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Symbiotic relationship

| March 1, 2011

Having added the Impex business to its portfolio, Airco DIET is busier than ever.

By George Gay

Keld Laigaard of Airco DIET

A once-popular saying had it that if you wanted to get something done, you were best off asking a busy person to do it. If this remains true, I would suggest that those with a project call the Airco DIET director, Keld Laigaard. In his own words, his company is at the moment: “busy—very busy.”

And this isn’t the sort of busy that occurs when things head south and everybody has to run around looking for business. Despite the fact that many countries are still clawing their way out of recession, and perhaps in part because of this situation, Airco DIET has had to take on new staff as it works on existing contracts, deals with an ever-increasing level of interest and assimilates the Impex business acquired from IPEL Ltd. toward the end of last year.

The future, too, looks good, especially if, as some people expect, leaf tobacco supplies become restricted and there are further, stricter regulations on the contents and deliveries of tobacco products. For those unfamiliar with the process, DIET (dry ice expanded tobacco) high-expansion technology uses CO2 to puff up the intact cells of cut tobacco and then removes the CO2 in such a way that the expansion—in the range of 110-140 percent—is maintained. Tobacco savings are not the only advantage, however, because whereas regular tobacco is variable, DIET tobacco offers a stable filling capacity with a taste that is unchanged, though reduced in intensity. It provides the manufacturer with a tool to reduce and control delivery levels, mainly tar and nicotine. And it adds a degree of stiffness to the tobacco, which has the advantage of improving the draw of cigarettes.

When I spoke with Laigaard in the middle of last year, he told me that the level of inquiries for DIET plants was the highest it had been in 25 years. Last month he told me that nothing had changed, though whereas previously just about all of the interest had been focused on Airco DIET’s smallest, 300 kg/hr, plant, now there was interest also in the next size up, the 600 kg/hr plant.

“We are still seeing an increase in interest,” he said. “We’re building a tolling [contract DIET] facility just outside Jakarta. That is a little bit more than a DIET plant, and it’s taking a lot of manpower. But it’s a good big project for us. So with that and with some nice orders we got late last year, we’re busy—very busy.”

By the time it is completed at the end of this year, the Jakarta plant will provide a facility where manufacturers will be able to deliver their tobacco, have it expanded and then shipped back to them. It is being built, according to Laigaard, to facilitate the huge demand for DIET tobacco that is coming from smaller companies that don’t have the funds or the usage levels that would pay for or warrant their own DIET plant. So the Jakarta facility will give them the opportunity to have their own tobacco expanded or to buy expanded tobacco for use in their own blends.

Unexpected inquiries

Meanwhile, interest in expanded tobacco is coming from some new directions, and even Laigaard had to admit that he had been caught somewhat off guard. “I had always thought that DIET was for cut rag,” he said. “But we have been contacted several times, not only because of Impex, but because of DIET, for processing roll-your-own tobacco, which, while it is similar to cut rag, is actually a little bit different.

“And the cigar industry is talking to us about reducing the amount of filler being put into a cigar and about producing a lighter product in line with demand from younger people. Cigar filler is not like cut rag; it’s more like broken-up leaves. But you can actually put it through a DIET plant and it comes out very nicely, which is something I didn’t know. So I have learned something new. I know it’s being done. I have the product with me. It looks very good.”

One of the interesting aspects of this development is that, as is mentioned above, Airco DIET recently acquired the rights to the Impex process and that process has been associated with cigar filler expansion. So I asked Laigaard whether or not the discovery that the DIET process could also be used to process cigar filler was a complicating factor.

Not really, he replied. Most manufacturers who made enquiries largely had their minds set on what they wanted. Some wanted to go the DIET route and some wanted to go the Impex route.

While both systems provide high levels of expansion, the Impex process uses isopentane rather than carbon dioxide as the expansion agent. Isopentane does not dissolve nicotine and other volatiles, so the expanded product maintains its original flavor and color.

Of course, the Impex process is very much the junior partner to DIET in the Airco DIET portfolio, so I asked Laigaard what advantages would accrue from the acquisition.

“Well, I think we will be able to serve the customer with a wider portfolio of high-expansion products,” he said. “While the DIET process has a distinct way of treating the tobacco, Impex has a different way of doing it, one where you can do a whole blend that is already flavored. You can expand that and go straight to roll-your-own pouches or direct into the cigarette maker. So it is a different process that gives different opportunities. We can go out and we can give the customer a little bit more to choose from.”

Mutually beneficial

In fact, the relationship between Airco DIET and its Impex customers is going to be a closely symbiotic one for some time to come. Airco DIET has assisted the tobacco industry by taking on board the Impex process, which otherwise might have disappeared from the scene. It has acquired all of the documentation associated with it and it can now carry out servicing, maintenance and the supply of spares. In fact, Laigaard says that it has everything it needs to assist existing customers.

And, of course, Airco DIET has the skills to enhance the system, though this, apparently, is hardly necessary. Laigaard told me that the Impex system was a very good one, though Airco DIET would be putting some effort into refining installation procedures. Installation times in the past had been overly long and had not always run to schedule, Laigaard said, and this was not something that Airco DIET could live with. “We have to, and we are, working on getting the package complete, so that when we go out and sell a system, we can give a timeline to the customer, one that will run on schedule and on budget,” he said.

So this is what Airco DIET can do for Impex customers, but those same customers have something to offer Airco DIET too, because many of them have considerable experience in running these plants, which are still fairly new as far as Airco DIET is concerned. “We have a very good relationship already with these people,” Laigaard said. “And we feel that they are going to help us in areas where we are not so strong because this is a new process for us. Obviously, we don’t know all of the details yet.”

With this in mind, Airco DIET has been busy making contact with as many Impex customers as it can and has already established relationships with Impex plant owners in Europe and the U.S. that are willing to carry out test runs on the tobacco of potential customers.

Finally, I asked Laigaard whether this sort of relationship was important to him. Yes, he said. Obviously, Airco DIET was interested in selling more systems and products, but the industry was getting smaller and smaller, and the more people who actually liked you the better off you were. Airco wanted to have a good name and reputation because, in the end, your reputation was all you had to run with.

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Reconstituted tobacco with cactus

Expanding tobacco either through the DIET or Impex process is a very effective way in which tobacco manufacturers can help reduce their usage of leaf tobacco, their most expensive ingredient, while at the same time helping to stabilize their products.

Another way to achieve these sorts of benefits is through the use of reconstituted tobacco, which allows manufacturers to use tobacco that might otherwise be wasted.

Of course, reconstitution would offer even more of an advantage if the sheet produced contained, as well as tobacco, something that was not as expensive as tobacco … cactus perhaps. And currently, China Kangtai Cactus Biotech (Kangtai), in conjunction with Shandong Yishui Ruibosi Tobacco and the Qingdao Cigarette Factory, is manufacturing just such a product—reconstituted tobacco sheet with cactus.

