Tobacco Asia

24 tobaccoasia Issue 6, 2022 November / December Atici: Demand was much higher as the world emerged from the Covid pandemic, so available stocks were depleted rapidly. Secondly, there has been a law change regarding the proportion of domestically grown tobaccos that local manufac- turers must use in their blends. It's now a minimum of 21%. Minimum. Of course across all tobacco types, including oriental, FCV, or burley. And that law will inevitably – and additionally – reduce the tobacco volumes available for export. TA: So, the hot climate paired with premature harvesting, the high post-Covid demand, the high purchasing prices for fertilizer and fuel… it all comes together. Atici: Exactly. Production slowdowns during Covid were already bad enough. And now, those other factors. And we can even add one more dimension to the compounding problems: the war between Russia and Ukraine, which has added to the supply chain and energy concerns. Turkey has traditionally purchased a major proportion of its fertilizers and oil from Russia. TA: Can you give an example how all of that has affected oriental prices? Atici: I'd rather not. All I am prepared to say is that the cost of production has more than doubled and the farmers are unhappy because the money they receive in the end for their produce does not even cover their costs. I have not experienced a year like this in my 30 years in the business. TA: Any end in sight? Atici: I believe it depends on what we all do. There have been attempts to correct the shortage, for example in India, but then the weather there went haywire again and damaged the crops. The next six months will be crucial, because that is when the crops from the big producer countries come in – China, Brazil, Zimbabwe, USA. If they manage to come up with reasonably sized crops and also increase production [in the next season], I think things are going to start to settle. Miroslaw Pekala, c.e.o., Lukowa Tobacco, Poland TA: What is presently on the books for Poland's tobacco growing sector? Pekala: In Poland we face a considerable volume decrease for the 2022 tobacco crop. It is caused by the economic situations as well as the energy crisis which is gripping Europe in general. TA: How is that translating in terms of factual figures? Pekala: Compared to last year, when Poland produced around 18,000 tons of tobacco, we expect quite a bit less this year, roughly 15,000 tons. TA: How did this happen? Pekala: Over 20% of Polish tobacco farmers didn't grow tobacco this year. Well, some of them started cultivating seedling in spring, but then, as the economic situation worsened, they discarded those seedlings and switched to other crops. TA: Can you elaborate on the economic situation, please? Pekala: Leaf drying, for example, consumes so much energy that there's no profit left. Farmers were afraid that they'd be eaten up by the production cost. The price for fertilizer also went up four to five times since last year. And then there also is the insecurity what farmers will be able to get for their crop in autumn, how market prices will have developed in autumn, when the purchasing season starts. Seeding begins very early in February, so it's a long wait till autumn. TA: So it's a compound issue of sales price insecurity and skyrocketing production cost? Pekala: Yes. Everything has become so expensive, especially gas to operate the tobacco dryers. And gas prices may rise even further. It's so unpredict- able. As a result of all of that, our volume has dropped. TA: How long do you expect this to persist? Pekala: Nobody can be sure when it is going to normalize again. But if I had to tender a guess, I'd say maybe two years, maybe even three. It also depends on whether energy prices and production cost overall will come down. But then again, it just as well could be that they will remain at the same level. Who knows? Miroslaw Pekala, c.e.o., Lukowa Tobacco. Credit: Thomas Schmid

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