tobaccointernational.com
The authority on the tobacco industry since 1886 April/May 2019
The End of Smoking in the
United Kingdom?
ORIENTAL LEAF MARKETS IN EQUILIBRIUM
REGULATIONS RISE ON RUSSIAN TOBACCO
A REPORT ON BRAZILIAN LEAF IN 2019
GROWING SEASON BEGINS IN NORTH AMERICA
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April/May 2019
TI TABLE OF CONTENTS 22
A LOCKWOOD PUBLICATION
24
tobaccointernational.com
The authority on the tobacco industry since 1886 April/May 2019
The End of Smoking in the
24
30
ORIENTAL LEAF MARKETS IN EQUILIBRIUM
REGULATIONS RISE ON RUSSIAN TOBACCO
A REPORT ON BRAZILIAN LEAF IN 2019
GROWING SEASON BEGINS IN NORTH AMERICA
ON THE COVER
24
16 Oriental Leaf Markets Declining but in Equilibrium The effects of Turkish privatization have been significant By Dr. Iqbal Lambat, CEO Star Agritech International
When Will Smoking End in the United Kingdom? A behavioral economics firm sees little chance that the habit will last past 2050 By Bob Crew, TI London Correspondent
28
A Report on Brazilian leaf in 2019 Flue-cured Virginia was up and burley down—but neither by much. From Staff Reports
22
Regulation Ratcheted Up on Russian Tobacco. Eventual goal: elimination of tobacco products after 2050. By Eugene Gerden, TI Russian Correspondent
30 Growing Season Begins in US,
DEPARTMENTS 8
Editorial
10 TI Digest 30 Leaf News 34 Calendar, Advertiser Index
10
Canada Transplanting was complete by end of April in southernmost US From Staff Reports
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How long will smoking persist? New research suggests that the United Kingdom will no longer be smoking tobacco by 2050, while some British cities and towns will have quit by mid-2020. See Page 24, “When Will Smoking End in the UK?” by Bob Crew.
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United Kingdom?
creativity
TI EDITORIAL
PUBLISHER & PRESIDENT
Robert M. Lockwood EDITOR-IN-CHIEF
The Dawning of the Age of Unsmoke
Christopher Bickers
Wouldn’t you hate to be a tobacco industry Rip Van Winkle waking up just now after 20 years of sleep. You would be faced with the reality of learning that the greatest cigarette producing and marketing company that ever existed (or at least its descendant) is now advising consumers not to smoke? To tell the truth, I am having trouble assimilating it myself, and I have been an observer to every step of this strange philosophical progression. In the unlikely event you missed it, in April, Philip Morris International (PMI) launched what it called an “urgent” call to action to change the future for the world’s 1.1 billion smokers, their families and communities. The Year of Unsmoke, the campaign is called, and a PMI executive described the rationale for it this way: “Burning generates the vast majority of harmful chemicals found in cigarette smoke. Eliminating the combustion dramatically reduces the levels of harmful chemicals. There is a growing consensus among scientists and public health experts that products that do not burn and are backed by science are a much better choice than cigarettes.” The executive gave consumers a “lecture” (I use that word advisedly—it is the one used in PMI’s statement to the press): “If you don’t smoke, don’t start. If you smoke, quit. If you don’t quit, change. That’s unsmoking.” PMI urges all cigarette manufacturers to join in this campaign, describing it as a “transformative vision.” But I must confess it seems to me more like a military general trying to get ahead of a rearguard action rather than an aggressive effort forward. Does PMI seriously think that consumers are going to change any of their habits just because tobacco companies tell them to? I doubt it. Does it think that tobacco’s critics will stem their ill will to our industry because of this campaign? Hah! I don’t have to be any better judge of human character than I actually am to know that’s not going to happen. They have already chimed in. Matthew Myers of the Smoke Free Kids organization called the Unsmoke campaign a “sick joke” for Philip Morris to suggest that every day should be promoted as World No Smoking Day and insisted that the company should instead be terminating aggressive cigarette marketing campaigns. I suppose there may be something I am missing here. There frequently is. But now, as far as Unsmoking is concerned, list me as unconvinced. Our London correspondent Bob Crew analyzes a study (sponsored by PMI) on how long it might take for smoking to disappear from Great Britain (page 24). It is intriguing, as is Iqbal Lambat’s review of market trends for Oriental tobacco (page 16). On page 22 see Eugene Gerden’s report on the tightening of regulation on Russian tobacco and on page 28, the latest on tobacco in Brazil. And watch for more on the latest tobacco issues in our June issue.
PRODUCTION COORDINATOR
— Christopher Bickers, Editor-In-Chief
Melinda Ayala DIRECTOR OF EXHIBITIONS
Frank B. Schuetze ACCOUNTANT
Roxanne Cordova Melendez accounting@lockwoodpublications.com
CONTRIBUTORS INTERNATIONAL TOBACCO Dr. Iqbal Lambat (ISTANBUL, TURKEY) ECONOMIC COLUMNIST John Parker (RICHMOND, VIRGINIA) REGIONAL
Mumtaz Ahmad (ISLAMABAD, PAKISTAN) Diamantis Chras (PIRAEUS, GREECE) Bob Crew (LONDON, ENGLAND) Eugene Gerden (MOSCOW, RUSSIA) Guido Jungbluth (SANTA CRUZ DO SUL, BRAZIL) Manfred Körner (HAMBURG, GERMANY) M. Rifaat Naguib (CAIRO, EGYPT) Vladislav Vorotnikov (MOSCOW, RUSSIA)
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Volume 19, No. 3 TOBACCO INTERNATIONAL (ISSN 0049-3945 print; ISSN 2331-8481 online), established in 1886, is published six times a year, with two monthly issues (September & December) and four combined issues (Jan/Feb/Mar, April/May/June, DECEMBER, Oct/Nov) plus a directory issue published in January of each year by Lockwood Trade Journal Co., Inc., 3743 Crescent Street, Second Floor, Long Island City, NY 11101, USA. Officers: Robert M. Lockwood, president and treasurer. Subscription rates: USA—US$49 per year, US$74 for two years; US$109 for three years. Canada—US$59 per year, US$89 for two years, US$134 for three years. All other countries: International Surface Mail—US$89 per year; US$139 for two years; US$199 for three years. International AirMail—US$129 per year; US$199 for two years; US$289 for three years. Single copy price: US$15. Annual Buyers’ Guide & Directory: US$45, plus shipping. Copyright ©2019 by Lockwood Publications, Inc. The contents of TOBACCO INTERNATIONAL may not be reprinted except by permission. POSTMASTER: Send address changes to TOBACCO INTERNATIONAL, P.O. Box 424, Congers, NY 10920-0430, USA.
