Tag: newco

  • Making a Splash

    Making a Splash

    Photo: NewCo

    A small water filter and a biodegradable sample bag may help reduce the environmental impact of tobacco production.

    By George Gay

    The U.N. Biodiversity Conference is due, Dec. 5–17, in Montreal, Canada, to convene governments from around the world to agree to a new set of goals for nature, according to the Secretariat of the Convention on Biodiversity. That is the good news, I guess. The bad news is that, in a note posted June 21 on the U.N. Environment Program website, the secretariat said that despite ongoing efforts, biodiversity was deteriorating worldwide and that this decline was projected to worsen with “business-as-usual scenarios.”

    One of the concerns I have is that we seem to be piling one existential crisis on top of another. A decline in biodiversity feeds climate change and environmental damage, and climate change and environmental damage feed a decline in biodiversity. And because of this seemingly catastrophic loop, I find it’s easy to become overwhelmed by a feeling of helplessness. But there is another way of looking at things. Firstly, we can admit that we are faced with an existential crisis, and secondly, we can respond positively in any and every way possible. And, luckily, there are some seemingly modest interventions that step out of the shadow of business as usual and punch above their weight.

    The idea that, in attempting to tackle the environmental crisis, we needed to look beyond the obvious, major interventions was suggested to me recently by Rainer Busch, the managing director of the tobacco dealer NewCo, in response to something I had written about deforestation being caused by tobacco farmers using wood fuel for curing tobacco. While accepting that such deforestation was a problem, he pointed out that a bigger problem was caused by the need for farmers and their families—along with many other people in less developed countries—to burn wood for other reasons, including the need to boil otherwise nonpotable water.

    Starting Small

    Fortunately, this domestic problem, while bigger, is potentially easier to address and is starting to be addressed in a modest way through a newly incorporated company, NewCo Pro, which was set up to focus on business opportunities that embrace positive socioeconomic initiatives outside the tobacco industry, though mostly connected with it. And one of NewCo Pro’s first initiatives has seen it partner with Sydney 905, a South Africa-based company that offers water filters.

    Jose Maria Costa, the senior executive advisor at NewCo Pro, who first came across these filters, is passionate about their potential to improve the lot of people who do not have easy access to potable water. Costa, who has lived in and visited many less developed countries, told me that, notwithstanding his experience, he was horrified when he started to investigate how, in the 21st century, millions of people lived without ready access to acceptable water. It seemed impossible that so many people still lived in this way, he said.

    There are a lot of water filters on the market, but Costa reckons the Sydney 905, for which NewCo Pro is the worldwide sales agent, is ideal. And it is hard to disagree. This is a robust, easy-to-use, versatile unit that is small enough to be carried in a largish pocket but with capacity enough to serve a family. It is mainly intended to be fitted to the outlet tap of a container of collected river, well or rainwater, and, using a simple gravity feed, turn about 30–35 liters of murky-looking contaminated water crystal-clear and safe each hour while retaining naturally occurring, safe minerals. But it can also be used to process mains water, where such is available, or it can be attached to a plastic bottle of water taken from a river, in which case the drinker supplies the necessary pressure simply by squeezing the bottle. It uses neither chemicals nor batteries.

    As well as the Sydney 905 Filter, which uses a 0.1 micron hollow-fiber membrane that Costa expects to attract most interest, there is the Sydney 905 Purifier, which uses a 0.01 micron membrane and is therefore suitable only where mains pressure is available. The exact specifications of the two units are fully explained at www.newco-pro.com, which also provides the results of water purity tests undertaken by various official certification bodies along with some informative and entertaining videos.

    Return on Investment

    One of the most compelling things about the Sydney 905 filter has to be its value. While, at about $40 a unit, it would not be cheap for a financially impoverished family, there is no need to change the filter, so the unit could last for very many years without incurring any maintenance costs as long as it is regularly and conscientiously cleaned using a simple backwashing process. And while the initial outlay is not insubstantial, the payback is rapid and ongoing. One Kenyan farmer who wrote to Costa said that by using the filter, his family of 10 was saving about $60 a month because it no longer had to buy bottled water. Additionally, another savings, in costs and health, was being enjoyed because the farmer and his family were no longer losing work and school days to sickness caused by water pollution.

    It is surely not beyond the bounds of possibility that these filters could be provided free of charge by major companies working closely with tobacco and other farmers or that at least these companies could provide interest-free loans to help such farmers buy them. After all, as Busch pointed out, the use of these filters can help in the fight against deforestation, and as Costa added, most tobacco companies have committed to the U.N.’s Strategic Development Goals, No.6 of which aims to provide everybody with clean water by 2030.

    Things are moving. Costa said that NewCo Pro believed it was close to an agreement to start production of the filters in India, for the Indian market, and that the company had been in contact with large nongovernmental organizations, local governments and tobacco companies around the world. But progress is not what it should be, given the personal and population-wide problems caused by the lack of potable water and given that the Sydney 905 solution to the problem seems so simple but powerful. Achieving goal No.6 is going to require all hands to the pump and a willingness to step out of the shadow of business as usual since, according to the NewCo Pro website, in 2022, 844 million people lack basic water services, 2.2 billion people lack safely managed drinking water, and 3.5 million people die each year from causes linked to unsafe water.

    Biodegradable Bags

    Meanwhile, there is a certain irony in NewCo Pro promoting the distribution of these filters because they are made of plastic, and another NewCo project is aimed at reducing the use of plastics. But there is a clear difference here. The filter units are meant to last many years whereas the plastic NewCo is trying to eliminate is single use, such as that used for wrapping leaf tobacco samples.

    Busch has been working on this project for about three or four years now, since before the formation of NewCo Pro. He started by replacing the plastic sample bags with reusable cotton bags, but while these were popular with customers up to a point, they had the disadvantages that they weren’t transparent and that they weren’t as good as plastic at retaining moisture.

    What NewCo Pro is now offering is a transparent bag made from potato starch. These EU-certified and Germany-certified food grade bags are 100 percent biodegradable so that while, theoretically, they have an unlimited life under normal circumstances, they break down into compost that can be used as fertilizer within 90 days to 150 days of their coming into contact with an environment open to the elements. Busch said that farmers in Italy and Spain are already using seedbeds made from the product, which is ideal for such use and better than commercially available fertilizers, a seemingly critical factor at a time of soaring fertilizer prices.

