High-Quality Leaf from Indonesia The Merchants’ P.O.V.

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The Indonesian archipelago looks back at a long history of cultivating tobacco crops. But what are merchants doing to maintain and improve high-quality output to help Indonesian tobacco stay competitive in the world market? TOBACCO ASIA talks to  several global traders.

By Thomas Schmid

Tobacco has been grown in Indonesia at least since the mid-17th century when the Dutch groomed their colony to be a reliable tobacco supplier for the homeland. Today, Indonesia is the fifth largest tobacco producer worldwide. Output peaked in 2012 at some 260,000 tons according to FAOSTAT (see table 1), but this dropped to only about 186,000 tons in 2015 after a rather disastrous year due to prolonged heavy rainfalls compounded by the environmental effects of the Mount Raung volcanic eruption (see side box). While Indonesian leaf generally enjoys a good reputation among exporters, importers, and traders alike and is a coveted raw material utilized by tobacco manufacturers worldwide, continuous efforts to assist local growers achieve excellent crop quality are nevertheless indispensable and in fact can always make do with further improvements.

PT. Mayangsari

Founded in 1960, PT. Mayangsari, located in East Java’s Jember region is 100%-owned member of Hail & Cotton International Group (HCIG). The company is one of the leading Indonesian exporters of Besuki Na Oogst (Besuki NO), but also supplies Jatim VO, Kasturi VO, and DFC Boyolali, specializing in wrapper, binder, and filler production for major cigar manufacturers around the globe.

ALSO: Mt. Raung Eruption, Bad Weather Affect Indonesian 2015 Crop

“We have lately implemented many improvements in our agronomy efforts to increase general leaf quality and yields,” said Emmanuel Ardian Kristanto, HCIG’s chief agronomist. “Direct farmer contracting has also greatly contributed to this since farmers are being assisted more intensively [by us]. Additionally, we are making progress in reducing the CPA residues on the leaf, but this is still an area for concern and a main focus for HCIG.

Meanwhile, Reinder Hartmans, HCIG’s country manager Indonesia attached to PT. Mayangasari, rated Indonesian Besuki NO cigar tobacco at 4 points on a scale from 1 to 5 when it comes to the European market. “But for the premium market I think it would rather be a 2 or 3, because this market segment prefers the Cuban seed varieties”, he added. Comparing Hartmans’ current rating to how Besuki would have been assessed 5 or even 10 years ago, Kristanto asserted there had been “little to no change”. “Besuki is a long standing traditional variety with its specific characteristics”, he said. And in Hartmans’ opinion, the main quality focus points for wrappers and binders are that they must be well fermented, of consistent taste, uniform ripe colour, elasticity, burning capacity and present as a full leaf without holes or blemishes.

To produce such high-quality leaf, it all comes down to good agricultural practices (GAP). “HCIG deploys a large agronomy team that assists farmers throughout the crop growing season to ensure high-quality output, advicing growers from seed beds up to curing”, Kristanto said. Fertilizer is dispensed free of charge, its composition based on the analysis of soil samples, so each farm receives a type of fertilizer with optimal nutrient balance.

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High-Quality Leaf from Indonesia The Merchants’ P.O.V.

Photo courtesy of PT. Mayangsari, a member of Hail & Cotton International Group

High-Quality Leaf from Indonesia The Merchants’ P.O.V.

PT Mayansari/HCGI’s Emmanuel Ardian Kristanto (left) and Reinder Hartmans

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High-Quality Leaf from Indonesia The Merchants’ P.O.V.

Photo courtesy of PT. Mayangsari, a member of Hail & Cotton International Group

High-Quality Leaf from Indonesia The Merchants’ P.O.V.

Fermentation piles at PT. Mayangsari

“We have a technician for every 20 farmers to ensure adequate attention is given to all”, explained Kristanto, adding that they actively monitor and advice on several key aspects such as seedling quality, seedling transplanting, field hygiene and crop diseases, leaf maturity for harvesting, and curing. Besides a large team of agronomists and field technicians on site, HCIG additionally dispatches a sustainable tobacco production (STP) team to assist contracted farmers in irrigation methods and best timing of irrigation.

