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Primary processing hall in Socotab’s factory. Photo credit: Socotab
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Stelios Grigoriadis, managing director, Alliance One North Macedonia AD. Photo credit: AOI
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AOI agronomy manager Robert Cvejoski. Photo credit: AOI
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AOI’s local facility in North Macedonian town of Kavadarci. Photo credit: AOI
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Prilep field. Photo credit: Socotab
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Christos Savvidis, general manager, Socotab DOOEL. Photo credit: Socotab
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Socotab’s North Macedonian factory near the town of Prilep. Photo credit: Socotab
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The tiny Balkan nation’s distinct Prilep varietal helps prop up oriental inventories.
Randomly ask about major tobacco growing countries and names such as India, Pakistan, Turkey, Indonesia, Zimbabwe, Malawi, Brazil, or the US will roll off tongues quite readily. European nations such as Poland, Greece, or Bulgaria surely would be thrown in, too. But the Republic of North Macedonia? Some people are not even aware that such a country exists. Yet there it is, a tiny nation of just under 2 million people located right smack in the center of the Balkan region, land-locked and enveloped by Greece, Bulgaria, Serbia, Kosovo, and Albania. With little industry to speak of, its economy is dominated by agriculture. Tobacco has been an important crop even when North Macedonia still was part of the former Yugoslavia before declaring its independence on September 8, 1991.
Oriental crop attracts international players
Commercially, the country almost exclusively grows oriental tobacco, the Prilep varietal accounting for almost the entire crop, while harvests of the Yaka type normally clock in at just around 200 tons a year. Harvest volumes of Prilep are substantial enough to have attracted a number of international merchants, most notably Socotab (socotab.com) and Alliance One International (AOI; aointl.com), but also firms like Nicos Gleoudis Kavex SA (kavex.net) and Star Agritech International (staragritech.com). Socotab and AOI both have set up dedicated local companies in the country to secure their respective slices of the pie. Although North Macedonia is rather well established as an oriental tobacco supplier particularly for Europe and the US, the Balkan country’s produce remains relatively obscure outside these two key markets.
AOI’s significant investment
“AOI’s presence in North Macedonia traces back to 1998, when [our] predecessor company, DI-MON International, first entered the market,” Stelios Grigoriadis, managing director of Alliance One North Macedonia AD, told Tobacco Asia. After acquiring two local tobacco factories, a series of further mergers, consolidations, and restructurings occurred over the years. In 2007, AOI centralized its operations in the town of Kavadarci, where now both its local headquarters and tobacco processing facilities are located. In April 2011, AOI undertook a significant investment by modernizing processing and storage, effectively transforming North Macedonia into the hub for its Balkan oriental operations. “This [upgrade] involved an initial investment of approximately US$15 million, the new tobacco processing and storage facilities covering an extensive area of 60,000 square meters,” Grigoriadis disclosed. Subsequent investments were directed at upgrading the production lines to optimize throughput, as well as the installation of NTRM laser and optical sorters.
Socotab presence reaching back to Yugoslav era
Meanwhile, Socotab, which was interviewed separately from AOI for this article, is looking back at an even longer presence in what is today’s North Macedonia. According to Socotab c.e.o. Jonathan Wertheimer, the company already established a foothold in Yugoslavia in the early 1950s, introducing Yugoslav oriental tobaccos to the US market for the first time. In 1996, local company Jugotutun (the former tobacco monopoly of the by now defunct Yugoslav state) was acquired, becoming a de-facto subsidiary of Switzerland-headquartered Socotab Frana SA. “But in 2010, Socotab decided to invest further and build a new modern processing and storing facility near Bitola in North Macedonia,” explained Christos Savvidis, general manager of the then-founded local Socotab outfit, Socotab DOOEL.
Prilep, a cousin of Basma
The vast bulk of tobacco grown in North Macedonia is of the Prilep varietal, which accounts for close to 100% of the country’s annual out-put. Prilep, an oriental tobacco needed in American blends but also certain NGPs, can be readily compared to Greek Basma, said AOI agronomy manager, Robert Cvejoski. “It is well-known for its distinct aroma, while Basma tobacco is famous for its robust and intense aromatic qualities.” In recent years, Prilep has become increasingly attractive to cigarette manufacturers due to the value it brings. Prilep also is “among the highest yielding strains [up to 1.8 tons of cured leaf per hectare] when compared to other oriental varietals grown in neighboring regions,” interviewed Socotab’s Christos Savvidis.
