Independent Leaf Suppliers: Kentucky, Bulgaria, Laos

by

Part of our ongoing series on independent leaf suppliers, TOBACCO ASIA is venturing to opposite ends of the globe, introducing a cooperative in Kentucky as well as what is called the first privately operated leaf processor in Laos. We also stop by Bulgaria to take a closer look at one of the country’s internationally successful leaf trading companies.

By Thomas Schmid

Burley Tobacco Growers Cooperative Association: from the motherland of tobacco

Tobacco growing certainly has a very rich history in the US, with commercial cultivation in the Virginias, the Carolinas, and other places along the Eastern Seaboard having started as far back as the early pre-revolutionary times, when these territories were still under British rule. Further states like Kentucky, Ohio, Indiana, Missouri, and others eventually also joined the bandwagon as tobacco became an ever more valuable commodity. This long history of course bestowed local growers and processors with a tremendous amount of expertise and makes American tobaccos some of the finest available in the world today.

Based in Lexington, Kentucky, the Burley Tobacco Growers Cooperative Association (BTGCA) was founded in 1922 and currently has approximately 4,000 members.

“The primary purpose of [BTGCA] is to work on behalf of our members to promote, foster, and encourage the business of marketing tobacco, to minimize speculation and waste in the production and marketing of tobacco, to stabilize tobacco markets, and to handle cooperatively and collectively the problems of tobacco growers,” explains the association’s general manager, Steve Pratt. “Consistent with this purpose, our major goal is to improve profitability and stability for our members, while maintaining or increasing production market share.”

Not just an association

Although BTGCA at first glance may seem just like any other growers’ cooperative or association, it also actively operates as a burley leaf dealer out of its Lexington headquarters.

“We purchase our burley tobacco directly from our grower members through marketing contracts and process our leaf ready to sell, offering [it] for sale worldwide,” Pratt says. To facilitate that, the association maintains an inventory of currently available burley lots on its website that interested buyers can easily access (see sample table 1). Sales prices are based on [BTGCA’s] input costs and delivery costs.

“We offer samples to prospective customers at no cost and negotiate prices based on quantity and destination. Our tobacco prices are quoted FOB Wilmington, North Carolina, based on full 40’ container load.”

While some of the association’s customers come from the U.S., the bulk of its tobacco is exported around the world, much of it going to Asia. This is as much the result of diligent marketing on behalf of the association as it is due to the discontinuation of the US federal government’s tobacco program in 2004.

”[After that support program ended], we have worked hard to develop a worldwide customer base by attending trade shows and meeting potential clients,” said Pratt.  “As a result, we sell [today] more burley tobacco abroad than within the United States. We have shipped several hundred tons of US burley tobacco to Asian countries and hope to continue to work with our current customers as well as reach new ones.”

QC is priority

The typical direct customers supplied with the association’s leaf are cigarette manufacturers but also other traders. To ensure consistent quality of its merchandise, BTGCA employs a full-time tobacco grader with over 40 years of experience, who is responsible for purchasing leaf from the association members and also oversees the processing. Certified processing facilities and grading labs are used, after which the ready-for-sale tobacco is stored in one of the association’s own warehouses.

“All of our burley tobacco is grown by certified growers utilizing good agricultural practices to provide worker safety, protect the environment, and allow traceability from the farm to the consumer,” Pratt asserts.

The volume of burley tobacco offered for sale is adjusted according to customer demand and as Pratt says, “varies from year to year.” But he assures that the association’s warehouses always store enough inventory to meet those needs. Rightly insisting that “US burley tobacco has a reputation as [being] the finest in the world”, Pratt also admits that “quality never comes at a cheap price.” In that respect, BGTCA must compete with the value of the US dollar against other currencies, as well as lower quality and lower priced tobacco offered in the global market.

TA16i3-ILS-7.jpg

Independent Leaf Suppliers: Kentucky, Bulgaria, Laos

Chriselle Zhao, marketing manager, Trust Tobacco,Luang Prabang, Laos

Parvomay BT: born from the ashes of a Monopoly

At least some of that competition certainly comes from southeastern Europe in the form of Parvomay BT, today one of Bulgaria’s most prominent exporters of quality FCV, oriental,  and burley leaf. The company was founded in 1947 as an entity under the former Bulgarian State Tobacco Monopoly, but was privatized in 2004 when that monopoly was broken up (see our story on Bulgaria’s tobacco industry in this issue). According to c.e.o. Krasimira Nedeva, the company’s current annual output of processed broadleaf comprises approximately 65% FCV, 25% burley, and 10% oriental.

From the very moment of its privatization, Parvomay BT embarked on a strategy of focusing almost exclusively on exports.

“As a matter of fact, Parvomay BT was privatized with the complete awareness that the local market was in collapse and that the only way to survive was to look for global markets,” Nedeva says. Companies like Nico Gleoudis Kavex in Greece and Mella Srl. in Italy are among Parvomay’s most important customers. While the company primarily exports broadleaf tobacco, a minor amount of oriental goes to Jordan, where Parvomay established a subsidiary approximately one year ago and which produces cut rag for the local cigarette industry. Setting up the Jordanian outfit was necessary because Parvomay BT isn’t licensed in Bulgaria to produce (or trade in) cut rag or cigarettes. “This step will hopefully make us more competitive and will make it easier to us to market Bulgarian tobacco in the Middle East, which we deem strategic for us at this moment,” Nedeva explains.