Kangtai is a leading grower of cactus plants as well as a developer, producer and marketer of cactus-derived products, including nutraceuticals; nutritious food; health and energy drinks; beer, wine and liquor; extracts and powders; and animal feed. Its high-quality “green” products are sold throughout China through a distribution network that covers 12 of China’s 23 provinces and two of the country’s four municipalities. And as part of its extensive research, it has developed a method for producing reconstituted tobacco that also contains cactus, a product that offers several advantages.

For instance, its cigarette brand, Sheng Cao, which is made in its own plant in Macao, has in the past been blended with tobacco, cactus, honeysuckle, ginkgo and tea leaves, a mix that is said to produce a very special flavor. But the company has found that the addition of reconstituted tobacco sheet blended with cactus further improves the taste of the cigarette while helping to control delivery levels.

Kangtai does not produce the reconstituted sheet itself but has signed an agreement with Shandong Yishui Ruibosi Tobacco (Ruibosi), a subsidiary of China Tobacco Shandong Industrial, which apparently is one of the four tobacco manufacturers in China designated by the State Tobacco Monopoly Administration to develop reconstituted tobacco using paper process technology.

Kangtai’s CEO, Jinjiang Wang, said earlier this year that samples of the new reconstituted sheet had been produced and that full production was planned to begin in May. And Ruibosi seems to be keen to take the project forward. Vice president Changsen Xue said Kangtai was an outstanding company that had shown remarkable growth in the cactus business. “We have great confidence in the future sales of Sheng Cao cigarettes, which we believe will have very promising market prospects and growth potential,” he said. “We have no doubt that consumers will like the taste very much.”

Meanwhile, Kangtai has signed, also, a joint manufacturing agreement with China Tobacco Import and Export Shandong Corp. (China Tobacco Shandong) to manufacture Tai Shan Sheng Chao cactus cigarettes.

The company is manufacturing this new brand, also using reconstituted sheet, in conjunction with China Tobacco Shandong’s subsidiary, the Qingdao Cigarette Factory. Full production was due to begin in February this year.

And whereas Sheng Cao cigarettes are sold in China, there are plans to sell Tai Shan Sheng Chao through China Tobacco Shandong’s established sales channels also in Russia, South Korea and Japan.

“This agreement creates mutual benefit for both companies,” said China Tobacco Shandong’s general manager, Jianli Bi. “The low-nicotine and non-nicotine cactus cigarette product coincides with the government’s initial step to promote less harmful products to the huge smoking population in China ….”

Kangtai does not make any health claims for its cactus cigarettes, however. I asked Frank Hawkins of Hawk Associates, a Florida-based investor relations firm that is working with Kangtai, whether any studies had been carried out into whether cactus cigarettes did offer a health benefit, and he said that Kangtai only made the point that because the cactus substituted for tobacco, the delivery levels of cigarettes containing cactus would be lower than would otherwise be the case.

Nevertheless, Hawkins is enthusiastic about the new products, partly because, as he points out, people living in the West aren’t exposed to too many cactus products. “But Kangtai is into that sort of thing,” he told me. “They have a big nutraceuticals business, they have a big beverage business and they sell the raw materials to others.

“Then, about a year or so ago, they came up with this whole idea of doing a cigarette. And it’s gotten everybody excited. They have sent samples to us and we have passed them around to investors, and they have created some excitement among investors. And now they think they can create a bit of an export business.”

 

Trade boost

| March 1, 2011

Members of the Association of Southeast Asian Nations are selling and buying more cigarettes among themselves.

 

By John Parker

 

The 10 countries of the Association of Southeast Asian Nations (Asean) have a combined population of about 600 million. Cigarette imports reported by these countries increased to a combined total of more than 111 billion pieces in 2009. A major part of that trade flow was the shipment of nearly 30 billion pieces from Indonesia to Cambodia. This clearly portrayedCambodiaas the leading cigarette importer in the area andIndonesiaas the top exporter.

 

During the 1980s the United States and the United Kingdom were significant suppliers of cigarettes to Singapore, but in 2010 they were only token suppliers. The large exporter from this region wasSingaporein the past, andSingaporehas increased shipments recently. Exports from Singapore were still large at about 26 billion pieces in 2009. Philippine exports advanced recently with the help of Asean duty-free trade. Vietnam became a larger cigarette exporter in the past decade and began to increase exports recently to other Asean members.

 

Asean members include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

 

Indonesia benefits from Asean trade policies

 

The economy of scale for cigarette factories in Indonesia is greater than that found in some countries with a smaller market and less well-established manufacturing.Indonesiahas found expanding markets in other Asean markets. The dramatic gains for Indonesian exports to Cambodia from 21.5 billion pieces in 2007 to 29.4 billion pieces in 2009 portrays the most conspicuous result of Asean free trade for cigarettes. Exports to borderingMalaysiaaveraged about 9 billion pieces annually. Deliveries to Philippines were 532 million in 2008, before declining slightly afterward.Indonesia’s shipments toVietnamincreased to a peak of 651 million pieces in 2008, before declining a third in 2009.

 

Increased competition in some Asean markets other than Cambodia apparently caused Indonesian cigarette exporters to explore more prospects for sales in farther away destinations.Turkeywas the leading market for Indonesian cigarette exports outside Asean in recent years, and shipments toTurkeywere 1.7 billion pieces in 2009.The four busy duty-free ports ofTurkeyhave busy transit traders with arrangements for sales of consumer goods to customers inIraq, including cigarettes. Indonesia’s cigarette exports to Saudi Arabia advanced to 216 million pieces in 2009. Shipments toLebanonmoved up to 271 million pieces in 2009.Russiawas the destination for 216 million cigarettes in 2009.

 

Indonesian factories producing white blended cigarettes by multinationals provide some of the popular brands available for export from many countries. Most of the output of tobacco products in Indonesia consists of kreteks and smaller-type cigarettes offered to customers at relatively low prices.

 

Exports are an important part of the business for multinationals operating inIndonesia. The search for markets beyond Asean has been enhanced by the economy of scale assisted by large exports to customers inSoutheast Asia.

 

Exporters in a number of countries seek to make cigarette exports toIndonesia, despite the problems they encounter in their endeavor. Some exporters find a chance to make sales to traders in the duty-free area of Battam Island, just south of Singapore. The demand for certain brands from other countries inIndonesiacontributed to significant sales recently by exporters in some countries.Singaporeexported 739 million cigarettes toIndonesiain 2008 and 593 million pieces in 2009. The location of islands just south ofSingaporewith specialty importers may have contributed to some of this trade. Total cigarette imports intoIndonesiaare apparently about 2 billion pieces annually.

 

China is the leading supplier of Indonesia’s leaf tobacco imports of more than 70,000 tons annually. MoreU.S.tobacco was imported in recent years for preparing the blend of certain quality brands. China exported 432 million cigarettes to Indonesia in 2009.