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collaboration
TI DIGEST UNITED KINGDOM Imperial Brands to Shed its Premium Cigar Business BRISTOL—Imperial Brands will sell its worldwide premium cigar business as part of its divestment program, the company announced at the end of April. “The program supports Imperial’s ongoing simplification agenda and will release capital to pay down debt and, where appropriate, invest in its growth agenda,” a statement said. Premium cigars have performed well for Imperial over a number of years with good revenue and profit growth, the statement noted. “However, it is a unique luxury business with a different consumer base and route to market relative to Imperial’s other businesses. The sale of the business provides an opportunity to realize shareholder value.” Potential buyers were not identified in the announcement. Imperial said its divestment program was launched in May of 2018 and is expected to generate proceeds of up to £2 billion no later than May 2020. Imperial has so far realized £280 million from the sale of a portfolio of other tobacco products in the USA and of 9.99 per cent of Logista, which distributes products and services in Southern Europe Significant progress has been made with a number of other divestment opportunities, with the priority of maximizing shareholder returns. Recognizing that tobacco valuations have come under some pressure in the last 12 months, assets will be sold only if they will realize appropriate value.
AUSTRALIA Tax Office Searches for Illicit Tobacco Plantings SIDNEY —The Australian Tax Office (ATO) has called on members of the public to help identify illicit crops, according to media reports. Crops are approaching maturity, and the ATO is stepping up enforcement efforts. ‘‘The tobacco-growing season typically runs from November to May and it is often grown in rural areas in central Victoria,’’ assistant commissioner Peter Vujanic said New techniques will be introduced to combats illegal tobacco plantings, he added.
CANADA Judgment Stayed on Quebec Action vs. Tobacco Companies QUEBEC —Legal
proceedings against three major tobacco companies were
suspended as an Ontario court has upheld an order that postponed action by Quebec smokers. The Quebec class action suit had won a judgment for the three companies— JTI-Macdonald Corp.; Rothmans, Benson & Hedges and Imperial Tobacco Canada—several years ago but the $15 billion+ judgment was stayed recently after the companies filed for creditor protection.
CUBA How many cigars are made in Cuba? HAVANA—Cuba
is producing 260 million “hand-rolled” cigars per year, said officials of Tabacuba in a report from La Prenza, Cuba’s state news agency. Justo Luis Fuentes and Miguel Vladimir Rodriguez, president and first vice-president of Tabacuba, were quoted as saying the country exported 93.9 million handmade cigars.
10 TOBACCO INTERNATIONAL APRIL/MAY 2019
The rest are produced for national consumption, meaning 166.1 million cigars for an island of just under 11.5 million people and presumably some of the 4.8 million tourists the country welcomed in 2018. In 2016 the Cuban government’s Office of National Statistics said the country exported 91.4 million handmade cigars. It has not yet released figures for 2017 or 2018. It’s unclear whether the terms premium, handmade and hand-rolled are being used interchangeably. Cuba produces a range of handmade cigars, from the traditional premium offerings such as Cohiba, Montecristo and Partagás. Most Cubans would be hard pressed to afford these brands. They would more likely consume cigars available only locally and generally referred to as peso sticks. Habanos S.A., is the company responsible for sales and marketing of Cuban cigars worldwide, a number which would seem to include cigars produced both in Cuba and in other countries. Prensa Latina also said that the country makes 150 million machine-made cigars and exports 91 percent of them, about 136.5 million. The report also announced that The Brazilian company Souza Cruz, a subsidiary of British American Tobacco, has made an investment of $116 million in a new joint venture for machine-made cigars and cigarettes.
MALAYSIA How Much Contraband is too Much for Market to Bear? KUALA LUMPUR —It is not acceptable that illegal cigarettes account for 60 percent of the Malaysian market, contends Erik Stoel, managing director for BAT Malaysia. “These players do not and will not
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TI DIGEST comply to any form of excise and tobacco control regulation,” he said. “This remains a big concern for the business and deserves immediate and higher attention by the Government.” Laws exist that could advance the situation. “Better legislation has been put into place in the form of stricter penalties which now needs to be capitalized on.” Besides law enforcement actions, another key driver of the illegal cigarette trade is affordability. Therefore, said Stoel, regulators should develop a solution that will allow consumers to move away from illegal cigarettes. A higher awareness of the issue of the illegal cigarette trade across the different sectors of the Government and the public is crucial. “We believe strongly in the adage that knowledge is power and to that effect we made public the findings of the Illicit Cigarette Study 20 18 Report by Nielsen,” said Stoel. “If we can get more Malaysians to understand that the illegal cigarette trade has economic and social impact on the country, we are confident that in the long run, everyone would stand to gain.” That could be in recovered taxable revenue that could be invested in the development of the country and its people or through increased job opportunities in the legal industry, he concluded.
UNITED STATES White Owl Mini Cigarillos Launched by Swedish Match RICHMOND, VA.—Swedish Match launched
White Owl Mini Cigarillos in March. “The Mini cigarillo segment has experienced double digit growth over the past five years, with most growth coming from mini pouches,” said Katherine Macomber, Senior Brand Manager, Cigars for Swedish Match. “The well-established White Owl brand was a natural fit for the segment. We an-
ticipate White Owl Mini’s competitive price point, high value and outstanding quality will continue growth in the segment while providing much needed innovation.” White Owl Mini Cigarillos arrived in stores nationwide in early March. It features four flavors (see photo): Sweets, Silver, White Grape and Blue Raspberry. White Grape and Blue Raspberry are new flavors for the category. Each resealable pouch contains three mini cigarillos, which are not as long and thinner than regular White Owl cigarillos.
