Tobacco Asia

Volume 24, Number 1

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12 tobaccoasia / Issue 1, 2020 March / April banned in Japan, IQOS has succeeded. JTI's Ploom and BAT's Glo have hardly got onto the train despite several years of marketing. In conclusion, it would appear that the HNB category does not have strong appeal other than "the novelty appeal followed by disappointing smoking characteristics". Tobacco Asia: What do you think is currently the largest challenge for tobacco producers and suppliers? How would you advise they overcome this challenge? Dr. Iqbal Lambat: I think that for the entire tobacco Industry, the key challenge for all participants is how to deal with a declining market: • For cigarette manufacturers this means rationalizing supply footprints and downsizing considerably as BAT and JTI have announced recently with the combined job reductions of over 6,000 headcounts. • For tobacco farmers and processors – deal- ing with declining offtake and avoiding winding up with uncommitted inventory. • For OEM manufacturers, dealing with almost no new sales or orders booked as multina- tional manufacturers avoid the "replace philoso- phy" with "renovate and upgrade," thereby saving critical cash flow. • And all the peripheral related industries like spare parts suppliers, non-tobacco material suppliers, etc., will suffer the same fate. The tobacco industry has always been described as "A cloud with a silver lining", the silver lining implying the highly profitable nature of the Industry. The top four MNCs plus China generate around US$35 billion in annual profits. The cloud representing the overly excessive regulation of the industry in general and more specifically on advertising, health warnings and packaging, declining smoker rights, and constant- ly increasing excise taxes. Has the cloud now reached the tipping point to offset the benefits of the silver lining? Tobacco Asia: Sustainability is a key focus for businesses now, including those in the tobacco industry. What would be some ways in which tobacco companies could adapt their business models to support and promote sustainability? Dr. Iqbal Lambat: Sustainability can best be implemented at the level of the farmers. Many companies pay lip service but very few actually engage. Tobacco Asia: When Star Tobacco International was first established in 2008, it largely focused on supplying tobacco to small and medium-sized companies. After 10 successful years, the company rebranded as Star Agritech International and is now an established, respected agricultural supplier of not only tobacco, but also coffee beans, soybeans, olive oil, sugar, and wines. Where do you see Star Agritech 10 years from now? Dr. Iqbal Lambat: Now in our 11th year, Star Agritech is well established on all five continents with a client base of 130 accounts and operations in 40 countries. The group has been promoting derivatives and now owns two reconstituted factories with a third under evaluation. It is also heavily promoting CRES and DIET through third party plants. Over the next 10 years, the group will migrate towards a strategy where: a. Star Agritech will become a leading provider of derivatives with its own CRES plants (currently under finalization) to be located in Brazil, South Africa, and Indonesia. Expanded shredded stems (ESS) and microwave puffed stems (MPS) production will also be added to these plants. CRES offers 40% expansion, ESS 60% expansion, and MPS 100% expansion. In addition, additional reconstituted plants will be added to our supply footprint as well as DIET if that technology becomes more affordable. At least 30% of group income must be derived from the derivatives division and this division should be the number one player in the world in terms of tobacco derivatives supply. b. Group income from leaf will decline as a percentage but Star Agritech will continue its focus on supplying small and medium sized manufacturers with leaf, blending expertise, and other assistance that they can benefit from. The recently initiated supply of cigar leaf types currently from the Cameroon, Indonesia, and India will be further broadened to allow Star Agritech to become a strong number three player in the world in terms of cigar leaf supply. At least 50% of group income will be derived from this division. c. The agro commodity (non-tobacco business) will progressively be built, mostly in the leaf countries we currently deal with to provide at least 20% of group income. d. The group will build on its people power by hiring the best talent sourced from the countries that we operate in and celebrating our cultural differences to make "diversity our key enabler". Star Agritech will become a large agro commodity company progressively replacing its trader status to that on manufacturer or grower. This transformation will be a full 100% from where we are positioned today.

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