Job losses loom as US tobacco firm reduces Thika operations

Money Markets

A tobacco farmer in Migori County. PHOTO | FILE 

By JOHN GACHIRI

In Summary

• Alliance One International had contracted some 1,000 farmers to grow tobacco in Migori County and was processing tobacco leaf for export.
• Tobacco products are under siege from regulators concerned with impact on health budgets and welfare of citizenry

US-based tobacco company Alliance One International expects jobs losses after it started scaling down its local operations in response to the poor global outlook of the industry.

The processed leaf exporter said beginning this month it will no longer contract farmers to grow tobacco and would reduce the staff at its Thika-based processing plant.

The multinational had contracted some 1,000 farmers to grow tobacco in Migori County and was processing tobacco leaf for export.

“The company will also cease its field operations as of July 1, 2015, leading to the downsizing of the positions in the company and by extension the employees holding those positions. The company intends to follow due legal process in undertaking the scaling back,” said the foreign firm in a statement.

Management said reduced global demand for tobacco had led to the decision. Tobacco products are under siege from regulators concerned with impact on health budgets and welfare of citizenry

“Alliance One is proud to have been a part of the tobacco industry in Kenya for the past 25 years, but unfortunately customer demand for the Kenyan supply has declined and the company has been forced to realign its operations to changing market conditions,” said its Kenya managing director Francis Chege.

The firm did not indicate how many employees or out-growers would be affected by the move but its 2014 sustainability report says that Alliance One distributed fertiliser to around 4,000 farmers in the year.

Other local tobacco processors have had mixed performances on the international market.

A coverage note on BAT by Standard Investment Bank says that the listed cigarette maker has had robust sales from exports but has cast doubt on whether overseas sales would be maintained in markets such as Egypt.

“We think the worst is over for this division given stability in the market and the likelihood that government there will be vigilant on taming illicit trade henceforth,” said the report by Standard Investment Bank.

“In our estimates, we have not factored any future upside in that market despite the attractiveness.”

BAT has a robust export business in Kenya for both finished products and cured leaf.