The South Brazilian tobacco crop for 2024/2025 will cover 309,982 hectares, marking a 9.08 percent increase from the previous crop, reports Kohltrade, citing the Brazilian tobacco growers’ association, Afubra.
Paraná state recorded the largest growth at 13.63 percent, with 83,981 hectares planted. Santa Catarina follows with 11.78 percent, with 94,212 hectares planted and in Rio Grande do Sul, 131,789 hectares were planted, reflecting a 4.6 percent rise.
More than 138,020 families will be involved in in this year’s tobacco crop, 3.57 more than in the previous season.
“We are emerging from two very profitable harvests for many tobacco growers, leading to high profitability,” said Afubra President Marcílio Drescher. “As a result, more land is being dedicated to tobacco cultivation, with families returning to this crop. However, these developments are concerning. An increase in cultivated area during a period of stable weather could lead to higher production levels, which may negatively impact producers’ income.”
In terms of production volume, the initial estimate indicates a boost of 37.08 percent, leading to a total production of 696,435 tons in southern Brazil. This includes 630,539 tons of Virginia tobacco (36.52 percent), 54,624 tons of Burley tobacco (44.07 percent), and 11,272 tons of Common tobacco (36.45 percent).
Representatives from grower organizations and tobacco companies are currently calculating the production costs for the 2024/2025 harvest. Price negotiations are expected to commence once this assessment is completed.
Buyers have been paying record prices to secure their shares of Brazil’s smaller-than-expected tobacco crop.
By Taco Tuinstra
On March 21, a ferocious storm tore through Brazil’s southernmost state, Rio Grande do Sul. The wind flattened numerous outdoor pavilions at the Expoagro exhibition in Rio Pardo, forcing its organizer, tobacco growers’ association Afubra, to close the event for a day and repair the damaged stands. In a more welcome development, the tempest brought relief from the heat wave that had been making life tough for those toiling in the region’s numerous fields and leaf processing facilities.
But while Expoagro reopened to large crowds and the temperature dropped to more tolerable levels in the wake of the storm, other pressures on the industry continued unabated throughout the selling season. Alliance One Brazil Leaf Production Director Samuel Streck, who has worked in the business for two decades, described this year’s crop as the most challenging in his career, and his view was echoed by many other industry veterans throughout the Brazilian tobacco sector during Tobacco Reporter’s visit to the region in March.
A significantly smaller-than-expected crop, acute labor shortages and record-high prices, along with heightened scrutiny of tobacco farming in the wake of the 10th Conference of the Parties (COP10) to the Framework Convention on Tobacco Control (FCTC), have kept the Brazilian leaf sector on its toes this year.
Having been forced to temporarily cease operations due to storm, Afubra’s Expoagro reopened to large crowds. (Photos and videos: Taco Tuinstra)
Low Yields, High Quality
It wasn’t supposed to be that way. When planting for the 2023-2024 crop started in May last year, the industry predicted a volume increase of about 10 percent over the previous season, when the country’s growers harvested some 605.7 million kg of all tobacco types, according to Afubra.
At first, the weather conditions appeared to validate that assessment, but then El Nino hit. The recurring weather phenomenon, which typically boosts precipitation in South America, had been anticipated but turned out much more intense than normal. From mid-July until the end of November, El Nino dumped unprecedented volumes of rain on southern Brazil, leading to flooding in lower lying areas. Accompanied by many sunless days, the wet conditions depressed yields not only in Rio Grande do Sul but also in Santa Catarina and Parana, the three southern states that together account for 98 percent of Brazil’s tobacco production. (The remaining volumes grow primarily in Bahia and are used to make cigars.)
Crop
Hectares planted
Production (million kg)
Leaf export earnings
2023
261,740
605.7
$2.66 billion
2022
246,590
560.18
$2.24 billion
2021
273,356
628.49
$1.31 billion
2020
290,397
633.02
$1.47 billion
2019
297,310
664.36
$1.99 billion
2018
297,460
685.98
$1.85 billion
2017
298,530
705.93
$1.96 billion
2016
271,070
525.22
$2.01 billion
2015
308,260
697.65
$2.06 billion
2014
323,700
731.39
$2.35 billion
2013
313,575
712.75
$3.09 billion
Sources: Afubra/SindiTabaco
Instead of a 10 percent boost, the industry was now looking at a 20 percent drop in volume from 2023. By late March, Afubra was expecting about 470 million kg of flue-cured Virginia (FCV) and roughly 40 million kg of burley.