IQOS on sale soon in the U.S. RICHMOND , VA .—The
Food and Drug Administration (FDA) has authorized sale of the IQOS heated tobacco system in the U.S., following review of Premarket Tobacco Product Applications submitted by Philip Morris International Inc. (PMI). Under an exclusive licensing agreement with PMI, Philip Morris USA (PM USA) will commercialize IQOS in the U.S., beginning soon. “PM USA will introduce IQOS in the U.S. for adult smokers in Atlanta, Georgia, to learn as much as possible, as quickly as possible, and intends to ma ke t he most of t he company’s f irst-mover advantage in heated tobacco,” said Howard Willard, Chairma n a nd chief execut ive of f i-
12 TOBACCO INTERNATIONAL APRIL/MAY 2019
cer of Altria. “IQOS has had terrific success internationally. We’re very excited to bring this platform to adult smokers in the U.S.” PMI reports that currently more than seven million people around the world have fully switched to IQOS. PM USA will test a range of marketing, sales and consumer engagement approaches to raise adult smokers’ awareness of IQOS and to facilitate guided trial of the product and provide post-purchase support. There were many retail touchpoints in Atlanta, including an IQOS store at Lenox Square, numerous mobile retail units and HeatStick distribution in approximately 500 retail trade partner stores including Circle K, Murphy USA, QuikTrip, RaceTrac, Speedway and select additional retail partners. “PM USA will act on market insights and expects to scale IQOS quickly and efficiently,” said Willard.
Raise Purchase Age for All Tobacco Sales to 21: Altria RICHMOND, VA.—Altria
has stated that it strongly supports raising the legal age of purchase for all tobacco products, including e-vapor, to 21, in support pf the effort in the U.S. introduce legislation to this effect. “This is the most effective action to reverse rising underage e-vapor usage rates,” said Altria Group Chairman and CEO Howard Willard said. “Now is the time to move to 21.” The number one way kids today get access to tobacco products is by obtaining them from legal age purchasers, Willard added. “Approximately 80 percent of high school students in the U.S. turn 18 years old before graduation,” he said. “By raising the minimum age to 21, no high school student will be able to purchase tobacco products legally, adding another hurdle to help reduce social access.”
TI DIGEST
Perception of Altria-Juul Partnership Positive RICHMOND , VA .—The
honeymoon for newlyweds Juul and Altria apparently hasn’t ended yet. “Altria continues to believe that its investment and the services Altria has agreed to provide Juul will promote competition and have long-term benefits for adult smokers,” the company said in a statement. When completed, Altria will have much greater control over the direction Juul takes, said The Motley Fool, a multimedia financial services company that provides financial advice for investors. “While that has worried some…it doesn’t change the fact that Juul should end up in a much better position to meet regulatory requirements because it will have Altria as a partner to help it meet the government’s expectations.”
Revel Lozenges Now Available from Website WINSTON - SALEM , N . C .—R.J.
Reynolds Vapor Company announced in March that it is expanding distribution of Revel, a dissolvable nicotine lozenge, to the brand’s website. Revel is a continuation of Reynolds Vapor’s ongoing commitment to transforming tobacco by responsible innovation in the industry. It is made by extracting nicotine from tobacco leaves and infusing it into dissolvable lozenges. This process results in a product that can be enjoyed anytime, anywhere. The brand is available via the website www.thatsrevel.com in hard and soft lozenge styles and in four flavors. Reynolds Vapor has taken steps to prevent potential youth access of its Revel products.
Bailey’s Cigarettes Have Been Sold KEYSVILLE, VA.—The
small independent cigarette manufacturer S&M Brands Inc. ceased operations in March after
sale to a still-unidentified buyer, according to local reports. The company, which manufactured discount cigarette brands, had been in business 25 years. It was launched by tobacco growers Mac Bailey and his son Steven. In recent years, its leading brands have been Tahoe, Riverside and especially Baileys. The market for S&M cigarettes has been primarily the southeastern United States. Mac Bailey told the local press that S&M needed a parent company that could market its products nationwide. No sales price was initially revealed. Most of the company’s 87 employees have been laid off. The buyer bought the company’s equipment but not the buildings. The Baileys are reportedly looking for other uses of the buildings. The Baileys will retain—at least for the moment—their leaf dealer business Golden Leaf Tobacco Co. and Cornelius & Anthony, which produces premium cigars such as Lex12, Cornelius and Daddy Mac. They will also continue to raise tobacco.
JAPAN Innovation Partnership Formed to Improve Vaping GENEVA —JTI
has partnered with Plug and Play, a global leader in technology incubators, to run Vapetech, a program aimed at bringing together innovators and data experts to develop technology that improves the experience and health benefits of vaping. This global program operates from Silicon Valley and was launched with selected start-ups in March. “We believe vaping has the potential to reduce the health risks from smoking,” said Saeed Amidi, Founder and CEO of Plug and Play. “Our goal is to identify the next generation of products and services. By connecting them with JTI and others, we will continue to push forward innovation in this industry.”
14 TOBACCO INTERNATIONAL APRIL/MAY 2019
SWITZERLAND Gas Emission Target Approved GENEVA —JTI’s long-term greenhouse gas (GHG) emission reduction target has been approved as a Science Based Target (SBT) by the Science Based Target initiative (SBTi). “We are proud that SBTi has approved our ta rget,” sa id Chig usa Ogawa, JTI Senior Vice President for Sustainabilit y Management. “As a group, we strive to foster a sustainable environment for our business and for future generations. Climate change remains a key environmental challenge for us, as it can have a direct impact on our value chain and the society at large.”