    But there is a catch. While the people on the ground who Costa talks with are enthusiastic about this biodegradable product, the message apparently is not getting back to the people who make the decisions, or those people are stuck in business-as-usual mode and are not making the decision to change from plastic to potato starch. If it is a lack of decision-making, this seems incredibly short-sighted, especially given the huge problems being caused by plastic waste and given that switching to the new type of bags would allow companies to improve the services they offer and be seen to improve those services while incurring only an immaterial increase in costs. There seems to be no reason why companies could not make the switch immediately. After all, if a relatively small leaf dealer such as NewCo can research this matter and make the change, surely others, with the research having been carried out for them, could make the switch also.

    Undaunted, NewCo Pro is already researching the use of potato starch for applications that go beyond sample bags—applications such as replacing the polyliners used for packing certain lots of tobacco for particular customers or replacing the plastic polypots used in the production side of the industry. And it is willing to put companies wishing to follow its lead in touch with the suppliers of such materials. When it comes to plastics, the message from Busch and Costa is “enough is enough.”

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • Craving Normalcy

    Craving Normalcy

    Photos: Taco Tuinstra

    Climate change, war and a lingering pandemic exacerbate the typical challenges presented by leaf tobacco supply and demand.

    By George Gay

    I have a question. Given the environmental crisis the world faces, why are the tobacco industry’s operations dominated by flue-cured tobacco varieties rather than sun-cured varieties? I mean, why cut down trees and burn them as part of the flue-curing process when it is possible to rely on the energy freely and directly available from the sun to cure tobacco? It cannot be a quality thing because whereas, for example, sun-cured classical oriental tobaccos are sublimely aromatic, flue-cured Virginia tobaccos are unremarkable at best.

    Another argument that cannot be made is that the industry was not aware of the deforestation it was causing by flue-curing tobacco and therefore hasn’t had time to switch from flue-cured to sun-cured tobaccos. The issue of tobacco-driven deforestation was being widely discussed in the early 1980s and probably before that. Of course, not all flue-curing relies on burning wood, but that which doesn’t, as far as I am aware, requires, directly or indirectly, burning fossil fuels.

    So what is the answer to the question posed above? I think there are probably very many answers, none of them particularly convincing, so I believe that even now efforts should be made to switch production from flue-cured varieties to sun-cured and, perhaps, air-cured varieties. And maybe this will happen, partly because of the growing alignment of environmental and health activists and arguments.

    A recent report by the World Health Organization and Stopping Tobacco Organizations and Products (STOP), Talking trash: Behind the tobacco industry’s ‘green’ public relations, accuses the industry, mainly in the guise of the four major multinationals, of “greenwashing.” And though some of the report is lightweight and unconvincing, its uncomplicated messages are likely to register with a nonindustry audience. “Tobacco growing and curing are also both direct causes of deforestation,” the report says in part.

    In addition, according to Natalia Pujalte writing in May in The Parliament Magazine, the EU presented in November a proposal for new regulations that would allow “only deforestation-free and legal products” to be sold on the EU market. Tobacco wasn’t mentioned in Pujalte’s piece, but with the regulations still under consideration and the EU’s aversion to all things tobacco, it is unlikely the industry will slip through the net.

    The developed world is currently facing levels of inflation not seen in decades, so the entire supply chain has been suffering cost increases that are difficult to offset.

    Pressing Challenges

    I suspect that 99 percent of those working in the tobacco industry will disagree with my suggestion and come up with all sorts of reasons why sun-cured and air-cured tobaccos cannot be used as the main ingredients in cigarettes, at least in part because they have other things on their minds. According to a number of respondents to a Tobacco Reporter questionnaire, the leaf industry is suffering from the effects of everything from climate change to the war in Ukraine and long Covid.

    Jose Maria Costa

    Although Jose Maria Costa of NewCo said leaf tobacco demand from a wide range of customers was holding up well, he positioned a range of industry problems within that affecting just about every business and individual globally. The world had been through 15 difficult years since the financial crisis of 2007–2008, he said. And more recently, the war in Ukraine had been launched before economies around the world had a chance to recover from the impact of the Covid pandemic. The developed world was currently facing levels of inflation not seen in decades, so the entire supply chain was suffering cost increases that were very difficult to offset. Logistical challenges that had been evident for a year were adding to the problems, with prices for a container quadrupling for certain routes. At the same time, there were smaller-than-desirable tobacco crops in key markets such as Brazil, and prices were going through the roof in all markets.

    And whereas the tobacco industry had been through a lot of changes and cycles over the years, things were different now, Costa said, implying, I think, that there were now more, worse problems that were proving harder to overcome. The world needed a period of stability, and the tobacco industry did too, throughout its supply chain, he said.

    Craving Consistency

    Meanwhile, Christian Adi Njoto Njoo, the president of Mangli Djaya Raya, which for more than 60 years has produced, processed and traded tobacco from its base in Indonesia, told Tobacco Reporter that his current main concerns are focused on how to ensure production is sustainable in the face of anomalous weather patterns and how to address market inconsistencies. Addressing the challenges caused by climate change would need an elaborate plan devised and supported by a broad range of stakeholders, including governments, and would be a long-term project, he said. And in the meantime, recent prolonged rainy seasons in Indonesia were predicted by the Indonesian Agency for Meteorological, Climatological and Geophysics to continue through at least this year and next, which could mean shorter crops and prices rising to previously unheard of levels.

    On the other hand, market inconsistencies could be improved in the short term, Njoto said. They were caused by a lack of central planning that allowed a vicious season-by-season cycle of production boom and bust to develop as growers, who were not fully informed, reacted to the prices paid in the previous season, not necessarily to the needs of the current season. Some market inconsistencies, he added, could be improved through government regulation and by better and consistent planning by medium to large corporations when deciding on their purchasing, production and price indications for future seasons.

    One indirect result of the boom-and-bust cycle was volatility in the stocks and prices of fertilizers and crop protection agents, followed inevitably by higher production costs and pressure for tobacco price rises. The scarcity of fertilizers in recent times had seen their prices increase hugely to the point where the government was currently trying to control the sale of fertilizer on the domestic market and to limit and even ban its export.

    Around the world, leaf dealers are pondering how to ensure that production is sustainable in the face of anomalous weather patterns and how to address market inconsistencies.