But even as the excessive rainfall slashed yields, it worked wonders for leaf quality. Brazil’s 2024 crop boasts good color, uniformity and smoking properties, according to buyers. High oil levels give this year’s leaf a better visual appearance than in 2023. What in the previous year was predominantly light orange to orange is this year orange to deep orange, observed Kohltrade in a recent crop report. “It’s perfect, in my opinion,” said Kohltrade Account Executive Simone Velasques.
And it’s not just looks that set this crop apart; the tobacco smokes exceptionally well, according to Eduardo Renner, president and CEO of CTA-Continental. “That’s also the feedback we are getting from customers,” he said. On the flipside, the rain also suppressed nicotine levels in this year’s tobacco. According to Jay Barker of YTL, the excess rainfall has resulted in below-average chemistries across the board. Because the wet season followed three consecutive dry ones, the gap in nicotine levels between the current crop and the previous one is greater than normal, which may challenge some customers in creating their desired blends.
Andie Spies of Hail and Cotton (left), and Eduardo Renner at CTA’s Venancio Aires headquarters
Chasing Tobacco
The combination of low volume and high quality, along with a persisting post-Covid-19 tobacco shortage at the global level, sparked a scramble among tobacco companies in Brazil to secure their requirements. As a producer of sought-after flavor tobacco, Brazil has only two true competitors on the world market—Zimbabwe and the United States. Zimbabwe, where El Nino brought drought instead of rain, is also looking at a smaller crop this year (albeit from a record volume in 2023), according to that country’s Tobacco Industry and Marketing Board. United States FCV production, meanwhile, has been stable for three years at just below 140 million kg, TMA figures suggest.
The shortage has been aggravated by the fact that last year some customers didn’t buy everything they needed because they were expecting cheaper tobacco this year. Coming out of the pandemic, many customers adopted a wait-and-see approach, carefully managing their stocks to avoid buying at high prices. Now, with inventories running out, those who didn’t buy last year had to buy this year.
According to local traders, Brazil’s leading tobacco buyers alone needed more leaf than the entire volume that was expected to come to the country’s market in 2024. Throughout the season, the vertically integrated companies—BAT, Philip Morris International, Japan Tobacco International and China Tobacco—were buying far above list prices, paying top rates for all grades and leaving independent traders with no choice but to follow their lead.
Simone Velasquez (center)
The result has been an unprecedented escalation of leaf prices and an acceleration of deliveries. In mid-March, farmers were receiving up to $5.50 per kilogram of green tobacco, according to Kohltrade. For processed leaf, customers were paying up to $9.50 for grades that cost perhaps $5 only three years ago. “Prices are up, up, up,” observed Afubra President Marcilio Drescher.
Daison A. Kohl, who grows 2.7 hectares of tobacco in Vale do Sol, said he has never in his time on the farm witnessed such high prices and such fierce competition. Unlike many of his neighbors, Kohl contracts only with one buyer. Yet throughout the buying season, his phone rang nearly daily with representatives from other companies asking him to sell his leaf to them instead.
Kohl had to disappoint them all. “It doesn’t matter how much they offer; the tobacco is just not there,” he said. Merchants have been telling their customers a similar story. Whereas in a more typical year, they may exaggerate and say, “there is no tobacco” as a price negotiation tactic, this season it is simply a statement of fact.
The scramble for tobacco has also greatly accelerated the purchasing process, leaving some receiving stations struggling to keep up with the influx of leaf. At the time of Tobacco Reporter’s visit, leaf merchants were expecting farmers to run out of tobacco by the end of April—two months earlier than in 2023. “Customers who come late to Brazil may not find what they are looking for,” warned Velasques.
Leaf tobacco exports have earned Brazil an average of more than $2 billion annually over the past decade.
Labor Scarcity
For the growers, the 2024 marketing season has been a mixed bag. Even with record per-kilo prices, the additional income may not make up for the reduced weight that they are bringing to market, according to Afubra. Kohl, who suffered a 26 percent drop in yield from last year, said that as long as the companies continue paying above list prices, his operation will remain profitable this year. “But if they resort to paying list prices, it will be a problem,” he said.
