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Exporters of tobacco to the EU will have to comply with tighter regulations to maintain access to markets there. Photo credit: ITGA.
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Compliance with new sustainability rules will vary, with mechanized markets like the US possibly better positioned than labor-intensive regions like Africa. Photo credit: ITGA.
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Ivan Genov, ITGA’s manager of tobacco industry analysis.
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The European Union’s looming sustainability standards present a significant hurdle to many leaf-growing countries.
It’s a small reprieve: April 3, the European Parliament voted to postpone the implementation dates for corporate sustainability due diligence and reporting requirements. The pause, a reaction to legal changes the European Commission had proposed in February under the name “Omnibus Simplification Package,” is aimed at giving European Union (EU) politicians more time to negotiate changes to the EU Corporate Sustainability Due Diligence Directive (CSDDD). Among other things, Parliament agreed to delay the directive by one year, meaning that the policy will not take effect until 2028.
CSDDD, approved on June 13, 2024, and published as Directive (EU) 2024/1760 in the Official Journal of the European Union on July 5, 2024, establishes obligations for large companies to identify and address adverse human rights and environmental impacts within their operations and value chains. Following the delay, EU member states are required to transpose the directive into national law by July 26, 2028. Rules are required to be fully applied by July 26, 2030.
Despite the postponement, however, it is unquestionable that the CSDDD, together with other EU legislation such as the Green Deal or the Carbon Border Adjustment Mechanism, will have significant implications for leaf-exporting countries. To maintain access to EU markets, tobacco exporters will have to comply with tightening regulations on deforestation and enforce stricter labor laws that rule out child labor. They will have to prove compliance with ESG (Environmental, Social, and Governance) standards, which may require investment in traceability, certification, and sustainable farming methods. Growers will have to adopt more sustainable farming practices, such as reducing pesticide use and improving soil health.
The regulations may lead to a shift in market dynamics, potentially reducing demand from non-compliant suppliers and forcing exporters to shift toward alternative markets, such as Asia, Africa, or the Middle East. European buyers may prioritize larger, more traceable suppliers, disadvantaging small-scale farmers. Countries that proactively align with EU laws may gain a competitive advantage, ensuring continued market access.
Different prerequisites
With only small amounts of tobacco grown in some of its member states, the EU is a significant importer of unmanufactured leaf from countries outside the common market. “Because of the way tobacco markets are structured around the world, I think almost all, if not all, sales of leaf tobacco go in many different directions,” explains Ivan Genov, manager of tobacco industry analysis at the International Tobacco Growers Association (ITGA). “In some countries in Africa, let’s say, Chinese buyers of tobacco leaf maybe constitute half of the purchased quantities, but still pretty much all of the major producer countries sell to Europe.”
To prepare its members for upcoming regulations, he says, there is always a dedicated section during ITGA’s meetings. “In the last few years, we have specifically covered important initiatives like the EU supply chain due diligence directive. Within these meetings, we try to educate and bring these things to the spotlight for our people. This is how we spread awareness.”
While large exporters such as Brazil are believed to adapt more easily to the forthcoming EU rules due to their well-established trade structures and infrastructure, others where tobacco cultivation mainly takes place through smallholder farmers—such as Malawi or Zimbabwe—may struggle to meet these requirements without financial or technical support.
A recent report estimated that almost 50-60% of Indian farm exports are likely to be hit by the implementation of European sustainability standards due to the lack of investments in technology, training, alternate products, and systems required to meet the rigorous European sustainability standards that are coming into place. Tobacco growers, largely unaware of impending changes, rely heavily on guidance from authorities such as the Tobacco Board of India, which has launched various initiatives but to date lacks a formal action plan. If compliance is not achieved, tobacco control advocates fear that by the end of the decade, US$600 million worth of tobacco currently exported to the EU could end up in India’s domestic market.
Little awareness among growers
The regular surveys carried out during ITGA meetings confirm that the EU’s stringent sustainability guidelines are an issue of concern for the association’s members, Genov points out. “During our annual meeting in Tanzania in 2023, we asked the audience how they assess the impact of the EU CSDDD. The audience comprised high-level people within the sector, such as association boards and presidents of international ITGA member organizations, and so on. It’s on the higher level on our side of the supply chain. Even there, around a third of them saw it as a threat which will potentially put additional pressure on the supply chain and will require difficult transformations which will ultimately harm them financially.”
More than half of the audience, Genov adds, saw the due diligence directive as a positive thing, believing that the supply chain will operate in a more transparent manner in social and environmental aspects. “I think it’s important to also show this other side. Obviously, growers are people that face a lot of pressures. When they see something is changing in the supply chain, the first thing they see is an extra cost that is coming with a price that will probably not match the additional investments they’re making. Here, of course, we’re not talking about things like child labor and deforestation—everyone knows that these are bad practices that must be rooted out.”
