Leaf supply chain - Raw material sourcing

Tobacco leaf sourcing

Tobacco leaf sourcing is a key part of our supply chain, and a critical component of future business growth. We have been working closely with our directly contracted tobacco leaf growers and merchants to build security of supply and enhance leaf provenance. This gives us greater flexibility when responding to changing market requirements.

In 2019, we contracted 86,757 tobacco leaf growers directly in Bangladesh, Brazil, Ethiopia, Japan, Malawi, Serbia, Tanzania, Turkey, the U.S., and Zambia. Contracting leaf growers directly allows us to monitor cultivation and labor practices more effectively.

How do we work with leaf merchants?

Every year, we buy around 50% of our leaf from leaf merchants. The sourcing countries vary from year to year, depending on the quality and volumes required. In most cases, our leaf merchants source the tobacco leaf directly from the grower. This means that there is a direct contract between the leaf merchants and the growers, and that the grower receives advice on crop management and good labor practices from the leaf merchant.

In some countries, leaf can be sourced in a different way, for example at auction. This can make it challenging to determine the provenance of the leaf and implement Agriculture Labor Practices. In these cases, we work with the leaf merchants and other stakeholders (e.g. the Indian Tobacco Board in India) to find a way to implement a robust and relevant supply chain due diligence process. Although we source leaf from more than 30 countries, the vast majority still comes from eight key global suppliers. We work closely with these suppliers to ensure good practices.

Sustainable agriculture

As well as securing the long-term supply of quality tobacco leaf for our business, we want to create shared value for both our growers and our business. We do this by providing services that increase grower productivity, while at the same time always trying to improve our social and environmental impact. This results in higher yields and better quality, which in turn drives greater profitability.

Grower return is based on more than price alone. By enabling growers to become more productive and efficient in the way they grow, harvest, and cure tobacco leaf, we ultimately help them to use resources wisely and responsibly, and increase profits. For example, we help to cut costs by up to 20% by using fertilizers and agrochemicals more efficiently.

All of our leaf suppliers are expected to follow Good Agricultural Practices (GAP) as set out by the Cooperation Centre for Scientific Research Relative to Tobacco (CORESTA). The concept of GAP is to produce a quality crop while protecting, sustaining, or enhancing the environment with regard to soil, water, air, animal, and plant life.

In addition to GAP, the majority of our directly contracted growers are also required to comply with our Minimum Agronomic Standards (MAS). These growers are contracted to grow tobacco under our stewardship. In return, they receive credit for prescribed crop inputs as well as dedicated extension service provision from one of our Leaf Production Technicians. This support includes advice and recommendations throughout the entire crop cycle.

Contracted large-scale commercial growers – notably in the U.S. – don’t require dedicated extensive service provision from us. This is why not all of our directly contracted growers are required to comply with MAS.

These farming practices are not limited to tobacco. We encourage growers to use seasonal crop rotation i.e. growing other crops such as groundnuts or maize on the same land in alternate seasons. The benefits of this are extra income, improved food security, and soil conservation.

We are always looking to improve our understanding of tobacco farming. Our investment in research and development involves partnering with leading international academic institutions to develop innovative new ways of producing tobacco.

Agricultural Labor Practices and Leaf Supply Chain Due Diligence

Our Agricultural Labor Practices (ALP) are based on the International Labour Organization’s conventions and recommendations. The program consists of three pillars: tackling child labor, respect for the rights of workers, and ensuring workplace health and safety.

As part of our continuous improvement approach, the ALP program allows us and our suppliers to identify potential labor challenges on tobacco farms and help improve labor practices on the tobacco farm. Being an integral part of the supply chain due diligence process, it also contributes to the social aspects of grower communities and supports sustainable agriculture overall. Whether we source tobacco directly from growers or through tobacco leaf merchants, our contracted suppliers are committed to implementing our ALP.

Our leaf supply chain due diligence process is based on a five-step framework - Identify, Prioritize, Respond, Measure, and Report, while our ALP’s role is to help us to identify issues on tobacco farms on a daily basis. This process follows the Guidance on Responsible Agricultural Supply Chains provided by the Organization for Economic Co-operation and Development (OECD) and the Food and Agriculture Organization (FAO), as well as recommendations by the International Labor Organization. It also follows the UN Guiding Principles for Business and Human Rights.

Due Diligence

To run our leaf supply chain due diligence process perfectly will require a mindset shift and changes in the way we work, but we are making steady progress. In 2019, we continued training our own teams and suppliers, speaking to various international organizations, and collaborating with other companies on industry-wide programs.