International expansion

The company additionally maintains a presence in Russia, Ukraine, and various Northern African countries, but prefers to work with smaller clients there. “We like to work with small and mid-sized independent partners, who are looking for a flexible but reliable supplier, which we believe is our strongest point.” The company aims to eventually also enter the central and western European markets, as it is convinced that there is demand for Bulgarian tobacco as well.

But according to Nedeva, the main obstacle for this expansion at the moment is that the multinational tobacco companies look back at a long history and hold strong positions there. “They are able to achieve a very good price/quality ratio, which most of the times is simply impossible for small companies to achieve due to economies of scale. But we are really looking forward to further improve our position in Italy, as we believe the tobacco industries in both Italy and Bulgaria are very similar and there are already strong economic ties between the two nations.”

The main challenge for Parvomay BT in entering Asia is likewise tied to the excellent price/quality ratio of Asia-grown tobacco. “That is especially the case when we’re talking about Virginia, which incidentally is also our main product,” says Nedeva. But she adds that this doesn’t change the fact that Parvomay BT is actively looking for opportunities to break into this market. “Asia, as we all know, is a huge market, and there is place for everyone. But it’s nevertheless a notoriously difficult market to break into, and a market which has its own specific needs and ways. However, we believe that with a strong and reliable partner in Asia, we could establish a mutually very beneficial relationship, especially in the field of oriental tobacco. However, we have yet to identify that partner.”

Continuous upgrading

Maturing into one of Bulgaria’s foremost leaf supplier hasn’t been easy for Parvomay BT after privatization. Dealing with obsolete and degraded equipment and production facilities was a major stumbling block. But the company was able to compensate to a certain extent with skilled and experienced personnel.

“We also acquired an old threshing line from Italy, which we then constantly upgraded and improved over the years,” said Nedeva. “It is actually almost completely renewed.” Only last year, the company also upgraded its separating machines. “We are very proud to be currently working with brand new, high-end MacTavish equipment, which enjoys worldwide reputation.” Further investments – some of them already undertaken - will be in the direction of automated quality control systems and the installment of faster and easier to operate measuring equipment on the line and in the labs.

“We are also going to try out a few improvements in the working process to further increase the capacity per hour and thus to achieve more efficient production.” The company’s current hourly processing capacity can reach up to three metric tons, depending on tobacco type, and its total annually processed amount for the past five years has been 5,000 to 6,000 tons on average, a figure that can be increased as needed.

Trust Tobacco: trusting in Laos

Reinvigorating a faltering leaf supplying business is one thing, but setting up a brand new one in the middle of nowhere is something completely different. The land-locked Southeast Asian country of Laos may be better known for its topographical beauty and exotic culture rather than – with a population of less than seven million people spread out over an area roughly the size of the United Kingdom – its economic development and burgeoning industry. Yet Laos does grow a modest amount of tobacco, which is perhaps the reason why Singaporean trading company Trust Tobacco PTE Ltd. decided on investing in a large-scale tobacco processing plant there, Trust Tobacco Industry Import and Export Company.

Established in December of 2007 near the ancient royal capital of Luang Prabang in the northern part of the country, Trust Tobacco Industry Import and Export Company claims to currently be Laos’ largest privately owned and operated leaf processor, fully licensed by the government.

Covering a total area of 18.24 hectares (approximately 45 acres), the factory grounds comprise processing and manufacturing facilities, warehouses, offices, worker and executive staff residences, as well as test planting plots and some commercial tobacco fields.

According to the company website, about US$16 million of investment have so far been poured into fixed assets and production equipment, of which around $2 million were used for setting up a tobacco growing project and $8 million have been allocated as liquidity funds to operate the business. In terms of organizational structure, the operation is divided into a production department, planting department, marketing, import and export department, warehousing department, quality control department, administration department, and financial department. The production department comprises a grading line, a threshing and re-drying line, a cut rag line, and a cigarette making line. Meanwhile, the marketing, import and export department covers all purchasing and sales matters and prepares all relevant documentation according to overseas customers’ requirements. The administration department is responsible for in-house logistics, ensures smooth working processes and targeted production output. The main task of the planting department is to experiment with tobacco cultivation methods to produce good, viable tobacco seeds, as well as to conduct local farmer education.

State-of-the-art production lines

Trust Tobacco’s threshing line consists of five machines with an hourly capacity of 3,000 kilograms, which can be increased to 4,500 kg/h depending on need. The fully-automated lamina re-dryers and stem re-dryers remove excess moisture to meet prescribed limits. The tobacco grading line consists of six belt conveyers to separate green tobacco into different grades. The cut rag line also is fully automated, integrating cutting, blending and flavoring to specifications. It currently has an hourly capacity of 1,500 kilograms. Most recently, Trust Tobacco also installed a cigarette making line with a capacity of 48 shipping cartons per hour, or 200,000 cartons annually. While this line was primarily put into operation to manufacture the Singaporean investors’ proprietary Lionger cigarette brand range (which apparently is currently being marketed both in Singapore and Hong Kong), the Laos outfit welcomes inquiries from third parties to have their cigarette brands produced in remote Luang Prabang.