Brazilian Tobacco - Size Matters

Source from:  TJI 12/31/2013

Production of flue-cured Virginia (FCV) tobacco by Brazil outweighs the combined total of FCV produced by India and the United States. Brazil has been the world's biggest combined exporter of FCV and light air-cured Burley tobacco since 1993.

Brazil is a big country with big tobacco harvests. The South American country's 90 million kg of light air-cured Burley ranks with that of the United States and is currently not that far behind the much-reduced crops of Burley weighed in by tobacco farmers in Malawi. Brazilian production of dark sun- and air-cured tobacco for cigars and dark cigarette tobacco is still relatively high and only exceeded by Cuba and the Philippines. However, it is Brazil's massive 600-700 million kg of flue-cured Virginia leaf tobacco that catches the eye and continues to dwarf the country's nearest competitors among the world's tobacco producing and exporting nations.

India and United States, the next biggest FCV producers, weigh in around 275 million kg and 220 million kg, respectively, but even their combined annual total is still significantly less than the golden leaf produced on Brazil's southern soils. Even if you add in neighbouring Argentina's highly respectable 75 million kg of flue-cured leaf the Brazilian FCV ‘mountain' is still out of reach.

Despite its size, Brazil's tobacco crop has never occupied more than 0.7 per cent of the country's total land area covering 8.52 million km2. Brazil's huge tobacco crop is harvested from a tiny fraction of the country's land area and is thus a perfect illustration of the intrinsically efficient nature of tobacco cultivation and production in the wider world context.

Cultivation of tobacco is not spread across Brazil but is highly concentrated in some north eastern and southern provinces of this extensive land mass effectively ‘bisected' by the Equator. Brazilian production is focused on two distinct, disparate and contrasting areas of the country, geographically, socio-economically and in the types and styles of tobacco grown.

Brazilian tobacco North and South

Brazil's FCV and Burley tobaccos are spread across three industrialised and relatively rich southern states of Paraná, Santa Catarina and Rio Grande do Sol where tobacco is grown by more than one hundred thousand family farms averaging just 16 hectares of land each and small by Brazilian standards.

The importance of tobacco to farming and farmers in South Brazil is not just about the actual size of the harvested crop. Tobacco is one of few crops, if not the only crop, intrinsically capable of generating sufficient income for the survival of farmers who own or rent such a small area of land and is therefore the life-blood of small-scale farming in the region. FCV accounts for the bulk (75 per cent) of production, Burley at 20 per cent accounts for most of the rest with a residual amount of light air-cured ‘Comum' (common) tobacco for the domestic cigarette market.

At the other end of the country, in the contrasting and relatively poor north eastern region of Brazil, tobacco props up the agricultural economy in countless municipalities to provide farmers, like their counterparts in the south, with virtually the only crop opportunity that can reward them with a living from the land. This includes rich and high quality dark air-cured tobacco grown in states such as Paraíba, Rio Grande do Norte, Ceará, Pemambuco, Bahia and Alagoas earmarked mainly for the manufacture of higher value cigars and cigarillos but also dark cigarette tobacco.

Evolution of Brazilian tobacco production

Brazilian tobacco has evolved rapidly over the last five decades from previous dependence on local types and varieties and into a powerhouse of production for cigarette manufacture around the world (Tables 1 and 2). Back in the 1970's when Brazil was producing just over a third of its current tobacco total there was a completely different partitioning between the various types and styles grown. In 1977 tobacco farmers in South Brazil were harvesting around 45 million kg of the local comum (common) light air-cured tobacco while their counterparts in north eastern Brazil weighed in a hefty 145 million kg of dark sun- and air-cured tobacco.

