Zambia: JTI Invests $12m in Tobacco Industry

Source from:  Zambia Daily Mail 04/22/2016

The world's third largest tobacco company, Japan Tobacco International (JTI), has clearly found its niche in Zambia, four years after entering the market.

Since it set up shop in Zambia in 2011, the company now has about 7,000 farmers under its out-grower scheme in Eastern and Western provinces, with an investment portfolio of US$12 million.

It is not really the numbers that JTI is interested in, but rather in improving the quality of the tobacco it produces.

Hence, one of the major decisions the company made in the recent past was to integrate farming of tobacco into its business in order to influence the quality of the tobacco that ended up at its cigarette factories.

"Previously as JTI, our model is that we bought all our tobacco from dealers, companies like Alliance One and Universal Tobacco. We never had direct contact with our farmers," says JTI Zambia general manager Mike Roach.

However, in 2009, JT Group acquired part of the worldwide business of Tribac Leaf Limited (a company that trades tobacco in Africa), as well as two Brazilian companies active in the tobacco business, Kannenberg and KBH&C. In the same year, the JT Group also set up JTI Leaf Services, a joint venture with two leaf suppliers in the US - Hail & Cotton Inc. and JEB International.

"There are a lot of issues in the supply chain and if you don't have contact with the farmers, you cannot influence those factors. So we vertically integrated so that we can manage those issues in the supply chain; things like child labour and deforestation," says Mr Roach.

The issue of children working on tobacco fields has particularly been a big one in countries such as the United States (US) because of the known health risks children who get exposed to nicotine suffer.

In Zambia's Kaoma district, JTI has a deliberate programme to withdraw children from tobacco fields and putting them back into school.

The programme, which is called ARISE, is done in collaboration with the International Labour Organisation and has already registered success.

Over the years, the tobacco industry in general has come under heavy criticism, especially from people raising concerns over the health risks that tobacco smokers are exposed to. In some countries, these have resulted in law suits and huge compensations.

"This has affected our business," Mr Roach admits.

Statistics show that the number of smokers worldwide has markedly reduced over the years.

"I think there's definitely a decline…globally tobacco sales are dropping. I think in the western world there is a one percent decline in volume of sticks sold," he says.

Mr Roach expects the decline to continue.

But the demand for tobacco in China, which is the world's highest consumer, is growing, says Mr Roach.

Inevitably, China has a lot of influence in tobacco marketing and usually determines the price of tobacco at auction floors.

So what does the future of the tobacco industry look like?

Mr Roach says tobacco producers are now focusing on top brands, produced from high quality tobacco.

According to Mr Roach, the demand for better quality tobacco is rising on the global market.

"The company is not so much focused on growth in terms of volume, rather in the quality of the tobacco it produces," he says.

"Our growth target for the next few years is not necessarily on growing volumes but changing the quality of our tobacco. We are clearly focusing for the next three years on changing the quality of tobacco that our farmers grow."

Mr Roach says improving the quality of tobacco will also improve incomes for small-scale farmers.

"They make more money, we get the quality of tobacco we need," he says.

"Key to us is that we have a long-term relationship with our farmers, then we can focus on improving our yields and improving the quality of our tobacco."

JTI is currently building a research centre in Chisamba, Central Province, to be used to train people in tobacco production.

Leaf technicians or extension workers already engaged by JTI will also undergo tailor-made short refresher courses at the facility.

And a chunk of its US$12 million investment was spent at its new facility in Kaoma called Rosewood, which is the hub of production in the region.

JTI processes its flue-cured tobacco at its factory in Lusaka, while the barley tobacco, which is mainly grown in Chipata in Eastern Province, is transported across the border into Malawi for processing.
The company produces five brands of tobacco, which include Camel, Monty Calo and Sweet menthol, which is the highest selling of its brands.

The company has its largest footprint in Russia, with about 50 percent share. In Africa, some of its biggest footprints are in West Africa, including Africa's largest economy, Nigeria.

Mr Roach, who is originally from South Africa, has wide experience in the tobacco industry, having worked in Malawi, which is a big producer of the cash crop. He has also worked at the company's headquarters in Geneva, Switzerland.

He describes the tobacco sector in Zambia as "a very small piece of the puzzle".

But he thinks there is great potential for the sector in Zambia. Enditem