Thailand's tobacco crop caters primarily to its domestic market. Thailand Tobacco Monopoly (TTM), which is a state-owned arm of the Ministry of Finance, controls over 70% of the retail cigarette market and buys much of the domestically produced FCV for its manufacturing requirements.
But several thousand tons of burley and oriental tobacco are also produced for export. Thai tobacco exports used to be stronger in the days when there were over 10 exporters, but because of convergence and consolidation, there are now far fewer players.
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Three companies dominate the leaf tobacco export industry in Thailand: Alliance One International (AOI), Premium Tobacco (who's Thai operations were featured in this magazine in 2006) and Adams International Limited (AIL), who are partnered with AOI. Premium concentrates on burley, handling around 8,000 tons annually from a total burley harvest of around 40-45,000 tons. AOI exports about 20,000 tons and TTM takes the rest.
Adams International (AIL) is the acknowledged expert in oriental leaf product and processing, having been instrumental in the development of oriental leaf production for over four decades. AIL was formed in 1969 as a joint venture between W. A. Adams and Chung Cheong Holding. Adams International became associated with the Standard Commercial Group when Standard bought W.A. Adams in 1992.
"My father started investigating the possibilities of producing oriental tobacco commercially in 1964," recalled Wing Chung, managing director of Adams International, "It took 10 years of experimentation before the company started producing oriental tobacco on a commercial scale. PM was one of the earliest customers in 1974 when Thailand's first oriental tobacco was exported. We now supply all the major cigarette companies globally, as well as smaller companies."
AIL and TTM are the only producers of oriental in Thailand - TTM produces its own oriental leaf (the Samsun variety) to supply its own factories. AIL exports 100% of its production, which is exclusively of the basma variety. As the Thai Excise department controls all tobacco production, there is cooperation between TTM and Adams with regards to the planning and procurement of oriental leaf. Most oriental tobacco is grown in Roiet, and much of the rest is found in Khon Kaen.
"Adams has increased its investment in oriental production in Thailand," said Chung. "We are exporting everything we can produce."
And demand is growing. Production of oriental leaf has almost doubled to an average of 7,000 to 8,000 tons/year since 2006. There is still some opportunity for production to continue to increase, according to Chung.
"We may be able to increase production by about 1,000 tons per year, all depending on the weather," he told Tobacco Asia. "When it's wet, the crop increases, but dry plants are stunted, leading to a decrease in production, even though we may have a target we are aiming at."
[b]Computer savvy[/b]
Adams has invested heavily in research and development in its ongoing efforts to supply consistently high-quality oriental leaf to its customers.
In the 1980's Adams, which was also involved in the nascent computer industry in those days, started developing innovative software solutions to assist in predicting crop sizes and scheduling production runs. The Object Oriented Programming (OOP) software solution was in place by 1992, and quickly set the standards for such systems, developing into a precursor for today's highly sophisticated systems. One of Adam's undisputed claims to fame is that the very first production example of a multiuser, multiprocessing computer, based on microcomputer software, was used in northeast Thailand, in its field offices.
"We were using computers long before PC's became commonplace," Chung recalled. "In 1978, we were manufacturing our own computers. To this day, we always try to use technology to improve our operation. Our background in computing tends to make us look at a process as a system, not a piece-meal series of events."
But effective production of oriental leaf remains very much a manual process, as evidenced by a visit to AIL's factory in Ban Phai, Khon Kaen province, in northeast Thailand.
One of the primary concerns in oriental leaf processing is effectively removing non-tobacco related materials (NTRM). This is an extensive procedure. Certain equipment can be utilized and is in place throughout the production lines, but manual sorting remains the single most effective way of dealing with the issue once tobacco has been delivered to the factory.
"Plastic is the most difficult, followed by chicken feathers, straw, and so on," said Chung. "So extensive picking has always been a factor in the production - farmers use fertilizer bagged in plastic, so we have largely changed to fertilizers that are packed in paper. We review all steps of production from field to factory and constantly upgrade and improve the parameters. Every day, samples are taken from tobacco delivered by farmers and the results are used to further refine the processes .We have incorporated computer analysis at eight stations in factory. This is in line with our basic guiding philosophy, to be innovative."
Sand, chloride, CPA (crop protection agents - chemical residue) are further unwelcome elements that could have been introduced to the oriental leaf delivered to the factory, and AIL goes to great lengths to ensure that all impurities are identified and removed before delivery of the final, processed leaf.
"Clean products start on the farm," said Chung. "Farmer awareness is most important. Training and education plays a major role. If the farmer does it right, it is so much easier."
AIL has a great ally in its on-going work to improve and increase both the quality and the quantity of the oriental leaf it produces.