    On the Bright Side

    The Tobacco Reporter questionnaire asked, basically, what is currently positive about the leaf tobacco industry, what is negative and what can be done to improve things.

    Njoto identified unhelpful regulations as being a problem for the industry, though he recognized that regulations were necessary in respect of protecting certain industry stakeholders, especially farmers and workers, and also the environment. In fact, he accepted that, in Indonesia, regulations were less strict and made more sense business-wise than those in some other countries and regions. It was also helpful that government-owned tobacco research facilities, laboratories and other institutions had been steadily improved in recent years through increased budget allocations drawn from various tobacco industry-related tax revenues. At the same time, government and private extension services, including the gradual implementation of sustainable tobacco programs required by the major multinationals, were aiding tobacco farmers, workers and other industry stakeholders.

    However, he said, it was concerning that “international regulations” were starting to be introduced, and introduced without enough consultation, which meant some were poorly received and adapted and therefore hindered the industry’s stability and development. This situation needed to be improved by ensuring a balance was struck between the health and economic interests of all stakeholders.

    Interestingly, ITC, India’s dominant tobacco manufacturer that has been closely linked to the success of the country’s flue-cured tobacco industry, mentioned no problems in its response to the questionnaire, preferring to concentrate on what it sees as the “world’s best public/private partnership model in agriculture,” namely, the Indian tobacco auction system, which was introduced in 1984.

    ITC made the point that while flue-cured tobacco occupied less than 0.10 percent of the country’s total arable land area, it was an important, sustainable commercial crop, generating enormous socioeconomic benefits in terms of agricultural employment, farm incomes, revenue generation and foreign exchange earnings. In part, this was down to the Tobacco Board’s e-auction system for this type, which provided for fair assessments of growers’ bales in respect of both weight and grading, healthy competition, fair prices and, importantly, prompt digital payments.

    Also accentuating the positive was Frederick de Cramer, a tobacco industry doyen now involved with the production of Latakia tobacco. In Turkey, opportunities were being created by a tobacco law instigated last year requiring cigarette manufacturers to include 10 percent locally grown Virginia in their blends, he said, a figure that was due to rise to 30 percent in four years. Local cut rag operations that bought domestically grown sun-cured Virginia (SCV) and flue-cured Virginia (FCV) were looking into the possibility of providing access to their leaf sources to cigarette manufacturers. But de Cramer pointed out, too, that, currently, there was a need to apply better agricultural practices to increase the quality of the SCV and FCV produced in Turkey for both the domestic and export markets. And there was a need, too, for a good big-leaf processing line.

    Turning to the issue of locally grown classical oriental tobacco, de Cramer said a reduction in demand for these varieties was causing concern for the long term. Multinational tobacco manufacturers had reduced their demand for these varieties for a number of reasons but mainly because of price/cost considerations. In recent months, though, the Turkish lira had devalued substantially against the dollar, and it was possible that demand for Turkish oriental tobacco could increase. But there is danger nevertheless, said de Cramer. While classical oriental tobacco had been and still was a vital component of high-quality American-blend cigarettes, multinational manufacturers were no longer supporting this traditional leaf as they had in the past. Demand had been reduced due to several factors, including the switch to nontraditional cigarettes such as e-cigarettes, lower oriental inclusion rates in traditional blends, even the removal of such tobaccos completely from some blends, and import duties in some countries imposing de facto import restrictions.

    Demand for classical oriental tobacco has declined due to the switch to nontraditional cigarettes such as e-cigarettes, lower oriental inclusion rates in traditional blends and import duties in some countries.
    (Photo: Tobacco Reporter archive)

    The Greek Outlook

    This partly mirrors what has been happening in Greece, where the future of the leaf tobacco industry is apparently under threat. I say “apparently” because industry experts in Greece are reluctant to say anything even though problems have been apparent since at least 2019. Little wonder perhaps. From what I can surmise, it seems possible that within three years to 10 years, Greece may no longer produce classical oriental tobacco—possibly no tobacco at all.

    Assuming this is correct, how did things reach such a pass? For many years, the Greek tobacco industry operated in a country that supported production. The industry had easy access to finance, good extension services and a lot of skilled growers who, in general, were paid fairly. It had good processing facilities, a stable customer base and well-established export systems.

    It is true that production levels were sometimes out of kilter with the market, but there were multiple reasons for this, not all of which were within the control of the Greek industry. And, in any case, production of classical varieties of oriental tobacco were cut back hugely in 2006 to 20,000 tons a year after the decoupling of EU crop-specific agricultural support, a move that seemed to stabilize the industry and align it more closely with the new market realities.

    Clearly, what is at the root of the problem is demand. Again, from what I can surmise, the classical oriental tobacco crop last year fell to 11,900 tons, the smallest crop of classical oriental tobacco ever in Greece, while next year’s production might or might not hit 10,000 tons. Why? One major factor is that Philip Morris International, which had, for a number of years post-decoupling, agreed to buy a significant proportion of Greece’s crop, pulled out of that agreement in 2019, partly, I guess, because of its commitment to switch its production away from traditional cigarettes to IQOS. Subsequently, its orders placed with Greek processors seem to have fallen to a fifth or even a tenth of what they were.

    Is there any way back for Greece? Possibly not. Even if demand started to pick up, the industry would have to attract a new generation of growers to tobacco, which, on current evidence, might prove difficult. But never say never. There are many unknowns currently affecting the tobacco industry, not the least of which concerns how successful heated-tobacco products and e-cigarettes will be in a world starting to concentrate on environmental issues. And the issue of filters cannot be ignored. Will they be banned eventually, which would make sense environmentally? And if they are banned, along with flavors, how do you make a decent cigarette? Well, one obvious way would be to use classical oriental tobacco.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • Holding the Line

    Holding the Line

    Photo: Schmidt Pest Management Consulting

    The war on tobacco insect pests continues.

    By George Gay

    On being asked recently whether the war against tobacco insect pests would ever be won, most of the experts and interested parties contacted, referring mainly to post-harvest tobacco in transit or storage, said no, qualified in one way or another. But Vernon Schmidt of Schmidt Pest Management Consulting wondered whether “winning” or “losing” was the best way to judge what was happening overall. The important point in the battle against the tobacco beetle and tobacco moth, he said, concerned whether industry players were working together, communicating well and implementing fundamental pest control strategies. In other words, was the industry stewarding its resources well to allow it to use the tools available to it wisely and thereby minimize tobacco and tobacco product losses?

