Brazilian leaf volumes are set to recover after last year’s unusually small harvest.
By Stefanie Rossel
Brazil’s 2015–2016 tobacco growing season was a tough one. Hit by the most severe El Nino in years, the crop shrunk by around 25 percent in volume. The weather phenomenon brought about massive rains in Brazil’s south; combined with a reduction of the planted area and a reduced yield per hectare, the adverse weather conditions led to the smallest harvest of flue-cured Virginia (FCV) in more than a decade.
The growers association Afubra estimates 2016 FCV production at 460,000 tons, down from 595,000 tons one year earlier. Similarly, the country’s burley crop shrank from 83,000 tons in 2015 to 55,000 tons in 2016. Dramatic as it may sound, the production decline also had its upside: Occurring at a time of global leaf oversupply, it helped stabilize the market, according to Danny Schwengber, sales manager at Premium Tabacos do Brasil. “The green price moved up considerably,” he says. In spite of the smaller crop, income for farmers rose about 40 percent compared with the previous year, notes Erni Dockhorn, director and president of UTC Brasil.
Philip Morris Brazil (PMB), Brazil’s second-largest tobacco company and one of the major leaf buyers in the country, initiated a number of measures to support its contracted tobacco farmers during the difficult season.
“PMB created a temporary cash-advance program to allow farm activities,” says leaf director Gerson Assmann. “PMB’s ‘tabela’ price—the official price for tobacco trade—was increased above the farmer’s cost of production with an extra bonus to support farmers. Farmers received 50 percent of their estimated sales revenues before delivering their crop. In addition, a special group of field technicians instructed farmers about growing side sprouts in fields hit by hailstorms, which recover most of their crops. These initiatives ensured support to our contracted farmers in a time of need and our commitment with tobacco farmers and workers,” says Assmann.
PMB maintains a set of procedures to guarantee crop volumes even in times of unprecedented severe weather. “Almost all other factors influencing plant development can be managed,” explains Assmann. “A good estimation system evaluates crop tendencies and volumes, allowing us to adapt our operation accordingly. As an example, a major influence on crop results are tobacco seeds. All seed varieties delivered by PMB for this crop season followed weather and resistance recommendation made by ProfiGen, one of the world’s leading tobacco seed producers.”
Souza Cruz, Brazil’s largest cigarette maker and since 2015 a wholly owned subsidiary of British American Tobacco (BAT), also took measures to mitigate the effects of El Nino.
“Our technological set [of tools], ranging from soil preparation, potential high-production varieties, inputs of high quality, specialized technical assistance and producers database, were essential factors to mitigate losses and to achieve the volume and profile required by Souza Cruz and the BAT group,” says Helio Moura, national leaf growing manager at Souza Cruz. “Although we have suffered the damages from the most rigorous El Nino in recent years, the impact on our volume was completely manageable.”
Prospects for the upcoming crop—at the time of writing still being harvested—are decisively brighter. “The Brazilian farmers expanded in a big way the planted area for this coming crop, principally encouraged by the excellent return they received from the previous one,” says Dockhorn. According to Afubra, the planted FCV area has risen from 252,000 hectares in 2016 to 271,111 hectares this year. The association predicts a FCV crop volume of 610,000 tons in 2017. The burley crop is anticipated to reach 72,000 tons in the current season, grown on a planted area of 35,122 hectares (compared with 28,572 hectares in 2016).
Weather conditions remained favorable throughout the season. “At transplanting time, there was a risk of drought due to a La Nina warning,” recalls Assmann. The climatological counterpart of El Nino, La Nina can cause drought in southern Brazil, but during the event, this did not happen. As a result, the industry is anticipating large volumes for the 2016–2017 crop.
The quality of the current crop is expected to be average to good, with some variations between the growing areas. “Rain volumes during November were slightly lower than historical averages, negatively influencing early harvests,” says Assmann. “December, on the other hand, presented good rain volumes, allowing the development of a good-quality crop in the field. Unfortunately, the extra volumes transplanted for this season pressured most farmers to speed up the curing process. This had a negative impact on parts of the Brazilian crop.”