 

Singapore increases exports to Asean countries

 

Cigarette exports from Singapore drifted downward from 30.7 billion in 1999 to a low of 14 billion in 2003 but began to move back up in 2006 with greater shipments to Asean partners. By 2009, exports fromSingaporewere up to 26.6 billion pieces. The leading destination wasVietnamwith shipments of 6.3 billion pieces in 2009. Malaysia was the second-leading customer with the delivery of 5.35 billion pieces in 2009.

 

Exports toPhilippineswere up to 1.8 billion pieces in 2009.Thailandwas a customer for 1 billion pieces in 2009.

 

Business connections helped keep Singapore’s cigarette exports to Hong Kong at 4.36 billion pieces in 2009, when U.S. and U.K. shipments to this market for premium brands had a marked change in market share for suppliers of imported cigarettes.Taiwanwas a market for 2.8 billion pieces forSingaporeexporters.

 

Exports fromSingaporetoUnited Statesmoved up to 105 million pieces in 2009. Some traders in the Netherlands import cigarettes for distribution within the EU in addition to sales in the local market. Singapore exported 248 million cigarettes to the Netherlands in 2009.

 

Thailand’s imports remain steady

 

Thailandimported about 12 billion cigarettes annually during the last three years. The surprising fact aboutThailand’s cigarette imports is that Philippine exporters provided 8.3 billion pieces in 2009, compared with 1 billion forSingapore. The Thai Tobacco Monopoly has a modern factory nearBangkokand the quality brands provide most of the sales in the country. Thai cigarette exports advanced to 1.3 billion pieces in 2009. BorderingCambodiaandLaosare markets with expansion potential.

 

Vietnam importing more cigarettes

 

Vietnam imported about 14 billion cigarettes valued at about $300 million annually during the last three years. Singapore delivered 6.3 billion pieces.IndonesiaandPhilippineseach exported over 400 million cigarettes in 2009 toVietnam.

 

Hong Kong maintains significant shipments to Asean

 

While cigarette exports from theUnited Statesand EU toSoutheast Asiahave fallen to token levels,Hong Kongremains an important supplier. The second-leading destination for Hong Kong’s cigarette exports in 2009 after China was Singapore with the shipment of 5.2 billion pieces.

 

Hong Kongexported 3.26 billion cigarettes toVietnamin 2009. Exports of 2.68 billion cigarettes from Hong Kong to Philippines were reported in 2009. The customs officials inManilaAirportsometimes look through baggage for passengers coming fromHong Kongto inspect for consumer goods purchased while on a shopping trip. The customs officials will waive American or European passengers on through, as they focus on returning Philippine residents.

 

Myanmar importing more cigarettes

 

Chinaincreased exports of cigarettes toMyanmarto 873 million pieces in 2009, compared with 658 million pieces in 2008. More small traders selling beans and other pulses toChinahave contact with Chinese importers. The barter trade between the traders fromMyanmarandChinamay include cigarettes not recorded in official trade numbers. China has a long border with Myanmar and significant trade in a wide range of items.

 

Malaysia’s cigarettes show upward trend

 

Malaysiaimported about 17 billion cigarettes annually during the last three years compared with 1.8 billion pieces in 2001. Indonesia shipped 9.3 billion cigarettes to Malaysia in 2009. A comparatively small river physically separates Singapore and Malaysia. China exported 1 billion cigarettes toMalaysiain 2009.

 

Singapore shifts to Asian suppliers for cigarette imports

 

After Cambodia, the second major importer among Asean is Singapore, with the arrival of about 18 billion pieces annually. A shift in the source of Singapore’s imports to Asean partners and Hong Kong has meant a loss of sales for exporters in the U.K. and United States from important deliveries two decades ago.

 

Search for expansion may bring focus on Myanmar

 

Myanmarmay be a market for potential gains for imports of cigarettes in the future. This is because of the way trade in other commodities expanded recently, and indications that officials are more open to improving international relations than during the hard line propelled earlier. As a member of Asean,Myanmarmay become more open to a number of factors to enhance economic development and attract foreign investors.

 

Chinawas the leading supplier of imported cigarettes inMyanmarin recent years, and most of those deliveries went to northernMyanmar.

Stretched thin

| March 1, 2011

Semi oriental tobacco production in Kyrgyzstan

Suppliers of classical oriental tobacco have matched production to diminished demand. Will they be able to accommodate a potential rebound?

TR Staff Report

The market for classical oriental tobacco has shrunk significantly in recent years. Following the European Union’s decoupling of tobacco subsidies from production and Turkey’s withdrawal of support for tobacco growers, production in the main sourcing areas plummeted; Turkey just harvested its smallest crop in living memory. At the same time, cigarette manufacturers decreased their use of oriental tobacco, creating an equilibrium between supply and demand. But as several oriental leaf traders pointed out during a recent visit to Greece, Bulgaria and Turkey, it’s a fragile balance, and the diminished industry would struggle to satisfy a sudden increase in demand.

Oriental tobacco has been famously described as a cigarette’s “salt and pepper” because it lends flavor and kick to tobacco smoke. Oriental tobacco is an important component of American-blend cigarettes, which rapidly gained popularity in the second half of the 20th century. But as cigarette sales started stagnating in the United States and Europe—the world’s leading American-blend markets—demand for oriental declined accordingly. Most of today’s growth markets are located in Asia, where smokers prefer Virginia cigarettes.

Also, in an effort to cut costs, manufacturers have been replacing premium oriental tobaccos with less expensive varieties and compensated for the loss of aroma with flavorings. This too has had an impact on demand for the classical oriental varieties. Nikos Allamanis, a Greek tobacco industry expert, estimates current global supply and demand of classical oriental tobacco at between 100 million and 120 million kg.

Production

On the supply side, production of classical oriental varieties has been affected by the withdrawal of support by the European Union and national governments. The Greek tobacco industry, for example, is a shadow of its former self. Whereas in the past the country’s growers could harvest more than 100 million kg of multiple tobacco varieties in a given year, they grew only two types of oriental in the most recent growing season—10 million kg of Basma and 10 million kg of Katerini (there’s also been a cautious revival of flue-cured Virginia production this year). The number of oriental leaf traders has shriveled along with the crops. Of the 22 companies operating in Greece in 2004, only four companies remain: Leaf Tobacco A. Michailides, Gleoudis, Missirian and SEKE. Socotab, which has a partnership with Universal Leaf, continues to trade Greek tobaccos but processes in neighboring Bulgaria. According to some estimates, there are about 15,000 tobacco farmers left in Greece, compared with more than 50,000 before decoupling.