NAMES IN THE NEWS J.B. Simko has been promoted to Vice President External Affairs for PMI and will relocate from New York to the Washington, D.C., office. Aaron Sherinian, Vice President Global Communications Transformation, will also relocate to the D.C. office. He had been stationed in Paris. “We are very pleased to have J.B. and Aaron representing PMI in Washington,” said Marc Firestone, President External Affairs and General Counsel. “We believe their presence in D.C.—where regulatory and policymakers meet—will send the positive message that we are working to make our vision of a smoke-free future a reality in the U.S. and abroad.” Marco Hannappel has assumed the role of managing director of PM Italia. Most recently, he had served as vice president of Samsung Electronics Italy. Eugenio Sidoli continues as president of PM Italia. Ray M. Paul Jr. has appointed to the Board of Directors of Hail & Cotton, Inc. Paul spent more than 30 years with Universal before retiring in 2012. Recently, Paul has served in a consulting role to Hail & Cotton.
Five companies, one mark
G.D, Comas, SASIB, Molins and Cerulean: ďŹ ve companies with a unique identity. Under the same ďŹ ngerprint, the group provides a complete portfolio of solutions, along the entire production process, from primary to secondary, both for conventional tobacco and new generation products, which always hit the mark.
ORIENTAL LEAF
Oriental Leaf Markets: Declining but in Equilibrium Privatization in Turkey in 2008 put the market in a tailspin. By Dr. Iqbal Lambat, CEO Star Agritech International he four traditional producer countries of the Oriental heartland—Turkey, Macedonia, Greece and Bulgaria—have seen a further decline in their 2018 crop with a combined production of 116 million kgs, declining 25 percent over the past 5 years. Part of the reason for the decline has been rising prices paid by processing companies to farmers. Another has been the expensive leaf offered to cigarette manufacturers, causing a change in the overall game. But that is not all: Politics, demographics and economics have played a big role in this decline. To put the Oriental Tobacco world into perspective the table below provides a global overview of both Heartland Orientals and Semi Orientals.
T
All Oriental of one origin It would be fair to say that all Oriental Tobaccos are of Turkish origin. The Ottoman Empire was an imperial power centered on the borders of the Mediterranean Sea. It existed from either 1281 or 1299 to 1923—more than six centuries. At the height of power, it included Anatolia, the Middle East, parts of North Africa and much of
southeastern Europe and the Balkans. The Empire was established by a tribe of Oghuz Turks in western Anatolia and ruled by the Osmanli dynasty, the descendants of those Turks. The Turks took with them to their new worlds their language, their culture and tobacco cultivation with Turkish tobacco seeds, among many other things. Turkey has always been the largest cultivator in the world of Oriental tobacco, with historic crop outputs exceeding 400,000 tons per year. There are a vast range of varieties—eight in total now: Izmir, Basma, Bitlis, Yayladag, Samsun, Sark, Adiyaman and Trabzon. So, the crops produced in Greece, Macedonia and Bulgaria all started during the Ottoman Empire. Where can Oriental be grown? Oriental tobacco requires a sandy, infertile soil to allow the plant to develop small palm-sized leaves with low nicotines and high sugars. When grown in fertile soils, the leaves produced are larger and with higher chemistries. That results in their classification as semi-Oriental Tobaccos. Oriental tobacco is sought after for its high aromatic characteristics and sweet taste.
WORLD ORIENTAL AND SEMI-ORIENTAL PRODUCTION 2018 COUNTRY
TONS / PA
VARIETIES
Turkey Macedonia Greece Bulgaria Lebanon Albania Tajikistan Moldova Total World
60,000 28,000 16,000 12,000 12,000 5,500 4,500 2,000 140,000
Izmir, Samsun, Basma Prilep, Yaka Basma, Keterini Krumovgrad, Bulgaria North Latakia Yenice, Albasan Dubek Chisinau
PRICE INDEX % 100 75 90 60 30 30 40 30
(Price Index=Izmir AB Top Grade Tobacco at US$ 10.00 = 100 percent)
16 TOBACCO INTERNATIONAL APRIL/MAY 2019
The world of Oriental tobacco was transformed significantly when the State Tobacco Monopoly for Tobacco and Alcohol (TEKEL) was privatized in 2008 by the Turkish Government. Some 650,000 Tobacco farmers in Turkey were faced with the new reality that TEKEL was no longer there to guarantee offtake at subsidized prices. And the new owners of TEKEL— BAT—were certainly in no mood to take on any responsibility for leaf other than that required to make the Oriental brands it had acquired. The Turkish crop fell dramatically over the next three years from a high of 275 million kgs to less than 50 million kgs, which was less than a fifth of recent historic production. The Turkish declining position proved to be the catalyst for development in neighboring Macedonia to accelerate the output of its Oriental crop. Greece suffered from the elimination of government subsidies which had a double effect—raising prices to levels where its leaf was not competitive as well as drying up crop financing as banks could no longer collateralize the subsidies farmers would receive. In Bulgaria, the status quo prevailed as it struggled to meet stricter rules from its new family—The European Union. Production report 2018 Among the four heartland producers, 2018 statistics were as follows: Turkey saw an output at 60 million kilograms. The Izmir variety achieved 53 million kilograms, of which 52 million were exported. The other two main varieties produced are Samsun and Basma. Before, there were many more varieties, but most have completely disappeared. Macedonia saw Prilep and Yaka production decline to an estimated 28 million kilograms versus 33 million in the year prior. Stll, Macedonia is now ranked as the number two Oriental to-
BUILDING ON THE PAST TO GROW A BRIGHT FUTURE For over 100 years, Universal Corporation has been finding innovative solutions to serve our customers and meet their leaf tobacco needs. We built a global presence, solidified long-term relationships with customers and suppliers, adapted to changing agricultural practices, embraced state of the art technology and emerged as the recognized industry leader. Today, we conduct business in over 30 countries on five continents, employ more than 20,000 permanent and seasonal workers, and are the leading global leaf supplier. Universal has a long history of operating with integrity, honesty, and a focus on quality. We are a vital link in the leaf tobacco supply chain, providing expertise in working with large numbers of farmers, efficiently selling various qualities of leaf to a broad global customer base, adapting to meet evolving customer needs, and delivering products that meet stringent quality and regulatory specifications. As we move into our next 100 years, we will build on our history by seeking opportunities to leverage both our assets and expertise. We will continue our commitment to leadership in setting industry standards, operating with transparency, providing products that are responsibly-sourced, and investing in and strengthening the communities where we operate.
