Opposite Ends of the Spectrum

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In this latest installment of our ongoing series showcasing independent leaf suppliers from around the world, Tobacco Asia introduces a brand new outfit founded only very recently alongside an “old hand” merchant, both of them eager to become more active in export markets.

By Thomas Schmid

The global tobacco trade is enormously competitive in terms of both pricing and customer access. Yet the industry is still attractive enough to entice new traders. After all, the crop is there and despite increasing pressure from anti-tobacco lobbies and governments, tobacco products are here to stay. India is a major producer of a multitude of agricultural commodities that are shipped around the world. This of course also includes tobaccos that offer an often surprisingly good quality vs. price ratio. While they mostly find their way into cigarette blends, premium quality leaves are also used as cigar fillers, binders, and wrappers. The main producers are the southern and southwestern states of Andra Pradesh, Karnataka, Gujarat, and Uttar Pradesh. And thanks to the modern Krishnapatnam container port facility near Guntur on India’s east coast, shipping to every corner of the globe is a breeze.

A reincarnation in India

Likewise located in Guntur is Sangam Agri Products, a company established only in November 2018. “The company name made sense to us because tobacco is undeniably an agricultural product. We are solely dealing in unmanufactured raw tobaccos, all of them being of Indian origin,” explains the company’s sales director, Chandrasekhar Vanguru. Sangam Agri Products may be brand new, but rather than of immaculate birth its story is actually one of reincarnation. The Vanguru family has been involved in tobacco trading for three generations. But their former family business – according to Chandrasekhar once “one of India’s most renowned tobacco merchants” – was forced to shut down in 2014. Up until 2012, the now-defunct firm had annually supplied between 1,500 and 2,000 tons of various tobaccos to an unnamed multinational merchant. But the low prices offered paired with increased costs for inventory storage eventually turned out a burden too heavy to bear. “Those low-priced staggered shipments of bulk orders to a single customer lead to inflated inventory and interest and we decided to get out while we could,” recalls Chandrasekhar, declining to identify the merchant in question.

Baby steps to get back to old form

Several years of debt consolidation later, the family business was re-established in the form of Sangam Agri Products, Chandrasekhar vowing not to allow the company to get caught in a tight spot again. “The cut-throat pricing policies pushed by some of these multinationals had made it almost impossible to cover overhead costs, let alone generating a decent profit,” he recalls. It is perhaps for this unsavory experience that in the few short months since Sangam Agri Products’ founding, the company has been exclusively supplying local tobacco manufacturers rather than putting all its cards on one or another global trader once again. “We currently are rather conservative and, for the time being, are actually satisfied with supplying domestic manufacturers such as ITC, VST, and others,” confirms Chandrasekhar. Yet that doesn’t mean the company is going to shun exports forever. It even seems that Sangam Agri Products has already taken a first step. Tobacco Asia has it on good authority that the company has very recently initiated correspondence with Istanbul-based Star Agritech concerning a potential supply contract for tobacco by-products.

Labor shortage hampers expansion ambitions

In the meantime, the family business is doing not too shabby despite presently restricting itself to domestic sales only. Chandrasekhar projects a total turnover of almost 4,000 tons of various tobacco types before the year is over (see table). To procure its stocks the company deploys two main methods.

“We acquire our FCV from tobacco auctions organized by the Tobacco Board of India while non-FCV tobaccos are directly purchased from farmers as well as local dealers,” Chandrasekhar divulges. But handling such quite substantial amounts has revealed a certain Achilles heel; and one that affects not only Sangam Agri Products but Indian tobacco merchants in general: labor shortages. While the company currently employs 260 female tobacco graders, Chandrasekhar points out that this number is not enough. “There is a skilled labor shortage of woman graders in the industry and it is really difficult to hire more,” he says.

Naturally, this puts a cap on Sangam Agri Products’ current handling capacity, potentially also curbing its exporting ambitions. “We are eyeing the possibility to eventually ship tobaccos to Europe, the CIS countries, and even the Dominican Republic. But we’ve put that on the backburner, at least for the moment, because it would over-extend our available human resources.”

Take me home, country roads

Long before the tobacco plant even made its first appearance in India (or anywhere else for that matter), the crop was already commercially grown in its native realm, the Americas. And to this day, US tobaccos enjoy a reputation for being some of the finest in the world. Based in a rural community on the outskirts of Keysville in Virginia, Golden Leaf Tobacco Company, Inc. (GLT) has been in the market for longer than many other traders can shake a stick at. Ever since its founding in 1989, the outfit has been supplying tobacco to manufacturers of cigarettes and other tobacco products (see table). “All of our tobaccos are 100% US-grown and we obtain them through multiple sources, including contract farming and auctions,” explains the company’s executive vice president of leaf, Fredrick “Spider” Cook.

