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Primary processing at Khyber Tobacco. Photo credit: Khyber Tobacco Co. Ltd.
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The premises of Khyber Tobacco Co. Ltd. in northern Pakistan. Photo credit: Khyber Tobacco Co. Ltd.
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Falcon Tobacco’s general manager Muhammad Uzair (second from left) with his team at last year’s WT Middle East exhibition in Dubai. Photo credit: Falcon Tobacco Co. Pvt Ltd.
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Troubled Pakistan hosts a plethora of suppliers in all shapes and sizes. Tobacco Asia reports on two of the largest ones.
One of the world’s main tobacco producers and exporters, Pakistan has found herself caught up in seriously troubled times for quite a while. First, there was Covid-19, which stranded tobacco in ports and warehouses as international shipping slowed to a crawl and containers were almost impossible to come by for all but the largest merchants. Then, farmers were experiencing labor shortages as well as difficulties to sell their stockpiled crops. Many among them subsequently opted to downscale their tobacco acreage the following season, with dire consequences. It unwittingly created a supply bottleneck when the pandemic finally waned.
To make matters even worse, nature struck in 2022. Devastating floods afflicted huge areas of Pakistan, destroying an estimated 30% (but possibly more) of tobacco crops in the fields. And now, with 2023 having only just begun, the country reportedly is precariously teetering on the brink of economic and financial collapse. The Pakistani rupee is devaluing at a galloping rate last seen only in the early 1970s. National debt has skyrocketed to an astronomic amount while foreign exchange reserves are depleted so severely that the government is practically begging the IMF for a bailout package to avert looming insolvency.
Yet despite this seemingly endless series of misfortunes, local tobacco merchants appear surprisingly optimistic. That might have something to do with the current global shortage helping even low tobacco grades to command historically high prices. International business is booming.
The falcon soars
Founded in 1998 as Falcon Cigarette Industry, the family-owned business only in 2021 expanded into tobacco trading by establishing a dedicated subsidiary, Falcon Tobacco Company Private Ltd. According to general manager Muhammed Uzair, the company curates “one of the largest tobacco purchasing networks in the entire country”, not only growing crops on its own vast plantations but also contracting huge numbers of farmers. In addition, the firm acquires produce from auctions as well as other traders (for instance Khyber Tobacco, which we profile in this article a little later).
“In the latest season, we signed contracts with 127 of Pakistan’s biggest farming operations, 379 medium-sized farms, and 1,066 smallholders,” divulged Uzair. Apart from its bulk commodity, FCV, Falcon Tobacco also offers relatively smaller quantities of LAC and DAC burley, LSC (“Desi tobacco”), and SC Rustica. On average, 40% of the stocks are sold domestically or used up in Falcon’s own cigarette factory, which manufactures 12 registered brands. The larger proportion, or 60%, is usually earmarked for export. All crops are processed at Falcon Tobacco’s own GLT plant.
Inconsistent quality and volumes pose risks
Uzair identified the biggest challenges and risks for Pakistan’s merchants in general as being “the quite unpredictable tobacco quality, chemistry, as well as the volumes available in any growing season.” All three factors have a tendency of fluctuating widely, with ramifications for the price that the produce eventually will fetch. “The Pakistan Tobacco Board really should consider establishing high-end labs and QC facilities in order to develop seeds that will ensure more consistent and uniform tobacco quality,” Uzair recommended.
But luckily, at least growers have finally increased their tobacco acreages this year, which according to Uzair should yield “plenty of tobacco”. However, he also cautioned that it will not do much for alleviating the global shortage in the short term. “Huge numbers of frantic [international] buyers are going to scramble for our stocks and they will be gone in no time,” he predicted. “Many will be left out in the cold if they are not fast enough or can afford the prices.” Uzair added that he didn’t expect Pakistan’s output to fully recover before 2024.