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ORIENTAL LEAF bacco producer in the world. It produces at 47 percent of Turkish total output, which is 75 percent larger than the world’s number three producer, Greece. Top quality processed and packed Prilep AB has been fetching prices above EUR 6.00/Kg, making it a strong alternative to top Turkish Izmir AB processed and packed at USD 10.00/Kg. Greece is estimated to have grown about 16 million kilograms of classical Oriental Tobacco in 2018, made up of about 12 million Kgs of Basma and about four million Kgs of Keterini. But yields of both Basma and Keterini were reportedly down because of dry weather, which, by way of compensation, nevertheless created excellent quality Keterini crop and above-average quality Basma. Bulgaria saw its 2018 crop output of Krumovgrad and Bulgaria North continue its downward spiral to reach a low of 12 million Kgs, roughly 50 percent of where it was a decade ago. Pricing has
+44 114 262 6250
been low in the absence of a clear government policy on tobacco growing subsidies. Farmers had been demonstrating against the low prices, which they claimed to be below their production cost. Future questionable Pricing and preferences. Demand for the crop has been on a continuous decline. This has been provoked primarily by the significant reduction in supply (mostly by Turkey) which has driven up prices to make Turkish Izmir the most expensive of cigarette-style tobaccos. Oriental Tobacco has been a key ingredient in creating American blend brands. The leading one is Marlboro; its manufacturer PMI continues to use Oriental tobacco in their American blends despite its very high cost. Other manufacturers of American blend, by and large, have modified their blends towards American “Flavor” by removing the expensive Oriental Tobacco component and using
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Oriental tobacco flavor in most of their production. They still use small quantities of Oriental tobacco for some of their blends. Interestingly, the same increasing pricing phenomena can be seen in Indonesian Cigar wrapper tobaccos, once the mainstay of all Cigar manufacturers. As prices soared, the Indonesian Sumatra variety has all but disappeared and the Besuki variety has been reduced to one third of what it used to sell a decade ago. Politics. The ruling party in Turkey remains very anti-tobacco from “seed to pack.” Whilst most of the Turkish Oriental Tobacco produced is for export, the government remains adamant on controlling and regulating quantities produced annually by setting production quotas. Bulgaria remains in a quagmire as subsidies paid to tobacco farmers were eliminated when Bulgaria joined the European Union and had to adopt the Common Agricultural Policy.
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ORIENTAL LEAF
Demographics. The average age of Oriental farmers in Turkey (45,000 farmers) and Greece (15,000 farmers) is 55 years plus. In Bulgaria (25,000 farmers), it is somewhat younger and falls in the age bracket 45 to 55 years of age. And the youngest Oriental tobacco farmers are to be found in Macedonia (25,000 farmers) in the age group 35 to 40 years of age. In Turkey, the younger generation of tobacco farmers has migrated to the cities to participate in the accelerated economic development. Entire regions such as Samsun and Trabzon, much sought-after Oriental varieties, have completely disappeared.
This rural to urban migration was also seen in Greece up until recession. Attempts by new producers Much of the discussion in this article has been about the heartland Oriental tobacco producers of Turkey, Macedonia, Greece and Bulgaria, but it is worth pointing out that serious efforts have been made at growing Oriental tobaccos in other tobacco growing countries. In Africa, there were efforts to grow Oriental in Malawi and Zimbabwe, but they were unsuccessful. Efforts were made in Pakistan, and they showed promise but became an unstable project due to the territory (North West Frontier Province) falling under the control of elements of the Taliban. Oriental continue to be grown in India and China (Turkish Izmir and Basma seed). But both countries produce a mediocre product that does not come close to the real thing!
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20 TOBACCO INTERNATIONAL APRIL/MAY 2019
What’s next? So where do we go from this complex crossroad? Predictability is the mother of sustainability. Apart from PMI, other multinational manufacturer demand for Oriental tobaccos is low. There are sporadic purchases from Indonesia for high grade Turkish Orientals. Government monopolies also target Oriental tobacco, but generally they take the lower quality Bulgarian type (with the exception of Taiwan which purchases annually top-grade Turkish Oriental). At the beginning of the marketing season in Bulgaria last year, the Chinese Monopoly sent in a large delegation to evaluate its Oriental tobaccos. But there has been no concrete outcome, yet. All of this suggests that there are pockets of demand and interest for Oriental tobacco but insufficient to recreate a return to accelerating output of these tobaccos.
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In Greece, the loss of the growing subsidies coupled to economic collapse saw many growers unable to sustain their farms due to a lack of bank credit. The only government that remains pro-tobacco is Macedonia which pays a subsidy of EUR 1/Kg produced to farmers.
RUSSIA Deputy Head of the Russian Ministry of Health Oleg Salagai (far right) has been one of the most hostile Russian leaders in relation to tobacco.
Regulation Gets Ratcheted Up on Russian Tobacco Eventual goal: elimination of tobacco products after 2050. By Eugene Gerden, TI Russian Correspondent he Russian government is tightening pressure on the domestic tobacco business by way of the introduction of new restrictions on smoking and tobacco. In the recently prepared State Concept for the fight with tobacco consumption in Russia during the period 2019â&#x20AC;&#x201C;2035, producers and some senior experts in the field of tobacco business in Russia brought their opinions to the attention of the public. The new State Concept will be also part of the recently announced plans of the Russian Ministry of Health to completely withdraw tobacco products from the Russian market after 2050. By 2030, the share of consumption of tobacco products among the Russian population should fall to five percent and to zero percent by 2050, according to recent statements of the deputy head of the Ministry of Health Oleg Salagai.