Older tobacco texts describe ‘comum' as an Amarelinho type of tobacco locally known as ‘galpao' (the Portuguese word for curing shed) and grown in quantity across the states of Rio Grande do Sul and Santa Catarina in South Brazil. The substantial crop of dark sun- air-cured tobacco produced in the northern provinces during the 1960s and 1970s comes across as a veritable ‘pot pourri' produced in provinces like Bahia and Alagoas mainly for use as cigar filler. Mata Fina was cited as the ‘best of Bahia' by offering a fine, light and aromatic tobacco. Mata Fina was described as having all those qualities which typify good quality Bahia tobacco including an inherent and slightly earthy but pleasant taste. Tobacco from Alagoas, also known as Arapiraca, was considered to be completely different to the tobacco grown in Bahia. This tobacco was described as weak and non-aromatic with poor storage qualities but nevertheless consumers rated the dark-air cured Alagoas leaf as a good mild smoke (B.C. Akehurst, Tobacco, Tropical Agriculture Series, Longman. 1968).

By the dawn of the new millennium (2000) Brazil's annual tobacco tonnage was looking more or less as it does today with a total approaching 600 million kg achieved over the preceding quarter century. Single biggest increase occurred between 1975 and 1980 and was sustained thereafter by steady increments on the back of stepwise increases in planted area and fresh leaf yield.

Tobacco's overall production dynamics were accompanied by equally marked changes in the types and styles grown. Between 1977 and 2000 productions of FCV and Burley essentially tripled, while harvests of comum and dark air-cured tobacco were slashed by around 80 per cent. Brazil still ranks in the world's top three origins for dark air-cured tobacco leaf but at a tiny fraction of its 1977 production. Production profile over last quarter century shows how Burley had already reached its peak of around 90 million kg in 2000, while FCV still had a long way to go. FCV production has risen another 200 million kg over this most recent 13 year period.

Other countries secured their place at the world tobacco producers' table by increasing the area under tobacco or through an increase in yield. Brazil achieved both at the same time, the latter through improved agronomic practice including the development and use of improved varieties.

But there's one factor not showing up in these figures which has been instrumental in the long term success of Brazilian FCV and Burley for global cigarette manufacture. This was a sustained push for high quality and quality control alongside rapid increases in production, so that today Brazil can claim the world's biggest production and export of high quality FCV and mainly for use as flavour (as opposed to filler) cigarette tobacco. The big multi-national tobacco companies clearly saw Brazilian tobacco as a commodity origin of the future and were instrumental in helping farmers across the board to increase production and improve quality, and probably more so in Brazil than in any of the other major tobacco producing countries.

Just how big is tobacco in Brazil?

Brazilian tobacco production is clearly big, but just how big and all-pervading within the international marketplace can be seen and appreciated by looking at export volumes and revenue figures for 2012. Figures released by SindiTabaco for 2012 show an overwhelming contribution of FVC and Burley tobacco from South Brazil to total tobacco exports. Of the total 638 million kg of tobacco exported from Brazil and earning USD 3.26 billion (EUR 2.4 billion) no less than 633 million kg earning USD 3.21 billion came from South Brazil. This accounted for 1.34 per cent of the country's export of all goods and services. SindiTabaco represents the tobacco industries' interests in southern Brazil at federal, state, municipal and international levels.

According to data released by The Brazilian Secretariat of Foreign Trade, a division of the Ministry of Development, Industry and Foreign Trade (SECEX/MDIC) the USD 3.26 billion earned from exports of processed tobacco in 2012 was a record in Brazil's two decade position as the world's top tobacco exporter. Since 1993, Brazil has been the top global exporter of tobacco leaf well ahead of other big players like India, the United States and Malawi.

A survey conducted by Pricewaterhousecoopers (PwC) on behalf of SindiTabaco showed 2012 shipments were up 6 to 10 per cent in volume and 2 to 6 per cent in revenue compared to 2011. "The export results outstripped the growth expectations and reflect the economic importance of the sector [tobacco], especially South Brazil," said Iro Schunke, president of SindiTabaco. In 2012 tobacco accounted for 12.9 per cent of all exports from Rio Grande do Sul and 10.8 per cent of those from Santa Catarina. 96 per cent of Brazil's entire tobacco crop is grown in South Brazil with tobacco leaf accounting for 7.3 per cent of all exports from this region of the country, says SinditTabaco.

