Category: Editorial Archives
The Global Tobacco Networking Forum comes into its own.
TR Staff Report
After a cautious start in Rio de Janeiro in 2008, and a significant boost in Bangalore in 2010, Tobacco Reporter’s Global Tobacco Networking Forum truly came into its own in Antwerp this past June. The event not only attracted a record number of attendees from all parts of the world, it also enjoyed the support of major global and regional manufacturers. Some participants have already dubbed GTNF the tobacco industry’s “Davos,” after the prestigious World Economic Forum meetings in Switzerland.
The background of the GTNF is by now well-known. Aware of the industry’s increasing need for timely information and meaningful interaction, Tobacco Reporter in 2008 came up with an alternative to the congresses that dominated tobacco events at the time. The traditional congress concept was based on one-way traffic, with participants listening to a series of prepared presentations. Interaction with experts was typically limited to a brief question-and-answer session, after which the respective parties went their own ways. The messages of the speakers, however inspiring, were often quickly forgotten as attendees returned to their offices and resumed business as usual.
Talking with experts from inside and outside the tobacco industry, Tobacco Reporter realized it was possible to make its events more impactful. By tweaking the Congress format to allow for more interaction, the quality of communication would improve significantly. Instead of asking the audience to passively consume a series of lectures, event organizers should offer attendees an opportunity to directly engage with the experts. And because every member of the audience was inevitably an expert in his or her own field, the value of the resulting exchange of information would be greater than the sum of its parts. Thus the GTNF was born.
While the networking concept had been successfully applied in other industries, it was new to tobacco at the time. Tobacco, of course, is a notoriously conservative industry, so the sector’s initial response to the new forum was cautious. A relatively small number of people attended the first GTNF in Rio de Janeiro, Brazil, but those who did so were well rewarded. When Dayton Matlick, the president of Tobacco Reporter’s parent company, SpecComm International, asked participants at the end of the event to share their thoughts about the forum, the response was overwhelmingly positive. Attendees said the gathering had given them an opportunity to interact with people they would otherwise have not encountered, and that the intimate nature of the discussions lowered the barriers to communications.
As every marketer knows, there is no better marketing tool than word-of-mouth, and word about the GTNF spread quickly. When Tobacco Reporter held its second forum in Bangalore, India, in 2010, attendance was significantly higher than in Rio. More than 200 industry representatives, including senior executives from leading cigarette makers, traveled to Bangalore to see what the buzz was about. They did not leave disappointed. Some left the event determined to take actions based on the discussions they had participated in. Others said they had become aware of fundamental issues that would affect their business. And virtually everybody Tobacco Reporter spoke to acknowledged that the GTNF had given them new ideas that would benefit their organizations.
The word continued to spread after Bangalore, and Antwerp became the best-attended GTNF to date. As the number of participants rose, so did the buy-in among the companies that the industry looks to for leadership—the major cigarette makers. GTNF Antwerp was supported, through participation in the forums, by the world’s leading tobacco companies: Philip Morris International, British American Tobacco, JTI, Imperial Tobacco Group, R.J. Reynolds TobaccoCo., National Tobacco and many others.
Cigarette makers sent some of their top talent, with the GTNF list of speaker biographies reading like a who’s who of the tobacco industry.
But perhaps the most striking thing about the event’s attendee list wasn’t who participated from the industry, but who participated from outside the sector. In addition to leading financial analysts such as Erik Bloomquist (Berenberg Bank), Bonnie Herzog (Wells Fargo Securities) and Jonathan Fell (Deutsche Bank), the GTNF attracted journalists from some of the world’s leading publications. Jon Copestake and Kevin Dunning of the Economist Intelligence Unit, a sister organization of The Economist magazine, evaluated the industry’s outlook against the global economic environment. Other prominent media speakers included Jamie Dettmer, who has written for The Times of London and the Sunday Telegraph, among other publications, and Mick Hume, editor-at-large of Spiked.