T
As part of the new Concept, the government plans to extend the ban on smoking in public places, to increase minimal prices for cigarettes and to equate electronic cigarettes with ordinary ones. T he gover n ment bel ie ve s t he planned restrictive measures could be efficient as those contained in the previous anti-tobacco Concept, which
Measures implemented To date, some of the proposed measures have already been implemented. For example, on March 1, 2019, mandatory digital labeling of tobacco products officially came into force in Russia. The main purpose was to raise the transparency of the Russian tobacco market and reduce the share of counterfeit. The new labeling scheme involves putting digitally generated code (electronic two-dimensional dot code in Data Matrix format) on a pack of cigarettes, using special tools. The new code will allow tracing the path of the pack from the manufacturer to the consumer. That will help regulators get an access to information about producers and their products. At present, the high share of counterfeit continues to be one of the major problems of the Russian tobacco market. According to Nielsen data, during the period from 2015 to 2018 the share of the illegal segment grew by eight times and is currently estimated at 10 percent of the overall structure of the market. As a rule, most counterfeit tobacco comes to Russia from the countries of the former-Soviet-Union, primarily Belarus.
So far, all the economic measures to combat smoking in Russia have led only to an increase of the illegal sector of the market. came into force at the beginning of 2010s and resulted in the decline of the share of smokers in Russia from 39.4 percent to 30.9 percent. At the same time, in the case teenagers aged of 13â&#x20AC;&#x201C;15 years, these figures fell by two times.
22 TOBACCO INTERNATIONAL APRIL/MAY 2019
Experts question In the meantime, implementation of such ambitious plans as those which were announced by the state in the proposed State Concept have already been questioned by some leading Russian experts in the field of tobacco business.
Maxim Korolev, editor-in-chief of the Russian Tobacco magazine, believes implementation of similar plans were impossible even for those countries, which started the fight against smoking 30–35 years ago. “The examples of such an active anti-tobacco fight are Australia and Canada, which began to implement such policy during the 1980s,” Korolev comments. Now, 35 years later, both countries have found out that smoking cannot be reduced below 12-14 percent of the adult population. Implementation of
The impact of taxes Starting January 1 of the current year, the VAT rate in Russia grew 18 percent to 20 percent, which resulted in the growth of prices for the average pack of cigarettes grew by RUB 10 (US$0.154). Moreover, the Russian Ministry of Health, from its side, plans to further lobby the increase of excise rate for tobacco products in Russia, up to 70 percent, in accordance with the recommendations of the World Health Organization and tax practice in European countries.
The achievement of the declared state goals seems to be very problematic even in the long term for the country. even the strictest measures and the rise of prices resulted in the growth of smuggling in these countries. In the case of Russia prior to 2000s the majority of the local market [was] accounted for [by] non-filter cigarettes. At present there is a big gap between Russia and Western countries in regard to the tobacco business, which means the achievement of the declared state goals seems to be very problematic even in the long term for the country.” Experts also said that so far, all the economic measures to combat smoking in Russia have led only to an increase of the illegal sector of the market. This is also confirmed in the latest report of the Russian Ministry of Health, according to which the number of smokers in the country is estimated at 40 percent of the entire population. In the meantime, according to global tobacco majors operating in the country, in addition to the ever-accelerating state efforts to combat with smoking in the country, another threat to their local business is associated with the growth of excise taxes.
Now, the excise rate on cigarettes in Russia is 2,568 rubles per 1000 units (51.36 rubles per pack) and, it is planned that it will continue to grow in years to come. According to experts of the Ministry of Health, the increase in excise taxes on each pack of cigarettes can bring more than RUB 500 billion (US$8 billion) to the Russian federal budget. Finally, state control of the segment of vapes and electronic tobacco heating systems in Russia will be also significantly tightened. Currently this segment experiences a lack of legal regulation, which is reflected by the lack of any restrictions on the consumption of these products in Russia. However, this situation may change shortly. APRIL/MAY 2019 TOBACCO INTERNATIONAL
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UNITED KINGDOM
A London Underground carriage. Photo: naumoid/Bigstock.com
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When Will Smoking End in the UK? It looks like it will get a little nudge from PMI By Bob Crew, TI London Correspondent n recent months and years in Britain, Philip Morris International (PMI) has emerged as a tobacco company that has been pulling away from its traditional leaf-tobacco products. In the United Kingdom, Philip Morris International (PMI) estimates that the UK will no longer be smoking tobacco by 2050, while some British cities and towns will be ahead of the alternative tobacco game by mid-2020! If this sounds incredible, then read on, because PMI in London has been putting a lot of money where its mouth is to get its research right. Specifically, it predicts that the English cities and towns of Bristol, Wokingham and York will be the first parts of England to go smoke free in mid 2020s, while the rest of the country “will not go smoke free until after 2050.” This is according to new research conducted by Frontier Economics and commissioned by PMI. However, there are stark variations in the predicted rate of decline in different parts of the country, with one in 10 areas predicted to still be smoking in 32 years’ time and nearly a quarter (23 percent) predicted to have stopped before 2030. Frontier Economics, headquartered in London, specialized in behavioral economics with a goal of challenging and changing the conduct of business, society and governments in the near and far future. It is “tackling the big economic questions” that come with the territory of all these changes. The company has offices throughout Continental Europe and also in Eire (Dublin).
I
Which way the wind is blowing Both PMI and Frontier Economics think they can see which way the wind is blowing, so they are of course blowing with it and going with the flow to prevent their profits from going up in smoke. But will there be cross-winds and blow-backs along the way? This is their puzzle and the expensive and risky nature of their conundrum, and only time will tell about this particular research in the UK and the towns and cities in question there (as investors and financial analysts watch with keen interest, as always).
smoke-free the “quickest” in the following chronological order: Bristol in 2024 and Wokingham and York in 2026. Ot her a rea s ex pec ted to st i l l be smok ing beyond 2050 include Nor t h L i nc ol n sh i re , Derby a nd Cheshire East, all in the North and mid-North of England. PMI claims that its research “also highlights a variety of measures that could accelerate the decline in cigarette smokers. These include increasing the number of smokers using NHS Stop Smoking services and getting more switching to better alternatives like e-cigarettes and heated tobacco.” It reports that these “new figures are detailed on a website launched by PMI— www.lastsmoke.co.uk—which presents data for postal code areas through an interactive tool [that] also includes a powerful call to action to encourage communities to go smoke free faster.”
