29 June 2010 | Nick Martindale
Tobacco firm Philip Morris International (PMI) has extended its direct sourcing policy by taking over contracts with 17,000 farmers in southern Brazil.
The company’s Brazilian division, Philip Morris Brasil Industria e Comercio (PMB), reached agreement with two of its processing suppliers in a move designed to generate cost efficiencies and ensure security of supply.
PMB will manage approximately 8,500 contracts from each of Alliance One Brasil Exportadora de Tabacos (AOB) and Universal Leaf Tabacos (ULT).
Martin King, senior vice-president, operations, at PMI, said: “PMI will further ensure the sustainability of its leaf supply in Brazil, improve cost efficiencies and enable us to better align leaf supply and demand.
“We are confident that through our direct involvement with the farmers, as well as the wider tobacco-growing communities, we can have a greater impact on improving their long-term economic sustainability.”
Under the terms of the deals, PMB will employ more than 200 people – most of whom are agronomy experts – and acquire “related assets” in southern Brazil.
AOB and ULT will continue to process tobacco grown by farmers contracted to PMB and will also supply any additional leaf requirements.
The transactions are subject to approval by the Brazilian competition law authority CADE but are expected to be completed by the end of the third quarter of 2010. If ratified, the direct contracts will account for around 10 per cent of PMI’s global leaf requirements.