It works very closely with its partner, Alliance One International, to identify and resolve all potential issues, and the results are impressive.
The company's latest round of investment includes a brand-new climate controlled warehouse facility.
"The plant utilizes the AOI Tobacco Processing System (TOPS) from delivery of leaf to the factory, through processing to delivery to the customer, "Chung explained. "We used to pack the processed leaf in 25kg bales, and we can still do this if the customer wants us to. But Philip Morris requires that everything is packed in cartons, so in 2005 we made an investment to pack tobacco in C48 containers. Prior to this tobacco bales were stored on two floors of the existing warehouse. A C48 container holds around 140kg of tobacco, plus the container weighs around 15kg, and we could not drive a fork lift on the second, wooden, floor. Meanwhile, the city has expanded to surround the factory, so, being a socially responsible company, Adams has developed new, modern, climate-controlled 6,200 m2 warehouse some distance from the town to deal with all these issues."
[b]Agri-facts[/b]
Thailand has been blessed with some of the most fertile soil and ideal climatic conditions to be found anywhere on the planet. Pretty much everything grows in Thailand.
"Growing oriental leaf in Thailand is not particularly difficult, provided a farmer is experienced.," according to Altemir Wollmann, AOI operations and sales manager who is based at Adams' Ban Phai factory. "To engage their interest, a farmer needs competitive prices to persuade them to switch to a labor-intensive crop such as oriental."
AIL has been working with its farmers for many years now, and has developed strategies and services that ensure quality and production standards continue to improve.
"Most of the farmers we work with have been growing oriental tobacco for 20 years or more and have learned how to produce consistently good quality crops over the years through extensive work done by AIL field inspectors."
The company employs 21 full time agronomists who work closely with a network of 315 village inspectors who all have handbooks available outlining GAP.
"Each farmer receives a handbook every year," Wollmann told us.
In 2009 24,045 farmers sold Oriental tobacco. Grading is primarily by stalk position as farmers are usually quite small-scale producers.
"We don't deal with bales anymore, farmers try to fill up boxes, not necessarily with one grade to a box, but typically the tobacco we receive is well graded, probably around 85% uniform grading," said Wollmann. "All the boxes are inspected, off-grade taken out during blend in the factory. We learn and improve every year.
Once a farmer brings tobacco to the buying stations, an Adams NTRM team checks every single box; if one feather, a piece of plastic or three or more pieces of grass are found, the team takes the box with the farmer to the side and explains that the NTRM should not be in the box. The box is then free to be sold, the price is not affected. Once the tobacco is purchased, everything is bar coded, loaded on the truck and arrives at factory on the same day for internal classification."
"If the grader or classifier finds one piece plastic, feather or three or more pieces of grass, that box is flagged, removed and taken to another area for a full NTRM search," Wollmann explained. "After cleaning, the box goes to the warehouse. The NTRM found is separated by category. The information such as the name of the farm and the date of purchase is included on the bar code. One copy of the report goes to the office, while the farmers name and details and physical NTRM go to field department in Roiet every week and is given back to the farmer to show him what was found in the tobacco. The information that comes to the office is used as reduction targets for the next year."
This strategy is especially effective in a culture that disdains confrontation and values "face" above all else. By discreetly explaining what is required of the farmer without embarrassing or penalizing him, the results are far more effective than if a more aggressive NTRM avoidance program were employed.
This strategy falls very much in line with the supportive structures that have been established with the farmers supplying oriental to AIL. Village inspectors selected are usually a village headman or a respected farmer in the community. The inspectors are trained in the factory and get on-site job training. They are taught how to make seed beds, transplanting and the whole cycle or oriental cultivation.
"Inspectors get a handbook where he can refer to what he has been taught," Wollmann explained. "They are given accounting and ISO training, and the agronomists help out as well. Any time he has a need an inspector can call the field department in Roiet for help."
The average size of tobacco plot is around 1.5 rai.(2,400 m2). In 2009 the yield was lower than usual, but was of excellent quality as less rain fell. Actual production came out to 173kg/rai (1,082kg/ha).
[b]Qualified buyers[/b]
Adams deals with contracted farmers only. This is the only way possible as the authorized crop size is determined every season before planting based on the stated requirements of qualified buyers and traders give to the Thai Excise department, which controls production quantities. In essence, this means that buyers of Thai oriental tobacco need to order what they need well before it is planted to ensure sufficient tobacco is grown to fill their requirements.
"Adams treats its farmers like partners," said Wollmann. "The company supplies all the required inputs to its contracted farmers though long-term credit at minimal cost. It supplies seed for free, provides agricultural advisers that visit farmers and advise on all aspects of cultivation from seed bed to harvest. We recommend and supply fertilizers, and pesticides as approved by the customer. We commonly accept orders in advance before growing tobacco - customers advise how much they want for next year."
