Tobacco growers in North Macedonia are meeting Minister of Agriculture Cvetan Tripunoski today to discuss leaf prices, reports Sloboden Pecat. A meeting with buyers is scheduled for Nov. 4.
“We are not satisfied with the current price, which is at last year’s level, i.e., MKD375 [$6.58] for the first, MKD300 for the second and MKD260 for the third-class purchased tobacco,” said Kiro Risteski, president of the Union of Tobacco Growers Associations of Macedonia.
“On Monday, we have a meeting with the Minister of Agriculture, Cvetan Tripunoski. We think that we will find good cooperation, and on Nov. 4, we will have a meeting with the buyers. Our goal is to achieve a higher price for tobacco, to maintain production, to keep young people working in tobacco, because according to statistics, the average age of tobacco producers is over 50 years old,” said Risteski.
Tobacco growers in North Macedonia expect to bring about 17 million kg of good-quality tobacco to market this season. Buyers, however, had signed contracts with farmers for 26 million kg.
The market opens following a mixed growing season. Too much moisture at the start of the production process delayed planting. Subsequent drought boosted quality but reduced yield. Rains toward the end of the production season again boosted volume. Growers planted more than 13,000 hectares this year.
This year, 10 licensed companies will be buying tobacco.
Seke opens a tobacco processing factory in Macedonia. TR Staff Report
Facing declining cigarette sales and increasing regulatory pressures, tobacco companies around the world have been scaling back their operations and diversifying into other activities. So when a leaf merchant announces a substantial investment in its traditional line of business, the industry sits up and takes notice.
Next month, Seke will open a €6 million ($7.39 million) tobacco processing factory in Macedonia. Located near Prilep, in the heart of Macedonia’s tobacco growing region, the new facility will be able to store and process 4.5 million kg of oriental tobacco per year.
The opening is the latest step in Seke’s ambitious expansion plan in the Balkans.
Created in 1947, Seke is the Greek Cooperative Union of Tobacco Producers. Its headquarters and factories are in Xanthi, in northern Greece, an area known worldwide for its excellent-quality oriental tobacco. Today, Seke is the biggest tobacco company in Greece and the second-largest in the Balkans. It caters to multinationals, independents and local players.
At the turn of the century, Seke was a purely domestic player, according to Alexandros Kontos, the firm’s current general manager, who served as Xanthi factory director at the time. “The company was satisfied with the existing situation,” he says with a shrug. In 2000, Kontos left his position at Seke to run for public office.
Kontos was elected a member of parliament representing Xanthi prefecture. From 2004–2009 he served as minister of rural development. In this position, he looked after the interests of Greek tobacco growers during the EU negotiations on agricultural policy, among other things.
In 2010, Seke hit hard times, and the firm’s president asked Kontos to return and help the company improve its competitiveness. The tobacco industry was under attack on multiple fronts, and Greece had just been struck by the worst economic crisis in living memory. Many companies were having problems accessing finance. “Those were the most difficult years of my professional life,” recalls Kontos.
Despite the challenging economic environment, Seke formulated an ambitious growth plan that started with heavy investment in human resources. In addition to strengthening its leaf and agronomist teams, the company hired professionals in finance, exports and business development. “You need good players to make a good team,” says Kontos, emphasizing the importance of maintaining and enhancing the quality that has always characterized Seke’s work.
Seke spent €1.9 million ($2.32 million) to upgrade its Xanthi processing facility with the latest equipment, including a state-of-the-art Tomra laser sorter for the removal of nontobacco-related materials.
At the same time, the company decided to expand internationally. Seke’s strategic geographic location facilitated the expansion in the Balkans.
Considering Seke’s intimate knowledge of oriental tobacco, it made sense to enter other countries capable of producing that type of tobacco.
Seke set up operations in Bulgaria and Macedonia, signing contracts with farmers and hiring agronomy experts. Recently, the company started operations in Albania, too.
But Seke’s biggest splash was reserved for Macedonia, which the company views as the most sustainable source for classical oriental. According to Kontos, the country’s fertile soils, favorable climate and skilled farmers, along with its supportive regulatory environment (see sidebar), make Macedonia an ideal location for oriental tobacco production.