Vuk Pribic,
Director, Leaf Supply Chain Due Diligence,
JT International

  • Leaf Production Technicians

    ALP forms part of Leaf Production Technicians’ farm visits. The technicians visit every single farm several times per year, according to clear visitation plans with assigned farms. For example, during the last crop season, our Leaf Production Technicians made more than 350,000 visits to our directly contracted growers.

During these visits, the Leaf Production Technicians provide technical advice on crop management and discuss good labor practices. In cases where they identify labor-related issues, they report their observations in the system. Depending on the nature of the issue, the Leaf Production Technicians may also provide recommendations to the grower.

These observations are then analyzed and prioritized by the local country management. This enables us to select the right improvement measures to address root causes, and respond to the adverse impacts in the right way. We track the effectiveness of our response using KPIs, internal evaluation, assessments, and on-site investigations. We also consult relevant stakeholders, such as government authorities, civil society, members of affected communities, workers’ organizations and workers.

Our main objective at present is to align all of our processes with the five-step framework: Identify, Prioritize, Respond, Measure, and Report. To ensure a streamlined and consistent approach, we aim to find synergies between our supply chain due diligence and the ALP program with the Sustainable Tobacco Program (STP).

We are facing a number of complex challenges. These include issues that are difficult for Leaf Production Technicians to observe, such as how to identify discrimination in smallholder farming, or how to optimize our process for dealing with extreme breaches and ensure that both potential victims and rapporteurs are protected.

Extreme breaches include the worst violations of workers’ rights, such as slavery, forced labor, human trafficking, violence, or severe physical, mental, or sexual abuse. These can be difficult for a Leaf Technician to identify and address – especially if the issue is associated with criminal activity. Responding to extreme breaches therefore requires care and, in many cases, support from the police and/or other authorities or non-governmental organizations.

It is essential for us to have a management process setting out how to respond to an extreme breach, to ensure that action is taken promptly and appropriately when indicators are observed. We expect each supplier to have a management process incorporating three elements: protection for the victim and observer, a clear escalation route, timeline, and remediation plan, as well as access to specialist support.

Read more on ALP in our booklet

Target

AGRICULTURAL LABOR PRACTICES

We will implement our Agricultural Labor Practices (ALP) program in all sourcing countries by 2025.

Progress

Towards the 2025 ALP target 2019 Progress
100% of our supplying entities to report on ALP 81% of our supplying entities reported against ALP
100% of our growers to be covered by ALP 58% of our directly contracted growers and 98% of our leaf merchants were covered by ALP
100% of tobacco leaf volumes to be covered by ALP 74% of our volumes were covered by ALP

For more details, please see below.

Historical data

We previously made a commitment to implement ALP in all sourcing countries by 2019. In 2018, we were very close to achieving this commitment, as we had observed 96% of our directly contracted growers against ALP, and 96% of our tobacco leaf merchants reported against ALP. See our three-year progress between 2016 and 2018, below.

Historical data

Due to our constant growth we have broadened our ALP target to include all of our acquisitions up until the end of 2018, with a new target date of 2025. Find out more about how we plan to achieve this target, below.

100% of our supplying entities to report on ALP

Progress so far: Of all the entities that provided us with tobacco leaf, either directly or through leaf merchants, 81% reported against ALP in 2019.

Supplier Entities Reporting

100% of our growers to be covered by ALP

Progress so far: In 2019, 58% of our directly contracted growers and 98% of the growers supplying through our leaf merchants were covered by ALP. The decrease from 96% in 2018 to 58% in 2019 is due to new acquisitions. Before acquiring Bangladesh, for instance, we had around 40,000 directly contracted growers. Bangladesh alone brought 29,000 more growers. Reaching this target is one of our major challenges.

Growers covered by ALP

100% of tobacco leaf volumes to be covered by ALP

Progress so far: In 2019, 74% of our volumes were covered by ALP.

We have made several new acquisitions in recent years, including in Ethiopia, Bangladesh, Indonesia, and the Philippines. We will approach these on a case-by-case basis, as we need to understand the local market, culture, and challenges before putting in place the necessary programs.

In Bangladesh, our first challenge is to reach the large number of growers. In Ethiopia, we will introduce our ALP program in 2020 for the first time, following the completion of our Supply Chain Impact Assessment in 2019 as a part of our supply chain due diligence process.

In Indonesia, our leaf merchants have been reporting on ALP for several years. Since the new acquisition, our leaf supply chain has changed significantly, and we will carry out an impact assessment in 2020 to better understand how to implement supply chain due diligence and ALP. In the Philippines, on the other hand, our suppliers already implement ALP and submit reports regularly.

