Cream of the crop

| January 1, 2017

Demand for classical oriental tobacco remains remarkably stable.

By George Gay

Greece is thought to have grown about 18.5 million kg of classical oriental tobacco in 2016, made up of about 12 million kg of Basma and about 6.5 million kg of Katerini. If these estimates turn out to be correct (this story was written at the beginning of December, when both varieties were still being delivered), this is a small crop, even by the standards of the past 10 years, during which production has not been supported by subsidies. In 2015, the crop was about 21.5 million kg, so the drop from 2015 to 2016 will have been of the order of 14 percent.

Yields of both the Basma and Katerini crops were said to have been down because of dry weather, which, by way of compensation, created an excellent-quality Katerini crop and a good, above-average quality Basma crop, and because of a disease problem that was more severe than is usual. But the Katerini crop was down, too, because fewer farmers than in the past decided to grow this variety.

Part of the reason for this lack of interest among farmers was no doubt because of price, a problem whose most recent incarnation started in 2013 when all four of the main classical oriental tobacco producing and exporting countries, Bulgaria, Greece, Macedonia and Turkey, harvested big crops that, taken together, amounted to about 140 million–145 million kg and created an oversupply. The following year, quality suffered, with some observers declaring that the Greek tobacco was of the worst quality for 20 years; so again, prices were down. Prices were raised for the 2015 and 2016 crops, but not by enough to entice the required number of lapsed growers back to Katerini or new growers to enter the field.

Despite the difficult economic situation in many oriental origins, the industry struggles to attract growers and workers.

Making the job easier, slowly

Looking ahead, Nikos Allamanis, doyen of the Greek classical oriental tobacco industry, said Greece believed that it could sell a 2017 crop of 23 million–25 million kg made up of about 14 million kg or more of Basma and 9 million kg or more of Katerini. Given reasonable weather conditions, it seems that the Basma target will be reached, but there is doubt about the Katerini crop. To raise the estimated 6.5 million kg of 2016 to 9 million kg in 2017 would mean, even given reasonable weather, an expansion of the area planted to this variety. Contracts for the 2017 crop have to be completed by the end of April, so there is still time for new and returning Katerini growers to sign up, but how many will do so is in doubt.

One question that arises here concerns why, with Greece’s economy in the doldrums, would farmers not jump at the chance to grow some, or some more, Katerini. Well, the answer perhaps has to do with the fact that growing tobacco is not an easy task, that it has to be carried out away from the bright city lights, so that young people especially are not overly keen to become involved, and that it is one where producers can earn enough to survive, but little more.

Price increases, when they occur, are often small, and growers are urged—and helped—to raise their incomes by increasing yields through the planting of improved seeds, employing good agricultural practices and the introduction of automation systems where possible. This is all very well up to a point, and some growers undoubtedly benefit from the fact that automation allows them to cut down on labor. The trouble is, it takes some time for the specialist oriental tobacco automation systems to be improved to the point where they can move from the test phase to general use—to the point where they can start improving yields and, therefore, raising grower incomes. For instance, Frederick de Cramer, coordinator at Sunel, told Tobacco Reporter in an email that the Vento, or “sock-curing,” method of drying tobacco, which has been tested in Turkey for some years now, was expanding, though the quality of the cured leaf was still “not too impressive.” The system needed to be further improved, he said, and farmers, who generally supported the system, still had to be educated in using it.

Another problem with the automation approach has to do with the investment needed. Oriental tobacco transplanting machines have been improved, and they are helping some growers obtain higher yields by providing better spacing between plants and the establishment of better root systems. But such machines are clearly beyond the financial reach of these farmers, given their incomes, so financial support is needed if the use of these machines is to be expanded, and presumably that support must come from tobacco manufacturers—those who hold the purse strings.

Estimates for the total 2016 classical oriental tobacco crop range from about 100 million kg to 120 million kg.

Difficult demographics

Finally, the age profile of oriental tobacco growers has to be a hurdle when it comes to introducing new systems. In Macedonia, where, according to Iqbal Lambat, CEO of Star Tobacco International, the age of oriental tobacco growers is about 28–40 years, learning new techniques is probably not a problem. But it is probably more of a problem in Bulgaria, where this demographic is said to be about 40–50 years old, and it could be difficult in Greece and Turkey, where many growers are older than 55.

Turning such demographics around will not be any easy matter—though, according to Lambat, tobacco farming is still a multigenerational activity in Bulgaria and Macedonia. Greece and Turkey, in times of good economic growth, both experienced migrations of people to the cities, and while these countries have in more recent times suffered economic setbacks, there seems not to have been a rush back to the villages.

Turkey has clearly suffered major political and social problems in recent times, but even though unemployment is said to have increased hugely, it doesn’t seem that tobacco growing is seen as a desirable career choice for too many people. De Cramer said that the 2016 crop of Izmir tobacco, the main Turkish classical oriental tobacco variety, is estimated to be 40 million–41 million kg, which puts it about 7 percent below that of the 2015 crop of 43.56 million kg, and nearly 27 percent short of the contracted amount of 55.28 million kg.

As with the Katerini crop in Greece, however, a compensatory factor is that the 2016 Izmir crop is of good quality. The share of A/AB grade tobaccos within the whole crop is expected to be high, which should be in line with demand given that some manufacturers were unable to fulfil their A/AB grade requirements from the 2015 Izmir crop. The lower grades—kappa and double kappa—could be short, but these can be replaced easily by other varieties that fall into the blend group.

Given the size and makeup of the Izmir crop, Turkish lira prices are expected to rise by about 12 percent, but export prices will probably be offset to some extent because, in the month before this story was written, the lira had been devalued by about 10 percent.

Outlook

On the supply side, there are some positive signs in Turkey. Returns for some competing crops have not been good, and so tobacco, for which half of the green price is paid in advance, is again being seen as providing a more reliable income. And on the demand side, the election of Donald Trump is seen as possibly providing some relief on the U.S. tobacco products market, the EU market seems to have stabilized, and the Russian market is increasing once again. In any case, the 2017 crop is expected to produce about 44 million–45 million kg, which would be an increase on the 2016 crop of about 5–10 percent.

Estimates for the total 2016 classical oriental tobacco crop range from about 100 million kg to 120 million kg. Demand for this type of tobacco has its roots in premium American-blend cigarettes, and rough estimates based on the size of the market for these products and classical oriental tobacco inclusion rates have for years put that annual demand at 120 million, plus or minus. Of course, this premium American-blend sector has been under pressure because its heartland is in the West, where unemployment has risen and wages have stagnated in respect of the people who make up most of the consumers of these products. Undoubtedly, this pressure is down, too, to the illegal trade since it seems to be generally acknowledged that some nonclassical oriental tobaccos are being grown off-piste and finding their way into illicit cigarettes.

But despite the problems that exist, classical oriental tobacco production seems to be remarkably stable. “Generally, demand for classical oriental is stable, and all of the Balkan countries have been consistently meeting demand over the course of the past four years,” Scott Burmeister, regional director for Europe at Alliance One International, told Tobacco Reporter in an email reply to questions. “However, there have been some shifts from one origin to another depending on the availability of higher-quality tobaccos.

“Over the past few years, manufacturers have been rationalizing markets as they reduce blend complexities. Although the rationalizations have not directly affected classical oriental, we have seen that manufacturers are more willing to shift between origins that they believe to be interchangeable, as long as the leaf meets quality expectations.

“The classical oriental market is moving into an undersupply position due to growing yield reductions. Although the quality of the rendered crops appears to be above average, a shortage of certain styles is predicted.”

 

 

 

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