On the bright side, the discontinuation of production subsidies has brought about a shift from quantity to quality. “Decoupling has weeded out the growers who cared only about volume,” says Nikos Tzoumas, managing director of Missirian. Once exposed to market forces, only the best growers could stay in business—growing in proper soils and following good agricultural practices. With the support of agricultural development programs, oriental tobacco cultivation today is concentrated in the regions of Thrace, East Macedonia and Central Macedonia. What’s more, today’s farmers are real farmers. Before decoupling, some “growers” were simply buying tobacco from others.

Bulgaria

Production of classical oriental tobaccos in Bulgaria has been relatively stable, hovering near the 20 million kg mark during the past few years. But Michail Papanastasiou, manager of Leaf Tobacco A. Michailides’ recently opened Sandanski factory, is bracing for a 20 to 25 percent drop in the upcoming season, which he attributes to the discontinuation of national production subsidies and a decline in commercial prices. Subsidies currently account for 40 percent of the money farmers receive for their leaf.

“Bulgarian growers will lose almost half their income overnight,” says Papanastasiou. He expects peasant farmers to continue growing tobacco because they have no alternatives. “Maize, wheat and sunflower don’t provide the same level of income,” he says. “And they don’t come with a guaranteed market like tobacco does.” But larger tobacco growers are likely to switch to such crops because they can make up for the lower per-kilo price with volume.

With their livelihoods threatened, Bulgaria’s tobacco growers have taken to the streets. The government is unlikely to be swayed by their protests, however, as the economic slowdown has depleted its coffers.

Turkey

Like in Greece, production of classical oriental tobacco has declined significantly in Turkey. The trade is looking at about 51 million kg of Izmir, Basma and Samsun this season—the smallest Turkish harvest on record. The decrease in Turkey was driven by the dismantling to the state monopoly, Tekel, which used to buy all unsold tobaccos at declared prices. For many years, this guaranteed uptake artificially boosted production, resulting in huge stocks and market distortions. At one point in time, Tekel was said to hold an inventory of 450 million kg. Those stocks have dwindled following privatization, and dealers estimate the former monopoly has only 11 million kg left, which will likely be sold within the next two years.

Without subsidies, farmers have found it difficult making a living growing tobacco. According to one trader, a kilo of tobacco used to cost the same as a bottle of raki, a popular Turkish drink. Today, a bottle of raki is much more expensive. And whereas in the past a typical farmer could buy a car with the income from a season’s tobacco crop, today he would be hard pressed to do so. Unsurprisingly, many farmers have abandoned tobacco growing. Currently, there are about 40,000 tobacco farmers in Turkey, compared with 62,000 only two years ago. This trend is likely to continue: The farmers who remain are aging, and their children would rather work in the cities than toil on the lands.

No slack

The attrition of tobacco farmers has merchants worried. While global supply and demand of classical oriental tobaccos are reasonably balanced today, it would be hard for the industry to accommodate a sudden increase in demand.

Such a reversal of fortunes for oriental leaf isn’t entirely unthinkable. During its November meeting in Uruguay, parties to the World Health Organization’s Framework Convention for Tobacco Control agreed to take action against cigarette ingredients. And while it remains unclear exactly which ingredients might be targeted, some fear it could result in a de facto ban on burley tobacco.

Without burley and additives, oriental is the only option to enrich the flavor of cigarettes. Regulation aside, consumer preferences also appear to be shifting toward more natural products, such as Santa Fe Natural Tobacco Co.’s American Spirit brand. Even multinationals have been launching additive-free versions of their flagship brands. Frederick de Cramer, general manager of Sunel Tobacco Co., has also noticed increased interest in classical oriental tobaccos from some nontraditional markets. Indonesia in particular has been a growth market for his company. “Turkish oriental blends well with the local tobaccos there,” he says.

At the same time, traders are keeping an eye on China, which is believed to be developing a blended cigarette with small amounts of oriental. Even if such a cigarette would include only 2 to 3 percent oriental, its impact could be huge, given the size of China’s cigarette market. China’s State Tobacco Monopoly Administration is reportedly also relaxing its concerns about blue mold. Traditionally, it has bought only tobaccos that are at least three years old, but it is said to be reconsidering that stance, possibly reducing the waiting time to one year.

While it’s always difficult to predict the market’s future requirements, and how the industry would respond to a possible ban on ingredients, the trade has its work cut out. Because so many growers have abandoned tobacco in the traditional growing areas, even a slight increase in demand would leave suppliers scrambling.

The industry has been working to develop new growing areas. Leaf Tobacco A. Michailides, for example, has been experimenting with oriental in several nontraditional areas and has been particularly enthusiastic about its results in India.

Sunel is active in Kyrgyzstan, while limited amounts of oriental are also grown in China, Thailand and certain Soviet Union successor states. But as one dealer points out, oriental leaf is finicky about soils and climates. Outside of the traditional growing areas, it is difficult to achieve the desired aroma and softness. The oriental varieties produced outside of the traditional growing areas do not compete directly with the classical oriental grown in the southern Balkans and Turkey.

The key to sustaining production in the traditional areas is farmer viability. “We need to give our growers better returns,” says De Cramer. To achieve this, tobacco companies in Greece and Turkey have been helping farmers increase yields and reduce their cost of production.

In Greece, leaf merchants have started buying tobacco earlier in the season—right after curing. The farmer gets cash in his pocket quicker and he doesn’t have to deal with storage. Of course, dealers take on extra stock under this scenario, but they are better equipped to do so than the farmer.

Traders have also been pushing the float system in Greece. “We first offer it free of charge to encourage the farmers to try it and then initiate their involvement in such practices,” says Tzoumas of Missirian. “We want to show farmers that they don’t have to run their business in the way their grandfathers did.”

At the same time, the industry has been moving toward more cost-effective packaging methods, abandoning time-consuming and expensive baling practices.

Because labor is the single biggest cost factor in oriental tobacco production, some dealers have been looking into mechanization of the process. Missirian, for example, has been working on a harvesting machine in cooperation with the engineering firm VIT. If successful, a harvester could change the cost calculation of oriental tobacco production completely.

Not all sourcing areas are equally suitable to mechanization, however. De Cramer says opportunity for mechanization in Turkey is limited because of the hilly topography of many tobacco plots and the limited support infrastructure in the villages. And the float system, he says, would be “a step too far” at this time in Turkey.

Instead, the Turkish industry is focusing on boosting yields through the use of certified seed and good agricultural practices, which should also help improve farmers’ margins.

In their efforts to sustain production of oriental tobaccos in the traditional growing areas, traders throughout the region are counting on the support of their customers. As one merchant points out, if cigarette manufacturers want more oriental tobaccos tomorrow, they had better make sure there will be farmers to grow it.

Elephant in the room

| March 1, 2011

A recent conference on illicit cigarette trade dodges the real issue.

By George Gay

I’d like to start this piece by asking a question. Would you want to live in a country where the government encouraged people to break the law and then used the law to punish those people?