While the cost of inputs such as fertilizer have been coming down from their Covid-19-induced and Ukraine war-induced spikes, a long-running shortage of labor has worsened in recent years, impacting both farmers and tobacco factories. But whereas tobacco buyers can mechanize operations such as rack loading and stripping, farmers have fewer options. With an average property size of 10.5 ha and an average area devoted to tobacco of only 3.29 ha, according to Afubra, the typical tobacco farm in southern Brazil is simply too small to justify the investment in equipment. What’s more, many of the tobacco growing activities lend themselves poorly to mechanization. There are no machines for delicate tasks such as sucker control and topping, for example.
Meanwhile, aware of their growing scarcity, farmhands have started driving harder bargains. In Vale do Sol, they have organized themselves in collectives, forcing farmers to negotiate with groups instead of individuals, according to Kohl. To guarantee a group’s labor throughout the growing season, he must pay a premium on top of the already inflated salaries.
Determined to control their cost of production, Kohl and his wife, Solange, carry out many of the tobacco farm activities, including land preparation, themselves. They hire labor for the first, second and third reapings, when the leaves are still thin and easily damaged and speed is of the essence. “If we don’t harvest quickly during that time, we will lose quality,” said Kohl. From the fourth reaping onward, the tobacco is thicker and less fragile, allowing the Kohls to harvest by themselves and save money on labor.
Their workload has been lightened a bit by a recent switch from bundles to loose leaf. In the past, growers in Brazil would classify their tobacco according to quality and color and then tie the leaf into bundles—a laborious process that could take up to two months. As demand increased, some buyers told farmers to skip this step and deliver the tobacco in loose form instead. The practice spread rapidly and has now been adopted by all merchants. After drying the tobacco, the farmer can take his tobacco directly from the barn to the bale and put it on a truck, not only saving time and labor but also greatly accelerating the speed of delivery.
While some buyers at first worried about how the new practice would impact processing, those concerns turned out to be manageable. “Loose leaf is not necessarily the best way to receive tobacco in terms of the feeding table and the presentation of each grade, but we quickly realized it’s possible,” said Streck. According to Renner, the process remains the same. “You can still tip and thresh the leaf because it is straight laid.”
Farmer Succession
The Kohls are happy with the change to loose leaf, as it allows them to focus on other farm activities. As they work their fields, they are occasionally joined by their oldest son of 34, who has no interest in farming but feels a duty to help on some evenings after he’s done with his day job. Their middle son (25) by contrast “does not even want to see the tobacco,” according to Kohl, while their youngest (8) is too little to work on the farm. (Brazilian law requires tobacco workers to be at least 18 years of age, and following intense industry-led awareness campaigns, the country’s sector today is considered a role model in in eradicating child labor.)
The Kohls’ family dynamics hint at another challenge facing Brazil’s tobacco business: farmer succession. Like their counterparts around the world, many rural youngsters in Brazil aspire to work in the city, which has led to an exodus of skills and talent from the countryside. “Keiner will die Finger mehr dreckig machen”—nobody wants to soil their fingers anymore—observes Solange, who, like many people in southern Brazil, is more conversant in German than English as a foreign language.
A 2023 survey conducted by the Federal University of Rio Grande do Sul at the request of the Interstate Tobacco Industry Union (SindiTabaco), revealed that with an average monthly income of BRL11,755.30 ($2,234.75), tobacco farming families in southern Brazil are relatively well off, earning considerably more than the average Brazilian family. The Kohls, for example, live in a spacious, well-built home equipped with plenty of conveniences and some luxuries, including a small swimming pool. Within agriculture, too, the golden leaf continues to generate the best returns, according to industry sources, contradicting the narrative pushed by certain nongovernmental organizations that tobacco leaves growers in poverty.
Nadia Fengler Solf
But while the earnings from tobacco farming exceed those of other crops, the golden leaf is also more demanding. Unlike some other agricultural products, the farmer cannot just plant it and watch it grow. A good tobacco farmer, notes Kohl, must constantly keep an eye on the plants. “The weather can change things very quickly,” he said. “If rain comes, it puts the leaves on the plants and—boom—they become big overnight. And if you don’t go in and take the flowers off and the wind comes, it can topple the plants.”
With no one lined up to take over the farm, the Kohls’ tobacco volumes will disappear from Afubra’s production statistics after they retire. “We have another 10 years, and then we’ll be gone,” said Kohl. Unfortunately for tobacco buyers, their situation is not exceptional. According to the University of Rio Grande do Sul study, 27 percent of the growers in southern Brazil have no succession plan.
