TOBACCO INTERNATIONAL

TI JanFeb2016 • TPI Q1

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Tobacco Products International TPI 11 that if the eruption continued until har- vest season, APTI would be pessimistic regarding the result of the 2015 harvest. The big harvest season in Java lasts until the end of August. Early estimates stat- ed that if the eruption stopped by mid-Ju- ly, 50 percent of the tobacco crop could still have been saved. However, volcanic ash from Mount Raung rained down on most of the local tobacco plantations for several weeks, greatly affecting the qual- ity of the 2015 crop and destroying the economic vitality of the regional tobacco industry. "If the quality of tobacco diminishes, it will lead to a fall in the price at which it is sold to exporters and manufactures," predicted Hendro Handoko deputy head of the Indonesian Tobacco Farmers As- sociation. "This will cause large and ir- reparable losses for the farmers and will have an impact that will be felt by the tobacco farming community for years." Tobacco farmers in Jember had planted their crops in May and June, and volcanic ash from Mount Raung affected all 31 sub-districts in the region. The ash dam- age to the tobacco plant is such that it clogs the pores on the leaves and stalk of the plants, in effect disabling the plant's ability to oxygenate." Indonesian Cigar Leaf Primer Indonesia is the largest producer of cigar styled tobaccos in the world. It is esti- mated that 50 percent of the cigar blends worldwide use Indonesian tobaccos. The following section provides basic informa- tion on varieties, cultivation culture and grading. The main varieties of tobacco produced in Indonesia are: • Sumatra–Crop grown on Sumatra Island where production is now dramatically down to 300 tons per annum. These tobaccos are sold through an auction–by invitation only–via a trading house in Bremen. These are the most expensive Indo- nesian cigar leaves. • Classical Besuki–Crop grown only on Java Island. Crop size is 7,000 to 8,000 tons of which 30 percent is grown in Jember North (rain fed) and 70 percent in Jember South (irrigat- ed). The irrigated crop is milder and smoother than the rain fed crop • TBN Besuki–Crop grown in Jember South. The crop is produced under shade which stresses the leaf to broaden it as much as possible as it attempts to gain access to sunshine. As such, it has a broad, thin leaf. Crop size is estimated at 2,000 tons per annum. • VBN Besuki–Crop is produced with a different seed under similar condi- tions as TBN. The crop is produced in Central Java. Production is low. All of the above varieties produce Wrap- per, Binder and Filler style tobaccos for cigars. Mother Nature's Curve The global oversupply of tobaccos prompted many multinational cigarette companies to leverage instant availability of merchant inventories to strategically de-stock on long-term inventory holding patterns. It is estimated that holding peri- ods were cut by between 12–18 months. Cigar companies also took up this lead to de-stock–albeit not to the same hold- ing pattern length. However, we now see that the Mount Raung impact has had a considerable impact on Indonesia's GRADING Length There are three grades based on the length of a leaf–from tip to point of butt–for both Wrapper and Binder. • Grade 1: Top Quality (length exceeds 40 cm). • Grade 2: Middle Quality (length exceeds 35 cm to below 40 cm). • Grade 3: Low Quality (length exceeds 32 cm to less than 35 cm). Color Codes • K-Yellow • MM-Light Brown • M-Brown • BB-Light Green • B-Green Veins Low veins = High Quality Thick veins = Lower Quality Holes Whole leaf should have no holes, however, holes are created during manipulation and grading. • No holes- Top Quality • One Hole- Medium Quality • Multiple Holes- Low Quality Cigar Filler All leaf not classified in the above grades is designated as cigar filler. At inspection, the filler is smoked and the smoke aroma is smelled–the filler is the core element that delivers the taste and aromatic sensation of the cigar. • Short Filler- Particle scraps or whole leaf cut by the manufacturer and used for machine-made cigars. • Long Filler- Whole leaf in hand strips or frog strips, used for premium hand-rolled cigars.

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