Probably most if not all of the people reading this story would answer “no” to this question but would then add that no government would do such a thing because it would be against its own interests.

OK, let me put the question another way. Would you want to live in a country where the price of an addictive but legal product was purposely raised by the government, through taxation, to a point at which the financially less well off users of that product could not afford it, were therefore forced to access illicit sources of supply of that product (they are addicted, remember), and were subsequently hunted down by a number of government agencies—perhaps after having been reported by informants—and then subjected to the full force of the law? (I don’t mean this to be taken as a rhetorical question. Please e-mail me at george@tobaccoreporter.com. It’ll take only a minute. All you need to write is “yes” or “no.”)

The reason why I ask this question is that I am beginning to wonder whether I inhabit a universe parallel to the one inhabited by many other people. I certainly don’t want to live in the sort of society described above, and I would have assumed that most other people would not have wanted to do so, but I was recently at a conference that seemed to be devoted to maintaining such a society in the country where I live. The Anti Illicit Trade Summit was staged by the think tank Progressive Vision in association with the Tobacco Manufacturers’ Association on Jan. 31.

It would have been easy to accept what went on at the conference if all of the participants had been unpleasant, but they weren’t. Everyone in attendance in the comfortable surroundings of the Liberal Club, just off Whitehall, London, was polite, intelligent and, as far as I could tell, well meaning.

Avoiding the real issue

But clearly, to my way of thinking, there was a problem here, and perhaps it resided in the fact that the besuited are unsuited to understanding the motivations of the impoverished consumers of illicit tobacco products, especially from the viewpoint of the Liberal Club.

But the disjoint went much deeper than this, I think. When Simon Clark, the director of Forest, stood up toward the end of the morning session of scheduled presentations and suggested, quite reasonably to my mind, that the event seemed to be avoiding the elephant in the room, taxation, it was as if he’d lit a cigarette before the loyal toast.

There was certainly a reluctance and, in part, a refusal to discuss taxation. Of course, this was understandable up to a point in respect of those working with government agencies, who, presumably, are bound not to criticise their employer’s policies, no matter how dotty they might be. But for the rest, it seemed rather lame.

Summing up at the end of the day, the chairman of the event, Jonathan Charles, a BBC presenter, made the point that the issue of illicit trade in tobacco had to be approached with realism because the government wasn’t going to backtrack on its taxation policies in respect of tobacco.

I was astounded. Charles’ realm of realism is not one I want to inhabit. Where is the ambition in this kingdom? Thank goodness we weren’t relying on Charles in 1215 or we’d not have got King John to put his seal on the Magna Carta. We’d still all be being bled dry with taxation as our leaders prosecuted expensive and largely unpopular overseas wars. Hmm … plus ça change.

Diverting attention

But in a way, Charles was right. He’d done his job and summed up the mood and the tone of the conference. Whatever you do, don’t mention the fact that the chancellor isn’t wearing any clothes. Let’s talk only about how bad are those who are trying to avoid paying unconscionable amounts of taxes and the people profiting from this activity.

Let’s talk about the pointless exercise of explaining to smokers the unsupportable idea that counterfeit cigarettes are more harmful than are other cigarettes. Let’s talk about how some illicit cigarettes contain rat droppings, whether there is any evidence to support such an idea or no.

Let’s talk about how a BBC crew recently came under attack from somebody allegedly involved in the illicit trade in tobacco as the members of that crew were doing their job in investigating this trade. Really? So what? This is a dog bites man story; it’s hardly a revelation. So the bad boys are violent. Well actually we knew that; it goes with the job. But they wouldn’t have that job—not the tobacco job at least—if the government hadn’t given it to them.

And it has to be borne in mind that the BBC would probably be attacked if it sent a crew to investigate why those at the treasury are applying tax levels of up to 90 percent on the retail price of a pack of cigarettes and then wondering why people thrown out of work by the government’s policies are trying to avoid those taxes. Of course, the BBC won’t be attacked by a treasury man wielding an iron bar, but it would do well to be on the defensive when its funding comes up for review.

From my observation—and I have to admit here that I attended only one of three breakout sessions during the afternoon segment of the one-day conference—there seemed to be little thought given to the idea that we could rise above coercion and retribution to extricate ourselves from the mess that we have got into over the illicit trade in tobacco. If we want to stop the illicit trade, why can’t we investigate taxing smokers rather than the products? Why can’t we consider the possibility of applying a sliding scale of tobacco taxes based on a person’s income, given that smoking is addictive? Why can’t we allow each smoker to buy 10 percent of her cigarettes from illicit sources, rather like we allow motorists to drive at 10 percent above the speed limit without being punished? Why can’t we look at making cigarettes expensive ex-factory by forcing up the price of tobacco?

Are we completely devoid of imagination? Do we not have the wit to look at these problems from other directions? Are we content to have our beards plucked off and blown in our faces by the men at the treasury? Are they not supposed to serve us?

Why do we have to bleed dry the already-financially poor so that we can keep our banks on drips? Where is the justice in that? Where is the quality of mercy?

The conference was told by HM Revenue & Customs that, since the start of its anti-fraud campaign in 2000, 3,300 people had been “successfully prosecuted.” I don’t know how many of these people were master criminals and how many were ordinary folk, but if this is success, I don’t want to see what failure looks like. This is not a success; it is a social disaster.

Scepticism

Above, I opined that the U.K. had got itself into a mess over the taxation issue, but we are by no means alone. Writing in The Ottawa Citizen earlier this year, Don Butler reported on the findings of research commissioned last year by the Canada Revenue Agency that found that most young Canadian smokers are very familiar with black-market cigarettes and that many support their sale. And these young people are deeply skeptical of government assertions that contraband cigarettes are linked to organized crime.

And from what I heard at the conference, opinion in Britain is much the same. How proud can we be of this? We have overseen a situation that has led to many of our young people believing that breaking the law is OK and that the government lies to them.

This lack of trust is concerning, and concerning beyond tobacco. It is easy to laugh off such skepticism and say that nobody trusts politicians, but there needs to be some trust. In a report to the executive board of the World Health Organization earlier this year, the WHO’s director general, Dr. Margaret Chan, said that during this winter season in the northern hemisphere, some countries saw cases of severe H1N1 disease in a comparatively young age group. In some cases, she added, persuading the public to seek vaccination had become even more problematic than during the pandemic. The problem of public mistrust extended well beyond influenza vaccines.

Of course it does. And, in part, that mistrust is fed by misinformation put out by governments and their agencies. Often, I’m certain, this misinformation is put out with the best of intentions by people who genuinely feel that they have a mission to stop others from smoking at any cost, but such misinformation simply comes back to haunt them. And anyway, I don’t wish to be unkind, but I would suggest that these people need to give some thought as to whether they shouldn’t mind their own business.