Acutely aware of the demographic drain, the tobacco industry has been looking for ways to keep young adults in the countryside. Originally set up by SindiTabaco and its associate companies to help combat child labor in rural Brazil, the Growing Up Right Institute (also see “Alternatives for Adolescents,” Tobacco Reporter, April 2021) now also runs programs educating young people on the verge of adulthood about the opportunities on the farm. By teaching youngsters how to optimize farm operations through technology and professional management, the institute hopes to convince them that they can live good lives in the countryside.
According to program manager Nadia Fengler Solf, the initiative has had some success. Upon graduation from the program, she said, many students have a completely new perspective on the possibilities in the countryside. Some decide to develop their family properties, investing in new technologies and diversifying their business, while others elect to pursue degrees in agriculture.
Solagne Kohl (left) and Daison A. Kohl grow 2.7 hectares of tobacco near their home in Vale do Sol. According to a study commissioned by SindiTabaco, tobacco growers are considerably better off financially than the average Brazilian.
COP Fallout
But even as the industry is working to keep farmers interested in tobacco, others are campaigning to steer them away. At COP10 in Panama, delegates vowed to step up action on Articles 17 and 18 of the treaty, which call for the promotion of economic alternatives for tobacco workers and the protection of the environment and health of tobacco workers, respectively. According to a speaker at this year’s Americas Regional meeting of International Tobacco Growers’ Association in Santa Cruz do Sol, the Panama COP could be the first to have a direct impact on the farm.
SindiTabaco President Iro Schunke dismisses the talk about alternative crops in Southern Brazil as unrealistic. “If we had another crop that generates the same income, farmers would have switched long ago on their own accord,” he said. Part of the problem, he explains, is the small average size of farm properties. “To replace the money from one hectare of tobacco, you need to grow 7 hectares of soybeans or 10 hectares of maize.” The pressure for diversification, meanwhile, is unnecessary, according to Schunke. “Tobacco farmers in Brazil are diversified already,” he said. While generating between 60 percent and 70 percent of the average grower’s income, tobacco claims only 20 percent of their property, according to SindiTabaco. Part of the money earned from tobacco is used to plant supplemental crops.
“If we had another
crop that generates
the same Income,
farmers would have
swItched long ago on
theIr own accord.”
Brazil was one of the most vocal proponents of stricter tobacco controls at COP10, a position that Schunke considers odd, given that leaf tobacco accounts for 11 percent of Rio Grande do Sul’s exports, employs more than half a million farmworkers and earned Brazil an average of more than $2 billion annually through exports over the past 10 years (see chart). Schunke attributes the government’s tough stand to pressure from nongovernmental organizations and the exclusion of tobacco stakeholders from health policy debates along with an ideological aversion to capitalism.
Some suspect the government’s position is driven partially by ignorance, with bureaucrats in faraway Brasilia unaware of how much rural communities in the south of the country depend on the golden leaf. “Although hostility against tobacco from agencies all over the globe is the new status quo and the path of least resistance, the fact is, the economic impact to the communities where tobacco is prevalent is very significant,” says Barker.
Santa Cruz do Sul Mayor Helena Hermany believes that Brazil’s national health surveillance agency, Anvisa, grossly underestimates and misrepresents the industry’s economic significance. More than 50 percent of the city’s revenue comes from tobacco, she told participants in the ITGA Americas meeting. “If tobacco does well, we all do well,” she said.
If tobacco does well, we all do well.
It terms of sustainability, the tobacco industry is also performing much better than it is given credit for. “We are doing quite well in terms of soil protection, reforestation and the prevention of child labor,” said Drescher. For example, Brazilian farmers are self-sufficient in curing energy, sourcing wood from dedicated plantations rather than indigenous trees.
According to Renner, sustainability is already an integrated part of everything the tobacco industry does. “Whatever we supply must cover these three capital letters,” he said, referring to the environmental, social and governance considerations that the abbreviation stands for. “What we do for our people, our clients, in our operations and in the communities we work with … our suppliers need to do for us.”
As they prepare for next season in the wake of this year’s short crop, industry stakeholders are keen to avoid a wild swing in the other direction. Emboldened by the high prices and keen to recover their lost volumes, many growers are likely to increase their plantings for the 2024–2025 season. Kohl, by contrast, is cautious, worrying that a surplus next year will depress prices, and he plans to plant the same hectarage as last year.