After receiving the applicable licenses and signing farmer contracts, Seke started operations in 2015. The company found warehouses and installed a pre-processing factory in the scenic town of Krushevo.
In 2017, the company contracted with about 3,500 growers, who produced some 2.5 million kg. This season, it expects to contract with 5,000 growers.
Initially, Seke sent the Macedonian tobaccos for final processing to Xanthi, a six-hour drive away. As volumes increased, however, it became economical to build a local factory—a move that also suited the company’s growth strategy.
Covering 11,000 square meters, the new facility is equipped with late-model presses, direct conditioning cylinders and soft dryers, among other pieces of machinery.
It will be fully operational in June and is expected to increase Seke’s local workforce from 250 to 350.
Unsurprisingly, local authorities have been keen to facilitate the company’s investment. Kontos says he has been impressed with the responsiveness of local authorities. Going forward, Seke intends to further promote Macedonian leaf qu
ality, not only by producing tobacco with desirable smoking properties but also by ensuring compliance. The company’s extensive agronomy department helps make certain that farmers use the appropriate fertilizers and crop protection agents, while minimizing environmental damage and ensuring the safety of workers.
According to Kontos, Seke’s customers have strongly supported the expansion in this country, demonstrating the industry’s continued interest in oriental tobacco. The company is eager to meet and exceed their expectations.
A sustainable source of classical oriental
It was standing room only in the theater of Prilep, Macedonia. On a chilly February evening, hundreds of farmers had come to hear agriculture minister Ljupcho Nikolovski clarify the government’s new agricultural policies. Weathered faces protruding from leather jackets took turns shouting questions about price supports, fertilizer supplies and import duties.
A beekeeper demanded protection against Ukrainian honey, which he said sells for less than his cost of production. To enthusiastic applause, another audience member asked the minister to raise crop prices by 30 percent. Tactfully rebuffing the request, Nikolovski pointed out that the government lost its authority to dictate prices years ago, when Macedonia emerged as an independent state from the Socialist Federal Republic of Yugoslavia.
Most questions, however, focused on Macedonia’s new tobacco law, which is set to take effect in the upcoming growing season. Eager to retain farmers and stimulate the production of quality leaf, the government is introducing new subsidies. Instead of receiving a flat mkd60 ($1.21) per kilogram, farmers will from now on be rewarded for higher qualities. Under the new system, grade 1 tobacco will attract mkd80; grade 2, mkd70; while grades 3 through 6 will continue receiving mkd60 per kilogram.
According to Jane Stankoski, acting manager of the State Agricultural Inspectorate, the new law builds upon an already solid legal framework for tobacco. If you want a tobacco trading license, for example, you need not only an agronomist, a processing line and a warehouse, but you must also prove that you have sufficient funds to pay your farmers. Growers, in turn, must substantiate to the government their land holdings; they cannot contract tobacco from land that they do not own. The objective is to guarantee a fair and stable trading environment for all stakeholders.
The rules demonstrate how seriously Macedonia takes its tobacco sector. At a time when most governments are distancing themselves from tobacco—witness, for example, the EU’s “decoupling” of tobacco subsidies—authorities in Skopje are strengthening their commitment to the industry.
Part of that has to do with tradition. Tobacco has a long history in Macedonia, dating to the time of the Ottoman Empire. The country has a near-perfect mix of soils, climate and farming skills for the golden leaf. “There is a true tobacco culture here,” marvels Manolis Kazantzidis, planning and business development director at Seke of Greece. Like their government, farmers in Macedonia are serious about tobacco, he says, noting that this is not always the case in other origins.
During the Yugoslav period, the tobacco industry was run by the state. After the federation collapsed in the early 1990s, the multinationals moved in. Today, Macedonia is home to two cigarette factories—one operated by Philip Morris International and one by Imperial Brands—and a whopping 10 leaf merchants. The renowned Scientific Tobacco Institute of Prilep—the oldest in the Balkans—supplies farmers with certified seeds and researches ways to promote plant health, among other tasks.