    “Communication lines need to remain open, and cooperative research needs to be supported by the players within the industry in order for us to stay ahead of the insect pests,” said Schmidt in an email response. “This is the brilliance of Coresta and the work of its Subgroup on Pest and Sanitation Management in Stored Tobacco [PSMST].”

    Worryingly, however, he added a caveat that is unlikely to have come out of the blue. “Pulling out of cooperative endeavors and doing it on our own will not be a winning strategy,” said Schmidt, who was closely associated with Coresta and the PSMST in the past, and who is likely to be so again shortly after a break made necessary by his transition from an employee of Reynolds American to starting his own consultancy.

    And Schmidt had other warnings. There would be no success without the industry’s putting in the hard work of implementing fundamental pest control practices, and there would still be challenges, he added, even where the fundamentals were in place. Phosphine resistance remained a challenge and would continue to worsen if the industry did not address the causes. Insisting on quality phosphine fumigations remained a must, and consideration had to be given to eliminating ineffective fumigations, such as container fumigations, or, at least, implementing measures to improve them greatly by, for instance, requiring barrier sheeting be placed on the floors of containers before loading to minimize gas leakage.

    And in what seemed to me to be a minor bombshell, Schmidt admitted that the way in which phosphine worked as a fumigant still needed to be understood better and should continue to be investigated cooperatively. Such investigations, he added, would likely lead to a revision of the Coresta Fumigation Guide and require a new round of global training.

    Exploring Alternatives

    At the same time, the 30-year search for an alternative to phosphine should continue, again co-operatively, said Schmidt. There was promising work underway investigating a potential alternative to phosphine, sulfuryl fluoride, which offered a completely different mode of action from phosphine. This had the potential to break phosphine resistance where it existed and, additionally, preserve phosphine as an excellent tool for the industry.

    And moving away from fumigation techniques, Schmidt said controlled atmosphere (CA) and freezing treatments should be implemented where feasible.

    Rene Luyten, a director at b-Cat, which installs CA chambers, made the point that tobacco insects were difficult to control, partly because they were able to adapt to new circumstances. In other words, while it was possible to eliminate such insects in individual tobacco batches, there were often routes through which others could enter those batches. In part, this was down to the very nature of tobacco, which is a bulk product subject to transportation, division into smaller consignments and storage. Additionally, tobacco doesn’t exist in isolation but is sometimes stored alongside other products that also provide homes and breeding grounds for insects of concern.

    Indeed, Luyten said it was possible to have in-house clean tobacco free of insects or to receive clean tobacco on one day and the next day to have a huge issue with insects. Of course, the severity of the problem would depend, in part, on the location of the warehouse, with those in warmer climes likely to experience more insect activity. But such issues could arise in many places, added Luyten, even when everybody in the tobacco chain did their best to avoid infestation. Fumigators might comply with best practices that conformed with the guidelines laid down by Coresta. And warehouses might employ best practices in respect of storage, including the use of good sanitation programs. But it wasn’t always possible to have control of all factors, such as when a neighboring warehouse storing raw food didn’t employ strict and proper sanitation protocols.

    Controlled atmosphere technology offers a “green” solution for pest control.
    (Photo: b-Cat)

    Positives and Negatives

    Schmidt, too, saw positives and negatives stretching along the supply chain. A positive would see farmers eliminating carry-over tobacco, but the fact that farmers were unable to treat their post-harvested tobacco was a negative, he said. The receipt by processors of infested tobacco was a negative while the lethal effects to insects of processing was a positive. Reinfestation during transport was a negative while monitoring programs for transported tobacco provided a positive. Good segregation practices during storage constituted a positive, but undetected phosphine resistance was a negative. Continually improved cleaning programs at manufacturing plants constituted a positive, but insect harborages that could not be eliminated without dismantling equipment comprised a negative.

    There is at least one caveat you have to add to the idea that the war against tobacco insects cannot be won. It can be won in the sense that insects of all types and in all their life stages can be eliminated from tobacco just before it is manufactured. Luyten said an increasing number of tobacco manufacturing plants were installing CA technology, which he described as a “green and natural treatment method” offering a 100 percent mortality rate among insect pests in all their life stages. In fact, b-Cat’s main building program currently involves installing CA facilities, including remote control and monitoring systems, at manufacturing sites.

    Away from the major manufacturing sites, things are rather different. For instance, Guy Harvey, the CEO of Transcom Sharaf in Africa, who is based out of Mozambique, said businesses in that part of the world used only chemical fumigation, though this was not for want of trying other methods. Harvey said his company had completed trials on the use of CA in Mozambique but that it seemed the industry was not ready for it yet, which I took to mean that companies further down the supply chain were not willing to help pick up additional costs arising from CA. Certainly, in Harvey’s view, the capital costs of CA were holding back its use in Mozambique.

    This might be unfortunate, though it has to be remembered that fumigation can be effective. Nico Vroom, who runs the consultancy N.I.C.O, also believes the war against tobacco insects will never be won, but he believes, too, that infestations can be kept to a “manageable level” through the use of good fumigation practices and through the employment of recent technological advances, such as sensors for constantly monitoring tobacco.

    While complete victory in the battle against tobacco insects is some ways off, infestations can be kept to a “manageable level” through the use of good fumigation practices and through the employment of recent technological advances, such as sensors for constantly monitoring tobacco.
    (Photo: Transcom Sharaf)

    Ongoing Monitoring

    One respondent who didn’t give an unequivocal “no” in answer to the question about whether the industry was winning the war against insects was Steven Bailey, managing director of the Barrettine Group, which manufactures the Mobe Combo insect monitoring trap. Bailey said he thought it unlikely that the industry was winning the war, but that it might be holding its own. Traditional treatment methods using fumigants were limited to only a few. He was unaware of any new pesticides coming through beyond, perhaps, sulfuryl fluoride, he added, and due to high regulatory and approval costs, didn’t expect there to be any anytime soon. This, together with ongoing phosphine-resistance issues, was a concern, but CA treatments in conjunction with insect monitoring and traditional methods were helping the industry to stay on top of the problem. The importance of ongoing insect monitoring was therefore essential in pinpointing infestations so that control measures could be carried out as soon as identified, thus preventing any infestation from escalating. 