We need to understand that people are not stupid. They just need to be told the truth so that they can make informed decisions. And for that to happen, those doing the telling need to be able to recognize the truth, which is not always easy.

At the end of the conference, the chairmen of one of the breakout sessions referred to the illicit trade problem as manifesting itself in Britain but arising overseas, which I took to mean that the illicit tobacco products were being manufactured largely overseas but sold in Britain. I’m willing to believe that the products are arriving from overseas, but “the problem” is not arising overseas. The problem is being manufactured at home—goodness knows, we even know the number of the street in central London where it occurs.

And take the often-used expression: nobody benefits from the illicit tobacco trade but the criminals. At first glance, this seems to be perfectly true, but you could just as easily argue that because of the situation we find ourselves in, everybody in the country benefits from this trade. It is the glue that holds everything together. If there were no illicit trade, those addicted smokers who could not afford licit cigarettes would have to break into shops or mug people on the streets for their smokes.

I know that some people argue that addicted smokers unable to afford cigarettes can avail themselves of help in curing their addiction. But there is a problem here—time. Taxes go up overnight, but, according to a recent survey carried out by the U.K.’s Lancaster University, it takes the average smoker five years and seven attempts to quit smoking.

The government of the U.K. is currently promoting a favorite idea of Prime Minister David Cameron, called the Big Society. Cameron has come in for a lot of criticism over this idea because it is seen as being not fully thought out. People are moaning because little detail has been given. But I’m a fan of the idea. And I think that many of the critics are missing the point. This is about the Big Society. It is an idea for us to pick up and run with. If Cameron provided the detail, it would be Big Government—more Big Government, and we have spadefuls of that already.

But the government has to help. We cannot create a Big Society in a country where we are more and more being subjected to Big Brother: a society with paid informants, infiltrators, undue surveillance and law enforcement agencies by the truckload. And especially we don’t need taxation policies that can lead only to law breaking. This is the road to the Broken Society, the ailment that Cameron says he wants to cure with the Big Society.

Toward the start of this piece I suggested that the Liberal Club might not have been the right venue to discuss the illicit trade in tobacco. It wasn’t. The next one should be held at Runnymede (which, for our non-U.K. readers, I should explain was where the Magna Carta was sealed).

Critical condition

| March 1, 2011

The future of U.S. tobacco manufacturer Lorillard hangs in the balance while the government decides whether to ban menthol.

 

By Brandy Brinson

 

This month is critical to the future of Lorillard Inc., the third-largest manufacturer of cigarettes in the United States. On March 23, the Tobacco Products Scientific Advisory Committee (TPSAC) is scheduled to announce its recommendation on the use of menthol in cigarettes to the U.S. Food and Drug Administration (FDA). If the committee advises an all-out ban on menthol and the FDA follows the recommendation, Lorillard will face a huge challenge. Its top brand Newport, a premium menthol brand, accounts for more than 90 percent of total company sales.

Proponents of a ban say menthol is attractive to African-American smokers as well as minors. Opponents say a ban would result in the loss of thousands of jobs as well as create a massive black market for menthol products. The TPSAC has been reviewing the issue for more than a year.

 

The debate

The legislation granting the FDA the authority to regulate tobacco banned all flavorings except for menthol in September 2009, in the name of protecting minors from smoking. Menthol was tabled for further study, which is being conducted by the TPSAC. The legislation said the FDA should review the issue and decide by 2012 whether it should be banned.

Menthol accounts for 29 percent of all cigarette sales in the U.S. It was first added to cigarettes in the 1920s and became a marketing priority for the industry in the 1960s.

Anti-tobacco activists want menthol banned because they say young smokers begin smoking with menthol because of the minty taste. Part of the debate surrounding menthol is race-related, as approximately 80 percent of African-American smokers choose menthol cigarettes.

 

Sound science

Throughout the process, the TPSAC has stated that it will apply fact-based science to its decision-making process. The committee is examining several factors—such as whether menthol affects nicotine absorption, addictiveness, smoking initiation, perception of risk, desire to quit and conversion from experimentation to regular smoking.

Manufacturers, having submitted hundreds to thousands of pages of research, have shown that menthol does not make a cigarette more harmful or addictive.

The industry has also demonstrated grave concern for the development of a substantial black market if menthol is banned. Approximately 70 percent of menthol could turn into contraband if banned, which would equate to 20 percent of total U.S. market volume.

Lorillard presented findings of a study examining the effects of a ban to the TPSAC. The study found that an ensuing black market would substantially mitigate any decline in cigarette smoking and inspire a “significant increase in organized crime activity,” potentially increasing youth access to cigarettes. The study was conducted by Compass Lexecon, a Chicago-based economic consulting firm.

Lorillard urged the panel to not lose sight of the congressional and FDA mandate to “follow the science” in developing its report, and to keep in mind that “Congress’ purpose of granting FDA with authority to regulate tobacco was to create order and supervision of the industry—not create chaos the likes of which have not been seen since prohibition.”

Unfortunately for Lorillard, the committee appears to be downplaying concerns about a black market and lost revenue.

At this point, TPSAC appears to be focusing mainly on the issue of youth smoking.

 

Latest developments

Analysts for Deutsche Bank Andrew Kieley and Marc Greenberg predict that the probability of the TPSAC recommending a ban (or severe restrictions) in late March is slightly over 50/50.

While the evidence actually points in favor of not banning menthol for epidemiological reasons, they fear that youth smoking concerns and the negative tone of the committee will lead to a recommended ban.

“TPSAC emphasizes an evidence-based report, and significant portions of data do not support restricting menthol. However the reasons we remain concerned are youth over-indexing to menthol, and its masking effect. TPSAC is highly-attuned to the youth issue, and it would be the most likely grounds for ‘weight of the evidence’ to support a ban or other penalties,” say Kieley and Greenberg.

Just after the February TPSAC meetings, Kieley and Greenberg said, “It is frustrating that TPSAC is still not discussing recommendations, to give us some visibility. However we view discussions of draft report chapters and Committee’s tone as negative overall.”

Actions and remarks by the committee especially during the February meetings indicate that they will recommend a ban. Kieley and Greenberg say, “The negative stance of some TPSAC members is obvious; they continue to hypothesize about potential ramifications of a ban (including a large section of the Summary chapter), and their statistical model will explicitly consider a world without menthol (‘For the purposes of the present report, TPSAC is concerned with counterfactual scenarios in which menthol cigarettes never existed.’). These are not encouraging signs.”

The tone of the committee is not much of a surprise, given that members of the TPSAC have been criticized for having a conflict of interest. Two of the members have clear ties to pharmaceutical companies that manufacture smoking cessation products, with one member (Jack Henningfield) being one of eight patent holders of a nicotine chewing gum.

During the last meeting in February, Henningfield made his position even more clear when he told Philip Morris at the end of a Q&A on a long presentation, “I don’t know why you bothered.”

