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Pre-Covid wrappergrading at Mayangsari’smain warehouse(shot before Covid-19). (Credit: PT. Mayangsari)
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Njoto Permadi of PT Mangli Djaya Raya inspects growing tobacco.
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Air-and-sun curing of Kasturi.
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Mayangsari’s Eric van der Linden (left) and Jasper Kuitems (right) together with senior grader Pak Yanto (center right).
By Thomas Schmid
Trailing only behind China, India, and Brazil, Indonesia is the world’s fourth-largest tobacco producer by volume. The country’s annual output remained remarkably stable, even the coronavirus pandemic dented figures only relatively slightly. Moreover, Indonesian tobaccos are a coveted commodity due to their consistently high quality. Situated on the eastern tip of Java, Jember province is one of the country’s most important growing areas. It, therefore, comes as no big surprise that Jember hosts an eclectic mix of merchants, suppliers, and manufacturers.
PT. Mangli Djaya Raya
Local businessman Njoto Permadi had already been involved in the tobacco industry for over 30 years when he acquired PT. Mangli Djaya Raya (MDR) from its previous owners in 2007. It was a good investment. Now semi-retired, Njoto has since handed over MDR’s reigns to his son, Christian. It was under the latter’s company presidency that MDR underwent considerable business expansion. Never associated with any national or international tobacco merchant, MDR remains a wholly independent supplier to this day.
According to Christian’s personal assistant, Ferry A. Setiawan, the firm “is operating its own processing facilities and warehouses scattered around 23 locations in East Java, Bali, and Lombok, and also maintains a modern re-drying factory” at its head office complex in Jember. As such, MDR understands itself as a “one-stop shop for Indonesian tobacco.” Procuring leaves from various regions across the country, the company re-processes them both for domestic use and export. “From the ever popular virginia Lombok for American blend cigarettes to indigenous dark air-cured Besuki for cigar wrappers and various local sun air-cured leaves, our product range is as comprehensive as it gets,” asserted Christian.
Mostly open market acquisition
Indonesia does not hold tobacco auctions. Merchants, therefore, primarily procure their product mainly in the open market, either buying harvests directly at the farm or through smaller dealers in local villages. MDR acquires about 90% of its tobaccos in the open market, according to Njoto, the remaining 10% coming from contracted farmers.
“For dark air-cured Besuki and Javano, we currently have contracted four farmers with 46 hectares,” said Njoto. Sun air-cured Kasturi is contracted through 75 farmers with 105 hectares, and flue-cured virginia Lombok through 200 farmers, who are cultivating 400 hectares.” This procurement system has enabled the company to maintain a remarkably stable annual purchasing volume of about 10,000 metric tons since at least 2015, with year-on-year fluctuations only hovering around +/-10%.
Exports down, but still solid
In the latest season, 60% of MDR’s sales went to domestic businesses, mostly cigarette manufacturers. “The industry, driven by both local companies and multinational corporations, has become massive in Indonesia due to rapidly changing market situations including tougher legislations elsewhere,” explained Christian, adding that prior to 2014 MDR’s export share had always exceeded domestic business. But, by now exports had decreased to “only” 40% of total annual volume, he said, whereas shipments to Europe (43% of all exports) and North America (29%) make up the bulk. Since at least 2012, the company also has seen increasing demand from China for high-value dark air-cured tobacco, which is used in Chinese-made cigars for fillers, wrappers, and binders.
However, Christian also divulged that MDR had so far “not been very successful in penetrating the Middle Eastern shisha market.” He attributed that situation to Indonesian flue-cured virginia not meeting requirements. “Shisha tobacco manufacturers need low-nicotine but high-sugar FCV, while with [Indonesian FCV] it’s exactly the other way round [i.e. high nicotine/low sugars].”
Covid-19 affects business only marginally
With the Covid-19 pandemic still in full swing, MDR’s business thankfully has only been affected marginally, primarily related to procurement and logistics. As part of the Covid-19 measures, regular on-location tobacco inspections had to be switched to sample collection for in-house inspection. “There were delays in collecting these samples, which in turn prolonged our purchasing decision-making process,” Christian explained. In terms of exporting, there have been time-related hiccups, too. “Some orders [from abroad] have been put on hold due to a variety of circumstances, such as port closures or limited logistics access,” he said.
While Christian insisted that MDR’s export performance had remained “quite stable volume-wise,” he admitted that the company had to spend more effort on remote sampling and also faced challenges in “negotiating deals via email or telephone, rather than face-to-face.” “MDR tries to serve as a bridge between farmers and manufacturers by providing a trusted and established network that grew over decades. By connecting farmers and manufacturers we are helping them survive the downturn while at the same time keeping our own wheels spinning,” he concluded. “And I guess that’s where our value lies during these challenging times.”
PT. Mayangsari
Just turned 60, going strong
Having been around since 1960, PT. Mayangsari is among Indonesia’s oldest tobacco merchants, as well as one of its best-known. Maintaining a number of processing facilities mainly located around Jember, the company produces Besuki NO plus a wide range of sun-cured tobaccos.
“For the past 60 years, Mayangsari has been supplying quality wrapper, binder, and filler tobaccos to European and US customers,” Eric van der Linden, the company’s country manager told Tobacco Asia. Mayangsari utilizes a combination of direct purchases and contract farming to fulfill its tobacco needs. “Depending on customer and market requirements, we work with between 100 to 200 contract farmers during any given season, cultivating between 150 and 325 hectares of Besuki NO,” van der Linden said, adding that the company is “nearly 100%” export-oriented.”
Focus on reliable services
Though a more concrete market spread could not be provided, van der Linden divulged to Tobacco Asia that Mayangsari supplies “all major manufacturers in Europe, North and Central America, and the Far East that use Indonesian-type DAC and sun-cured tobaccos.” He also said that the Americas and Europe were becoming “more and more equally important as large export markets.” This was working to Mayangsari’s advantage, too.
“PT. Mayangsari’s long history has been built on a continuous focus on reliable sourcing, grading, processing, handling, and packaging of quality tobaccos, combined with an excellent administration and shipping department and after-sales service,” he said. “With these values we aim to help every customer – big and small – in finding the right tobaccos for their products and supplying them, carefree, to their facilities.” Besides traditionally good relationships with local manufacturers anywhere in the world, the company even has “fostered a strong presence in markets that have a lower demand of DAC tobaccos.”
No volume or demand decrease due to Covid-19
Although coronavirus brought on no issues in terms of tobacco growing or procurement for Mayangsari Jasper Kuitems, the company’s leaf manager, admitted that there had been some delays on the exporting side, “especially for DAC tobaccos.” Customers, Kuitems said, would normally travel to Indonesia in order to inspect the merchandise on-site. “But because of Covid-19 that has become impossible for quite some time now.” The only alternative Mayangsari presently has left for buyers to check the tobacco quality is to courier lot samples. But Kuitems also pointed out that “this way of working has been met with customer satisfaction.” There initially also had been delays with actual shipping, as sample consignments were held longer for customs clearance than usual. That situation has since apparently abated.
“It’s now smooth sailing,” remarked Kuitems, who also insisted that the company had experienced no decrease in sales volume or demand. In any case, and as Eric van der Linden noted, “We kept in close contact with our customers about scenarios like temporarily closed ports, lesser availability of containers or vessels, but so far have had none of these issues here in eastern Java.” In general the company was confident that Indonesian tobaccos, and DAC in particular, will continue to be an important component in high-quality cigar products worldwide.