Even more remarkable was the participation of several leading public health advocates. Scott Ballin of the Alliance for Health Economic and Agriculture Development and Jeff Stier of the National Center for Public Policy are by now familiar faces at Tobacco Reporter events, but the participation of Francis Crawley, Delon Human and Anders Milton represented a true coup. Crawley is executive director of the Good Clinical Practice Alliance, Europe, and aWorld Health Organization expert in ethics; Human is president and CEO of Health Diplomats, a Swiss advisory and consulting practice; and Milton has been a senior adviser to the Swedish government delegation to the World Health Assembly and president of the Swedish Red Cross.
Participating in sessions on harm reduction, smokeless tobacco and alternative nicotine products, these high-profile health advocates offered the industry an opportunity to interact with its critics in a constructive manner—something that hasn’t always been possible in other settings.
The GTNF also proved a useful platform to announce new developments. Coresta, the association that promotes international cooperation in tobacco research, announced its new guideline for the treatment of cigarette beetles during the GTNF. The organization’s secretary-general, Pierre Marie Guitton, had graciously agreed to moderate a session on infestation management (and another one on low-ignition-propensity cigarette papers). The organization’s endorsement of the controlled-atmosphere technology as an alternative to existing beetle-control approaches provided a fertile base for discussions.
In a separate forum, Oded Shoseyov of the Hebrew University of Jerusalem, Avi Tzur of Recon Inc. and Juan Sanchez Tamburrino of ATC Biotec discussed alternative uses for tobacco.
Other sessions covered topics such as illicit trade, security of leaf supply, the impact of ingredient bans and the threat of plain packaging, which is currently under way only in Australia but is being considered in other jurisdictions. The plain packaging panelists examined the tensions between health considerations and intellectual property rights. They also assessed the strength of the industry’s pending court challenges against the measure and the potential unintended consequences, such as increases in counterfeiting.
The presence of both manufacturers and suppliers on the panel and in the audience enabled participants to view the topics from different angles than they might have been accustomed to. For example, corporate affairs people, who might normally look at the plain packaging issue from a legal perspective, had an opportunity to see the issue from a printer’s perspective, and vice versa.
Patrick Basham, director of the Democracy Institute, was in top form as he set the agenda and guided the audience through the program. In doing so, he skillfully drew on his extensive industry knowledge and sense of humor. On the morning following the Golden Leaf Awards banquet and celebration, Basham helpfully recited the dictionary definition of hangover.
Fred Vandermarliere, director of Gryson Tobacco Co., welcomed delegates to his home country and provided an entertaining overview of Belgium’s history, covering the kingdom’s various occupiers, its linguistic struggles and cultural treasures, such as Duvel bier and Manneken Pis, the famous bronze sculpture depicting a naked little boy urinating into a Brussels fountain basin.
Unlike the previous editions of the GTNF—which were held on dry land—the Antwerp event took place on two event boats that had been reconfigured to accommodate conferences. The setup proved ideal for networking—although in the downstairs rooms the noise of the engine at times forced participants to raise their voices, especially during docking maneuvers. In between sessions, delegates mingled in the bar area or went outside on the deck to enjoy a smoke and—on the first day of the event—the abundant sunshine.
This being northern Europe, the pleasant weather didn’t persist, but that didn’t dampen the mood. The passengers simply moved inside to the upper deck, where instead of banning smoking, the organization had simply asked smokers to be considerate in deciding where and when to light up.
As the Belgian and Dutch landscape slid past in the background, you could see procurement managers mingling with leaf suppliers and instrumentation manufacturers talking to health advocates. CSR managers drank coffee with automation specialists, while financial analysts exchanged cards with fumigation experts. The interaction continued during the gala dinner. Instead of sitting only with colleagues, many participants stepped out of their comfort zones and shared a table with people they didn’t know before. Some even dined with their competitors.
If anybody ever doubted the GTNF concept, the networking crowds on the Oceandiva conference ships would have convincingly disproved their reservations.