But the country’s positive attitude toward tobacco is driven also by economic realities. Generating some $124 million per year, tobacco is Macedonia’s leading agricultural export. The crop provides a livelihood to some 30,000 farm families and thousands more in supporting industries. Those are significant numbers in a country with a population of less than 2 million. What’s more, the net returns of tobacco growing are relatively high in Macedonia; according to Stankoski, the gap between earnings from tobacco and earnings from other activities is bigger than it is in competing tobacco growing countries.
Macedonia is fortunate in that it produces a style—classical oriental—that remains in demand even as global cigarettes sales have slumped. Classical oriental is an essential ingredient in the still popular American-blend cigarettes and the emerging heat-not-burn category. According to local industry representatives, the country’s type of tobacco is used by all major players. Also, as regulators around the world restrict the use of artificial tobacco flavorings, tobacco companies are likely to seek out more tobaccos with strong flavors of their own. Classical oriental fits the bill.
Only a handful of countries—the other ones are Greece, Turkey and Bulgaria—are capable of growing true classical oriental. With annual production averaging around 25 million kg, Macedonia is second to only Turkey in terms of absolute output. When measured against the size of its population and economy, however, the role of tobacco is much greater in Macedonia than it is in neighboring countries. Attempts to produce the leaf outside of the traditional sourcing areas have been unsuccessful. Reflecting the strong demand and limited supply, this year’s green prices were up by 10 percent over those of last year in Macedonia.
For the reasons outlined above, industry representatives view Macedonia as a sustainable source of classical oriental. Nonetheless, even here, there is concern about the future. At 45, the average Macedonian tobacco farmer is younger than his counterparts in Greece or Turkey, but he’s not exactly a spring chicken, either. Many youngsters view farming as unfashionable. They’d rather wait tables in the city than toil in the countryside. At the same time, health advocates are pushing farmers to embrace other crops.
The tobacco scientific community faces a similar problem. One of the Tobacco Institute’s big challenges, according to senior research fellow Biljana Gveroska, is recruiting young scientists.
Stankoski suspects young people would feel differently if they realized how lucrative tobacco farming can be in Macedonia. The combination of good prices and a guaranteed market, he says, is unrivaled. Part of the solution, he believes, lies in better communication. Another part could come from efforts to make tobacco farming easier. Growing oriental is a notoriously laborious undertaking, and leaf merchants have been looking into ways to mechanize the job. The new tobacco law, too, should help—not only by strengthening the legal framework but also by ensuring that good farmers are well-rewarded.—Taco Tuinstra
Following a visit to tobacco leaf-buying areas in Krivogastani and Prilep, the Macedonian Prime Minister Zoran Zaev said he expected increased demand and higher prices for domestic leaf, according to a story MIA Daily News story relayed by the TMA.
The Greek tobacco company Missirian was expected to sign contracts with farmers in Prilep in March 2018.
Zaev said tobacco growers’ returns had risen to MKD 269 per kg (US$5.16 per kg), which included an average price of MKD209.50 per kg (US$4.02 per kg) and a subsidy of MKD60 per kg (US$1.15 per kg).
There was no mention of previous price levels or by how much prices had risen.
Suppliers of classical oriental tobacco have matched production to diminished demand. Will they be able to accommodate a potential rebound?
TR Staff Report
The market for classical oriental tobacco has shrunk significantly in recent years. Following the European Union’s decoupling of tobacco subsidies from production and Turkey’s withdrawal of support for tobacco growers, production in the main sourcing areas plummeted; Turkey just harvested its smallest crop in living memory. At the same time, cigarette manufacturers decreased their use of oriental tobacco, creating an equilibrium between supply and demand. But as several oriental leaf traders pointed out during a recent visit to Greece, Bulgaria and Turkey, it’s a fragile balance, and the diminished industry would struggle to satisfy a sudden increase in demand.
Oriental tobacco has been famously described as a cigarette’s “salt and pepper” because it lends flavor and kick to tobacco smoke. Oriental tobacco is an important component of American-blend cigarettes, which rapidly gained popularity in the second half of the 20th century. But as cigarette sales started stagnating in the United States and Europe—the world’s leading American-blend markets—demand for oriental declined accordingly. Most of today’s growth markets are located in Asia, where smokers prefer Virginia cigarettes.