Others predict that the era of cheap Brazilian tobacco is over, not only due to demand-and-supply factors but also as a result of the considerable investments the local industry has made in sustainability. These investments should serve Brazil well as it moves into the new era, giving the country a competitive advantage against origins with less robust practices. At the same time, leaf merchants insist that the effort should be supported throughout the supply chain. ESG initiatives, after all, come at a cost that should be reflected in leaf prices. “It must be sustainable for all parties,” insisted Renner.
Taco Tuinstra is Tobacco Reporter’s editorial director.Based in Raleigh, North Carolina, USA, he coordinates the work of staff writers and contributors.On his watch, Tobacco Reporter has won several awards for editorial excellence.Since joining the magazine in 1997, Taco has visited more than 75 countries to meet industry representatives in their markets and to report tobacco news firsthand.
More than half of the tobacco produced in southern Brazil had been sold by the middle of March, reports Kohltrade, citing figures released by the growers’ organization Afubra. Driven by a short crop, the average per-kilo price was up nearly 20 percent over that paid during 2022-2024 marketing season.
According to the Ministry of Development, Industry and Commerce, Brazil shipped 512 million kg of tobacco in 2023, generating $2.73 billion in earnings. In the first two months of 2023, the country exported 75.3 million kg valued at $492.7 million.
According to information from Emater-RS, tobacco prices reached values above BRL20 ($4.02) per kilo for dry leaf, reaching up to BRL390 per arroba [11.34 kg] for tobacco classified as BO1 in some regions. However, producers expressed concern about the weight of the leaves, which has been lower than anticipated due to heavy rains during the growing season.
Reduced volumes and high prices are also accelerating leaf sales. Industry representatives expect sales, which normally extend to the end of June, to end in late April this season.
Brazil’s tobacco crop has been heavily impacted by the El Nino weather phenomenon this year. When production started in May 2023, the industry expected to harvest 10 percent more leaf than in the 2022-2023 growing season based on the area planted.
While the climate conditions initially supported the expectations for a larger crop, heavy rains from mid-July to the end of November forced the industry to adjust its figures downward. Instead of a 10 percent increase, market watchers are now predicting 20 percent drop in volume compared with 2023.
Rainy growing seasons tend to result in lower nicotine levels. Because this season’s heavy downpours followed three years of drought, which resulted in record high nicotine levels for Brazilian tobacco, there is now an unprecedented gap in the nicotine levels of the 2023 and 2024 harvests, averaging 0.35 percent to 0.5 percent for grades XC to BM, and up to 0.8 percent for grades B and BT.
But while nicotine levels have declined, the quality of Brazil’s tobacco is up significantly, with great maturity and a very good aroma. According to Kohltrade, Brazil’s tobacco this year has a very good and intense “flavor,” including in XC grade. Leaf position is showing good quality, and what in previous years was predominantly “LO” to “OF” light orange to orange, this year is “O” orange to “F” full orange or deep orange.
Overall, the industry expects a small drop in sugar levels.
With the reduction in volumes, competition has been fierce for Brazil’s 2024 crop. All companies are rushing to buy their volumes and serve their customers, greatly inflating the market and accelerating the process of purchasing tobacco.
The tobacco-growing areas in southern Brazil have been severely affected by adverse weather, according to a crop update provided by Kohltrade. In addition to hail, tobacco farmers have had to cope with excessive rains this season, causing plant roots to drown and leaves to develop spots.
Farmers were forced to harvest wet fields. Limited curing capacity will likely produce a higher percentage of mahoganies this season.
Despite an increased planted area, the average flue-cured Virginia (FCV) crop yield in the three southern states is estimated to be 20.5 percent lower compared than in a typical year.
Since weather patterns are not expected to change during the Brazilian summer, industry experts expect the total green FCV volume to be around 475 million kg.
The same weather conditions are forcing air cured burley farmers to collect and hang underdeveloped plants. Many farmers are reporting rotting leaves.
The negative impact on green volume is more than 20 percent, and Brazil is expected to produce around 39 million kg of burley this year. Lower yields will likely affect factory performance as well.
Small traders are already purchasing the new crop at inflated prices. The overall quality of the low stalk is poor due to the high inclusion of house-burned and unseparated leaves.
Historically, Brazilian rainy crops result in good-quality upper stalks, however. Alkaloid tests in early areas are showing lower nicotine levels, as expected.
In December, some companies began purchasing FCVs, while others began purchasing burleys as early as November. Farmer associations predict an increase in the cost of green product of more than 10 percent.