    One of the matters that gets little airing in respect of tobacco insects concerns responsibility. Who is or should be responsible for ensuring tobacco is taken in at its destination—at the manufacturer’s site—insect-free? 

    Well, according to Rainer Busch of NewCo, currently, the shipper is obliged to fumigate tobacco before loading, even though it is very difficult for the shipper to control what happens to that tobacco during transport and when it is opened at its destination. And if the tobacco was found to have insect infestation at its destination, to have been infested during transport, it was necessary to refumigate it or put it through another treatment. It would therefore be better economically and financially to avoid having to carry out two treatments by switching the fumigation or other treatment from the point of shipment to the destination.

    It would seem that while the industry might not be winning the war against insects, it is not losing all the battles. Evripidis Christidis of Missirian told me that the application of integrated pest management techniques was helping the industry to win in the region in which his company operates—the region where classical oriental tobacco is produced. In general, the amount of leaf tobacco currently lost to insects was proportionally less than it had been during past decades. But, he added, this sort of success required close attention being paid in five areas:

    • Personnel training and awareness;
    • Facilities management, including cleaning and sanitation, operating with open structures and creating barriers to insects, such as air curtains and mesh nets, and segmenting the green and final products;
    • Selection of suitable means of transportation;
    • Pest monitoring, with pheromone traps, and the use of UV lamps and space/surface fogging when necessary during tobacco storage; and
    • Pest control methods.

    Another factor that had helped the industry attain better results was the use of only specialized and licensed contractors to perform control and prevention activities, said Christidis. And yet another had been the introduction of Coresta standards for the fumigation in respect of resistant beetle populations, which basically involved higher phosphine concentrations and longer exposure times. A radical but expensive proposal would involve vacuum or nitrogen packing of the final leaf product.

    Learning Lessons

    The importance of Coresta was raised by most respondents, and so it is unfortunate that the Covid-19 pandemic has interfered with some of its work, including the PSMST’s Infestation Control Conferences that, until the pandemic struck, had been held annually around the globe. Of course, there have been other problems caused by the pandemic. Shipping delays have created tobacco transport congestion, and there have been interruptions caused by staff shortages, supply chain difficulties and other transport issues. But the pandemic has also caused a lot of rethinks, some of them positive. Luyten told me that while the start of the pandemic had caused concern, it turned out the past two years had been the best ever for b-Cat’s business. When travelling became almost impossible, it was discovered that internet communications using Teams or Zoom could easily stand in for some face-to-face meetings. “I do hope that everybody is having the same idea,” said Luyten, “that we have learned from this pandemic that travelling, which was a common thing, is not always needed. We all can save a lot of time and help the planet.”

    Which brings us, perhaps, to the most important question. In fighting tobacco insects, are we winning or losing the environmental battle? And there seems to be some good news here. Schmidt told me that industry practices had little negative environmental impact. Beneficial insects were not threatened by current common practices, he said, and phosphine readily broke down in ultraviolet light. At the same time, however, continued training on best practices would help with reducing the improper use of insecticides and excessive fumigant use.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • Greening the Golden Leaf

    Greening the Golden Leaf

    Photo: Tobacco Reporter archive

    Independent leaf merchants are working to improve the sustainability of tobacco cultivation.

    By Stefanie Rossel

    With only eight more years to go until most of the United Nations (U.N.) Sustainable Development Goals (SDGs) are to be achieved, sustainability is becoming ever more critical in the tobacco sector.

    “In recent years, we have seen sustainability grow in importance to a point where it is addressed in almost all key internal and external engagements,” notes Mat Wilde, head of group sustainability at Contraf-Nicotex-Tobacco (CNT), a Germany-based company involved in the worldwide growing, sourcing, developing, processing, extracting and producing of leaf tobacco, nicotine and natural ingredients, among other agriculturally derived products.

    Set up in 2015 by the U.N. General Assembly, the SDGs comprise 17 goals designed to be a “blueprint to achieve a better and more sustainable future for all.” Goals include the elimination of poverty and hunger, quality education, health and well-being, gender equality, clean water and sanitation as well as the reduction of inequality, responsible consumption and climate action.

    While the leading international tobacco manufacturers in 2016 launched the Sustainable Tobacco Program (STP), an initiative that operates in more than 52 countries and gathers data on more than 180 suppliers of tobacco across 5 million smallholders, independent leaf merchants have also intensified their endeavors to support tobacco growers in their work toward more sustainable production.

    “I have always supported the growers,” says Rick Smith, founder of Wilson, North Carolina, USA-based Independent Leaf Tobacco Co. “They must be made whole for the industry to thrive. I have stepped up my efforts recently, certainly on types in short supply.”

    CNT works directly with its stakeholders on its sustainability efforts and supports its farmers in implementing best practices. “At the core of our approach with our farmers is our training program, where we aim to train growers on both the ‘why’ and the ‘how’ of sustainability topics,” says Wilde. “Understanding the context in each local operation, the root cause of prioritized issues and ensuring farmer financial sustainability is embedded within our programs. All are vital in working with our farmers to meet our common goals. Integrating key stakeholders, including farmers, farmer organizations, community, nongovernmental organizations and experts, within our projects and programs increases the impact and level of success.”

    Rick Smith

    Creating Awareness

    In a world characterized by declining smoking rates, sustainability includes ensuring financial viability for tobacco growers. For this reason, Norton Leaf Tobacco (NLT) of Zimbabwe educates its farmers on the need for diversification. “The government of Zimbabwe has introduced initiatives such as pfumvudza, a farming approach designed to maximize efficiency of labor and input resources,” explains NLT General Manager Alice Mukome Chiwanza. “NLT has field staff trained in the practice that ensures its farmers are able to increase both hectarage and yield of grains. Thus our officers are now training farmers to employ this method to encourage food security at [the] household level while assisting with the growing of the tobacco crop.”

    While NewCo Global Tobacco Trade and Service does not interact directly with farmers (it buys from partners and other leaf merchants), sustainability plays a key role in all of the German company’s activities. In September 2021, the company established NewCo Pro Services and Trade to handle the group’s diversification efforts and nontobacco activities.