Volumes covered

Implementation of Agricultural Labor Practices in Japan

We have a long-standing relationship with growers in Japan. Following a 2017 pilot study, the Agricultural Labor Practices program was fully implemented in 2018. As a result, we carried out farm visits and questionnaires to address labor issues on tobacco farms. Throughout 2019, our JT Leaf Production Technicians continued to meet growers to provide feedback and offer advice. We also customized our surveys for different production regions. Based on our findings and observations, we will continue to make improvements.

Our farm practices in Japan

  • JT Farm

    In order to share effective tobacco cultivation practices with growers, we established the JT Farm in Japan in 2018. The farm functions as a development center, where we try out new techniques, methods and crop varieties before introducing them to growers.

    Progress continued in 2019, with a trial of new crop varieties and the development of a self-driven vehicle in partnership with another company. The aim of the trial is to deliver leaf samples to R&D for product development. The vehicle would support growers’ practices on the farm such as, for instance, Crop Protection Agents (CPA) application or tobacco leaf transportation. The aim of both projects is to increase growers’ productivity.

  • Enhanced curing and baling

    We are implementing a new curing process for burley tobacco at present, which can reduce working hours by 15%. This method also helps to prevent the contamination of non-tobacco related materials during green leaf baling. By the end of 2019, 5% of burley tobacco growers had adopted this new process. We will continue to scale up this practice in 2020 and beyond.

Collaboration with growers for sustainable leaf production in Japan

In Japan, the number of tobacco growers and the land dedicated to tobacco cultivation have been shrinking. There are various reasons for this, including older generations going into retirement, younger generations choosing to pursue less physically demanding jobs that involve less heavy work, and a lack of progress in farming methods. As a result, many growers feel anxious about the future of their agricultural activities and are investing less in tobacco leaf production.

In 2019, Japan Tobacco and Japan Tobacco Growers’ Association discussed various new initiatives to ensure the sustainability of tobacco leaf sourcing and meet the market’s needs. Due to be launched in 2020, these initiatives include providing tailor-made support for individual farms, and gathering and sharing the best practices of more experienced growers.

We hope that these activities will help growers to implement more efficient production methods, which in turn will strengthen the foundations of their operations and secure a more sustainable future for tobacco leaf production in Japan.

Engaging with our stakeholders

Working in collaboration with internal and external stakeholders has been key to the progress and success of the Agricultural Labor Practices program.

Our relationships with directly contracted growers produce tangible results, thanks to regular farm visits, dialogue, and training. Local and global meetings with leaf merchants enable us to identify where additional training, mechanisms, and processes are needed to manage labor risks. Engaging with local government agencies in the countries where we operate enables us to address fair and safe labor conditions in specific locations. For example, we have been successfully engaging with the Indian Tobacco Board to make progress in the area of labor rights in India.

Our international tobacco business is an active member of the Sustainable Tobacco Program (STP) and chair of the STP Steering Committee, consisting of industry peers. STP is an industry-wide platform enabling businesses to collaborate on human rights, environmental issues, and other sustainability challenges, and to drive sustainable agriculture through a continuous improvement process. 2019 was a year of reform for STP, as it was restructured around the five-step framework - Identify, Prioritize, Respond, Measure, and Report. The aim of this change is to put in place a robust supply chain due diligence process with a focus on impact. The new process will be finalized in 2020.

In 2018, we became part of the pilot project on Guidance for Responsible Agricultural Supply Chains. This initiative was run by the Organization for Economic Co-operation and Development (OECD) in conjunction with the Food and Agriculture Organization of the United Nations (FAO). By participating in this project, we have been able to share our own experiences, broaden our understanding, and benchmark against others.

The OECD-FAO Guidance for Responsible Agricultural Supply Chains, published 2019, presents the key findings of the pilot, lessons learned, good practices, and challenges in implementing supply chain due diligence shared by the participants. It also sets out recommendations and next steps for companies and policymakers to follow in the agricultural sector.

Case study

Grower clubs in Zambia

In Zambia, we have an established network of approximately 488 grower clubs. Each club is formed of 10 to 20 growers and led by a chairman.

The aim of the clubs is to bring growers closer together and create more effective dialogue. The clubs allow continuous communication and engagement on a variety of topics such as Farmer Finance, Agricultural Labor Practices, Minimum Agronomic Standards, and other best practices.

In 2019, we trained over 488 chairmen, in partnership with the government and the banking sector. As a result, all of our contracted growers in Zambia, for instance, now have bank accounts.