Tobacco growers in southern Brazil produced 560.18 million kg in 2021–2022, 10.9 percent less than in the previous growing season, reports Kohltrade, citing figures released by the Brazilian Tobacco Growers Association, Afubra, on Sept. 5.
Production included 512.59 million kg of flue-cured Virginia, 41.79 million kg of burley and 5.79 million kg of Galpao Comum, a native tobacco variety.
The area planted with tobacco in southern Brazil decreased by 8.8 percent year-on-year to 246,590 ha in 2021–2022.
While the leaf volume was down, the average price paid to tobacco growers in southern Brazil grew by 61.5 percent to BRL17.02 ($3.25) per kg this year.
The average price was BRL17.26 per kg in Rio Grande do Sul, BRL17.19 per kg in Santa Catarina and BRL16.41 per kg in Parana.
Industry representatives expect the southern Brazil region to cultivate a slightly larger tobacco area for the 2022–2023 crop.
The production estimate will be completed by the end of October.
Emerging from the pandemic, the leaf tobacco industry has once again proven its mettle.
By Stefanie Rossel
One and a half years into the Covid-19 pandemic, the world has yet to return to normal. Leaf merchants around the globe have felt the impact on their business, too, as they had to cope with new challenges in their operations. Yet tobacco has once again proven its famed resilience in times of crisis, and leaf traders have found solutions to handle the unprecedented circumstances. Tobacco Reporter asked several of them to describe their experiences and provide a snapshot of the current global leaf market.
“Global leaf markets have come out of the gate sizzling hot in 2021,” says Jay Barker, founder of U.S.-based JEB International Tobacco. “The dynamics of the Brazil crop have been heavily affected by the Covid lockdowns, and prices have subsequently skyrocketed. Zimbabwe seems to be quite firm also, and contracted volume in the U.S. was up substantially from 2020 levels. These are the times when being in the tobacco business is the most fun; there is never a dull day.”
“At this stage in the tobacco calendar, we are noticing an increased demand which exceeds supply in certain key export markets,” notes Alex Mackay, CEO of Premium Tobacco Group, which is headquartered in Dubai. “This in both the flue-cured Virginia (FCV) and air-cured burley varieties. The overall increase in demand will have a positive impact on all unsold inventories of which are at lowest levels seen for many years.”
Mackay has noticed a further reduction in the production of air-cured burleys this year. “We believe that certain manufacturers may face supply challenges as core sourcing origins deliver less volume than demand requires,” he says. “However, smaller niche markets could see increased interest as a result. Outside highly specialized and high-value cigar products that are still enjoying reasonably good demand, dark-fired production for the medium[-value] to super-value segments predominately for the Middle East, North African regions have dropped steadily for the past few years. We are expecting supply to stay restrictive and demand set to increase as crop production in African and Indian origins continue to decline.”
Hardy Kohl Jr.
Brazil plays a special role this year. The price of Brazilian flue-cured has surged recently, according to Mackay, and higher-than-expected demand continues to be seen across all quality segments. “We believe certain manufacturers are keen to capitalize on the current crop quality, and the potential threat of a shorter crop next year may necessitate longer range buying patterns to strengthen durations,” he says.“In Brazil, we have a signal for a reduction in production for 2022, among other reasons, due to the excellent gain of farmers with other products,” confirms Hardy Kohl Jr., general manager of Kohltrade in Brazil. “It has also been a challenge for players to deal with Brazilian exchange rate volatility, which, together with the reduction in margins, has increased the risk of operations.”
Miguel Goerck, sales director of ATC-Associated Tobacco Co. Brazil, also observes strong demand for tobacco, especially out of Brazil. “There will be no stocks available after the current season,” he says.
“Brazil has always been, along with Zimbabwe and USA, a source of quality tobacco. On the past two seasons, the demand has increased because of a few factors. The Brazilian Real suffered a steep devaluation; Zimbabwean tobacco is expensive and committed to a few customers; Chinese tobacco stocks are lower, and there are not as many lots available at very low prices as before. Many customers are looking for price and cheap tobacco only. With commodities’ prices and tobacco growing costs increasing, it will be interesting to observe what will be the market reaction already on the next crop.”
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Kohl anticipates the market to head toward a shortage of certain tobacco grades for the next few years. This is also a trend in the U.S., says Rick Smith, founder of Independent Leaf Tobacco Co. in Wilson, North Carolina, who observes a tendency toward tighter supplies of flavor styles and domestic underproduction of these types, especially dark types. “Other flavor markets are also beginning to show the same tendencies,” he says. “Prices are inching up, cutting into the dealer’s ability to make a profit. Filler styles are available.”
