Tobacco Leaf Track & Trace Laborious but Indispensable

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It’s been long-standing industry consensus that tobacco leaf must be tracked and traced in an uninterrupted chain from grower to manufacturing facility. While the majority of parties involved comply, there are always those who flaunt the system.

By Thomas Schmid

Employing measures to fully track and trace (T&T) the movement of tobacco leaf from the growers to traders and processors and, ultimately, to the factories is a daunting yet absolutely indispensable task. An effective T&T mechanism is not only supposed to help prevent illicit leaf from entering the market (thus depriving manufacturers and governments of considerable revenues), but it also protects the interests of tobacco growers and ensures that the end consumer is guaranteed a high-quality product. A further implication is price stabilization and the curbing of over-supply of sub-standard produce at the source. Reputable merchants and tobacco companies alike have recognized the crucial importance of putting an uncompromising T&T system into place, which meticulously documents the origin of every single batch or bale of leaf purchased and handled.

AOI: top of the pack

Alliance One International (AOI) is one of the world’s two largest leaf merchants, trading tobacco originating from all corners of the globe and supplying leading manufacturers on all continents. The company has always put great emphasis on T&T and is a staunch supporter of international efforts to stem the smuggling and trading of illicit tobacco.

“The illicit trade and counterfeiting of our customers’ brand name products is a global problem that threatens the economic well-being of our customers, our Industry and our company,” said Tracy Purvis, vice president global information aervices, from her base in Farmville, North Carolina (USA). “To help address this program, Alliance One International has implemented a series of processes aimed at helping us better understand the integrity of our leaf, where it comes from, which products it goes into, and to whom we are selling it.”

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Tobacco Leaf Track & Trace Laborious but Indispensable

Photo courtesy Alliance One International

Tobacco Leaf Track & Trace Laborious but Indispensable

Farmers in Tabora (Tanzania) observing an AOI field advisor (center) using a GMS tool.

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Tobacco Leaf Track & Trace Laborious but Indispensable

Photo courtesy Alliance One International

Tobacco Leaf Track & Trace Laborious but Indispensable

AOI advisor (center right) in Indonesia using a GMS tool.

A seamlessly integrated process

The company’s T&T process starts right at the source, in this case AOI-contracted tobacco growers. Tobacco bale traceability then continues through every aspect of AOI’s business operations, from the leaf department to sales and accounting, and up until ownership finally changes on the finished product. To support this operational workflow and product traceability, AOI deploys tightly integrated point solutions that serve in their specific roles within the operational workflow matrix.

“Following our contract signing, we establish a unique ID for each grower, which we use to track information such as contracted volume, crop loans and advances issued, agronomic material issued, actual purchases, and overall debt management in our international farmers accounting system [IFAS],” elaborates Purvis. Those data are integrated into the merchant’s proprietary growers management system (GMS), which in turn tightly ties in with other internal tracking systems (see graphic 1) and used to build a profile of each grower and track data related to the crop and environmental and labor practices throughout the season.

“Through integration of what we agreed to during contract signing, and what we see on the farm during the season, we can identify any potential red flags related to the growers’ practices,” Purvis adds. During procurement AOI issues barcoded tags to identify the grower at the time of purchase. Bales are scanned by the original bale ID assigned at the time of purchase for tracking of the inventory movement in AOI’s tobacco processing system (ToPS). That ID remains with the bale throughout processing and up until it has been transformed into finished goods. As the finished cases are produced, the inventory record is then immediately sent to the company’s SAP systems (systems, applications, and oroducts) for further downstream documentation.

Indispensable buyer scrutiny

“On the customer side,” continues Purvis, “we focus on understanding the nature of the entity that is purchasing our leaf to minimize risk that it will end up in illegal products.” In 2010, AOI introduced its “Know Your Customer” program, which placed additional emphasis on this aspect of the supply chain. All new customers are subject to a due diligence review and must be approved by the company’s compliance department. To the extent possible, these reviews establish that customers are legal entities and reputable enterprises engaged in the authorized manufacture of tobacco products. The measures implemented during this process may include, among others, site visits, inspection of business registration records and background checks on the customer, their principals and key contacts. Additionally, all customers are subject to periodic reviews to reaffirm information collected during the initial due diligence process.

CNT: German thoroughness 

While rigorous T&T is obviously taken very seriously by gigantic, globe-spanning organizations such as AOI, somewhat smaller players are not less meticulous in ensuring that their merchandise is fully trackable and traceable from source to end customer. Germany’s family-owned Contraf-Nicotex-Tobacco GmbH (CNT) has been engaged in international tobacco trading since 1982, primarily purchasing its leaf in Argentina, India, Zambia, and Zimbabwe. The company also maintains a large sales office in Singapore.

A system of our own

“We implement our own internal T&T system as part of our organization’s operating standards or client requirements”, says Marcus McKay, CNT’s head of corporate responsibility and communications. Besides bale barcoding and digital data collection on growers including GPS coordinates of farm locations, the company internally utilizes a bespoke data management and reporting tool, but McKay declined to elaborate on the details.

“But all leaf that we purchase is identified by a unique farmer ID number,” said McKay. “During processing it is again associated with a unique internal ID, which forms the basis of a final unique ID code once the processed merchandise is shipped [to the customer].” This well thought-out system guarantees seamless tracking and tracing from source to end client in terms of leaf integrity and quality, accountability and identification of potential problems or weak points within the supply chain. “In fact, the entire chain benefits from it, from the farmers all the way to the end consumers”, McKay insists.