Brazil's processed tobacco leaf goes far and wide with 85 per cent of production now exported to over 100 countries. Main destination is the European Union (EU) taking 40 per cent of the total, followed by Asia (27 per cent), North America (12 per cent), Africa and the Middle East (5 per cent) and Latin America (5 per cent). Single biggest country purchases were made in China (USD 478 million, EUR 351 million), Belgium (USD 398 million, EUR 293) and the United States (USD 369 million, EUR 271) (Table 3).

Care should be exercised when interpreting the export of Brazilian tobacco into individual EU countries. Imports into the EU as a free trade area are assigned to the country of the port of entry. Since the Port of Antwerp with the largest tobacco storage facility in the world is in Belgium this tiny EU country with a population of just 11 million is credited with a huge tonnage of tobacco arriving from Brazil, the vast majority of which will be dispatched ‘customs free' to the other 26 EU member nations. A similar situation arises with coffee imports into the EU.

Does size really matter?

The sheer size of Brazil's tobacco production and the industry which it supplies and supports matters in more ways than one. Multinational tobacco companies and cigarette manufacturers want long term reliable supplies of processed tobacco and not simply according to volume and quality per se. They are also looking for consistency in style including taste and aroma which allows them to maintain ‘blends' and products.

Big producers like Brazil with well-established and stable supplies of processed tobacco are best placed to satisfy demand especially from the largest multinational purchasers. In a sellers' market, which FCV have rapidly become, the bigger the supplier then bigger and more effective the bulwark against any erosion in the prices received by farmers from dealers. That's the upside but there are many downsides to size some of which may not be immediately apparent.

Brazil might be forgiven for believing in old adage ‘the bigger you are the harder you fall' when it comes to their tobacco industry. Brazil is certainly a ‘top target' and point of focus for all and sundry inside and outside of the industry. This includes other major tobacco producing countries, the international media and a collection of lobbies focused on a variety of factors related to agriculture including deforestation and pesticide use.

Focus on pesticide use is now a smokescreen. The tobacco industry in Brazil (and elsewhere) has comea long way in reducing pesticide usage to acceptable levels. The amounts of pesticide now used on tobacco are considerably lower than used on other crops which the other lobbies are urging farmers to use as replacement crops for tobacco.

Other crops including coffee, cocoa, banana and oil palm come in for the same nature of criticism but tobacco is always the first and foremost target due to undeniable health implications for those who work in particular parts of the industry and consumers of the finished product as a fumitory material.

Like all other producers, Brazil has suffered ups and downs in tobacco production but as the world's biggest combined exporter of FCV and Burley any fall is immediately in the headlines. Brazil suffered a significant downturn in production with falls in FCV (17 per cent) and Burley (23 per cent) between 2011 and 2012. This measure of fall is likely to be maintained in 2013 for FCV but with some rebound for Burley (Table 2). Unfavourable weather conditions during the growing season (including drought) and a decrease in planting area were reported as the reasons for these significant falls in production.

This became instant international news and brought forth comments in both the Indian and Zimbabwean media implying a collateral boost for their already sizable FCV exports and which could be interpreted as quiet satisfaction at Brazil's misfortune. Similar percentage falls occurring at the same time in neighbouring Argentina provoked relatively little reaction and comment on the wider, international scene (Tobacco Journal International Issue 5 2013).

FCV leaf has always been the prime tobacco target for organisations focused on forest cover because of the crop's inherent requirement for wood fuel to cure the harvested tobacco leaves and to construct tobacco barns and other buildings. Brazilian tobacco industry was an early target for this lobby but overcame criticism by setting up well-established policies supported by tobacco companies. They encouraged tobacco farmers to become self-sufficient in wood fuel by planting their own woodlots comprising native trees like Acacia and exotic ones like Eucalyptus.

These moves have been consolidated by the Brazilian tobacco industry which committed itself not to purchase any tobacco cured with wood fuel from ‘irregular' sources and by not allowing growers to register without a commitment to reforesting part of their land.

