Passionate About Tobacco: Italy’s Suppliers

Italian leaf suppliers love to put passion into their lives - and their tobacco product. But like elsewhere in the world, they are also facing tough market conditions and stiff competition. Tobacco Asia talks to a colorful array of players.

By Thomas Schmid

Italians are known as very passionate people, and this passion also goes into the agricultural goods they produce in such abundance. The country’s tobacco growers and suppliers are not any different. From sowing and harvesting to curing and processing, great care is taken to achieve the best possible quality. In their efforts, they are of course considerably assisted by the perfect soil that characterizes the principal growing areas and generally hot and humid summers.

Italy’s internationally best-known tobacco regions are in the north around Verona and in Veneto. But tobacco is also cultivated in the central region of Umbria (mostly FCV filler) and in Campania in the south (burley).

Advocate for the industry: APTI

Associazione Professionale Trasformatori Tabacchi Italiani (or APTI for short) was founded in 1944 as a professional association with the scope to coordinate and support the role of first processors and merchants in the Italian tobacco supply chain and represent them collectively towards relevant public authorities at national and European level. Today, APTI’s members account for an astonishing 82% of the total volume of green tobacco contracted, grown and processed in Italy, according to the association’s president, Domenico Cardinali.

Association members comprise many of the most prominent local processors but also Italy-based affiliates or wholly-owned subsidiaries of blue chip international tobacco merchants and manufacturers. For instance, Deltafina S.R.L. is owned by Universal Leaf, while Trasformatori Tobacco Italia S.R.L. since 2012 has been the principal local tobacco supplier to JTI. One of the main advantages of APTI membership is that the association will defend members’ interests in various areas and lend them assistance on a multitude of levels. This could include – but is not restricted to – negotiating and signing of collective labor contracts with national representatives of the trade unions; defining agreements with farmer representatives to improve tobacco quality and overall production; developing the sector’s economic efficiency; satellite, airplane, and/or drone surveying to map field production and providing precision data for targeted irrigation, fertilization and the use of agrochemicals.

Navigating the EU jungle

However, another crucial service APTI provides is to help farmers and its members deal with the veritable jungle that EU bureaucracy has become in terms of convoluted agricultural laws and regulations. “Together with two farmer organizations, Unitab and ONT Italia, and in cooperation with the trade unions, we have established the national Interbranch Organization, which in accordance with EU common agriculture policy regulations is officially recognized by the Italian government and the European Commission and can adopt an Interbranch agreement containing [green leaf] cultivation contracts and marketing rules,” explained APTI’s executive secretary, Carlo Sacchetto.

“We also can define sectoral rules like, for instance, how and when certain agrochemicals can be used and which ones are permissible under what circumstances,” added Cardinali. “These rules are extended by Ministry of Agriculture decree to apply to all operators in Italy, including non-APTI, non-Unitab, and non-ONT members, to create a streamlined regulatory framework to facilitate production, processing and marketing.” The inter-branch agreement is enforced through strict administrative controls as well as announced and unannounced field visits at farm, processing and delivery level carried out by the state payment agency in collaboration with anti-fraud police. If infringements are uncovered, sanctions are imposed in accordance with national law, with penalties levied of up to 10 % of the value of the respective cultivation contract.

Loss of EU coupled subsidies

Another important role of APTI is to serve as an advocate of Italy’s tobacco sector against what is perceived as discrimination at EU level. “Tobacco is the only agricultural sector [in the EU] where farmers cannot receive any kind of subsidy linked to their crop production anymore,” said Cardinali. Since the 2010 crop, the coupled subsidy farmers were previously entitled to under the EU’s common agricultural policy specifically for growing tobacco has been scrapped altogether (although a reduced subsidy of between €0.20-0.40 per kilogram was still granted until the end of the 2014 crop year to producers of top grade tobaccos).

The subsidy withdrawal deeply affected tobacco farmers’ economic sustainability, leading to a severe crisis. After all, more than 95% of Italy’s annual tobacco crop is traditionally exported, according to Sacchetto. “Sub-tropical countries, whose tobaccos are of rather good quality and where primarily labor and energy costs are much, much lower than in Italy, have now suddenly become overwhelming competitors, which has put the survival of local farmers and processors in danger,” he said. “The only way how the industry can try to counter the situation is by achieving excellence in terms of quality GAP, ALP, free CPA’s, and the use of modern agricultural methods and tobacco varietals in general,” he added.

Italy vs. the world

In the 2016 season, a total of some 60,860 tons of tobacco across the four variety groups commonly grown was contracted (see table). But how do Italian tobaccos actually compare to produce from other regions within the EU and abroad? This, Sacchetto said, was a difficult question.

Although Italian FCV, especially the one produced in the Veneto region, was still one of the best in Europe for cigarette blends, French and Polish FCVs were “absolutely the best for shisha tobacco.” And while Italian burley is “one of the most excellent fillers available anywhere” and the comparatively small amounts of Italian dark-fired Kentucky are likewise “appreciated worldwide,” he still ascertained that on the other hand it was “reasonable to say that Caribbean flavor burley and dark air-cured tobaccos are much better than the European ones.

“And Turkish, Greek, and Bulgarian oriental tobaccos are totally unique in the world anyway. In Italy, no oriental has been grown in decades,” Sacchetto closed.

Free as a bird: MXTobacco

While the bulk of Italian growers and suppliers are organized in cooperatives or associations, Verona-based MXTobacco is something of a unique, highly unusual – and some may say, rogue - outfit. The company is fully independent in the truest sense of the word and not affiliated with any umbrella organization whatsoever.