 

The report

While the final recommendation is still unclear, the TPSAC did announce in February its expected format for the report. It will consist of eight chapters, though the titles have not been finalized.

The chapters are:

* Chapter 1: Introduction

* Chapter 2: Approach to Evidence Gathering and Review

* Chapter 3: Physiological Effects of Menthol

* Chapter 4: Patterns of Menthol Cigarette Smoking in the U.S.

* Chapter 5: Marketing, Initiation, Addiction, and Cessation

* Chapter 6: Effects of Menthol on Disease Risks of Smoking, Toxicology, Biomarkers, and Epidemiology

* Chapter 7: Public Health Impact of Menthol Cigarettes

* Chapter 8: Conclusions and Recommendation

 

In addition, the FDA has asked industry representatives who serve on the committee to develop an industry perspective document on the public health impact of menthol cigarettes that will accompany the report.

 

While much of the report had not yet been written in February, the presentations offered some insight. Kieley and Greenberg see the most risk from Chapters 3 and 4, especially as they are fed into the TPSAC’s statistical model of menthol’s “public health” impact. “If TPSAC recommends a ban or restrictions, these chapters could likely comprise the ‘weight of evidence,’” they say.

In Chapter 3, the Physiological Effects of Menthol, the writers claim that menthol’s cooling sensory perception makes it easier to smoke, and that menthol potentially interacts with nicotine to create higher cigarette “impact” and addictiveness. They do say it is unclear if menthol impacts nicotine metabolism. However, they say menthol “clearly” reduces harshness of cigarette smoke, there is “strong plausibility” that menthol increase addictiveness of cigarettes, and that it “likely” boosts the impact of low-tar cigarettes.

Kieley and Greenberg say, “This matters for the report because in terms of a ‘public health’ risk, it would portray menthol as a starter product, a ‘conversion’ product to turn experimenters into regular smokers, or keeping people smoking rather than quitting. The risk is magnified because these factors could be inputs into TPSAC’s statistical model of mortality rates and societal disease burden.”

Chapter 4, Patterns of Menthol Smoking, is also seen as a significant negative by Kieley and Greenberg, given the FDA’s mandate to consider public health impact on underage and minority groups. The chapter shows heavy reliance on unfavorable survey data, showing higher rates of menthol preference among minority groups and women, as well as increasing share of menthol among underage smokers.

Chapter 6, Risk Factors, is certainly the most favorable to the industry. “In this section covering biomarkers and disease rates, TPSAC seems to agree with industry arguments that there is a lack of evidence that menthol is any different from regular cigarettes in these aspects,” say Kieley and Greenberg.

As of the February meeting, the draft summary was not fleshed out and did not contain firm conclusions. It is expected to summarize the statistical model and explicitly address potential repercussions of a ban.

 

The FDA. The recommendations in the TPSAC’s report are nonbinding—meaning the FDA does not have to accept them. How the FDA will respond is another area of debate.

Unfortunately, say Kieley and Greenberg, it is difficult to tell. “We think it will largely come down to 1) how much they weight TSPAC’s recommendations, 2) what strength of evidence they require, and 3) how the contraband argument resonates.” They think contraband could be critical. However, with the World Health Organization (WHO) now recommending restrictions on menthol, there will be pressure on the FDA to follow suit.

An outright ban on menthol is not the only potential outcome. Other possibilities include additional regulation—such as rules on content or marketing—as well as changing product formulation, by adjusting menthol and nicotine content.

There will also be the possibility for Lorillard to challenge a ban in court. While March 23 is a critical date, the fallout will likely carry on for months if not years.

 

 

 

 

Fight against flavor

| March 1, 2011

The tobacco industry braces for the fallout of “Uruguay” and the recommendations about to be issued by the FDA’s tobacco products committee.

By George Gay

In a report to the executive board of the World Health Organization earlier this year, Director General Dr. Margaret Chan said the organization was not performing well enough across all of its activities because it was overextended and needed to trim the scope of its operations.

In fairness, this mea culpa took up only a small part of the report, and Chan talked also of instances where the WHO had enjoyed considerable success.

Nevertheless, Chan went on to say she believed that the level of WHO engagement should not be governed by the size of a health problem, but by the extent to which the WHO could have an impact on the problem. Others, she believed, might be positioned to do a better job.

I would be interested to know whether Chan would include in “others” the Framework Convention on Tobacco Control (FCTC). This body was born of the WHO but is often spoken of as existing independently of its parent. Perhaps it has just grown up and moved on, rather like a student going away to university. In fact, this is possibly a good analogy. The lifestyle choices of both leave something to be desired, and I don’t mean only that they both tend to live beyond their means, or what should be their means.

This is what British American Tobacco had to say in November in a note posted on its website: “Vague and partial guidelines on tobacco product regulation, including on the use of ingredients, were adopted last week by governments gathered in Uruguay for the World Health Organization’s tobacco control conference—despite the fact they offer little guidance on implementation of these recommendations.

“Delegates at the weeklong event, known as the Conference of the Parties [the FCTC’s fourth conference of the parties, COP4], were asked to consider far-reaching recommendations similar to legislation recently passed in Canada which bans the use of almost all ingredients in cigarettes—despite the fact there is no scientific evidence which supports the theory that cigarettes with ingredients are any more addictive or attractive than cigarettes without ingredients.

“Despite objections from many tobacco growing countries across the world, and a highly-charged debate culminating in a ten hour committee meeting, it was decided that the unfinished guidelines on this complex subject be accepted—regardless of the lack of clarification on key aspects and the absence of sound scientific evidence to support them.”

The Canadian model

Of course, since these comments came from a major international tobacco manufacturer, many people will dismiss them as just the automatic gainsaying of anything put out by the FCTC. But this would be wrong because BAT has been making strenuous efforts to reach out and publicly debate difficult issues, something that was reflected in a comment attributed within the website note to Michael Prideaux, director of corporate affairs, who said, in part: “However, we are encouraged by the newly included text in the partial guidelines that governments ‘should consider scientific evidence, other evidence and experience of other countries when determining new measures on ingredients of tobacco products’ and we urge governments to do just that.”

This is essential in fact if chaos is to be avoided. Canadian manufacturers, which serve largely a Virginia cigarette market, have been able to cope with the ban on most additives. But shortly after the COP4 meeting at Punta del Este, Uruguay, on Nov. 15-20, in a move that had been foreshadowed before that meeting, Brazil’s National Health Surveillance Agency (Anvisa) launched a public consultation on whether the country should ban additives from tobacco products. Submissions are due to be accepted until the end of March.

Despite the lack of evidence against the traditional ingredients added to tobacco products, the agency seems in no doubt about the effect of the use of flavors. “The flavors stimulate initiation of smoking in youth and adolescents and mask the unpleasant taste and odor of cigarettes,” said Anvisa’s manager of tobacco products, Humberto Martinez.