The organic approach to tobacco production continues to grow in the United States
By Chris Bickers
The future of organic tobacco looks bright to Aaron Sink of High Point, North Carolina, USA—so bright, in fact, that earlier this year he bought a farm specifically to grow organic tobacco. “We are getting a good vibe about growing this type of leaf,” he says. “The manufacturer, Santa Fe, is pushing to increase production of organic cigarettes, and that gives us the chance to increase at our end.”
Sink has built a greenhouse on the new farm and was moving curing barns on it when Tobacco Reporter interviewed him in March. “I am definitely willing to make some capital expenditures to provide it.”
But he still has to rent much of his tobacco land—80 acres this year—and the organic approach has provided an unexpected benefit: It has helped him gain access to rental land that he might not have gotten if he had been growing conventional. You see, he farms on the edge of an urbanized area, and city landowners are not always anxious to rent to conventional farmers.
But near chemical-free organic culture is much more appealing. “My landlords like the idea of the organic option,” Sink says. “It has definitely opened some doors for me.”
That’s the good news. The bad news is that organic is a very difficult way to grow tobacco. No weed-control chemicals are approved for organic, so all that a grower can do is plow.
Same thing for disease control: Crop rotation is substantially the only tool available. Sink grows one year of tobacco followed by wheat, then a year of a legume. Of course, as far as possible, he chooses disease-free fields for organic tobacco.
Sucker control has been an enormous problem for organic tobacco in the past, with most of it having to be done by hand. But for the last two seasons, Santa Fe growers have had an effective option. OTAC, a new contact sucker control agent developed by Santa Fe and Fair Products, was approved for use in organic programs in late 2009. In Extension testing in North Carolina at the time, the results from use of the fatty alcohol product were similar to other sucker control products, said Loren Fisher, N.C. Extension tobacco specialist. “It doesn’t appear that a farmer would lose any control by using it. OTAC looks like a good fit in organic tobacco or in any program where you are trying to reduce or eliminate the use of MH.”
Insect control is a major problem also. Sink uses a couple of cultural methods of dealing with the situation: He plants sunflowers around his organic tobacco as a trap crop for beneficial insects like ladybugs, and he sows tall fescue grass in vulnerable areas to compete with those weeds that might host other insects.
These practices help, but Sink has learned he has to tolerate a little more insect damage than he was accustomed to before he went organic. “Especially, there isn’t much you can use on aphids in this type of tobacco,” he says.
Among other tobacco farmers who have gone organic in recent years:
Roger Smith of Brooksville, Kentucky, USA, has tried to come up with a feasible insect control program. “We’ve learned to promote populations of beneficial insects like ladybugs and lacewings by planting crops that attract them,” he says. “They like to breed in sunflowers, hay and certain flowers.”
Back in the early 1990s, Smith was one of the first American farmers to grow organic burley, and there are still only a few of them. Now, he says he would not be raising tobacco if it wasn’t organic. “But you have to work hard at this to make it work. Organic burley will be confined to small-scale growers until there is more demand. But the interest is definitely growing. The price offered by SFNTC is substantially higher than the market price.”
Smith is planning to produce 4,000 pounds of organic burley this year. He hopes he will get a boost from a variety that is relatively new to his farm: KT 204. It has the reputation of yielding higher than the standard organic variety, TN 90. KT 206 had performed well too in recent years, but it is no longer available as an organic seed source.
Smith is optimistic about the future of organic tobacco, although he notes that anything in agriculture is iffy at the moment.
It is challenging for farmers to change the way they farm, and it may well be difficult and costly, says organic tobacco grower Billy Carter of Eagle Springs, North Carolina. But if you plan carefully, including finding a dependable commercial company who will work with you, it can become a profitable venture.
One reason is changing consumer demand.
“A high percentage of consumers are requesting a more natural vegetable,” he says. “People don’t want a lot of additives and poisonous materials put into food products. And many people are aware of the threat of ground water and soil being altered by chemicals.”
Naturally, to be certified organic, the land must be free of pesticides and chemicals for a period of three years prior to the first sowing date, he says.