It also remains to be seen if PMI’s/Frontier Economics research and predictions turn out to be the biggest blunder and miscalculation in tobacco industry history anywhere in the world, or otherwise the most far-sighted and accurate. The City of Bristol is in the West of England, and it is the first location that is expected to stop smoking tobacco, followed by Wokingham, a smaller, more countrified little town some thirty miles west of London enroute to Bristol, while York is a medium-sized ancient city in the far north of England in Yorkshire (that are both expected to stop smoking tobacco at the same time). PMI is boldly declaring that the residents of these three locations will be the first in England (if not in the world at large) to collectively give up smoking tobacco either in favor of alternative e-cigs or of vaping, or of not smoking at all. It claims that its research has clearly “established” that these areas are set to go
This is ambitious and impressive research, for sure, and clearly, PMI really is putting its money where its mouth is, as it tries to get on the right side of the British government and the health authorities in the UK, to get ahead of the game with its alternative e-cig and vaping products. Victory or miscalculation? But it remains to be seen if these products turn out to be cancerous (as some are already arguing) in the fullness of time. And it also remains to be seen if PMI’s/Frontier Economics research and predictions turn out to be the biggest blunder and miscalculation in tobacco industry history anywhere in the
APRIL/MAY 2019 TOBACCO INTERNATIONAL
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UNITED KINGDOM
world, or otherwise the most far-sighted and accurate. So, PMI is taking a big gamble here, obviously for good public relations and marketing purposes. But that may or may not blow up in its face, as it becomes the first tobacco company in the world to campaign against its own and its industry’s products.
ket research findings include the following about the behavioral smoking habits and economics in the different regions of the UK: • Regional falls in smoking rates from 2011 to 2017 varied from 10 percent to 1 percent, with one area, Cheshire East, actually seeing a rise in smoking prevalence in 2017 than six years earlier.
The times they are really a-changing for traditional tobacco-leaf smokers and alternative e-cig smokers and their providers respectively and equally. PMI’s commitment Mark MacGregor, UK Corporate Affairs Director of PMI, has declared that the company is committed to going smoke free as fast as possible and ultimately stopping selling cigarettes altogether. “What this research reveals are the huge variations in the decline in smoking in different parts of the country,” he says. “We want to play our part in working with local businesses, retailers and councils in the areas with highest smoking rates.” It is not going to be easy getting smokers in these areas to stop, he admits. “One of the keys to success will be ensuring they understand that there are more alternative options than ever that can help them give up cigarettes for good.” We can see his company and Frontier Economics has been working hard at getting its sums and predictions as right as they can! The company reports that its mar-
• Significant differences in smoking prevalence across England, with 3 percent of local authorities having a rate of over 20 percent while 4 percent have a rate of between 5 percent and 10 percent. • Deprived areas have a higher prevalence rate of smokers. The three areas with the highest rates of smoking (Kingston upon Hull, Blackpool and North Lincolnshire) have an average rate of 22.1 percent compared to an average rate of 8.8 percent among the three lowest (Rutland, York and Wokingham). PMI’s Last Smoke Website also includes other proposals that could accelerate the end of cigarettes in the country. These include “more independent research into smoking alternatives, targeted government campaigns through school and social media to stop smoking in the first place and tackling the trade in illicit cigarettes by taking tougher action against criminal gangs.”
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In the UK and Ireland, PMI merchandises IQOS, the UK’s first heated-tobacco device and IQOS MESH, its premium vaping product along with a number of other e-cigarette brands, and it has “made a commitment to develop, market and sell smoke-free alternatives, and encourage adult smokers to switch to these alternatives, as quickly as possible around the world.” All well and good thus far, unless of course it and Frontier Economics have got it all wrong. There’s the rub—so watch this space in future for further reports about this, as PMI gets ahead of the pack and becomes the first tobacco company in the world to go in this anti-smoking direction. But how long before PMI and Frontier Economics move into Russia and Eastern Europe with the same very detailed and in-depth research? PMI already appears to have its sights on Russia, as well as other East European destinations. There are those—including the Russian government perhaps—who may be interested to partner it in order to wipe tobacco off the face of the map in the respective countries. Times change The times they are really a-changing for traditional tobacco-leaf smokers and alternative e-cig smokers and their providers respectively and equally. That is much more so in some parts of the world than in others, just as the marketing and investment for these two different camps is also changing.
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BRAZILIAN LEAF
A Report on Brazilian leaf crops in 2019 Flue-cured Virginia was up, burley was down, but neither by much. From Staff Reports new report from the leaf firm Hail & Cotton says that the fluecured crop in Southern Brazil had acceptable yields and produced a volume slightly over last year’s.
A
FLUE CURED/VIRGINIA At the end of March, 100 percent of the Flue-cured Virginia crop had been harvested. Cured tobaccos from the Coastal area were showing lighter color with good cutting quality. Yields were within expectations. By production area: Rio Grande do Sul—Lower stalk was light orange-to orange and the upper stalk was deep orange with some mahogany incidence. Quality appeared average. Santa Catarina—Lower stalk was more on the orange side, and the upper stalk was orange to deep orange. The quality was reported average. Paraná—The lower stalk showed light orange color. On the other hand,
the upper stalk is presenting deep orange to mahogany color suggesting a fair quality. For all flue-cured in 2019, planted area was 275,000 hectares, up 15,000 hectares from the year before. The yield was 2,220 kilograms per hectare, down slightly from 2018. Volume was 610 million kilograms, up 30 million pounds from 2018.
March, and quality is average thanks to adverse weather conditions. Total burley planted area was 35,000 hectares, down 2,000 acres from the year before. The yield was 1,950 kilograms, just 50 kilograms less than 2018. Volume was 64.3 million kgs, down almost 10 percent from 2018. BRAZIL BAHIA—FILLER Rainfall during the second half of the growing season was very scarce. Crop yield was greatly reduced. A reduction of 50 percent compared to the previous year was expected. Luckily, there were additional rainfalls at the end of the growing season, and even some time after that.
LEADING CIGARETTE BRANDS AMONG BRAZILIAN SMOKERS he 10 top cigarette brands in Brazil in 2018 (with percentage of smokers) according to a recent survey conducted by Cint are Marlboro 5.62%; Dunhill 3.71%; Hollywood 3.27%; Carlton 2.82%; Free 2.63%; Camel 2.52%; Lucky Strike 2.23%; Derby 2.19%; L&M 1.46%, and Black 1.41%.
