In the summer of 2009, Japan Tobacco International (JTI) surprised the tobacco world by making inroads into the leaf-dealing sector.
Visionaries know where they want to go. They set goals and see what their options are. Then they go on to succeed. Leaders in the tobacco business operate in much the same way. They are famous for establishing a vision, setting goals and taking steps to achieving them.
![]()
When JTI Leaf Services announced on 8 October 2009 it was going to invest USD 19.5 million (EUR 13.3 million) in an existing facility in Danville, Virginia, create jobs, and procure and process US leaf tobacco, it was part of a large vision.
"Our goal is to ensure that top-quality US leaf continues to be available to JTI - and ultimately its consumers," said Steve Daniels, president of JTI Leaf Services. "JTI Leaf Services will be contracting with local Virginia farmers, as well as farmers from other flue-cured and burley-producing areas to give JTI access to high-quality flue-cured and burley tobacco from the southeastern United States."
JTI had previously been contracting through leaf dealers. Now, JTI Leaf Services will contract directly with US burley and flue-cured growers, Tom Hirshfield, director of corporate affairs and communications in the United States, said.
Steve Daniels (left), president of JTI Leaf Services, is welcomed to the city of Danville, Va, by delegate Danny Marshall (centre) and mayor Sherman Saunders.
The contracting programme is in its early days. "It's hard to know how many we will contract with," he continued. "It depends on our needs around the world for US leaf and what kind of yield growers will anticipate for next year's harvest."
Since the tobacco quota buyout in 2004, and especially in the past couple of years, US growers have not known what their contract obligations were until well after they had seeded their greenhouses and bedded their land. Before the buyout, they knew well in advance. They also either did not know how much to borrow from their bankers, or they borrowed based on what companies had told them, thinking the contract was solid. Later, they found out that the company had changed its mind and cut or reduced the contract.
Daniels said management at JTI Leaf Services believed it was important that farmers were able to plan appropriately for their next growing season, "and we are committed to helping them achieve this."
JTI Leaf Services planned to hold grower meetings in December 2009 at its various buying locations, he said, and at those meetings growers can see the contracts offered, then they can begin making plans for the next season's crop.
Blake Brown, an economist with North Carolina State University, said US growers contracting in the future would probably become more specialised in what tobacco they marketed. The companies will ask them for specific grades and other specifications to meet any new regulations by the US Food and Drug Administration (FDA). He believes growers will consolidate their tobacco operations so they can better meet those specifications and earn more profit. To do this, Brown said contractors would need to form long-term relationships with growers versus the uncertain contracts now offered.
If JTI Leaf Services can do a better job of contracting with growers than some companies have, perhaps they can form those close relationships and obtain the quality tobaccos they need.
To do this, they have made a commitment to Danville and plan to grow when others have not. "For eight consecutive years, JTI has been the fastest organically growing company in the tobacco industry," Daniels said. "We're a young company - 2009 marks the ten-year anniversary of JTI - but we are built on the solid tobacco experience of our parent company, Japan Tobacco, which dates back to the 18th century."
With a decline in domestic consumption, some tobacco companies have cut back or eliminated grower contracts, and some have closed facilities. JTI Leaf Services seems to be on a different track. Daniels observed that JTI's experience gave them an opportunity to focus on long-term success, "while at the same time being responsive and innovative so that we can anticipate trends and stay ahead of changes in the industry," he added.
Trends and changes abound in the tobacco industry, including consolidation, FDA regulation, and a movement to increase smokeless products, as consumers shy away from cigarettes because of the high excise taxes and the increasing regulations imposed on where they can smoke.
Will Snell, an economist with the University of Kentucky, said the burley tobacco sector would see more consolidation "as low quality/low yielding producers, who are not able to secure contracts, will likely exit the industry - especially in the era of heightened regulation of the US tobacco industry, which will likely increase recordkeeping, costs of production and production management changes for tobacco producers".
[b]Aggressive timeline[/b]
JTI Leaf Services has a lot facing them in the future, but the vision of the company doesn't just include procuring quality US leaf. "In the immediate term, we are focused on building the entity - from the ground up, within an aggressive timeline, into a fully-formed organisation," Daniels said. "Our vision at this stage is to build a top-tier team and to create a state-of-the-art facility in time for the next leaf-processing season."
In September 2009, JTI Leaf Services began preparing the building for operation. The company expected the new facility to open officially in the winter of 2009/2010, and planned to hire 39 full-time employees by August 2010, filling seasonal positions in May 2010.
The acquisition of the facility follows an announcement on 12 June 2009 that Japan Tobacco International (JTI) had become the majority shareholder in a joint venture with Hail & Cotton and J.E.B International (see our cover story in TJI 5/09). The new company, JTI Leaf Services, will procure US leaf tobacco on behalf of the JT Group. JTI is the majority shareholder with 60 per cent, and Hail & Cotton and J.E.B. each hold 20 per cent, according to JTI.
The investment being made by JTI Leaf Services will bring much needed jobs to the Danville area, which has seen its share of tobacco employment with companies such as Dimon, Universal Leaf and Lorillard. "We are excited to become a part of the Danville community, bringing new jobs and new energy to the area," Daniels said. "The city of Danville was a natural fit for us because of its long and rich history in the tobacco industry. It is home to a talented workforce with many, many years of tobacco processing experience. We are recruiting for both full-time and seasonal positions and drawing on local talent and expertise as much as possible. We look forward to creating new opportunities for Danville residents and developing long-standing relationships with the community."
[b]The facility[/b]
The JTI Leaf Services facility will be located at Stinson Drive and River Park Drive on 56.7 acres of land in Danville. The 256,000-square-foot building was built in 1996 and once housed the Dan River Mills Distribution Center, a textile operation that was in the city for years but eventually closed. The facility will serve as JTI Leaf Services' head office and will host tobacco receiving, processing and finished product storage.
Daniels's extensive management experience in the tobacco business will go a long way in leading the company in the right direction.
"In leading JTI Leaf Services, our team has that rare opportunity to start entirely from scratch and build an organisation that perfectly meets the needs of the business and our customers - JTI's manufacturing facilities around the world," he said. "We are customising our facility, creating new processes and sourcing tailor-made equipment. This gives us the ability to focus on meeting the needs of the JT Group, the world's third-largest tobacco manufacturer. In the dealer business, there were multiple customers, each with their own individual requirements. Having the mandate to focus only on JT means that we can be as efficient and effective as possible. This is good news for our consumers." Enditem
