Compared to the Dominican Republic’s cigar exports, Cuba lags behind in terms of volume and value.
But with Cuba excluded from the U.S. market, the largest single cigar market in the world, Cuba’s prospects appear bright bespite being restrained by politics.
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This year, Vice President Jose Ramon Machado has called for Cuba’s tobacco-rich province of Pinar del Rio to harvest 17,000 tonnes by the end of July, making 2017 among the best years in a decade for the crop. Cigar exports bring in around $450 million annually to the Caribbean nation – compared to the DR’s estimated $600 million in annual exports.
“Next year must be even better,” Machado said at the beginning of July while touring several tobacco plants in Pinar del Rio.
Local media reports that tobacco farmers are planning to plant 18,700 hectares for the 2017-2018 season, 700 more than the previous one.
A particular focus is given to the so-called “Tobacco Triangle,” made up by the municipalities of Consolacion del Sur, Pinar del Rio, San Juan and Martinez and San Luis, which jointly compromise the area known as Vueltabajo.
In Vueltabajo, several thousand hectares with a number of tobacco varieties are planted every year, from which are extracted 65 percent of the best leaves used to make Habano cigars, Cuba’s fourth largest export category, after biotech products, nickel and sugar.
Now tobacco farmers are preparing the soil, selecting the best areas for seeding, and expanding their capacity to cure the leaf. About 30 pumping stations have been installed and electrified while dozens of wells are being drilled to ensure enough water despite the drought impacting the island.
Since 2010, Vueltabajo has shown a systematic increase in the growth of planted areas, matching Cuba’s economic needs and development projections.
The area will see five varieties of the plant in 2017-2018 season, considered more resistant to disease and with greater yields.
Last week, a new tobacco processing plant was opened in Las Ovas, a few kilometers east from the provincial capital.
Located in what was a large abandoned warehouse at the entrance of the city, the installation seeks to prepare and classify all the leaves to be used in cigars, which are made for export.
Francisco Gonzalez, director of the state-run Pinar del Rio Tobacco Company, explained that the creation of this center is part of a strategy to consolidate tobacco-related activities formerly carried out across a number of facilities.
“Thus, the raw material will reach the factories already classified and prepared, and the factories will only have to roll the cigars and finish the production,” said the sector official.
Cigar Wars
Victor Taveras, director of the National Tobacco Institute (Intabaco), recently announced that the Dominican Republic is the world leader in hand-rolled cigar exports. Cigar exports from the Dominican Republic topped $600 million dollars in 2013. In fact, eleven of the Cigar Aficionado Top 25 Cigars of 2013 were made in the Dominican Republic.
In October 2002, Altadis S.A. (now Imperial Tobacco) bought a 50% stake in Habanos S.A.. Some reports suggest the price was about $477 million for the 50% stake.
Habanos S.A. 2014 sales are estimated at $439 million.
Preparing for Re-entry to the U.S. Market
Habanos S.A. has promised to preserve the quality of its Cohibas, Montecristos and Romeo y Julietas should it need to ramp up production to meet any new U.S. demand, which it estimated at 70 to 90 million units per year right away if the U.S. were to remove the embargo.
Isolate North America in the above graphic to display Cuba’s relative contribution to the rolled tobacco export value in the region.
“Some might consider that figure a little conservative, but I can tell you that with that figure, 25%, we would be the market leaders,” Jorge Luis Fernandez Maique, commercial vice president, told reporters at the start of Cuba’s annual cigar festival in 2014.
Prospects of the U.S. removing its 55-year-old ban on trade with Cuba improved after the U.S. and Cuba announced in 2014 their intention to restore diplomatic relations. Since then, former President Obama has lifted Cuba-specific import restrictions for “personal consumption.” This means Americans can return from Cuba with up $800 of Cuban cigars (or any combination of Cuban-origin products). Yet the embargo still restricts the sale of Cuban products in the U.S. President Trump’s modification of certain Cuba regulations do not impact current Cuban cigar importation rules.
U.S. cigar sales have waned since the 1990’s cigar boom, but demand for premium cigars remains firm.
With the U.S. cigar market totaling about $8 billion annually, representing about 34% of the world market, the market opportunity for Cuban cigars in the U.S. translates into orders of magnitude increases in Habanos S.A. revenues.
Fernandez Maique and Javier Terres, the vice president for development, declined to estimate the sales impact in dollar terms because it might betray the company’s U.S. pricing strategy.