Continuous improvement to combat weaknesses

Furthermore, the merchant is currently developing an RFID tagging system, which will add further T&T security once it is introduced in the near future. McKay adds that his company, which in one form or another has deployed T&T measures from its very start, is “very happy” with its current system “as it satisfies not only all of our own requirements and internal operational standards but also those of our clients.” Currently available T&T systems and technology, he asserts, have advanced to the point of being able to address weakness areas, including the allocation of unique farmer identification codes. “After all, our roster [of suppliers] can include tens of thousands of farmers in any given season.”

BTGCA: active at the source

Speaking of the grower end of things, grower associations are putting an equally strong focus on practicing fully transparent T&T. Based in Lexington, Kentucky (USA), the Burley Tobacco Growers Cooperative Association (BTGCA) represents about 4,000 burley farmers in Kentucky and four neighboring states. According to general manager Steve Pratt, the association “places high priority on traceability of the tobacco we purchase from our growers” and adds that BTGCA only purchases burley tobacco from certified growers utilizing good agricultural practices in order to provide worker safety, protect the environment, and to allow traceability from the farm to the consumer. But Pratt also concedes that illicit trade of burley does occur to some extent. “Our goal is to make sure we are not part of the problem,” he says, because this might otherwise “encourage growers to overproduce, which allows untraceable tobacco to enter the system, which causes market oversupply and lowers the price.”

Illicit leaf – a billion dollar industry

Pratt estimates that the illicit trade of all types of tobacco leaf accounts for approximately ten per cent of the total annual trade volume worldwide, representing a value that goes into the billions of US dollars. Outspoken and honest, he also readily admits that “the weakest point [in the supply chain] is the grower, who is trying to maintain a profitable operation”, and that “growers will continue to overproduce as long as there are dealers willing to purchase tobacco that does not require traceability and good agriculture practices.”

A blaming finger

With these remarks Pratt clearly also points a blaming finger at shady traders and manufacturers (see side box “Black Sheep”) who are unscrupulous and profit-greedy enough to buy up any amount of illicit tobacco they can lay their hands on and thus contribute to a burgeoning black market.

“All companies should be required to offer traceability of their tobacco purchases and the tobacco industry should adopt worldwide standards for traceability of all tobacco,” he recommends. To illustrate his point, Pratt relates that BTGCA began purchasing tobacco under contract in 2007, implemented good agriculture practices certification in 2013, and required USDA certification from its growers in 2015, all of which are measures to assure 100% traceability at all times. To facilitate its T&T efforts, BTCGA utilizes software that records every individual purchase from each grower and maintains these records for future reference.

Stemming the tide

Despite all laudable efforts by reputable grower associations and leaf merchants at developing, building and deploying sophisticated T&T systems, the black market in illicit leaf is well alive and kicking – some industry sources even claim it’s expanding at an ever faster pace. Only a global and concerted collaboration and knowledge exchange between regional and national governments and law enforcement authorities on one side and grower cooperatives, traders and manufacturers on the other side can help to curb illegal activities and provide a more economically viable environment for all parties concerned. But it is going to be a tough fight.

Black Sheep

In theory, an unbroken and uncompromising T&T chain starting with the harvesting of tobacco leaves would constitute an ideal – or should we perhaps say idealistic? – situation. In practicality, though, certain marketing systems (such as free auctions, for example) present formidable challenges due to murky supply chains involving individual unscrupulous traders and often enough also international crime syndicates who purchase their product from less than transparent suppliers or even right from growers desperate to rid themselves of surplus undocumented stock. This fact not only creates and drives the hard-to-combat problem of illicit trade but also makes true global T&T a distant reality, at least for the time being.

Dan King, head of leaf purchasing & agronomy at Imperial Tobacco, cautions: “We are driving continuous improvement in [our] supply chain transparency and sustainable tobacco program [to] ensure [that] each of our suppliers has a degree of traceability regarding how tobacco travels from the farmers to the factories. But the criminals involved in the illicit trade don’t adhere to any supplier standards and they can always source their requirements from less scrupulous suppliers.” How severe the issue of illicit leaf really is can be frequently gleaned from news reports.

For example, in 2015 the Australian Border Force in collaboration with Indonesian Customs seized a staggering 71 tons of illicit leaf tobacco in three shipments destined for black market sale in the country. While two of the shipments were discovered after their arrival in Sydney, the third consignment was intercepted before it could leave Indonesia. Being called a “historical record haul” by the Australian authorities, the shipments represented a total value of AU$40 million (US$30 mil.) and their illegal sale would have deprived Australia of AU$27 million in tax revenue.

Ensuring Global Traceability: AOI’s Proprietary GMS

Christened growers management system (GMS), AOI’s award-winning in-house software tool provides the company with real-time visibility into its grower base. The tool allows the company to build a profile of each contracted farmer, including information such as the GPS position of the farm, type of tobacco being grown, curing equipment being used, labor data, as well as GAP and/or ALP training conducted. The data ensure that AOI can lend the best support to all its contract farmers, ultimately helping to secure leaf supply and at the same time meet sustainability goals. AOI began developing its GMS in 2011 and has since then continually focused on improving the system.

For more information about GMS, click here.