Expansion goals beyond the domestic market

Although GLT sourced its very first overseas customers, an undisclosed cigarette company in the United Kingdom, as far back as 2006, its business scope has nevertheless remained primarily domestic, with some 90% of annual volume being delivered mostly to large tobacco companies across the US and Canada. But GLT intends to gradually expand this business model. ”We have sold, in the past, mostly to [domestic] dealers and we want to continue to supply these customers. But our goal is to also supply international manufacturers as well,” Cook says. Additionally, faced with a general economic sluggishness as well as diminishing cigarette sales at home, GLT has recently begun to develop its exports. It has not been an easy start, though. Cook readily discloses that GLT’s current exports account for no more than 10% of annual turnover. One of the main challenges is “getting your company name and reputation out to cigarette manufacturers,” he admits. To accomplish that, the company has embarked on “doing more trade shows.” Golden Leaf Tobacco’s inaugural international appearance was at the WT Process & Machinery exhibition in Dubai in April.

Competitively priced US blends open export door

To facilitate a stronger push into the international arena, GLT “in 2017 started creating blends that were ‘all US’ but still could compete in the world market.” In other words, while being of high-quality and 100% US origin, the blends are still competitively priced. ”We are now looking to not only expand our domestic business in the United States and Canada but also the development of our foreign [export) business,” Cook reiterates on the company’s long-term vision. And things are finally beginning to shape up, too. While GLT’s business in 2017 only grew by a modest 4%, Cook projects a 25% increase in 2019. In the long run, Cook also has identified “all of Asia” as a future export target market, a region where the tobacco trade still has much potential when compared to North America and Europe, where cigarette sales have been continuously slumping for years.

Harare Calling

Decades of appalling mismanagement by the oppressive regime of Robert Mugabe coupled with a flood of disastrous policies all but obliterated Zimbabwe’s once flourishing economy. The ignorant destruction affected every industry, including tobacco. While impoverished farmers continued to grow substantial amounts of tobacco even during those dark years, their crops were almost exclusively purchased by traders and processors in neighboring South Africa or snapped up by large global suppliers at bargain prices. There simply weren’t any indigenous merchants around that could have helped shore up the rapidly failing economy marked by one of the worst hyperinflations in human history. It has only been very recently that international exhibitions have seen a slow re-emergence of Zimbabwean tobacco companies.

The very first one of them, Sub-Saharan Tobacco, only made its inaugural appearance in December 2017 at the WT Middle East show in Dubai. But by this year’s event, Sub-Saharan was already joined by at least two other brand new outfits based in Harare, Voedsel Tobacco and Torryblue Tobacco. This might perhaps be a sign for Zimbabwe’s long-delayed general economic recovery. But more importantly, it is an indication that the country is finally moving to regain control over one of its most valuable agricultural commodities.

Zimbabwe calling: Sub-Sahara Tobacco and other new suppliers

Decades of appalling mismanagement by the oppressive regime of Robert Mugabe coupled with a flood of disastrous policies all but obliterated Zimbabwe’s once-flourishing economy. The ignorant destruction affected every industry, including tobacco. While impoverished farmers continued to grow substantial amounts of tobacco even during those dark years, their crops were almost exclusively purchased by traders and processors in neighboring South Africa or snapped up by large global suppliers at bargain prices. There simply weren’t any indigenous merchants around that could have helped shore up the rapidly failing economy marked by one of the worst hyperinflations in human history.

It has only been very recently that international exhibitions have seen a slow re-emergence of Zimbabwean tobacco companies. The very first one of them, Sub-Saharan Tobacco, only made its inaugural appearance in December 2017 at the WT Middle East show in Dubai. But by this year’s event, Sub-Saharan was already joined by at least two other brand new outfits based in Harare, Voedsel Tobacco, and Torryblue Tobacco. This might perhaps be a sign for Zimbabwe’s long-delayed general economic recovery. But more importantly, it is an indication that the country is finally moving to regain control over one of its most valuable agricultural commodities.

(Both Sub Sahara Tobacco and Voedsel are participating in InterSupply 2019 in September in Dortmund, Germany.)