Case study

Training growers and workers in Tanzania

In Tanzania, Leaf Production Technicians reported labor issues related particularly to child labor, rights of workers, and workplace health and safety on farms in 2016. After identifying the root causes of these issues, the local Corporate Affairs and Communication team established a set of measures to tackle them. These measures were then implemented between 2016 and 2019.

Growers were trained on the effects of child labor and parents were economically empowered through training and the establishment of income-generating activities. Other measures included opening more schools to reduce walking distances and refurbishing classrooms to make better use of the space available. Both attracted more children to attend and stay in school.

We provided ALP information and training for growers, their workers, and members of the Grower Management Board to ensure that the rights of farm workers are respected. The training explained how Tanzania Labor Laws define the minimum requirements on labor practices, and the implications of these for the participants and for JTI, as a business partner.

Growers and workers benefited from refurbished clinics with a better supply of equipment, providing improved access to basic health care services.

To measure the effectiveness of the training, we assigned Leaf Production Technicians to closely monitor the growers and workers involved in previously reported labor issues. So far, these issues have not been observed again.

Case study

Workplace health and safety training in Turkey

In 2017, Leaf Production Technicians in Turkey reported that several growers and their workers were not using adequate Personal Protective Equipment (PPE) when handling tobacco.

The local Corporate Affairs and Communication team decided to provide these growers and workers with workplace health and safety training and the correct PPE. This led to a 20% decrease in observations of these issues in 2019.

ARISE

Our flagship program ARISE – Achieving Reduction of Child Labor in Support of Education – has been committed to tackling child labor in our tobacco growing communities since 2011. In 2019, ARISE placed 6,186 children into formal education, building on the impact of previous years. The program is forging real sustainable change by implementing robust solutions to prevent child labor.

In 2019, we focused on mapping out new communities to scale up ARISE, building on community capacities to ensure the sustainability of the program, and digitizing our Child Labor Monitoring System (CLMS) using blockchain technology.

Read more about the ARISE program

Case study

Eliminating child labor with blockchain

Following a successful six-month trial period, our ARISE program is about to start using a digitized Child Labor Monitoring System (CLMS) based on blockchain technology in Malawi, Zambia, Tanzania, and Brazil, where we directly contract tobacco growers.

The CLMS will use a cloud-based platform, providing JTI with an in-depth 360° view of ARISE beneficiaries. The system will enable data collection in a streamlined, mobile, immutable, and secure way. We expect the new system to help strengthen the existing anti-child labor activities and to focus on communities where these activities are most needed.

Our Leaf Production Technicians visit our growers several times a year, for technical support. During these visits, the technicians collect data on tobacco growing and make observations on labor practices (read more about our Agricultural Labor Practices). As a result of our newly adopted CLMS, the technicians also collect kinship data from the growers, including the names of any children living on the farm, which school the children attend, and which year group they are in.

As this data collection is part of the Company’s formal annual contracting process, it enables us to secure the grower’s consent – an essential element of the process. The kinship data is then uploaded into the new system, to help us understand where child labor might be used in our supply chain and better target our ARISE activities. This will benefit children who are vulnerable to child labor, as well as those involved in child labor.

The software behind the new system was developed by BanQu, a ground-breaking blockchain-as-a-service software company that helps connect growers to global supply chains. The technology provides end-to-end transparency in supply chain management.

We will continue to work collaboratively with growers, communities, business leaders, and governments to create solutions that address the root causes of child labor, while always keeping the child’s right to quality education at the heart of what we do.

Our contractual partner Winrock International, a U.S.-based, internationally renowned NGO, will continue to play a key role in delivering the program. New and innovative partnerships, such as our collaboration with BanQu, will enable us to digitize our approach to monitoring child labor.

Elaine McKay,
Director, Social Programs,
JT International

ARISE table
2019 was a year of planning and transition to the new approach designed for the third phase of ARISE. That included scaling up to new communities, testing a new technology with BanQu and assessments of Community Action Plans. In addition, this year, the numbers reported come from Winrock International only.*

*The previous years’ numbers included those from the International Labour Organization.

External recognition

We were categorized as a ‘leader’ by the Global Child Forum in their latest study, conducted in collaboration with the Boston Consulting Group. This benchmark report analyzes just under 700 of the world’s largest companies and how they are safeguarding children’s rights as part of their business value chain.

We are proud that the study recognizes the concrete actions we have taken to embed respect for children’s rights in our supply chain, notably through our flagship child labor elimination program ARISE.

Grower Support Programs

Our Grower Support Programs are investments that address social needs in our tobacco-growing communities.
GSP