“The crops need to be rotated regularly to avoid depletion of soil nutrition. Soil and nematode samples must be taken yearly for nutrition analysis. And drip irrigation is preferable to overhead watering techniques. We also hand-water crops as we see fit.”
Like nearly all of Santa Fe’s growers, Carter uses sunflowers to keep insects in check.
“We plant two rows of sunflowers to every eight rows of tobacco. We seed the sunflowers about 10 days before the tobacco is transplanted.”
There is no crop dusting or pesticide runoff. Natural fertilizers are used in a dedicated certified crop. “Organic farming can build up soil organic matter better than conventional no-till farming.”
Stanley Hughes, a flue-cured grower in Orange County, North Carolina, is a real believer in organic tobacco. “Particularly because of the favorable price I get when I bring in a certified organic crop of quality tobacco. By producing quality leaf, using environmentally friendly chemicals and proven cultural practices, I’ve been receiving a premium price.”
Hughes was one of the first organic farmers to cultivate tobacco under contract to Santa Fe Natural Tobacco Company.
“Organic tobacco is a nice little niche market for a small farmer like myself,” he says. “It allows me to make a good living farming full time.”
The price Santa Fe pays is justified, says Mike Little, president of the company. “Our organic growers are producing crops that are under more stress and a whole lot more susceptible to Mother Nature, so we pay them a little more.”
The prices are not guaranteed, he points out: Growers are paid only if their tobacco tests free of prohibited pesticides.
“There’s a near-zero tolerance under the USDA certification rules,” says Little, who initiated the program for SFNTC. “If we find something that exceeds the rules, then it won’t make organic. It’s not that we won’t take that tobacco, but it loses organic certification right there. We’ll go ahead and use it in one of our conventional blends.
“Nevertheless, we are committed to organic production in order to continue using the best possible tobacco in our products. Once farmers learn to produce organic tobacco, they find the skills and knowledge translate well to growing organic produce.”
Little takes pride in the fact that once the company recruits a grower to its organic program, he never asks to get out.
“We have an attractive contract; growers understand and like that about us. Also, we work hard to establish and maintain good relationships with all of our growers. We are in communication with them year-round.”
Organic certification allows the growth of other high-value seasonal crops, which can demand a premium price on the ever-expanding organic market, says Fielding Daniel, SFNTC’s director of leaf. “Our growers are heartened by this new and profitable market and worry less about petrochemicals, the cost and the risk of mishandling of them. Many also tell us that they are seeing a return of long-missed wildlife and nature to their land.”
Little says Santa Fe is committed to this type and will continue to promote organic tobacco production.
“Although organic farming is more labor intensive and requires land to lie fallow for three years before certification, we are committed to its principles in order to continue using the best possible tobacco in our products,” he says. “Sustainable agriculture promotes the interests of small independent farmers, not only for tobacco but also for the organic vegetables and other crops grown in rotation with it. More organic production is in line with our company’s principles and better for the environment.”
A small manufacturer in Georgia pursues multinational standards.
By Taco Tuinstra
Nick Asanidze, managing director of the OGT tobacco company in Tbilisi, Georgia, is more than committed to product quality—he is passionate about it. Touring the factory with a foreign visitor, he ticks off the many stringent tests OGT cigarettes and packaging are subjected to: loose ends, deformed rods, axial compression, carton abrasion resistance, smell/taste migration …. Then he opens a large binder with test results to prove that a young factory in the southern Caucasus can meet and even exceed the standards set by the world’s leading tobacco multinationals.
This year, the OGT factory celebrates its 10th anniversary. Officially opened in November 2002, the plant has come a long way in its short existence. With an annual production of 3.2 billion sticks, OGT is now the leading producer of cigarettes in Georgia, manufacturing international bestsellers such as L&M and Chesterfield and local favorites like Comet and Mtkvari. The Tbilisi cigarette factory is among the most modern in the Caucasus.