In collaboration with its worldwide customers, the company has furthermore also developed a CPA application schedule that takes advantage of the most adequate and approved CPA’s available for use on tobacco and which at the same time reduce the risk of too high levels in the finished product, according to Kristanto. The introduction of new varietals also is on the agenda, although Kristanto said that “our main focus is currently on improving the existing varieties and increasing farmers’ margins through this.”

Proactively involved in spreading new field technology and improving farmers’ work environment, CHIG also finances cultivation machinery and curing barns where necessary. The company furthermore supplies cotton rope for stringing to reduce the risk of NTRM contamination.

Yet another focus is farmer education achieved through training programs, seminars and group discussions. “Training sessions are based on existing programs such as GAP and we adapt them to suit our local situation”, elaborated Kristanto. Labor standards likewise are an important area. Hartmans: “As an active member of the ECLT and ILO we are determined to eradicate child labor. We have a team that regularly checks on all our contract farmers to make sure they do not employ any children during the tobacco season or off-season. At the same time we check for other non-conformities such as forced labor, wages and work times, safe working environment, law compliance, and so on. All these items are also stipulated in the contracts we have with our farmers.”

PT. Far East Leaf Indonesia

A fully-owned subsidiary of globally active Star Tobacco International, PT. Far East Leaf Indonesia (FELI) signs responsible for sourcing Indonesian cigar tobaccos for Star Tobacco clients in Europe and the United States. In terms of locally grown tobacco types, FELI primarily deals in FCV Lombok, DFC Boyolali, Besuki NO, Jatim VO, and Madura VO.

“Indonesia’s tobacco growers have today already largely adopted GAP, which minimizes the use of chemical pesticides, avoids child labor, and increases the yield per hectare”, said FELI’s general manager, Henri Kusuma. On a quality scale of 1 to 5, where 1 means “very low quality” and 5 means “world class quality”, Kusuma bestowed Indonesian leaf overall the highest score. This, he said, was synonymous with a remarkable quality improvement over the years, as his score just five years ago would have been a “4”, while a decade ago, he would’ve given Indonesian tobaccos a rating of merely “2”. To achieve this, local farmers had to pay high attention from seed, planting and curing all the way to after-curing management.

Like many other merchants, FELI and mother company Star Tobacco are helping out with the transfer of the latest technology and knowledge. To increase per-hectare yields, FELI provides growers with the best seeds available, although Kusuma admitted that his company has not yet conducted any research on the introduction of new varietals. But it does lend expertise to improve labor standards among its suppliers, has introduced a low cost GLT line (Kusuma: “We call it a ‘mini PMD line’.”) that wholesalers can use, and through its corporate social responsibility program it supports the education of farmer children. To ensure proper plantation management, FELI frequently dispatches agronomists to conduct farm visits. While all of these measures are ultimately aimed at giving farmers bigger insight and better know-how to become successful, Kusuma insisted that “the single most important aspect is farm sustainability, which in turn leads to crop quality improvement. And that is commensurate with an increase in the farmers’ income.”

By building such a strong relationship between the tobacco company and its contracted growers, FELI and Star Tobacco claimed to have been able to procure and trade approximately 5,000 tons of FCV, 4,000t of DFC, 1,000t of sun-cured, and 1,500t of Besuki NO of the 2015 crop. The company targets to increase this to 6,000t FCV, 5,000t DFC, 2,000t sun-cured, and also intends to double the volume of Besuki NO to some 3,000t in the current crop year. Kusuma also said that his company is not only committed to further develop existing tobacco use channels but also wants to explore and research further applications.

“For example, we’ve been thinking about the still largely untapped area of providing tobacco for medicinal purposes and applications.”

PT. Alliance One Indonesia

As far as Indonesian tobacco is concerned, few merchants are more involved than Alliance One International (AOI; also see our feature story on tobacco leaf tracking and tracing in this issue), as the multinational company is one of the two largest tobacco traders worldwide in terms of annual volume and value. In 2001, the company established its first presence in Indonesia, initially entering into an exclusive arrangement with a local tobacco supplier to fill its customer orders of Indonesian leaf. After that strategic partnership was eventually terminated in 2011, AOI formed its own wholly owned subsidiary, PT. Alliance One Indonesia (PT. AOI), which was the first wholly owned foreign subsidiary involved in tobacco production and trading to be granted a business license in Indonesia.