“I believe in my product,” said MXTobacco’s owner Massimo Mantovanelli, whose family has grown tobacco for three generations. “I put my passion and experience into my tobacco and I am sure of the high quality I offer to my clients. That is why I want to put my face to my product, guaranteeing its superior quality.” Instead of relying on intermediary traders, his marketing philosophy thrives on meeting end customers personally, speaking to them, listening to their needs, and trying to continuously improve his product based on what intelligence he gathers. “This approach allows me to change and adjust the fertilization regimen, the way I grow my tobacco, and I can also adapt the curing process according to my customers’ requests.”

Full control all the way

Having taken over the family business in 1997, Mantovanelli closely directs and controls every single step in the production process and makes all decisions: seed choice, transplanting, fertilization, the right harvesting time, as well as the curing, grading, and storage of each batch at the perfect temperature and humidity. The only concession Mantovanelli currently makes to his all-encompassing “do-it-yourself business model” is requisitioning outside help when it comes to processing his tobacco into strips.

“But even then, I personally observe every single step [at the chosen facility] to ensure that my clients will be entirely satisfied with my special tobacco,” he insisted. Utilizing about 130 acres of his family’s land (which is roughly 53 hectares (ha.), or only about 0.3% of Italy’s total tobacco growing acreage), Mantovanelli exclusively plants Virginia bright.

An innovative curing method

Mantovanelli deploys an innovative curing system comprising four stages, each of which takes around seven or eight days to complete. “During the first stage I let the leaves turn yellow at a temperature of 40°C and at high humidity. The second stage involves fixing the leaves’ color and continued drying at medium humidity. The third stage completes the drying process at a temperature of up to 75°C and at practically no humidity at all. During the fourth and last stage I’ll give the leaves the right humidity content of about 15% by spraying them with water,” he elaborated. Mantovanelli claimed to have devised this system all by himself based on his many years of experience. The meticulously orchestrated series of temperature and humidity level adjustments apparently “keeps the leaves’ pores open.” “In fact, when using my method, the leaves remain alive, and if every stage is followed to the point the tobacco will attain perfect elasticity, taste and aroma.”

The tough path to success

While Mantovanelli declined to divulge concrete sales figures, he said that in 2016 MXTobacco sold approximately 80% of its total tobacco output, 70% of which was strips and 30% in leaf form. He expects his sales to increase this year because of four years of hard work vigorously attending trade shows around the globe and approaching potential clients. “Nobody knew MXTobacco in the beginning, but now I’ve started to crack open the market for my products and innovative ideas.”

Mantovanelli added that currently about half of his tobaccos are used in shisha tobacco production, the other half in cigarette manufacturing. His current main markets are Jordan, Turkey, and recently, Russia. A tiny proportion is also delivered to a few customers in Western Europe. But Mantovanelli freely admitted that his company is so far lacking any customers in Asia. “I certainly would like to penetrate that region as well,” he said.

Shaken but not stirred: Flue Cured Verona S.R.L.

Likewise based in the Verona region, Flue Cured Verona S.R.L. (or simply FC Verona for short) is a tobacco processor operating its own factory. Registered as a limited company, 75% of the company is owned by tobacco farmers in the Verona region, the remaining 25% by a group of Spanish farmers. By far the most of FC Verona’s annual tobacco turnover is of course obtained from its local shareholder farmers.

“But we also buy smaller quantities from Umbria and Spain,” added Giovanni Mercati, the company’s c.e.o. and chairman. Farmers in the Verona area, he said, were generally highly mechanized, their average farm sizes being around 80 to 100 hectares. “We currently have 10 shareholder farmers with a total annual production capacity of five million kilograms from their combined 1,500 ha. In addition to that and depending on our needs, we purchase around two million kilograms from Spain and Umbria,” Mercati elaborated.

Nomen est omen!

FC Verona’s core business centers on – well – flue-cured Virginia (FCV), mostly K326, with the average yield per shareholder farmer pivoting around 3.8 tons per hectare. All Verona-grown tobacco is initially cured at the respective farms before being further processed at FC Verona’s facility. “At the factory, we mostly produce strips, but depending on the orders we receive we can produce butted leaf as well,” Mercati explained. “Our tobacco is suitable for cigarettes and RYO or MYO products, a small percentage also for shisha products.” While the company ships all over the world, its current main markets are Europe, MENA, and Asia. “In Asia we maintain customers in Indonesia, the Philippines, and Malaysia,” said Mercati. As every so often, China is, of course, another matter. “Even though our product is appreciated and considered a good alternative to Brazilian and U.S. Virginias, Italy lacks an export agreement with China’ STMA.” The company currently also does not have a proper commercial channel for Korea, including KT&G.

Positive outlook despite customer portfolio change

FC Verona had previously been supplying pretty much all the main multinationals for a full decade. However, over the course of the last few years one after another of these blue chip clients decided to adopt a vertical integration model, henceforth contracting their Italian tobacco procurements directly with Italian growers’ associations. As a result, FC Verona is now facing strong competition from other Italian threshers that are directly involved with the blue chip companies’ vertical integration and has been forced to change its client portfolio. But despite having lost most of its multinational customers, FC Verona doesn’t fret. In 2016, the company’s turnover was still hovering around the €17 million mark. And for the current fiscal year 2017 FC Verona even expects to clock a slight sales turnover increase.

“Although the tobacco market situation is presently generally precarious, the high quality of our tobacco, proposed at competitive prices, allowed us to already reach 60% of our sales target in the first seven months of the running fiscal year, and that is despite the fact that we lost our main customer, who used to buy 35% of our production,” Mercati revealed. He added that FC Verona had heavily invested in upgrading its facility in 2005, transforming it into a state-of-the-art plant considered one of the most efficient ones in Europe with an annual maximum processing capacity of 24 m.kg.