Tobacco production management in Laos
We worked in Laos for 5 years for Lao Tobacco Ltd: a joint venture between the Government of Laos and the Imperial Tobacco group.
Lao Tobacco produces cigarettes in its Vientiane factory made from Burley and Flue Cured Virginie tobacco grown in Laos by independent farmers.
We took over the management of the Leaf Department. We were responsible for the production of tobacco in Laos: from cropping by independent producers, to the purchase of tobacco leaves, their conditioning and their blending for the local production of cigarettes as well as the sale of tobacco to other subsidiaries of the ITG group or to customers outside the group.
We have also defined and implemented sustainability actions plan accordingly with the "Social Responsibility in Tobacco Production" program.
Tobacco growing with small farmers:
The tobacco is grown on almost the entire territory of Laos but it is more particularly present along the Mekong in South of Vientiane.
Tobacco is grown in rice fields during the dry season in the Mekong plain and along other main rivers. These lands are flooded during the rainy season and fertilized by the deposits of alluvium. Tobacco is sown in nurseries set in the villages when the rainy season comes to its end. The plants are transplanted in the fields after the rice has been harvested and as the water recedes. Producers irrigate their plots using small motor pumps.
A part of the tobacco grown in Laos was directly transformed by the farmers into “traditional cut rag”, collected by buyers and sold on local markets. Several companies including Lao Tobacco were supporting tobacco producers and purchasing their tobacco leaves. Finally, Vietnamese buyers and intermediaries from Thai companies were illegally buying a significant part of the Laotian tobacco production.
Lao Tobacco encouraged the organization of the producers to improve their support. Tobacco producers were invited to organize themselves into groups by affinity around a "head of farmers". It was informal groups but the local authorities recognized their existence. They acted as intermediaries for the supply of inputs to farmers and their training, for the organization of tobacco purchases as well as for the recovery of crops loans.
In this context of strong competition for the purchase of tobacco and because it was the company that invested the most in the technical support to producers, Lao Tobacco intended to secure its supplies by working only with producers who were members of an agreed group and by the establishment of written contracts validated by the administrative authorities. These contracts involved three parties:
The producers who commit to respect the agricultural practices recommended by Lao Tobacco and particularly the use of fertilizers and pesticides but also to deliver a volume of leaves defined from the beginning of the crop. Financial penalties were applied in case of incomplete delivery of the contractual volumes;
Lao Tobacco which undertakes to make available to producers, via their group, the inputs necessary for the cultivation of the areas declared in the contract as well as a close support by technicians. Lao Tobacco also commits to purchase the all-contractual volumes according to a grid defining the purchase prices for each quality grades. This grid was published by Lao Tobacco at the beginning of the crop after validation by the Ministry of Agriculture. The purchase of production beyond contractual volumes was not a contractual obligation of Lao Tobacco and producers could therefore sell it to other buyers;
The groups of farmers, which undertake the organization of the transport of inputs from the Lao Tobacco's warehouses to their members, and the transport of tobacco leaves to the purchasing centers set up by Lao Tobacco. They also guarantee the recovery of credits granted by Lao Tobacco to farmers through a system of third party guarantee between members of the same group. The groups were remunerated for the transport of tobacco and received a commission on the volumes of tobacco delivered.
We organized and trained a team of 35 technicians yearly. Each of them was responsible for supervising several groups. This task consisted into meetings with the "Head of Farmers" to organize the cropping, training sessions with the producers ' group and individual monitoring of the producers and their tobacco fields. Demonstration plots were also set up in collaboration with some producers.
Lao Tobacco organized the supply of seeds of improved varieties, fertilizers and insecticides as well as equipment for the construction of ovens (corrugated sheets and pipes) and dryers (tarpaulins) at the beginning of the crop. Payment was made on the yearly tobacco deliveries for inputs and over two years for materials for ovens and dryers.
Burley tobacco cultivation
Flue Cured Virginia growing
Purchases of Laotian tobacco production:
Three purchasing centers (two in Vientiane and one in the south of the country) have been set up. Producers groups were required to deliver the production of their members within the limit of contractual volumes and according to a purchasing planning established jointly by Lao Tobacco and the heads of the groups. One group could make 3 to 4 deliveries per campaign.
Tobacco is bought in dry leaves, assembled into "manoques" and packed into unwrapped bales. The purchases take place in the presence of the "Head of Farmers" or his representative, the farmers and a representative of the Ministry of Agriculture. Tobacco is bought according to a purchasing grid defining the quality criteria and the price of each of the 36 grades of purchase. All of the Heads of farmers discussed this grid with at the beginning of the crop during a starting meeting. The Ministry of Agriculture then validated it.
During purchases, tobacco bales are weighed individually and an agent from Lao Tobacco classified them according to the purchasing grid. Tobacco from a group is paid by bank check to the "Head of Farmers" within 48 hours. Lao Tobacco deducted the credits and advances granted to each member. After he get the cash from the bank, the Head of Farmers proceeds to the payment of each farmer. To avoid conflicts between members of a group, Lao Tobacco published a summary of tobacco purchases by producer with the number of bales and weight by grade, the total value of the tobacco purchased, the deductions made and the net payable.
Monitoring of purchases, invoicing and payment to producers as well as monitoring of stocks of tobacco to be sold to Lao Tobaccc were managed via a computerized database developed during our intervention.
Processing and conditioning of Laotian tobacco:
After the purchase, the bales were stored, by grade, in racks at Lao Tobacco's warehouses in Vientiane.
Grades were then assembled according to customer specifications and the tobaccos were processed as quickly as possible to avoid degradation of the quality of the leaves.
The process in Vientiane was classical and consisted in a double tipping, the separation of the stems from parenchyma and stabilization through a deep drying. Lao Tobacco owned a hand-stripping processing line in Vientiane, on which a significant part of the production was processed.
The processing of the rest of the production was subcontracted to threshing units located in Luang-Prabang, in Vietnam or in Thailand.
During our mission, the Vientiane unit was upgraded and was certified ISO 14001 and OHSAS 18001. We also were in charge of:
The definition and execution of investment plans and operating budgets;
The establishment and supervision of production plan and maintenance schedule for the Vientiane unit;
The negotiation and supervision of threshing subcontracts;
The management of the utilization of the tobacco purchased according to the needs of the Vientiane cigarette factory and other subsidiaries within the group;
The search for customers outside the group, the negotiation and execution of sales contracts;
The management of the teams assigned to the Vientiane unit;
The monitoring of production costs.