    “This company’s main focus is to provide a proactive approach to global, social and environmental challenges as well as partner with entrepreneurs that have innovative solutions for a better future,” says Jose Maria Costa, senior executive advisor with NewCo Tobacco Services. “Through NewCo Pro Services and Trade, we are committed to doing our best efforts to make the United Nations Sustainable Development Goals a reality. As such, we are in the process to market Sydney 905 water filters globally. These filters have proved to be one of the most efficient ways to get safe water regardless of water source. By providing access to safe water, we eliminate the need to use charcoal, which in many parts of the world is used to boil the unsafe water.”

    NewCo has also started replacing the plastic bags that are still used in the tobacco industry for tobacco samples with more environmentally friendly alternatives. “Most of the plastic bags that are used today for storing and shipping tobacco samples are not biodegradable and therefore they are not environmentally friendly. After several months of research and testing, we have placed our first order for the new bags, which are made out of potato starch and are 100 percent compostable and food-certified. Our plan is to contact all our suppliers, vendors and customers and offer them the possibility to make the same change NewCo has made and contribute to a world that is more sustainable.”

    Jose Maria Costa

    New EU Anti-Deforestation Law

    Worldwide, regulatory pressure on tobacco and tobacco products continues to increase, also in terms of sustainability issues. On Nov. 17, 2021, the European Commission announced a plan to ban the sale of agricultural products raised on deforested and degraded lands. The move is an attempt to ensure forests around the world remain intact and continue to absorb carbon dioxide as they grow. According to the U.N., the world has lost 420 million hectares of forest in the past 30 years—an area larger than the EU. During the recent U.N. Climate Change Conference, more than 100 states pledged to end deforestation and land degradation by 2030. For the time being, the European Commission’s list targets soy, beef, palm oil, coffee, cocoa and wood; while tobacco is not part of the commodities mentioned, the draft leaves room for future amendments.

    In a 2017 report on the environmental impact of tobacco, the World Health Organization expressed concern about the impact that leaf cultivation has had on forests since the mid-1970s. The health body estimates that 11.4 million tons of wood are required annually for tobacco curing. After processing, additional wood is needed for the production of cigarette and rolling papers as well as for packaging. As tobacco requires lots of nutrients, with soils being leached after two years to three years, land extension leads to further forest depletion.

    Smith notes that regulation should strike a balance. “Any laws restricting free trade affect us all and are usually detrimental to the people they are intended to help,” he says.

    “The tobacco industry needs to act responsibly to ensure that sustainability is at the center of all its activities,” Costa says. “From the farmers to the cigarette manufacturers, the entire value chain needs to protect all natural resources, including the forest.”

    Newco has been marketing Sydney 905 water, which allow users to get safe water regardless of source. (Photo: NewCo)

    Comprehensive Measures

    NLT is a member of the Sustainable Afforestation Association (SAA), a Zimbabwean nonprofit organization funded by tobacco merchants that was established in 2013 (also see “Taking Root“). “NLT has been a member since we started operations in 2018,” says Chiwanza.

    The SAA aims to retain and grow existing indigenous commercial forests. One of the ways in which it has sought to do this is by entering into joint ventures with farmers in tobacco growing areas to set up eucalyptus plantations. Eucalyptus not only grows quickly but also provides good firewood.

    “The bulk of Zimbabwe’s tobacco is grown by small-scale farmers who use wood-fired barns to cure their tobacco,” Chiwanza says. NLT also holds field days and workshops, encouraging farmers to grow trees and offering advice on best practices. SAA’s activities should help Zimbabwe remain compliant with anti-deforestation laws, such as the one pending in the EU.

    Fighting deforestation has been a priority at CNT for years, Wilde emphasizes, primarily for flue-cured tobacco in origins that use fuel wood but also for other tobacco types—with deforestation linked to curing fuel, barn construction material and land clearance. “Addressing deforestation has been a focus prior to external regulation, with necessity of ensuring continuity of the industry in some locations being a key driver for change, along with meeting communities’ expectations of the business and ensuring our ‘social license to operate.’ Having a robust traceability system in place, connecting tobacco to its growing source, farmers and the activities carried out on farm is key for transparency and meeting increasing supply chain legislation—both for human rights and the environment.”

    The company has identified high-risk origins within its supply chain and implemented systems aimed at mitigating deforestation. “The EU draft law on supply chain deforestation highlights the priority of this topic and reinforces the urgency of addressing these issues in high-risk origins, both as a company and as an industry,” says Wilde.

    CNT’s reforestation efforts comprise education and awareness programs for its farmers, community and stakeholders. “Training farmers on legal requirements, conservation and reforestation practices, and listening to our stakeholders on localized issues helps to address deforestation and reforestation,” Wilde points out. “Training is supported by farmer monitoring by Extension staff, the results of which are analyzed to feed back into response projects and training cycles. We run various reforestation and carbon projects within our origins. Tailoring reforestation and conservation response programs to the local context and working with expert partners in addressing the local hurdles to success is core in our sustainability strategy.”

    Spying Opportunity: Norton Has Great Expectations of Zimbabwe’s Tobacco Transformation Plan

    In September 2021, Zimbabwe’s government approved the tobacco value chain transformation plan, which aims to transform the sector, currently valued at $1.2 billion, into a $5 billion industry by 2025. Launched by the Tobacco Industry and Marketing Board (TIMB), the initiative aims to turn the economy around through agriculture, boosting national income and foreign exchange to the levels from before Zimbabwe’s land reform program, which turned the industry from one dominated by large-scale commercial tobacco plantations to one characterized by smallholder production.

    The plan calls for an increase of annual tobacco production from 200 million kg to 300 million kg, the exploration of alternative crops in anticipation of lower smoking rates and an increase in value addition and beneficiation from 1 percent of the tobacco crop to 30 percent.

    Alice Mukome Chiwanza

    Farmers have welcomed the initiative. “I believe this to be a great idea,” says Alice Mukome Chiwanza, general manager of Norton Leaf Tobacco (NLT), a local tobacco merchant. “Under the TIMB, Zimbabwe only exports at the very least semi-processed tobacco. Further beneficiation can be understood to mean [anything from] increasing the local production of regular—combustible—cigarettes to producing vaping devices. This will do wonders for the tobacco industry as it will mean employment, investments in the form of infrastructure, such as processing plants, and greater revenue as we will be exporting end products as opposed to raw materials that still need further processing.”