Also, in an effort to cut costs, manufacturers have been replacing premium oriental tobaccos with less expensive varieties and compensated for the loss of aroma with flavorings. This too has had an impact on demand for the classical oriental varieties. Nikos Allamanis, a Greek tobacco industry expert, estimates current global supply and demand of classical oriental tobacco at between 100 million and 120 million kg.
Production
On the supply side, production of classical oriental varieties has been affected by the withdrawal of support by the European Union and national governments. The Greek tobacco industry, for example, is a shadow of its former self. Whereas in the past the country’s growers could harvest more than 100 million kg of multiple tobacco varieties in a given year, they grew only two types of oriental in the most recent growing season—10 million kg of Basma and 10 million kg of Katerini (there’s also been a cautious revival of flue-cured Virginia production this year). The number of oriental leaf traders has shriveled along with the crops. Of the 22 companies operating in Greece in 2004, only four companies remain: Leaf Tobacco A. Michailides, Gleoudis, Missirian and SEKE. Socotab, which has a partnership with Universal Leaf, continues to trade Greek tobaccos but processes in neighboring Bulgaria. According to some estimates, there are about 15,000 tobacco farmers left in Greece, compared with more than 50,000 before decoupling.
On the bright side, the discontinuation of production subsidies has brought about a shift from quantity to quality. “Decoupling has weeded out the growers who cared only about volume,” says Nikos Tzoumas, managing director of Missirian. Once exposed to market forces, only the best growers could stay in business—growing in proper soils and following good agricultural practices. With the support of agricultural development programs, oriental tobacco cultivation today is concentrated in the regions of Thrace, East Macedonia and Central Macedonia. What’s more, today’s farmers are real farmers. Before decoupling, some “growers” were simply buying tobacco from others.
Bulgaria
Production of classical oriental tobaccos in Bulgaria has been relatively stable, hovering near the 20 million kg mark during the past few years. But Michail Papanastasiou, manager of Leaf Tobacco A. Michailides’ recently opened Sandanski factory, is bracing for a 20 to 25 percent drop in the upcoming season, which he attributes to the discontinuation of national production subsidies and a decline in commercial prices. Subsidies currently account for 40 percent of the money farmers receive for their leaf.
“Bulgarian growers will lose almost half their income overnight,” says Papanastasiou. He expects peasant farmers to continue growing tobacco because they have no alternatives. “Maize, wheat and sunflower don’t provide the same level of income,” he says. “And they don’t come with a guaranteed market like tobacco does.” But larger tobacco growers are likely to switch to such crops because they can make up for the lower per-kilo price with volume.
With their livelihoods threatened, Bulgaria’s tobacco growers have taken to the streets. The government is unlikely to be swayed by their protests, however, as the economic slowdown has depleted its coffers.
Turkey
Like in Greece, production of classical oriental tobacco has declined significantly in Turkey. The trade is looking at about 51 million kg of Izmir, Basma and Samsun this season—the smallest Turkish harvest on record. The decrease in Turkey was driven by the dismantling to the state monopoly, Tekel, which used to buy all unsold tobaccos at declared prices. For many years, this guaranteed uptake artificially boosted production, resulting in huge stocks and market distortions. At one point in time, Tekel was said to hold an inventory of 450 million kg. Those stocks have dwindled following privatization, and dealers estimate the former monopoly has only 11 million kg left, which will likely be sold within the next two years.
Without subsidies, farmers have found it difficult making a living growing tobacco. According to one trader, a kilo of tobacco used to cost the same as a bottle of raki, a popular Turkish drink. Today, a bottle of raki is much more expensive. And whereas in the past a typical farmer could buy a car with the income from a season’s tobacco crop, today he would be hard pressed to do so. Unsurprisingly, many farmers have abandoned tobacco growing. Currently, there are about 40,000 tobacco farmers in Turkey, compared with 62,000 only two years ago. This trend is likely to continue: The farmers who remain are aging, and their children would rather work in the cities than toil on the lands.
