Sustainability and Innovation in Tobacco
According to one of the speakers at the WT Middle East conference, the tobacco business is capable of sustainability as it interrelates with the United Nations 17 Sustainable Development Goals (SDGs), decided at a conference held last year in Dublin.
Sustainability and innovation were the keywords at the WT Middle East’s first conference held in Dubai during April 3-4, 2019.
Staff Report
Focusing on the main trends which are shaping the future of the industry and future market developments, the conference, which was organized in collaboration with the European Leaf Tobacco Interbranch (ELTI), featured a range of speakers who discussed the challenges and opportunities the industry is facing. The following are some highlights from the topics discussed.
Sustainability in tobacco
One challenge that the tobacco industry often faces is being dismissed of ever being capable of sustainability. Universal Leaf Tobacco’s Barbara Martellini discussed how tobacco companies actually can and already do so in a way that interrelates with the United Nations 17 Sustainable Development Goals (SDGs). Martellini said sustainable tobacco production could be achieved based on four pillars – governance, environmental issues, social issues, productivity, and operating principles.
Governance would mean establishing corporate processes and structures that support good business practices that lead to sustainable operations. Environmental issues that tobacco producers would need to be concerned with are water use, carbon dioxide emissions, and biodiversity. Tobacco producers would also need to address social issues, namely labor rights, eliminating child and forced labor, health and safety, and sustainable livelihood, which could all be achieved through agricultural labor practices. Greater and sustainable productivity is gained from best practice agriculture, minimizing waste, as well as maximizing efficiencies and farmer profitability. And lastly, operating principles must be based on continuous improvement and measured across the board.
Martellini emphasized that philanthropy alone is not sufficient to reach the SDGs. Rather, this can only be a result of strong commitment from governments and the private sector, and multinational tobacco leaf companies are committed to achieving SDGs and support this by putting various systems in place.
The legal framework for innovation
Dr. Marina Foltea, founder and managing director of Trade Pacts, talked about the legal framework for innovation in the tobacco industry. Foltea identified key innovation drivers as competition (maintaining business sustainability and market share), regulations (responding to changes in legal and regulatory environments), cultural change (adapting to changing preferences and social attitudes), and intellectual property (IP) protection. The international legal framework for innovation comprised the World Trade Organization’s (WTO) Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS) and the World Intellectual Property Organization’s (WIPO) Berne Convention for the Protection of Literary and Artistic Works, which protects copyrights; Paris Convention for the Protection of Industrial Property, which protects patents and trademarks; Patent Co-operation Treaty (PCT), which is a unified procedure for filing patent applications; and Madrid Protocol, which provides a convenient and cost-effective solution for registering and managing trademarks worldwide.
IP protection in the tobacco value chain happens through plant variety protection in the leaf-growing stage, patents in the processing and production stage, and trademarks in the marketing and sales stage. Plant varieties are protected for 20 years, are territorial and must meet the protection criteria of being new, distinct, uniform, and stable.
Patents in the processing and production stages are also protected for 20 years and are territorial. Patent protection criteria are novelty, non-obviousness, and industrial application. Trademarks, on the other hand, have indefinite protection as long as they are distinctive, but can also be contingent on actual use.’
Innovation’s impact on the industry
Euromonitor research analyst Ivan Genov identified premiumization, reinvented shopping, personalization, healthy living, connected consumers, striving for authenticity, generation gaps, and shifting market frontiers as the megatrends shaping the new nicotine consumer. Reinvented shopping sees changing shopping platforms to online and mobile channels with consumers being more connected and showing more technological aptitude. Consumers are looking for premium products and personalization, especially in terms of the range of delivery systems and design. Different attitudes between generations towards tobacco along with an increased focus on healthy living presents opportunities for modified risk devices. Brands are expected to be authentic with clear values that are upheld. A shift from west to east in terms of economic power is also shaping the new nicotine consumer.
Currently, new product developments (NPDs) in cigarettes are focused on capsules and flavor, filters, format, pack size, blend, origin, and natural components. NPD opportunities include biodegradable and other special filters, stick restructuring, and modular cigarettes.
Grenov identified shisha as a category with growth and NPD potential, especially in flavors, as shisha is considered to be more socially acceptable, especially among the younger generation, even as a status-building tool. Shisha also is amenable to personal expression.
NPD opportunities in reduced risk products include flavored nicotine lozenges, tobacco-free snus, non-tobacco shisha, and edible nicotine.
E-vapor and heated tobacco products have become the leading category outside combustible cigarettes. In 2012 there were 7 million vapers, in 2017 there were 39 million, and it is expected that there will be 64 million vapers by 2022.
Digitalization has changed how distribution and communications with nicotine consumers is done, whether through social media, lifestyle and health influencers, AR/VR assisted consumption, virtual vape stores, or accessible commerce through voice control or subscription.
Top development trends in vapor relate to nicotine delivery, simplicity, and flavor profile. Product competitiveness involves integration and interconnectedness, using date to shape behavior, customizability, as well as being smaller, faster, stronger, or longer.
New technology that could be leveraged in NGPs are VR, AR, AI/mood tracking, and physical/digital interface transhumanization. VR technology offers the prospect of manipulating sensorial perception during consumption, thus enhancing it. AR is already being used to communicate to and educate consumers. The combination of AI and mood tracking radically alters customer service possibilities. Transhumanization will change payment processes, dataflows, and, ultimately, consumption of substances itself.