Oscar House, president and CEO of U.S. Tobacco Cooperative (USTC), has singled out a new business opportunity for U.S. farmers. “Given that USTC only deals with flue-cured tobacco, the most significant thing that has occurred is China returning to the market to not only buy the 2018 and 2020 crops but also with indications for the 2021 crop,” he says. “This gives our farmers an opportunity to increase their growing contracts by up to 80 percent with the cooperative, which will greatly help their farming operations with the cuts of the past two years. With China back in the U.S. buying tobacco, it will be a boost for the flue-cured crop going forward.”
With China back in the U.S. buying tobacco, it will be a boost for the flue-cured crop going forward.
Quality Remains Key
While the South American and African tobacco crops are in mid-season, with both FCV and burley in high demand, marketing of the African crops has recently begun with demand again appearing to be in line with projected crop size, notes Jim Schneeberger, director of global leaf sales at CNT in Germany. “But quality will be the determining factor if indeed demand is to align with supply,” he says. “Weather continues to play an important role in the quality of tobacco crops and in turn farmers’ viability. Demand for competing agricultural crops is increasing, and there are some indications that tobacco growers may convert to food crops.”
“Tobacco demand is firm in most countries, and unsold stocks are in line with pre-pandemic average volumes,” says Rainer Busch, managing director and owner of Germany-headquartered NewCo Global Tobacco Trade & Service. “What is surprising is that, although the seasonal workforce is large and infection could be easy, the harvest volumes have not decreased dramatically. The same applies to the intensive workload in the factories, but no significant effects were found.”
Aylin Bahcevan, marketing supervisor of Istanbul-based Star Agritech International, hints at a development that began impacting the leaf market long before Covid-19 entered the scene. “Traditional tobacco product consumers are gradually inclining toward smoking alternatives due to the rising awareness about health concerns,” she explains. “Thus, the introduction of innovative tobacco products with unique taste options has become essential.
As a result, manufacturers have shifted their focus on premium tobacco products produced with flue-cured tobacco and fine whole leaf. The launch of low-nicotine and alternative smoke products are expected to rise and fuel the market growth of the next-generation tobacco products segment.
Prominent players in the industry, including us, are investing in research and development more than ever to meet the changing needs of the industry and lead the way of innovation. Such efforts bear the potential to help attract a larger customer base for tobacco products.”
Aylin Bahcevan
Traditional tobacco product consumers are gradually inclining toward smoking alternatives due to the rising awareness about health concerns.
The Challenge of Logistics
Last year’s season saw disruptions in key markets due to the Covid-19 pandemic. Travel restrictions not only caused shortages of agricultural inputs and seasonal farm workers, but also prevented many buyers and sellers from visiting the sales floors. In TR’s survey, leaf merchants unanimously named logistics as an issue of concern.
“By far, the most pressing issue for me is logistics,” says Smith. “With the pandemic raging, it is hard to get a shipment from point A to point B in a timely manner. What used to take 45 days now takes 90 if you are lucky. This seems to be true for all sources.”
“We face higher shipping and transportation costs and delivery delays due to the overbooking of certain routes,” echoes Busch.
For House, the biggest concern for his company is the supply chain. “This has been exacerbated by the Covid-19 pandemic, and it will take some time before shipping lines have a good handle on where goods are coming from and going to in order to smooth out the disturbances in the system,” he says. “Trucking has also been affected in the U.S., and it will also take time before there are the right amount of trucks for the right amount of drivers for the right amount of customers.”
“The impact of Covid-19 is still adversely affecting the leaf supply sector; we have seen some delayed decisions within the trade last year as customers postponed placing orders, tried to better utilize or manage existing inventories and gauge potential cigarette sales given restrictions and lockdown requirements,” says Mackay. “To further compound matters, the dramatic increase in freight rates from Asia and the general lack of availability of containers and shipping routes caused dramatic cost increases and caused longer than usual transit times. As we continue to deal with the potentially longer-term impact of this pandemic, we sense the industry will inherently be more cautious in tobacco production and financing. The cost of business could be more restrictive and might limit worldwide production plans and see diminished inventory levels that could lead to an undersupply in some segments.”