Brazil is the world’s second-largest tobacco producer behind China and has been the leading exporter since 1993. It is also one of only a handful of countries capable of producing the sought-after flavorful tobaccos.
The sector is of significant economic importance. According to SindiTabaco, Brazil’s interstate tobacco industry union, tobacco accounted for 1.14 percent of all Brazilian exports, with the value of shipments amounting to $2.19 billion in 2015. Occupying less than 1 percent of the country’s land area, tobacco ranks sixth as a generator of value in the Brazilian agribusiness sector.
For a long time, the European Union has been the main destination for Brazilian tobacco. It accounted for 41 percent of the volume shipped in 2016, according to Brazil’s Ministry of Industry, Foreign Trade and Services. The EU is followed by the Far East with 28 percent, North America (12 percent), Eastern Europe (7 percent), and Africa/Middle East and Latin America with 6 percent each. The major importing countries are Belgium, China and the U.S. Altogether, Brazilian leaf is exported to 90 countries.
The vast majority of Brazilian tobacco production consists of FCV (82 percent) and burley (17 percent), which are grown in the country’s comparatively rich and industrialized southern states Rio Grande do Sul, Santa Catarina and Parana. Dark air-cured tobaccos are grown further to the north, in the states of Bahia and Alagoas.
Small-scale farming is typical of Brazilian tobacco cultivation. According to SindiTabaco, on average holdings measure 15.2 hectares, of which only 16.6 percent are dedicated to tobacco. This share, however, accounts for 65 percent of farm income, making tobacco a highly profitable crop.
Brazil’s labor, energy and raw material costs are comparatively high, and the country faces fierce rivalry from African countries with equally suitable climates but lower production cost. Nonetheless, Brazilian tobacco executives believe their leaf is competitive on the global market.
“Brazil is working on the reduction of labor needs, improved health protection, increased safety and higher profits for those who produce tobacco,” says Dockhorn. “The aim is to improve yields and reduce production costs.”
The success of Brazil’s leaf tobacco industry is often attributed to its integrated system. Buyers supply their contracted farmers with inputs and agronomic assistance and recover these expenses when the tobacco is delivered.
“It is part of our strategy to increase quality and productivity so that we can bring more prosperity to our integrated producers and maintain the competitiveness of our business,” explains Moura. “To deliver year-over-year productivity growth, our technical staff is directly in contact with the integrated producers to provide support that can result in sustainable volume growth without losing focus on quality. Another key aspect is our investment in production technology and innovative processes, which are directed to achieving productivity and quality gains, not only in the field but also in all areas of the operation. Through this strategy, we can mitigate impacts and bring benefits to producers and costumers, as well as generate value for the country.”
PMB has recently taken an important step to upgrade the integrated production system. “Two years ago, the agronomy team developed the program Field+, where dedicated instructors visit farms in vehicles equipped with training material and media capabilities, capacitating farmers and rural workers to adopt better health and safety practices in their daily activities,” says Assmann. “The program was very well-received by the rural community, as it helps them to acquire knowledge at their own farms.”
An external audit ratifies the compliance with the specific technical standards for sustainable production. Good agricultural practices and the standardization of production processes are at the center of certification requirements, which include the mandatory use of wood of legal and sustainable origin, correct disposal of empty pesticide containers, the use of seeds authorized by the national cultivar register, and the adoption of conservation practices like direct planting and minimum tillage.
Farmers are required to apply only fertilizers and pesticides recommended and registered by the apprpriate organizations. They must use personal protective equipment and special harvest clothing. Child labor is prohibited, as is field burning and the handling of pesticides by minors (under age 18), the elderly (over age 60) and pregnant women.
Traceability plays a major role in the program, which requires all procedures involved in production, from soil preparation to delivery at the processing plant, to be registered on specifically developed worksheets. Increasing regulation may hence affect Brazilian tobacco positively, according to Moura. “Our production model, the integrated system, one of the sustaining pillars of the business, allows us to control the whole supply chain, making it possible to have the complete traceability of our product,” says Moura.
With its carefully managed integrated system, Brazil seems well-prepared for the tobacco industry’s increasingly regulated future.