No slack
The attrition of tobacco farmers has merchants worried. While global supply and demand of classical oriental tobaccos are reasonably balanced today, it would be hard for the industry to accommodate a sudden increase in demand.
Such a reversal of fortunes for oriental leaf isn’t entirely unthinkable. During its November meeting in Uruguay, parties to the World Health Organization’s Framework Convention for Tobacco Control agreed to take action against cigarette ingredients. And while it remains unclear exactly which ingredients might be targeted, some fear it could result in a de facto ban on burley tobacco.
Without burley and additives, oriental is the only option to enrich the flavor of cigarettes. Regulation aside, consumer preferences also appear to be shifting toward more natural products, such as Santa Fe Natural Tobacco Co.’s American Spirit brand. Even multinationals have been launching additive-free versions of their flagship brands. Frederick de Cramer, general manager of Sunel Tobacco Co., has also noticed increased interest in classical oriental tobaccos from some nontraditional markets. Indonesia in particular has been a growth market for his company. “Turkish oriental blends well with the local tobaccos there,” he says.
At the same time, traders are keeping an eye on China, which is believed to be developing a blended cigarette with small amounts of oriental. Even if such a cigarette would include only 2 to 3 percent oriental, its impact could be huge, given the size of China’s cigarette market. China’s State Tobacco Monopoly Administration is reportedly also relaxing its concerns about blue mold. Traditionally, it has bought only tobaccos that are at least three years old, but it is said to be reconsidering that stance, possibly reducing the waiting time to one year.
While it’s always difficult to predict the market’s future requirements, and how the industry would respond to a possible ban on ingredients, the trade has its work cut out. Because so many growers have abandoned tobacco in the traditional growing areas, even a slight increase in demand would leave suppliers scrambling.
The industry has been working to develop new growing areas. Leaf Tobacco A. Michailides, for example, has been experimenting with oriental in several nontraditional areas and has been particularly enthusiastic about its results in India.
Sunel is active in Kyrgyzstan, while limited amounts of oriental are also grown in China, Thailand and certain Soviet Union successor states. But as one dealer points out, oriental leaf is finicky about soils and climates. Outside of the traditional growing areas, it is difficult to achieve the desired aroma and softness. The oriental varieties produced outside of the traditional growing areas do not compete directly with the classical oriental grown in the southern Balkans and Turkey.
The key to sustaining production in the traditional areas is farmer viability. “We need to give our growers better returns,” says De Cramer. To achieve this, tobacco companies in Greece and Turkey have been helping farmers increase yields and reduce their cost of production.
In Greece, leaf merchants have started buying tobacco earlier in the season—right after curing. The farmer gets cash in his pocket quicker and he doesn’t have to deal with storage. Of course, dealers take on extra stock under this scenario, but they are better equipped to do so than the farmer.
Traders have also been pushing the float system in Greece. “We first offer it free of charge to encourage the farmers to try it and then initiate their involvement in such practices,” says Tzoumas of Missirian. “We want to show farmers that they don’t have to run their business in the way their grandfathers did.”
At the same time, the industry has been moving toward more cost-effective packaging methods, abandoning time-consuming and expensive baling practices.
Because labor is the single biggest cost factor in oriental tobacco production, some dealers have been looking into mechanization of the process. Missirian, for example, has been working on a harvesting machine in cooperation with the engineering firm VIT. If successful, a harvester could change the cost calculation of oriental tobacco production completely.
Not all sourcing areas are equally suitable to mechanization, however. De Cramer says opportunity for mechanization in Turkey is limited because of the hilly topography of many tobacco plots and the limited support infrastructure in the villages. And the float system, he says, would be “a step too far” at this time in Turkey.
Instead, the Turkish industry is focusing on boosting yields through the use of certified seed and good agricultural practices, which should also help improve farmers’ margins.
In their efforts to sustain production of oriental tobaccos in the traditional growing areas, traders throughout the region are counting on the support of their customers. As one merchant points out, if cigarette manufacturers want more oriental tobaccos tomorrow, they had better make sure there will be farmers to grow it.