OGT started as a cigarette distributor in the early 1990s. In the difficult days following the collapse of the Soviet Union, consumer goods were in short supply. Many factories had shut down and imports were scarce in the newly independent state of Georgia. Yet Georgians smokers still needed cigarettes. Even as tobacco consumption declined in other European countries, smoking remained—and remains—a popular pastime in Georgia. Zaza Okuashvili, an entrepreneur who would later become a prominent politician, sensed a business opportunity.
OGT started importing cigarettes and soon became the exclusive distributor for Philip Morris International in Georgia. Because there was no established distribution network in the country, OGT built it. Today, the company operates a modern fleet of trucks and vans, equipped with satellite tracking devices to allow for real-time monitoring.
As the company gained skills and confidence, it decided to construct its own factory. There were several advantages to doing so. First, Georgia’s fiscal authorities at the time taxed locally produced goods at lower rates than imported ones. Second, local manufacture allowed the company to respond more quickly to changing market preferences. And finally, having a factory enabled the company to develop its own brands.
Because Okuashvili wanted to produce the best quality cigarettes possible, he insisted on starting from scratch rather than reviving an old facility. “My priority is high quality and it would be impossible to achieve this without digital technical equipment, highly trained professional employees and an adequate building,” he told Tobacco Reporter in a 2003 interview.
The company purchased an unused building that suited its purposes and hired the YIT Group, a Finnish construction firm with expertise in tobacco projects, to prepare the structure for cigarette manufacturing. The factory commenced operations in December 2001.
“Our goal was to do everything right from the beginning,” says Levan Agdgomelashvili, general manager of OGT.
That strategy continues to pay dividends today. To ensure uninterrupted production, OGT’s factory is equipped with a dual-fuel boiler plant, a pumping station, a fire alarm and sprinkler system and backup power generators that automatically kick in should a power outage occur. Fully automatic climate controls guarantee a constant temperature of 22 degrees Celsius and 60 percent relative humidity—ideal conditions for cigarette manufacturing.
Among other equipment, the production floor features Molins MK-9 and ITM 8000 (Protos) cigarette makers; HLP-4, HLP250, Schmermund and G.D X2 packers; a Max-S filter assembler; and a Marden Edwards overwrapper. “We are capable of producing all cigarette formats—slims, superslims, nonfilter, round corner, square corner, etc.,” says Asanidze. Quality is further ensured by a small on-site laboratory with instrumentation from Borgwaldt and Cerulean. The entire production process is controlled by Siemens’ powerful S-7 automation software.
OGT’s parent company, Omega Group, also operates a small printing facility with a state-of-the-art Heidelberg press, which allows it to print, emboss and crease cigarette blanks in-house. In addition, the printer serves a number of nontobacco customers, producing magazines and high-quality stationery for foreign embassies in Tbilisi, among other products.
But while good machines are essential to produce quality, they would be worthless without skilled operators and technicians. The general manager is proud of his team. “Our operators are always on the lookout for nonconformities,” says Agdgomelashvili. “If an operator finds products deviating from the norm, he will adjust the equipment immediately. And if the operator doesn’t have enough knowledge, he will ask a mechanic.”
OGT’s operations are ISO 9001 certified. Accordingly everybody knows their role and has a job description.
Because OGT is a flexible operation with little bureaucracy, it can respond quickly. “When the technical department has a good idea, we can implement it after just one meeting,” says Asanidze. Keen to keep its mechanics abreast of the latest technologies, OGT regularly sends its technicians to training courses at the original equipment manufacturers or invites the machinery experts to Tbilisi.
The combination of skills and equipment has allowed OGT to keep the number of product defects below the limits maintained by the world’s leading manufacturer. OGT is proud to have been licensed by Philip Morris International since 2001. PMI, of course, is famously discerning when selecting suppliers and business partners, and the multinational was duly impressed with OGT’s operations to entrust it with its brands.