Concerted attacks by tobacco control lobbies

The international tobacco control lobby attacks tobacco in several different ways. Directly by pressurising governments to enact legislation around marketing and use of finished tobacco products and coercing growers (via their governments) into growing alternative crops, working on the basis that if farmers don't grow tobacco consumers can't smoke it. These strategies have been joined more recently by an indirect onslaught at both ends of the tobacco chain (cultivation and consumption) through WHO FCTC articles relating to additives and ingredients and already going someway to undermine the cultivation of Burley tobacco worldwide.

The word alternative in relation to other crops grown instead of tobacco is a misnomer because what these lobbies really mean is a replacement crop for tobacco.

‘Alternative' crops already exist. According to SindiTabaco the average South Brazil farm of 16.7 ha and growing tobacco 2011/2012 also supported a variety of crops and other farming systems - tobacco (15.4 per cent), maize (22.5 per cent), soybean (7.8 per cent) black beans (1.8 per cent), other crops (3 per cent), native woodlots (16.9 per cent), reforested woodlots (12.2 per cent), pasture land (20.4 per cent), ponds and fallow areas (1.8 per cent).

Tobacco grown on just 15.4 per cent of the land area accounted for 56 per cent of farm income. The high profitability of tobacco is essentially what brings all these other things, including the production of food crops, meat and dairy, within the capability and capacity of such very small farmers whether in Brazil or elsewhere in the tobacco growing world.

Brazilian tobacco farmers were also an early target of the obsession of the tobacco control lobby with ‘alternative' crops for tobacco. Professional crop agronomists have tried until they were‘blue in the face' to explain the situation in which tobacco is, in many parts of the tobacco growing world including Brazil and for both agronomic and socio-economic reasons, unrivalled in its ability to yield and give small farmers a reasonable living.

Initial assessments completed over ten years ago in South Brazil showed how the only other crops possibly competing favourably with the economics of tobacco were some vegetables and legumes. Asparagus was hailed as a prime alternative but this requires a level of soil fertility which tobacco does not require and which is simply not there in the soils of these areas of South Brazil.

However, only when the real sums are done does the futility of the tobacco control lobby trying to ‘invent' an ‘alternative' crop for tobacco become clear. To match the gross income per hectare of tobacco requires 6.5 ha of maize or 9.6 ha of beans. On those terms, it is almost impossible to replace tobacco in terms of income generation on small farms. If maize and edible beans were to be cultivated in the south new land would have to be brought into production, which implies opening new land and deforestation, with damage to the environment.

Ongoing attempts to coerce farmers into dispensing with tobacco and to grow economic ‘alternatives' instead (which in most cases are no such thing) is stuffed with hypocrisy and tinged with irony. Tobacco is not an illicit or illegal substance. If these small farmers in Brazil were prevented from growing tobacco and forced to grow other less profitable crops, then Brazil would have to look elsewhere to feed its cigarette manufacturing capacity. Large wealthy FCV farmers along the southern eastern seaboard states of the United States would be some of the obvious candidates.

Another big irony is revealed by the pattern of export destinations for Brazilian processed tobacco The EU has done its level best, through economic decoupling of tobacco from a traditional subsidy, to bludgeon farmers in southern European countries like Greece, France, Italy and Spain into giving up the cultivation of tobacco. At the same time the EU is revealed as the biggest regional importer of processed tobacco from Brazil valued at USD 1.3 billion and representing 40 per cent of Brazilian tobacco exports in 2012 (Table 3).

Brazilian tobacco is grown in two relatively small pockets in the middle of a land area which is truly massive from both the Brazilian and South American perspectives. Looking at much publicised extreme weather events occurring across an equally large land area in North America it is quite clear that huge continents stretching many thousands of kilometres contribute to the build-up of violent atmospheric conditions.

Brazilian tobacco's Achille's Heel is violent hailstorms. Many crops including grapevines are severely damaged by hailstorns but the sheer size (area) and soft texture of the leaves really works against tobacco. The hailstones are so big and rain down on tobacco with such force that tobacco leaves are shredded to look like they have been eaten by locusts. Leaf damage is sometimes so severe that it can make a visible dent in national production figures.