AIL operates buying stations at different locations conveniently situated for farmers to visit.
Tobacco is received at six unloading bays and is then graded at 6 receiving lines. Once graded, it is stored in designated areas for specific grades within the warehouses.
"Each customer's order is processed individually," Wollmann told us. "The entire factory is therefore concentrated on a specific customer's order at any one time, allowing total concentration on customer satisfaction."
The first step is to prepare the Harman to the customer's specification. (Harman is a Turkish word for a blend that only applies to oriental leaf). Once the customer has approved the harman, the first step is breaking open the tobacco pads (four or more leaves bound together) and inspecting for NTRM and quality. The next stage is shaker, then a vibrating steam tunnel, which serves to help break the pads apart into individual leaves. The leaves then pass though a pad opener a free lamina separator using air flow to separate the leaves (unseparated leaves return to the pad opener). The next stage is the picking shaker, then the leaves pass onto the picking conveyor, then go into the silo. Each silo stores specific blends (one harman per silo). These are fed horizontally and cut vertically. The tobacco is then either packed into bales or passes through a soft dryer and then placed into C48 cases, depending on the customer's preference. The cases are then left to cool down for 48 hours until the temperature comes down to customer's specs, and then the finished product is warehoused ready for shipment.
The entire production line is highly focused on supplying NTRM-free product. The tobacco passes through a total of 23 points of NTRM extraction.
Samples are extracted at various stages of the process, determined by individual customer preferences: each customer has a different method that has to be followed.
A typical sampling program might require that samples be taken on delivery checking for NTRM, sand, moisture and quality. At the buying station, samples are collected for different tests such as green CPA testing and, sand content. Composite samples (drawn from groups of farmers from specific geoprofiles) are sent to an approved Lab in Europe for testing. If the result is ok, the tobacco is released for processing: if not, it is blocked in the system.
"CPA used to be an issue," said Wollmann, "But not anymore, thanks to teamwork and a strong field department."
Moisture content is measured and controlled as per customers specification at each relevant stage. Samples are taken for analysis at specified stages to an in-house QC lab for moisture, NTRM, pads, degradation (assessed by examining the sizes of particles shaken through sieves), and sand.
[b]Clear demand[/b]
There is a clear demand for more oriental leaf from Thailand. The EU's oriental crop is likely to diminish as, particularly in Greece, subsidies are being scrapped under the CAP (Common Agricultural Policy), so decreased production and higher prices means greater opportunity for Adams oriental exports.
"More tobacco companies are looking to ASEAN as a growth market for tobacco products and as a place to invest in factories and trade," Chung pointed out. "ASEAN trade policies favor inter-ASEAN country trade so there is an incentive to develop the markets and place production within ASEAN." In fact, 60% of the oriental leaf Adams trade is sold to ASEAN countries.
Essentially, the company's main competition on a commercial scale comes from China, a country that produces more oriental leaf than Thailand.
"I like to talk to blenders in China," Chung confessed. "We usually think of cigarettes as falling into two categories: straight Virginia or American blend utilizing burley, FCV and oriental. Typically 15% of an American blend is made up of oriental leaf. Some other cigarette types, such as Turkish and Russian, use more - Russian cigarettes used to be 100% oriental, but blends are changing."
But the Chinese are talking up Chinese-style cigarettes (CSC). These cigarettes are starting to incorporate more aromatic flavors in an effort to differentiate the products, so of course there is increasing demand for oriental leaf. They are primarily still 95% straight Virginia but regional preferences are emerging. Shanghai prefers a strong Virginia product, while Hongta and Hubei are leaning towards more aromatic and light products.
"We are seeing the development of distinct styles to differentiate CSC from conventional international blends," said Chung. "More burley is now being used in domestic market, China used to export 100% of its burley crop, but now it is using 50% in domestic market. As blends are developed, and when China incorporates more oriental tobacco into domestic blends, this will lead to a shortage of oriental tobacco in the international markets."
It is probably worth noting here that Adams has been selling oriental leaf to China for over 20 years. In fact, all the major Chinese cigarette factories using oriental blends use Adams-supplied tobacco.
In the sense that any competitor is a threat, India's development of oriental (Soccotab and AOI are developing oriental tobacco projects in India) is a concern potentially, but Thailand's quantity is relatively small, and Adams is secure in its market share.
"Overall, oriental production is declining worldwide, but demand is increasing," Chung pointed out. "Prospects are good for future development and consistency of quality and production." Enditem