    According to Chiwanza, this would also present a welcome opportunity for NLT to grow its sales to supply products, such as cut rag, to local cigarette manufacturers while eliminating shipping costs that have been a large deterrent in exporting. “It may also create the option of partnerships allowing companies such as ours to venture into new technology and therefore [new] markets. The ministry’s plans also include localization of tobacco financing, which should significantly reduce borrowing costs for companies such as NLT. Being a wholly Zimbabwean company, NLT is poised to grab any plans encouraging increased local involvement in the tobacco industry.” – S. R.

    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.
  • Enduring Resilience

    Enduring Resilience

    Photo: Taco Tuinstra

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

    By Stefanie Rossel

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

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

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

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

    Hardy Kohl Jr.

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

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

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

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

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

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

    Oscar House, president and CEO, USTC

    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.

    Aylin Bahcevan, marketing supervisor, Tar Agritech

    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.

    Jay Barker, founder, JEB International Tobacco

    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.
  • Jose Maria Costa Joins Newco

    Jose Maria Costa Joins Newco

    Jose Maria Costa

    Jose Maria Costa will join Newco’s global team as an advisor to management effective Feb. 1, 2021.

    Over the course of his 28-year career, Costa held various managerial positions at Pyxus International and its predecessor companies. His most recent roles include executive vice president of value-added agricultural products in Lilongwe, Malawi; executive vice president of global operations and supply chain in Raleigh, North Carolina, USA; and regional director for Europe and the U.K.

    In his new role, Costa will focus on growing Newco’s business through diversification and sustainability.

  • Rethinking Business

    Rethinking Business

    Photo: Tobacco Reporter archive

    The impact of the Covid-19 pandemic may endure after the crisis.

    By George Gay

    The Covid-19 pandemic has created a lot of problems for the leaf tobacco trade, problems that have ranged from irritations to major hurdles, but it has been reasonably even-handed with them. While one business might have been in a better position than another to deal with these problems because of, say, its contacts or the strength of its business model, all businesses have had to face similar problems.

    This was brought home to me by a comment made by Rainer Busch of NewCo when he opined that nobody really knew how to do business in the current circumstances. In an email answer to a question about predicting future unmanufactured tobacco trade, he responded with a question of his own: Who knows what comes next? The additional level of doubt caused by the pandemic, he said, was an obstacle for everyone trying to forecast requirements and sales. Every company, he suggested, would be concerned about the future.

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    Busch’s main problems so far have had to do with logistics. Movements within Europe had been difficult because travel restrictions and infection warnings had limited the availability of trucks, he said, a problem that had been exacerbated by closed border crossings. This had meant that, for a while, transport prices had risen significantly, though now [Busch’s email was dated May 22], with lockdowns easing, the situation was changing, and transport companies were having to compete for orders.

    Looking at the wider picture, shipping problems had been caused initially by a lack of containers, which were bunkered in large quantities in China, and even now, some ports are still functioning only to a limited extent. At the same time, not being allowed to travel had changed tobacco business culture, said Busch, though he intimated that the industry was nothing if not innovative and flexible. Although it was usually necessary to visit the countries of origin to gain a full picture of crop quality and market conditions, business was still being conducted. Investments had been made in internet communications, and home office work had been introduced.

    Initially, shipping problems were driven by a lack of containers, which were bunkered in large quantities in China. (Photo: Transcom Sharaf)

    Protecting stakeholders

    All companies that responded to TR’s request for information have relied on switching to remote working and conferencing, and it is alarming to consider what might have happened if the pandemic had struck in pre-internet days. Premium said in a June 1 email message that its primary response to the pandemic had been focused on protecting its employees and their families by conforming to or surpassing the requirements of the countries in which it operates. But, at the same time, it had been at pains to reassess the way it operated so as to find innovative ways of protecting its business interests, in part by replacing the traditionally crucial personal contacts with remote working and conferencing systems. For the time being, all nonessential business travel had been suspended while the company monitored the situation.

    Protecting the interests of its staff and customers, however, has not been easy. Grant Readings said that at times it had been difficult to deal with regulations that differed from country to country, though he added that Premium had managed so far to keep its companies operating at a reasonable capacity by having its management teams stay vigilant and fully engaged with the authorities and other industry stakeholders in the countries in which they operated.

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    Interestingly, Readings said the pandemic had not severely disrupted communications between the company’s agronomists and growers and that the company had interacted with the authorities and relevant stakeholders in Brazil, Malawi, Tanzania, Uganda and Zimbabwe to ensure that buying operations were secure and efficient while remaining transparent. Premium’s Brazil factory had been running at capacity, and the company was expecting that all processing in Argentina, Malawi, Tanzania, Uganda and Zimbabwe would continue with relatively little disruption. Keeping other facilities open and functioning was described as an ongoing challenge but one the company was determined to meet.

    Most people have been affected by travel restrictions, and Readings said Premium’s customers had been unable to visit the various countries of origin to inspect tobacco as they normally would. For this reason, some disruption in ordering patterns was expected, and, potentially, the shifting of some product inspections to destination ports. At the same time, the reduction in available shipping routes and in the frequency of services on some of the available routes had led to longer-than-usual delays in shipping, but Premium indicated it was working with customers to minimize such delays.  

    Teleworking presents a challenge for a business that relies heavily on personal contacts and product inspections. (Photo: Taco Tuinstra)

    Beyond the mitigation plans

    Overall, and given the way that people’s lives have been hugely and negatively affected by the pandemic, the outlook for the leaf tobacco trade is generally optimistic. Readings said there had been no major slowdown in demand for leaf tobacco, and he wrote of a possible future increase in demand for flue-cured, stable demand for air-cured burley and increased interest in better-value dark fire-cured and oriental. Premium, he added, believed business could start to normalize in the next three months to five months [August–October].

    In part, this optimism springs from the supply side since the major production countries of South America and Africa are still operational. On the demand side, Readings said, it was assumed that some of the bigger manufacturers were reviewing their requirements in light of whatever impact the pandemic was having on consumption while regional and smaller manufacturers were expected to increase their buying activities from about July as is traditionally the case.

    Meanwhile, in a May 21 email comment that seemed to echo Busch’s remark about the difficulty in knowing what to do in the present circumstances, HN Ramprasad, chief executive of ITC Leaf Tobacco Business, made the point that while the Covid-19 pandemic struck quickly, giving businesses little time to respond, it also set challenges not covered by existing risk and mitigation plans.

