Leaf Perspectives

Source from:  TJI 09/25/2009

Antonio Abrunhosa, chief executive of the International Tobacco Growers Association (ITGA), on recent buyer/user consolidation in the tobacco industry and its impact. "It was around February, some ten years ago, when the president and another director of the Tobacco Association of Zimbabwe spent a hectic month travelling through Europe and the Middle East, rarely spending more than one day in one of the fifteen capitals where they visited cigarette manufacturers. Today, that round-trip would probably be limited to four cities, since the big buyers went from over twenty large and medium-sized companies and monopolies to four large multinationals, accountable for over 50 per cent of all cigarettes produced outside China. In parallel, a few dozen leaf tobacco dealers became two large, globally active multinationals, and less than half a dozen small-sized companies with international outreach. In Italy alone the number of processing plants dropped from several dozen to half a dozen. This concentration of demand has had a devastating impact on the hitherto dominant form of tobacco sales in the large exporting countries, auctioning. Ten years ago, only two of these countries, Brazil and Argentina, sold the bulk of their production via contract. Currently, only Malawi, Zimbabwe and India maintain a significant auctioning tradition, although the pressure on both Malawi and Zimbabwe to go under contract is increasingly strong. This trend is due to several factors: - A prime factor is the delocalisation of production to low-cost locations where the need for infrastructures of all kinds and agricultural extension services demands of the companies an investment that can only be recovered through a reasonably stable base of contracted producers. - The need to lower per-unit costs for every kilo of tobacco that is processed, e.g. the typical example of the US. - Protection, through contracts, from the price volatility when demand skyrockets or when supply is insufficient, as occurred in India in 2008. This new reality favours producers with low technical capacity and very limited resources for investment but greatly compromises the power of commercial grower organisations, in charge of managing the highly professional tobacco farms, and to whom one frequently owes the production of some of the best quality tobaccos in the world. To what extent this new reality will safeguard stability in production and high quality will be seen in the years to come." Enditem