The factory’s quality benchmarks apply equally to products manufactured under license and OGT’s own brands. Over the years, the company has built an impressive portfolio of uniquely Georgian brands, most of which sell in the value and mid-price segments. OGT’s undisputed bestseller is the Comet family, whose members include Comet Ruby, Comet Sapphire, Comet Burgundy and Comet Navy. Like regulators in other markets, Georgian authorities have prohibited tobacco product descriptors such as “light,” “mild” and other terms that could be construed as health claims, forcing cigarette manufacturers to come up with more imaginative terms to distinguish their offerings. The Comet family of cigarettes is also available in the slims format.
Other OGT brands include Mtkvari, which is named after the river that flows through Tbilisi; Astra Export and Excess Classic. Its most expensive brand is Wilson Superior, which sells in the same price category as Lucky Strike, Gauloises and other famous international brands. Wilson Superior is offered in a round-corner pack and is available as Wilson Superior Sunset and Wilson Superior Midnight.
In addition, OGT continues to import brands such as Marlboro, Parliament, Bond Street and Muratti. While the sales volumes of these brands in Georgia don’t warrant local production, OGT considers them must-haves in its portfolio. Until the 2008 war between Russia and Georgia, they were supplied by Philip Morris’ Izhora factory in Russia. Today, OGT imports its Philip Morris brands from the multinational’s production facility in Kharkiv, Ukraine.
Georgia is an unusual market in that the trend toward “lighter” cigarettes, evident in many countries, appears to have reversed here in recent years. Agdgomelashvili says the reasons for this are not clearly understood. OGT’s brands adhere to the European Union’s 10-1-10 standard for deliveries of tar, nicotine and carbon monoxide. About 25 percent of Georgian adults, divided equally among men and women, smoke, while annual consumption stands at 7.5 billion sticks. Cigarette sales are stable to slightly increasing, and consumers overwhelmingly prefer American blends. When including its imported brands, OGT dominates the market with a 55 percent share, while its sole local competitor, Georgian Tobacco Manufacturer, has about 10 percent. Imported brands from other multinationals account for the remainder of the market. All major players are represented in Georgia.
Compared with their counterparts in other European countries, tobacco marketers continue to enjoy considerable freedoms in Georgia. While radio and television tobacco advertisements have been banned for some time, billboards are still allowed and cigarette advertisements are ubiquitous throughout Tbilisi. Internet marketing, too, is permitted, as long as the ads are accompanied by health warnings. The law permits separated smoking areas in most public premises, but state buildings are completely smoke-free.
Prior to 2006, the illicit tobacco trade was a big problem in southern Caucasus due to large price differentials between cigarettes sold in Georgia, Russia and Armenia. The neighbors have largely eliminated those differences, however, taking away the incentive to smuggle. Cigarette prices in Turkey are now actually higher than those in Georgia, as that country brings its policies in line with those of the European Union.
While the value- and mid-price cigarettes account for the biggest market share by volume in Georgia, OGT expects that, as Georgia’s economy develops, more smokers will be able to afford premium brands. Ever alert to opportunity, OGT is now preparing to enter Georgia’s luxury segment with its own brand.
The new cigarette’s blend has been prepared, its packaging designed and stacks of printed blanks on the production floor are ready to be filled with cigarettes and folded into packs. But the company is careful not to jump the gun. “We are waiting for the marketing department to determine the right time for our launch,” says Asanidze. “When they say ‘go,’ we will hit the market immediately.”
OGT is also cautiously looking into exports, a project that will take time because of the many regulations involved. Currently, the company sells exclusively in Georgia. With the exception of the areas that have been occupied by Russia since the war, its cigarettes are available nationwide. Asanidze says that, if the need arises, his company is ready to expand production. “We can double volumes without problems.”
But OGT will not chase growth at all costs. Asanidze and his colleagues are well aware that their company owes its success to its relentless pursuit of perfection. If it’s up them, such passion will continue to guide OGT’s actions in the future.
Having added the Impex business to its portfolio, Airco DIET is busier than ever.
By George Gay
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.
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.”
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.
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.”