labor cost, sustainability and fuel efficiency, among other issues. According to Urambo manager Michael Mshaga, inefficient, wooden curing barns dominated the landscape in the 1990s. Today, 98 percent of them are made of brick. “Now we are taking efficiency to the next level by improving the heat channels,” he says. In developing technologies, Urambo strives for solutions appropriate for local conditions. “We can’t simply take a hyper-efficient U.S. barn and install it in Tanzania,” he says.
Alex Gagiano, general manager of ATTT, which has been a driving force behind Tanzania’s transformation as a tobacco supplier.
Moving forward
Despite the considerable progress made in the Tanzanian leaf tobacco industry, many challenges remain. While the rampant side-selling and problems with debt recovery of the 1990s have been tamed, these issues have not disappeared. Corruption remains a problem at certain levels of government, and there are concerns about corruption and a lack of proper governance in some of the unions and primary societies.
Cheddy Mhiwa, agronomist at the Western Tobacco Growers Cooperative Union, says his organization is working with all stakeholders to combat the problem, training leaders and developing strategies. In this context, many players have been encouraged by the recent passage of a law banning politicians from assuming management positions in unions and primary societies.
Overall, however, Tanzania seems to be on the right track. According to Coleman, yields have almost doubled since the 1990s. “Last year, we saw yields of just under 1,500 kg per hectare—of course, that is still only half of what the Brazilians are getting, but in this climate and environment, it’s quite good. It shows that the extension is working,” he says.
Tobacco buyers who haven’t been to Tanzania in a while may want to consider adding the country back into their travel schedule, and not just because of its vastly improved leaf.
Tanzania is home to more than 120 tribes and divided almost equally between Christians and Muslims, yet they all manage to rub along peacefully. Nowhere does the country’s diversity become more apparent than on its cheerfully chaotic roads. Tanzanian drivers like to decorate their vehicles with images of their heroes. Returning from Morogoro to Dar es Salaam, we encountered not only the country’s independence leader, Julius Nyerere, but also U.S. President Barack Obama, rap artist Jay Z, Colonel Moammar Gadhafi and Jesus Christ. Muslim drivers, banned by their faith from depicting their prophet, had embellished their vehicles with brightly colored Quranic verses.
Yet despite the variety in worldviews on display, there were no signs of antagonism, reflecting Tanzania’s cohesion as a nation-state. Rather than quarreling over ideologies, drivers focused on protecting their precious share of asphalt, so as to hasten their journey home. The preoccupation with such everyday concerns bodes well for the tobacco industry because it suggests that Tanzania offers not only a good crop but also a stable business environment—something that is not necessarily a given in other African sourcing areas.
U.S. Tobacco Cooperative (USTC) was left out of Tobacco Reporter’s July 2016 Who’s who edition (“From the source,” page 50), which focused on leaf merchants. As a key player in the leaf tobacco industry, USTC should of course have been included. Tobacco Reporter regrets the omission. Below is the profile that should have run in our July issue.
Based in Raleigh, North Carolina, USA, and comprising more than 750 member growers throughout North Carolina, South Carolina, Virginia, Georgia and Florida, USTC is the largest grower-owned marketing cooperative in the U.S. The cooperative also has a compliant and efficient processing facility located in Timberlake, North Carolina.
Whereas the major leaf suppliers will return a dividend to their shareholders and investors, USTC reinvests most of its profits in its contracted tobacco growers. Since 2010, the company has declared patronage dividends of $46.2 million to its member growers, including $24.3 million in cash. USTC’s patronage dividend gives its growers the opportunity to invest in efficiencies, which improves the U.S. flue-cured production model in terms of the environment, people and the planet.
Volume and pricing predictability are essential for growers’ viability and the sustainability of their flue-cured crop. As global and domestic demand fluctuates according to sales of manufacturers’ smoking products, USTC’s patronage dividend helps growers offset the impact of supply/demand cuts in contract volumes and is paramount in their ability to invest in growing high-quality, compliant flue-cured tobacco.
The patronage dividend is not a premium, bonus or subsidy, and it does not increase the cost of the tobacco to the end user—it is purely the distribution of profits made by USTC from its sales of leaf and related products back to its grower members.
The company has also passed $14 million in tax deductions to its growers through the Section 199 Domestic Production Activities Deduction, which offsets most of the taxes owed on the dividend.
USTC’s efforts have not gone unnoticed. In 2015, the firm won a Golden Leaf Award in the Most outstanding service to the industry category for its contributions to the sustainability of the U.S. flue-cured tobacco production.
At least 66,554 ha of land had been put under tobacco in Zimbabwe as at the end of last week, according to a story in the Zimbabwe Herald quoting the industry regulator, the Tobacco Industry and Marketing Board (TIMB).