Russian market inaccessible, Indonesia down
Falcon Tobacco’s largest export market, with 70% of total volume in the latest season, was Europe. “We recorded substantial order increases from Italy, Spain, and Bulgaria, all of whom were scooping up any produce they could lay their hands on, despite the steep prices,” Uzair told Tobacco Asia. He also pointed out that “the by far largest market would be Russia, where demand is gigantic.” However, the country was presently off limits, he said. “The ongoing war makes shipping almost impossible.” Interestingly, orders from Indonesia, a market that usually accounts for a healthy 20% of Falcon Tobacco’s exports, nosedived over the course of the past 12 months. Uzair reasoned that this was likely due to many Indonesian importers being unable to afford the hefty price tags that even low grades currently command.
Pakistan’s largest exporter overall
While Falcon Tobacco positions itself as “one of Pakistan’s largest tobacco merchants”, stock exchange-listed Khyber Tobacco Co. Ltd. claims for itself the superlative of literally being Pakistan’s largest tobacco exporter overall. “We also are one of the top three cigarette manufacturers,” added chief operating officer, Hammad Jamil. Commencing its tobacco operations in 1971, Khyber Tobacco is a member of one of the country’s most influential company conglomerates, Samsons Group, which is active in a diverse range of commercial sectors, including agriculture, healthcare, and hospitality.
A seamless supply chain supported by valuable partners Tayyaba Malik, Khyber Tobacco’s assistant manager for business development, said that 98% of the company’s total trading volume this year is anticipated to be FCV, with the remaining 2% comprising DAC and White Patta (rustica). To obtain its merchandise, the company routinely contracts around 8,000 farms in any given season, many of them concentrated in the country’s northwestern Khyber Pakhtunkhwa province.
But, the assistant manager also gave kudos to local partner companies, such as aforementioned Falcon Tobacco, who “collaborate very closely with us, tirelessly searching international markets for buyers and exporting our to-bacco to various destinations.” The company of course puts high importance into maintaining an integrated, seamless “farm to factory” supply chain that ensures full control over tobacco volumes and quality. A crucial part of that philosophy is Khyber Tobacco’s operation of its own modern GLT, NRTM removal, re-drying, packing, and warehousing facilities.
Record exports despite crop shortages In line with reports from other sources, Malik confirmed that last year’s flooding disaster had indeed caused the loss of at least 30% of Pakistan’s tobacco harvest. Although volumes are on the way of recovery this year, Malik still estimated that there is going to be a 10% shortage overall. Furthermore, he projected that it would likely take two to three years for the supply bottleneck to level out. That unsavory situation notwithstanding, Malik claimed that in 2022 Khyber Tobacco’s exports had increased by an astonishing 485% compared to 2021.
Percentage figures always have to be taken with a grain of salt, though, as they are relative and we do not know what the Khyber Tobacco’s exact export volume was in 2021. However, the company has received numerous awards for its export performances, so we suppose that “485%” counts for something. But Malik also attributed this phenomenal success to “hard work, unmatched dedication, an innovative approach, and uncompromising customer care.” Still, the company’s careful curation of a widespread farmer network plus third-party collaborators paired with a well-oiled farm-to-factory model might have had a hand in that success, too.
Big Plans at Khyber Tobacco
Khyber Tobacco anticipates that its tobacco exports in 2023/2024 will reach a total worth of US$100 million, with further plans to increase export volumes by 20% annually, starting in 2025. To achieve that lofty objective, the company has begun upgrading its leaf & agronomy as well as processing departments. Dedicated agronomist teams will accompany the crop from nursery right through to harvest, educating growers on how to improve volumes and crop quality along the way. These efforts are already showing results, as the company expects the current 2023/2024 crop to hover around 80 million kilograms, more than 34% larger than the 2021/2022 crop. Additional long-term measures include the use of better quality seeds, more efficient curing and grading procedures, as well as a greater focus on NRTM removal to bolster the company’s overall competitiveness both locally and internationally.