At ITGA’s 2024 get-together in Africa, 84% of respondents to the survey, which included members from Malawi, Zimbabwe, Zambia, and Tanzania, said they were aware and felt well-prepared. “It’s always very difficult to try to decipher what the level of awareness is, but it seems like at least some of our efforts are filtering down,” Genov says.
While the top people may be aware of the challenges for their sector, the situation is different across farmer communities. ITGA is currently working on a database of tobacco-growing countries for which it has carried out more than a hundred surveys with tobacco farmers in all the markets it has members in, asking, among other things, whether farmers had heard about the EU supply chain directive. “As you might expect, the percentage is quite lower than what we got in our other meetings. Around 20% of growers in Malawi have heard about the directive, 8% in Zambia, and 18% in Tanzania,” Genov relates. “From Zimbabwe, we are still receiving surveys, so we don’t have final data, but I think this comes to show when it’s filtering down to the first step of the industry, there is still a lot of work to be done.”
Whether compliance with upcoming sustainability rules is an easier or more demanding task for tobacco-exporting countries very much depends on the largely varying conditions in different markets, Genov emphasizes. “For example, in the United States, you have very high levels of mechanization. Machines are doing most of the work. Fertilizer use—everything—is optimized to almost the maximum possible level. In other countries, like in Africa, for instance, the situation is very different. You have a lot of manual labor. Most of the crop is rain-fed and infrastructure is basic.”
What exacerbates the situation, he adds, is that tobacco growers have turned away from long-term planning because every season has recently been so challenging and difficult. “Next tobacco-growing season is the long-term strategy. Then reassess and see what is happening the year after.”
Relying on industry support
Contract farming, which involves agreements between farmers and buyers, ensuring a steady supply and quality standards, efficiency, predictability, and, perhaps most importantly, full traceability, has been replacing auction systems in most leaf-cultivating countries since the early 2000s and is a tool to facilitate compliance with the EU’s sustainability requirements. Contracted farmers benefit from initiatives such as the Sustainable Tobacco Program (STP), an industry-wide initiative that helps to drive standards in agricultural practices, environmental management, and key social and human rights areas. In 2021, it underwent a reform process that put in place risk-based supply chain due diligence on the sectoral level.
Tobacco company JTI has had various programs and initiatives in place for years to support its growers. “JTI sources tobacco leaf from more than 30 countries every year, including Brazil, the US, Malawi, Turkey, and Bangladesh,” the company’s spokesperson explains. “Our supply chain includes vertically integrated operations, where we directly contract nearly 70,000 tobacco leaf growers around the world. Additionally, we source tobacco leaf from third-party suppliers. This operational model ensures a stable supply of high-quality tobacco leaf to JTI, mitigating challenges and potential disruptions. JTI has a dispersed footprint for sourcing tobacco leaf. As a result, we can refine our operations to maintain a consistent supply while collaborating with partners who might struggle to fully meet the upcoming CSDDD requirements in specific areas.”
The company, which is working in some of the most economically challenging parts of the world, is committed to raising awareness of new regulations through communication initiatives, standardized contract obligations, and tailored policies and codes of conduct designed to guide suppliers effectively, JTI’s spokesperson claims. Maintaining direct contact with its farmers enables the company to provide essential support and ensure they follow the necessary steps to comply with JTI’s sustainability standards and programs, such as the Agricultural Labor Practices (ALP) program, which aligns with the International Labor Organization’s Fundamental Principles and Rights at Work. “For example, in our vertically integrated operations, we have a team of agronomy technicians who routinely visit our directly contracted growers six to nine times throughout each crop cycle. During these visits, our experts advise on improving yield and quality while also assessing the growers’ compliance with our ALP standard.”
For those countries in which JTI operates that the company deems high risk for human rights violations, it also undertakes in-depth supply chain impact assessments on the ground. “These assessments are an effective way to identify issues and impacts that are not always easy to observe during regular farm visits and help us identify contextual issues that may or may not be relevant. Our standard is clear: when we identify and prioritize an issue, we then work to address it.”
As tobacco growers, particularly in developing countries, face mounting economic, ecological, and societal challenges, JTI believes in the urgent need for evidence-based regulations and actionable plans to bolster the resilience of farmers and their communities, tailored to their regional context, the spokesperson says. “Tobacco growers’ capacity to meet increasingly stringent sustainability standards—such as those protecting human rights and addressing environmental impacts under the CS-DDD—hinges on the support they receive from local governments and strengthened, responsible collaboration with the tobacco industry.”