“The new set-up provided AOI with more control over the way tobacco was grown, enabling us to expand our efforts to support sustainable and compliant tobacco production among our contract farmers”, said Laerte Elias Costa, PT. AOI’s country manager.

According to PT. AOI business relationship manager Dickson Mukucha, the typical product groups handled today by the company are big leaf tobaccos: flue-cured Virginia (FCV), dark fire-cured (DFC) , and burley air-cured) as well as native varieties such as sun-cured Rajangan, sun-cured Krosok, and sun-cured Jatim. “The quality of tobacco leaf is highly subjective but, generally, high-quality leaf would have a good aroma, balanced chemistry content of sugar and nicotine, as well as an open-grained leaf structure.” He added that the majority of native varieties is used in kretek (clove) cigarettes, which are not produced anywhere else in the world. In the end, he said, “Indonesian leaf is simply too diverse to sum up in a single quality index for all types.”

For growers to produce high-quality leaf, they must implement GAP that are environmentally, socially, and economically sustainable, i.e. they must encompass principles related to labor, variety management and integrity, crop management, integrated pest management, environmental impact and product integrity. “Through the integrated production system (IPS), our well-trained leaf technicians can provide the agronomic advice needed so that growers can properly implement [GAP]. It is only through IPS that growers consistently receive the guidance that is needed”, Costa elaborated.

He added that in a viable IPS model, farmers directly contract with companies and receive agronomic support throughout the entire leaf cycle, while the tobacco company’s leaf technicians train and monitor farm and crop development to ensure sustainable tobacco production. “The support we provide includes offering technical assistance during individual farm visits and the introduction of initiatives to reduce labor needs, quality enhancement and yield improvement. We are also providing agronomy material and tools”, explained Costa. Furthermore, PT. AOI has partnered with BALITAS, an Indonesian governmental research department, to implement tobacco seed trials.

“Our objective is to identify and release new, more sustainable tobacco varieties that can be grown in Indonesia. That research has the potential to increase farmers’ yields and profitability, as well as improve the tobacco quality,” Costa said.

As a global company, AOI also transfers knowledge from its factories around the world to the PT. AOI factory in Indonesia. Costa: “That allows us to optimize all stages of processing and helps to improve efficiency and manage costs.” Additionally, AOI takes advantage of its multiple factories to rotate employees, which further facilitates the sharing of best practices. “By sharing our experience and expertise [within the factory network] we not only improve the quality of the final packed product, but also the image of Indonesian tobacco leaf and its growers”, Costa said.

Farmer education is likewise accorded great importance through group trainings and follow-ups during individual farm visits. “Our well-trained leaf technicians visit each contracted grower between 20 and 24 times per crop year to help farmers produce a successful crop that is grown in compliance with [GAP] and our agricultural labor practices [ALP] program”, said Costa. If and when GAP or ALP irregularities are observed by visiting field technicians, they will document and mark them for follow-up. Costa: “Depending on the severity of the incident, the field technician will raise a prompt alert and remind the farmer of his contractual requirements. Additional follow-up visits tied in with continuing education ensure that all incidents are resolved. If an issue persists, PT. AOI management becomes involved and the incident is taken into consideration for future contracts.”

An efficient IPS is also the only way for tobacco buyers to truly have a lasting impact on growers’ labor practices, particularly child labor. “Through sustainable tobacco production initiatives which our leaf technicians introduce to contract farmers we have been able to mitigate child labor incidents and reduce other labor risks by minimizing labor needs”, said Costa. He added that AOI is a member of the ECLT Foundation and is supporting a new project in Indonesia which aims to build a multi-stakeholder platform to sensitize all relevant stakeholders and mobilize them to take common action against child labor.

In collaboration with PT. HM Sampoerna (an affiliate of PMI), PT. AOI has also developed an afterschool program – CERIA - aimed at providing activities to help youth reach their full potential and minimize the risk of child labor incidents. “Since the introduction of the CERIA program, PT.AOI has seen a 69% reduction in child labor incidents.” As of May 22, 2016, approximately 92% of PT. AOI’s contract farmer children aged 6 to 14 were actively attending school. Meanwhile, Indonesia’s national school attendance ratio among that same age bracket is currently only 80%.