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BURLEY Burley harvesting was finalized during the month of February with cured tobaccos presenting tan color and average to good quality. Harvesting of the Galpão Comum was finished during the month of
SOURCE OF CONTRABAND CIGARETTES GOES DOMESTIC IN BRAZIL here’s been a change in the source of illicit cigarettes in Brazil, according to press reports. Contraband cigarettes have traditionally come to Brazil from neighboring Paraguay. But recently, many local production sites for illicit and counterfeit cigarettes were found in Brazil itself, and law enforcement expects more to be found. Other developments in the Brazilian cigarette market: • Souza Cruz, the local subsidiary of British American Tobacco and leading Brazilian cigarette manufacturer, has recently closed its production plant in the state of southernmost state of Rio Grande do Sul. The state had been responsible for the production of around 20 percent of its cigarettes in the country. • In contrast to Souza Cruz, the second biggest manufacturer in the country, Philip Morris International, has made greater commitments in the state. PMI’s production plant is located in the state of Rio Grande do Sul. Its operations and central office are located in the state of Paraná, also in the south. • Cigarette sales continue to fall in Brazil. Consumer concern with living healthy has been one of the main factors.
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28 TOBACCO INTERNATIONAL APRIL/MAY 2019
They helped produce a somewhat bigger volume than initially thought. It also helped to keep the buying prices at an almost normal level. The volume estimate now is 950 green metric tons,, compared to 1,400 in the previous season. Buying season was over by the end of February and all in all farmers are relatively satisfied with the crop result, despite the difficulties in the beginning. BAHIA MATA FINA WRAPPER Production of the current crop is estimated at 65 packed weight metric tons compared to 100 metric tons for the previous crop. All tobaccos from the previous crop have been packed and will soon be shipped to customers. All tobaccos from the current crop are still undergoing fermentation. Soon the selection and grading process of the lower primings will begin.
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LEAF NEWS
UNITED STATES Transplanting begins in the US LEXINGTON, KY.—Planting of the fluecured crops in Georgia and Florida were complete by May 1 thanks to favorable weather. In South Carolina. planting was estimated at 27 percent by the same date but was not as far along in North Carolina. Growers in Virginia had just started transplanting through
the end of April. According to USDA, Virginia flue-cured was four percent transplanted and burley and fire-cured were two percent transplanted. I n t he bu rle y belt, t he st ate agronomist in Kentucky, the leading burley state, said good weather had helped the state’s growers get into the field. “We have had a little planting, but I doubt we are up to five
CANADA
ITALY
Seeding Going Well
PMI Promises Continued Support to Growers
TILLSONBURG , ONTARIO —Most greenhouses in southern Ontario had been seeded by the end of March, said Mitchell Richmond, Team Leader for the Canadian Tobacco Research Foundation, which has alerted member growers of pests, fertility, and contamination issues to be alert for as seeds germinate and seedlings grow, ushering in the start of the 2019 growing season.
ROME—Philip
Morris Italia has made a strong commitment to promote the enhancement and sustainability of Italian tobacco cultivation. It is backing up its pledge with investments of up to 500 million euros for the purchase of the best tobacco leaf and for innovation in the supply chain. Eugenio Sidoli, Chairman, Philip
30 TOBACCO INTERNATIONAL APRIL/MAY 2019
percent yet,” he said. “So far, it has been the best start to a season we’ve had in some time.” He thinks plantings in Kentucky may be down 20 percent when all is said and done. Above: A planting scene near Raeford, N.C. Half the North Carolina flue-cured crop had been transplanted by the first week of May.
Morris Italia, said of the agreement, “We are proud to confirm our historic strategic collaboration with the national authorities for the sustainability of the tobacco chain. With the agreement signed today, we are committed to guaranteeing—together with the Italian Government—a sustainable future for about a thousand small and medium enterprises that represent a case of excellence in the European panorama.” A fundamental part of the agreement will be the application of PM Ita-
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LEAF NEWS lia’s guidelines on “Sustainable Tobacco Production” and of the code of “Good Agricultural Labor Practices.” The company is committed to continuing the collaboration with Italian farmers through training sessions on the most advanced methods of tobacco cultivation. This will support the implementation of pilot projects for the introduction of innovative technologies in cultivation practices. The agreement is the highest investment in the sector by a private company, PM Italia said.
PAKISTAN Growers Demand Tax Termination ISLAMABAD —A
new additional tax on raw tobacco will seriously affect the livelihoods of leaf growers and should be immediately withdrawn, said growers of the Khyber Pakhtunkhwa province.
In an April 10 press conference, the growers and others asked the government to immediately withdraw the newly announced additional tax of Rs300 per kg on raw tobacco. The tax is onerous: Without it, the price of raw tobacco is only around Rs180 per kilogram, the growers said in press reports. The duty can be refunded if the buyer exports the tobacco after processing. But that will do no good to local manufacturers. Many growers would have to shift to other enterprises, of which there are only a few viable ones. If this issue isn’t resolved, the growers expressed willingness to demonstrate against the tax in the streets. They also objected to the closing of the Philip Morris Pakistan factory in Kotri, Sindh and said that the employees who had been suspended should be restored.
32 TOBACCO INTERNATIONAL APRIL/MAY 2019
TANZANIA Production Down, Way Down DAR ES SALAAM—Production
of tobacco has significantly declined in Tanzania since the 2013/2014 farming season, said Stanley Mnozya, Deputy Managing Director of the Tanzania Tobacco Board, in an article in the Vaping Post. “There has been a spate of pests that destroy tens of hectares of tobacco farms annually which subsequently raise production costs of the cash crop,” he said. Production of tobacco in 2013/2014 peaked at 105 million kilograms, falling to 93 million kilograms the next year, 72 million kilograms the year after and 60 kilograms the year after that. In 2017/2018, the total was 50.5 million kilograms, said Mnozya. Tobacco production has also been held back by low demand in international markets following anti-tobacco global campaigns.
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