One thing that should be pointed out here is that though the second part of Martinez’s statement seems at first reading to be in line with what some in the tobacco industry might say, it is subtly different and, in my view, wrong. What Martinez is saying is the equivalent of claiming that sugar is used to mask the unpleasant taste of chocolate. In fact, I suppose, sugar is added to cocoa to mask the bitter taste of cocoa, so that it can be made into chocolate. And in the same way, flavors are added to tobacco to mask some of its unpleasant characteristics, so that it can be turned into cigarettes.

Mane’s Dr. Roger Penn put this more elegantly when he told me that what had to be remembered was that there were only two classical uses for tobacco flavors. One was to help level out the variation in the tobacco base and make a consistent product given variations in tobacco crops. The other was to put a “signature” on a product to create product differentiation on the market.

Anvisa, meanwhile, evokes the bans imposed in both Canada and the U.S., but it seems to be leaning toward a more extreme Canadian model. Additives are considered to be any substance or compound other than tobacco or water used in processing, manufacturing and packaging of a tobacco product.

Also, Anvisa is not confining itself to cigarettes. The ban would apply to products that use tobacco and that are smoked, inhaled or chewed.

One of the problems here is that Brazil’s market, unlike Canada’s, comprises modified blended products, and it seems highly unlikely that Brazilian manufacturers could produce such cigarettes without the use of some additives.

As Penn put it: “The unfortunate thing about Anvisa in Brazil is that they are advocating a ban, as per Canada, presumably because Brazil has been following Health Canada very closely for quite a few years.

“If it is a Virginia market, it is easier to sustain without flavorings because they are not used in the majority of products. But if you ban flavors in Brazil, for instance, or Germany, or France, or Switzerland, where there are modified blended products, you will wind up with harsh, irritating products that produce hot temperatures when smoked. People won’t buy them. So you kill that product, but, guess what, you get contraband shipped in from various parts of the world.”

At this point I asked Penn whether or not he had heard of any other countries planning to ban or regulate additives in tobacco products, and he said he had not. However, he is concerned that, depending on what happens in Brazil, there could be a domino effect.

Eduardo Berea, of Mother Murphy’s, also believes that Brazil could prove pivotal, at least among the countries of Latin America. Brazil was the first country to add delivery numbers to its packs, he said, and now you could find such information throughout Latin America.

Berea made the point that it would not be possible to make a reasonable product in Brazil without using casings, since local burleys had low levels of sugars that needed to be compensated for with the addition of casings.

He said it might be possible in Brazil to make a cigarette without top flavors, but a manufacturer would not be able to create a distinctive pack aroma, and it would be much more difficult to create distinctive products because there would need to be a different blend for every brand.

A note of explanation is needed here. We all tend to use the word flavor as shorthand, when what we are often talking about are casings, flavors or top flavors, or any combination of these. Casings, Berea explained, were used both in Virginia- and American-blend products, but the functionality was different. With Virginia (flue-cured) blends, the purpose of a casing was mainly to add humectants such as propylene glycol or glycerin—both of which are permitted even in Canada—with the objective of improving the humectation of the flue-cured tobacco, since sugar tended to bind to water and since, otherwise, flue-cured was not able to absorb too much liquid.

In the case of American-blend products and especially on the burley component, a casing was added that commonly comprised juice concentrates, chocolate, cocoa powder or cocoa extract, licorice and humectants. In this case the main objectives were to correct the sugar/nicotine ratio of the tobacco to make it a smokeable product, and to round—with the cocoa components and the licorice—the flavor.

Top flavors were used mainly to create a distinctive brand identity not only in the smoke but in the pack aroma as well.

Following the science?

Meanwhile, at an international level, Penn is hoping that the scientific argument wins out and that manufacturers continue to be allowed to use traditional tobacco additives. But, if not, he hopes that flavors are not banned but their application levels regulated.

And as reported by BAT, the tobacco industry’s position received something of a scientific lift when the European Commission’s Scientific Committee on Emerging and Newly Identified Health Risks recently acknowledged the lack of scientific evidence to support the idea that—“bearing in mind the broad meaning of ‘attractiveness’—a specific additive affected the attractiveness of tobacco products intended for smoking.”

Berea is greatly concerned about the science surrounding the tobacco flavors issue, or rather, he’s concerned with the lack of science. He sees the arguments put out by bodies such as the WHO’s FCTC and the U.S. Food and Drug Administration’s Center for Tobacco Products as being “infected” with the “quit or die” mentality.

Nevertheless, science is seen by some as the way forward and, in the middle of February, a senior executive of Lorillard—about 85 percent of whose sales are of menthol cigarettes—urged an FDA advisory panel not to lose sight of the congressional and FDA mandate to “follow the science” in developing its report and nonbinding recommendation regarding the use of menthol in cigarettes.

This sounds all well and good, but to my mind the idea that decisions on menthol can be made on the basis of science is wishful thinking. Congress’ exemption of menthol from its ban on characterizing flavors must have been based on economics and politics. And now, the rationale for that original decision is meeting science in a confluence that can result only in political expediency. This need not be a bad thing as far as the tobacco industry is concerned, however. Politics and economics exempted menthol in the first place, and it seems likely that they can come together with science to keep that exemption in place.

Currently, the FDA’s Tobacco Products Scientific Advisory Committee (TPSAC) is developing a report and recommendations on the impact on public health of the use of menthol in cigarettes that is due by March 23. And there are a number of aspects of this process that are encouraging. For instance, the FDA has asked tobacco industry representatives who serve on the committee to develop an industry perspective document on the public health impact of menthol cigarettes that will accompany the report.

Also, the TPSAC intends to discuss draft report chapters at open public meetings before they are finalized, and copies of these chapters are to be made available on the TPSAC website.

And there is no required deadline or timeline for the FDA to act on the recommendations provided by the TPSAC in the report.

But there are aspects of what the FDA says that makes me uneasy. For instance, it says that any actions that it might take that lead to restrictions on the sale of menthol products or the establishment of product standards would require formal rule making that would include public notice and comment. It seems to beggar belief that if the science on flavors is uncertain to the point where menthol is not banned, there could be any basis outside of the magic circle for, say, the reduction of levels of menthol in cigarettes.

But moving back to the international scene, there are other reasons to remain hopeful. Chan in her report made the point that many organizations involved in global health issues were facing serious funding shortfalls. I take no comfort in this where such shortfalls will cut meaningful health initiatives. But, clearly, it would seem to be reasonable that, given the current economic problems in many places, anti-tobacco organizations, like other bodies, should suffer cuts in respect of ideas that have no prospect of improving health and that could lead to severe economic losses in some of the countries least well able to withstand them. The additives issue is one such idea, and, as Chan says, the emphasis should be on what the WHO can achieve, not the
size—or, presumably, the perceived size—of the problem.