The cigar economy is much more than supply and demand. We already know there are unique forces in tobacco cultivation that drive up cost, process, labour, and specialised equipment among them. But what else? I tapped the expertise of Larry Palombo, former Altadis USA Vice President of tobacco and a veteran with over 45 years experience in the premium tobacco business, to help understand tobacco valuations.
GROWING TO A GRADE
Wrapper tobaccos are, far and away, the most costly component of a premium cigar. Grown under shade cloth in Connecticut, Nicaragua and Indonesia, wrapper grade leaf is expected to be visually appealing, consistent and without defects; the process to reach top grade is slow, labour-intensive, and expensive. In the case of Connecticut shade, it is only used for wrapper – cultivated using specific methods to hit that top grade target. There are no fewer than five additional factors that can cause tobacco costs to soar:
Location – the sun grown leaves cultivated in Africa are superb, but simply hauling genuine Cameroon tobacco to market from the country’s remote farms is a costly challenge.
Yield – Although the purchase price of tobacco from farmers is not high, processing costs and poor yields make Connecticut broadleaf one of the most expensive tobaccos used in the manufacture of premium cigars.
Demand – It is big for the high primings of Ecuador Havana, especially the Cuban seed variety. It’s strong, tough and spicy and very popular.
Sourcing – There are two ways to buy tobacco; make the arrangements to purchase what you want, which is more expensive. Or you can finance a farm a year ahead, then take what you want from the harvest. The farmer will sell the remainder to another tabacalera.
Time – Your cigars may be blended with great tobaccos, but your investment can sit mid process for years before it’s smoked.
At the top of the price list are Connecticut grown shade and Connecticut broadleaf wrappers.
Surprisingly, so is the Connecticut seed that is grown in Ecuador, which I believe would be cheaper. The labour and land costs are also considerably less. There are more leaves of tobacco in a pound of Ecuador Connecticut – making real Connecticut more costly to use in the production of cigars.
Holes and breakage drastically reduce the value of any tobacco; but because the grower is trying to get only wrapper – quality leaves out of a shade plant, any damage – natural or man made – is fatal to a leaf’s future prospects. Noticeably damaged wrapper tobacco is simply dropped in the field: it makes no financial sense to put this tobacco through curing, fermentation and sorting.
A six to seven pound yield of Connecticut shade can produce 1000 cigars – three times more leaf, making it three times more costly. Even though the cost to purchase broadleaf is relatively low, processing the leaves sends costs through the roof.
Sorting and grading separates out the wrapper quality leaves, which are fermented up to a full year to be uniform in colour and for proper burn. So much of the investment is lost, as the full fermented wrapper yields very poorly at the factory: some ends up on bundle cigars or as binder.
Because the leaves are so big and veiny, there is huge waste. Even leaf can only be used to make two premium cigars.. so much of the leaf actually goes to scrap. Yes, markets will always dictate prices and while trends will emerge, preferences evolve and flavours fall in and out of fashion, these are the costs that growers must endure to provide us with the cigars we love.