Interestingly, the varietal is the result or extensive r&d conducted by North Macedonia’s Tobacco Institute, which is located – you guessed it – in the town of Prilep. “This research aimed at adapting the variety to the specific local microclimate and soil conditions, which created a tobacco type that not only provides good farm yields but also possesses exceptional aroma and smoking characteristics,” explained Cvejoski. But Prilep is so highly tailored to those particular conditions that it is very challenging to cultivate it in other regions with different environmental factors. A second oriental type grown in the country, Yaka, is produced in such small volumes (typically only around 150 to 250 tons a year) that it plays practically no role as far as exports are concerned. It is mostly used domestically for cigarette production but also finds its way into some shisha tobacco blends.
Smallholder contracting rules the game
Both Socotab and AOI obtain their respective merchandise through contract farming, managed and supervised by the local subsidiaries. “[In any given season,] Socotab has direct contracts with more than 8,000 individual farmers in North Macedonia and provides full growing, agricultural, and technical support to each,” confirmed Christos Savvidis. According to him, the vast majority of these contractors are “smallholder farms with an average [tobacco planting] area of 0.5 hectares.” AOI’s Robert Cvejoski corroborated Savvidis’ information. “Alliance One Macedonia is involved in contract farming with 6,000-7,000 farmers annually, each cultivating an average of 0.5 hectares per household,” he said. “We have a strong relationship with our contracted farmers and notably, over the past five years, 70% of these farmers have proudly remained in partnership with the company.” Generally speaking, smallholders in Prilep account for nearly 90% of all farms, medium-sized ones make up about 8% of the total, while the remaining 2% are large-scale estates. With only about 0.4. hectares, the average Yaka smallholder farm is slightly smaller than its Prilep counterpart.
“Remarkable resilience” among tobacco growers
In most producer countries, the tobacco business is a challenging one. This isn’t any different in North Macedonia. But, the merchants involved are eager to help smooth out the path from field to ready-for-market merchandise. Although AOI’s Stelios Gregoriadis asserted that tobacco cultivation in North Macedonia has demonstrated remarkable resilience in the face of a slew of challenges, he called on stakeholders to intensify their support efforts to sustain and revitalize this traditional industry. Rising production costs due to inflation and increasing energy prices, as well as higher labor expenses, are putting pressure on the sector, he said, but added that “innovative solutions are being explored, including initiatives led by Alliance One Macedonia.” Furthermore, the country’s authorities should take proactive measures to address issues related to adverse weather conditions, particularly drought, and improve irrigation networks in rural areas to enhance crop yields. Although the government – through the Ministry of Agriculture, Forestry, and Water Economy (MAFWE) supports tobacco production with subsidies from the national budget, the emigration of locals is another main challenge, pointed out Socotab’s Christos Savvidis. “Though it is a development observed in the wider tobacco growing regions of neighboring countries as well.”
US and EU remain key markets… for now
While AOI divulged that “the mass majority of Alliance One Macedonia’s volumes are exported,” Socotab declined commenting. However, it is reasonable to assume that the latter’s situation would be comparable to that of its competitor. North Macedonia has traditionally focused on trading with partners and markets within the European Union and North America, where both Socotab and AOI are particularly active. As a result of this market focus, supply and demand dynamics of North Macedonian oriental tobacco have historically remained relatively balanced. Consequently, there has been a limited need for North Macedonian tobacco producers to source new markets, for example in Asia. Additionally, “the geographical distance between North Macedonia and major Asian markets may have played a role in limiting initiatives for expansion into those regions in recent years,” pointed out AOI’s Stelios Grigoriadis. However, due to declining outputs in other oriental producer countries like Bulgaria and Greece, Grigoriadis said he was seeing “a growing interest from various Asian customers,” which has prompted Alliance One Macedonia to begin “actively working on promoting North Macedonian Prilep in Asian markets” for some time now.
Socotab’s Nutty Business
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About 2 years ago, Socotab started putting into action an interesting plan in North Macedonia, whereas farmers are encouraged to co-plant hazelnut bushes with their tobacco. Group head of sales, Christian Rasmussen, told Tobacco Asia the parallel planting has the objective of helping to generate an additional income stream for the farmers, “thereby contributing to making the [tobacco] crop more sustainable, which once again, is at the heart of all of our business decisions today.” But, there are additional benefits that go beyond increased income. For instance, the deep roots of maturing hazelnut bushes, which are perennial plants, guard against wind erosion while the shade from the plants’ canopy helps retain soil moisture during droughts. Flowering hazelnut bushes also attract certain insect varieties that may act as natural pest control.