Nevertheless, leaf merchants remain optimistic. “The tobacco industry has proven to be very resilient in the face of Covid-19, and the only significant decline in combustible products is from the inactivity in global duty-free shops at airports and the like,” explains Schneeberger.
“The Covid-19 virus and the challenges that came along with it have made it our priority to facilitate a transformation for ourselves and our industry—a transformation that calls for a better understanding and improvement,” Bahcevan points out. Kohl expects a stabilization of the pandemic that should generate a recovery in investments. “It is a transition moment as we believe we are seeing this imbalance in basic market rules, such as the balance between supply and demand.”
For Dora Gleoudis, managing director of Nicos Gleoudis Kavex, which specializes in Greek oriental tobacco varieties, business life has returned almost to normal. “We are travelling a lot,” she says. “It’s good to see some recovery.”
Global leaf markets have come out of the gate sizzling hot in 2021.
Supply Chain Challenges
Meanwhile, strong demand for leaf tobacco is pushing farmer prices “to the roof,” according to Goerck. “The recent strengthening of the Brazilian Real is also pressuring the free-on-board prices up, which can make some customers source tobacco from other regions,” he says.
Ever stricter regulations only add to the pressure. In the EU, pending legislation will require companies to examine their supply chains for risks to human rights and the environment—and fix any shortcomings. The U.S., too, is enforcing social governance policies with regards to tobacco trade and delivery.
“Since the introduction of the U.N. Guiding Principles on Business and Human Rights in 2011 and the U.N. SDGs in 2015, there has been a rapid shift in focus to ensuring companies implement supply chain due diligence,” says Mackay. “The focus is on: ‘Was there minimal social and environmental impact during production?’ Companies are expected to follow and implement transparent programs using the procedure of: Identify. Prioritize. Respond. Measure. Report. The new STP program [Sustainable Tobacco Program—an industry-wide initiative that helps to drive standards in agricultural practices, environmental management and social and human rights areas] focuses on several themes, social and environmental issues being of particular significance.”
A prime example are chemical residues. “As with all agricultural products and increased consumer awareness, the elimination and use of highly hazardous pesticides in the supply chain is critical,” says Mackay. “To achieve this, the implementation of proactive programs focusing on safe application of reduced-risk products, coupled with robust traceability systems, is key for suppliers. For some regions and suppliers, this will be challenging, which could redefine the tobacco industry going forward. The regulatory landscape is rapidly evolving, and the ability of suppliers to effectively address and fulfill new requirements will determine their long-term success in an increasingly competitive industry.”
Compliant crop production, along with sustainable and responsible supply, will become more essential, according to Mackay. “The requirements and obligations by all future suppliers could have a dramatic effect on the way tobacco is produced, crop sizes and the countries and companies that can implement these potential requirements. The elements needed to ensure all tobacco is grown, processed and delivered in an environmentally, socially responsible, compliant and transparent manner that is likely to redefine the tobacco industry soon.”
Schneeberger believes the regulatory environment will remain a major factor within the tobacco industry. “The focus on the ESG [environmental, social and governance] footprint of manufacturers and suppliers alike will further regulate the way tobacco is produced, and countries that are unable to satisfy international sustainability standards will most likely lose their markets for tobacco, especially as relates to exports,” he says. “The apparent impact of climate change and resultant drought conditions in certain nonirrigated tobacco crops will continue to increase production of certain ‘nondesirable’ styles of high nicotine FCV and burley for which there is little demand.”
Spotlight: Macht Tabak
Leaf tobacco trade has a long tradition at Macht Tabak MIJ (MTM). The family-owned business, which is part of Macht Global Holdings, has roots in the tobacco industry dating back to 1951. Headquartered in Hong Kong, the leaf-dealing company has presence in Dubai, Izmir, Moscow and Luxembourg.
MTM provides a wide variety of leaf tobaccos from a selection of origins tailored with custom value-added services to become an essential solutions partner to its clients’ supply chain. While primarily supplying directly from the origins, MTM holds select tobacco stocks in Belgium and Dubai to fulfill the prompter requirements of its clients in the respective regions.
Furthermore, the company offers in-house cut rag blend selections for traditional American and Virginia blends as well as a tailor-made service to provide its customers with their very own rich taste signature blend.
In collaboration with its partners, MTM additionally serves in the supply of DIET and CRES products.
Hand in hand with activities of its affiliates, MTM supports its very own impact investment platform that focuses on sustainable solutions for a greener energy and resource-efficient future.
Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.