    Nevertheless, he said, ITC’s deep links with the farming community and its presence across the supply chain meant that it was able to act swiftly in supporting growers in crop production thereby ensuring the continuity of its operations all the while adhering to the Indian government’s health and safety directives.

    When the government announced a lockdown on March 24, India’s internationally oriented leaf tobacco industry faced two different challenges. Flue-cured tobacco growers in Karnataka were preparing for their planting season while those in Andhra Pradesh had almost finished curing their tobacco and were getting ready for auction sales.

    In Karnataka, ITC’s local field staff helped ensure there were adequate supplies of quality seeds and the village nursery areas needed to grow them, and it supported growers in respect of best practices in nursery management while in Andhra Pradesh, field staff concentrated on advising growers about the best way to store tobacco on their farms so as to maintain its color and quality.

    Overall, ITC, which many years ago was in the vanguard of using computers to assist growers, leveraged its technology, including an ITC app, a dedicated WhatsApp group and one-to-one phone calls along with village-based field staff, to encourage best farming and safety practices. In addition, during the lockdown, ITC’s partnership project that sets up water plants in rural villages became even more important because, as well as providing a continuous supply of clean drinking water to more than 175,000 people, it meant that growers and workers didn’t have to travel outside their villages to fetch water for household purposes. To date, 140 water purification plants have been established to serve 200 villages.

    ITC said that tobacco auctions had resumed after a 40-day lockdown in phases and amid heightened safety precautions, which meant that the pace of the auctions was slower than would normally be the case. However, the company’s warehouses and processing facilities were little affected once the necessary permissions were obtained to operate them with appropriate safety measures, which included the thermal scanning of workers, the wearing of face masks, the use of hand washing and sanitizers, and implementing social distancing rules. In fact, Ramprasad said that ITC’s processing factory had started as early as the first week of April, almost within a week after lockdown, demonstrating agility and resilience.”

    Interstate movements of vehicles and port operations presented major challenges during the initial days of the lockdown in India. (Photo: Taco Tuinstra)

    Constraints

    Local transport also caused little problem given the implementation of official safety procedures, but interstate movements of vehicles and port operations presented major challenges during the initial days of the lockdown as vehicles were stopped by police at check posts. But the situation eased following appropriate representations, and ITC reported that, on the supply side, all activities were returning to normal at a much faster pace than had been expected.

    On the other hand, said Ramprasad, the situation at end markets might take more time to return to normalcy. There were still operational issues at some destination ports, from increased restriction and documentation requirements to complete lockdowns. The reduced trading across the globe had resulted also in a reduction in the availability of containers and the number and frequency of ships. 

    Otherwise, from an export viewpoint, Ramprasad said the constraints had affected travel, the dispatch of samples and the acceptance of grade standards by customers. The auction market delays had meant that samples could not be sent on time to allow customers to confirm orders for the new crop, which could lead to a reduction in demand for 2020 India crop tobaccos, though the extent of such a reduction was difficult to estimate at the time.

    Ramprasad said he expected the industry to experience a short-term slowdown due to the impact of the Covid-19 pandemic, but he said he was “hopeful of regaining full demand for Indian tobacco in [the] long run due to its versatility and ability to deliver consistent supply of superior sustainable product at competitive prices.”

    There is no doubt, however, about the short-term damage that has been caused. Maddi Venkateswara Rao, director of the India-based, unmanufactured tobacco supplier, Maddi Lakshmaiah & Co. (ML Group), made the point that the pandemic’s effects would mean that every business would be negatively affected up to the end of this year and perhaps beyond and that tobacco was not going to be exempted.

    In a May 25 email, Rao said the ML Group was still assessing the situation and that it was too early to conclude whether the aftermath of the pandemic would bring a downturn or upturn in demand for leaf tobacco. Much would depend upon the cultivation and consumption policies of the largest tobacco producer, China. But he added that, following the pandemic, there was a possibility that global cigarette sales would be affected and the ML Group, a supplier to the global market, was concerned about how this might turn out.

    As of mid-May, major leaf producing countries, such as Tanzania, were still operational (Photo: Taco Tuinstra)

    Lasting impact

    But that is for the future. Leaf businesses have suffered substantially already. Rao described how during India’s lockdown, the ML Group’s tobacco operations had come to a standstill—from purchasing to processing and shipping. Although some relaxations of India’s lockdown, originally set to last until the last day of May, were allowed from about May 10, in general, it was not possible to meet growers or others involved in the tobacco business, and no auctions were held.

    Processing of leaf had been interrupted, which meant keeping unprocessed stocks in the company’s warehouses, something that would impact costs and therefore sales. It had been impossible to keep facilities open because it was not possible to guarantee the safety of workers, who were advised to stay at home during the lockdown and to take all precautionary measures by following government guidelines. By virtue of their nature, said Rao, tobacco operations could not be done sitting at home online.

    Travelling had been seriously disrupted by the lockdown, said Rao, and there had been no new movements of cargo either by road or ship. The ML Group had faced difficulty in supplying customers with documents relating to tobacco already in transit, and it had had further difficulty in obtaining documentation, such as phytosanitary certificates. Subsequently, financial inflows and outflows were disrupted.

    But perhaps there is light at the end of the tunnel. Shortly before Rao responded to TR’s questions, lockdown relaxations had seen the resumption of about 30 percent of public transport and the ML Group was able to resume processing operations on a limited scale, adhering to government guidelines in respect of physical distancing and by providing personal protective equipment, including masks and sanitizers.

    Finally, looking to the future, Busch, whose comments opened this piece, thinks that the experience of the pandemic will have a permanent, or at least long-term, impact on the future of the leaf business, with fewer trips being made and more work from home being allowed. “Fortunately, we have our representatives and partners in most origins and are therefore always up to date on information about crop qualities, market developments and availabilities,” he said. “I miss being able to visit the origins to do my own crop evaluation, but the team does an excellent job of keeping me up to date.”

    While in retrospect the pandemic will of course be seen in a highly negative light, perhaps some good will be gleaned from it. Perhaps in being forced to reassess how it does business, the leaf industry, for instance, will identify areas where its operations could be improved. Certainly, any reduction in air travel would be a welcome boon for the environment, which is a woefully underestimated pandemic.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.

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