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Growing Nicaragua

Despite Dictators, Revolution, War and, Last Fall, Hurricane Mitch, Tobacco Men in Nicaragua Keep Planting and Rolling

"Se tiene que dar mucha nariz," Jose Orlando Padrón is telling his nephew Gabriel. ("You have to give it a lot of nose.") Padrón picks up the bundle of tobacco leaves and parts them as if opening a book. The patriarch of Padrón Cigars is, in effect, getting a read on the quality and progress of this batch of Cuban-seed leaf, part of the 120,000 pounds that are being stored in nine buildings around Estelí, Nicaragua, the country's cigar capital.

Padrón's son Jorge has flown in and is all business. "There's nothing to do but work," he says. This is not a complaint. "I've got a lot to learn yet. It's important that I spend time here." He chuckles as he watches his father repeat a process that he has seen him do hundreds of times. "This is the secret," Jorge Padrón says with a nod in his father's direction. "The secret to success: to have tobacco."

Last fall, that secret became a matter of survival for the Padrón family. One of their two farms, which they had owned for 20 years, was scoured by floods caused by Hurricane Mitch. The topsoil was washed away. The parcel of land that had once given fame to the brand and the country is now little more than a field of rocks. Happily, no tobacco had yet been planted.

"The place is a disaster," Jorge Padrón says. But he adds, "We were fortunate that we didn't have any losses to the factory, or to the warehouses where we keep the tobacco. Production is up and running. Everything's normal." The company did, however, lose two curing barns.

The loss of the Padrón farm--it will likely never be used again--was about the worst loss suffered by any of Nicaragua's cigarmakers.

"Nicaragua has a lot of land," Jorge Padrón says. "The problem in Nicaragua is the lack of infrastructure and barns. We're going to have to build barns. We'll purchase other properties and we'll build the barns on it."

Despite the devastation it brought to Central America last fall, Hurricane Mitch amounted to little more than a brief interruption for cigar production in Nicaragua. Most insiders estimate that industry losses amounted to just 5 percent, mainly because most producers had not yet planted new crops. Excess humidity caused producers to halt rolling for several days during the intense rains. Some stored tobacco was damaged by floods and, most significantly, the homes of an unknown number of workers in the industry were destroyed. Cigarmakers have provided direct help and have mounted fund-raising efforts. The Padróns raised more than $72,000 through mid-December.

If the estimates are correct that Nicaragua was set back 20 years by the damage done by the hurricane--mostly to infrastructure such as roads and bridges--then it is all the more remarkable how unaffected the local cigar industry was.

The boom that propelled the cigar industry in Nicaragua, as elsewhere, has leveled off, and so has the fierce competition for raw materials. U.S. imports of Nicaraguan cigars dropped 16 percent in the first half of 1998. Of the nearly two dozen cigar companies that were doing business in Estelí a little more than a year ago, approximately 10 remain. Although the number of players is shrinking, the quality of tobacco coming out of Nicaragua is at a 20-year peak.

"I think we're getting to the point we were at before the Sandinista [revolution of the 1980s]. Perhaps we're already there," says Juan Francisco Bermejo, a co-founder of the old Nicaragua Cigars company in the mid-1960s, the original maker of Joya de Nicaragua. "Before the war, the best cigar in the world was Joya de Nicaragua."

In 1972, Bermejo sold his shares in the factory to co-owner Gen. Anastasio Somoza, who, as it happened, also ruled the country. After that, Bermejo was involved in another couple of factories, both of which were burned down in the early days of the Sandinista revolution. He left the country after that, returning in 1995 to open his new factory, Nicaragua American Tobacco S.A., or NATSA.

"I can tell you that for a while now we've had the same quality that we had in 1979," Bermejo says, seated in front of a shelf full of trophies won by the company's baseball team. "The Nicaraguan cigar is recovering its prestige. The agricultural sector has also recovered, and so has the shade-grown wrapper." All of NATSA's production, approximately 60,000 cigars a day (as of last September), goes to Cigars by Santa Clara, which is the importing and wholesaling arm of 800-JR Cigar Inc., the largest U.S. cigar retailer.

Like other longtime cigar manufacturers, Bermejo believes that the end of the boom, which some refer to as "stabilization," will help bring recognition to the Nicaraguan cigar. "The stabilization will not adversely affect the quality of the Nicaraguan cigar, it will improve it," Bermejo predicts. "This year the Nicaraguan cigar is better than last year, and next year it will be better than this year. Why? Because it's an industry which has been reborn."

Over the past 20 years, Nicaragua has seen more war than peace, more state control of the economy than private enterprise, more bad than good. Before 1979--and this is what led to the Sandinista revolution's triumph--Nicaragua had more than 40 years of less-than-benevolent rule by the Somoza family.

Conventional wisdom, disputed by some in the industry, holds that it was Anastasio Somoza who gave birth in the mid-'60s to Nicaragua's modern cigar industry. Recognizing that a large number of Cuban tobacco growers and cigarmakers had fled the Castro revolution, he invited some of them to take a look at Nicaragua.

"I'm proud to say that my father [Sixto] was one of the pioneers," says Nestor Plasencia. "We got to Nicaragua in 1965. I was still young at the time. And that's where the planting of wrapper leaf began in Nicaragua. Basically, three zones were opened: the Estelí valley; the Condega valley, a valley which is 35 kilometers from Estelí; and the Jalapa valley, on the border with the Republic of Honduras."

The Cubans went to Nicaragua in search of land similar to that which they knew in Cuba's Pinar del Río. "In Cuba, we grew tobacco in November, December, etcetera, and we had winds from the north," Plasencia explains as he looks out at the new irrigation tubes poking out of his fields. "The temperature would fall and would be quite cool. Here we are much farther south than Cuba, but we have the same [climatic] effect with the altitude."

Somoza gave priority in the mid-1960s to the cultivation of tobacco. Cigarette tobacco had been grown in the area for more than 100 years, but now the focus began to shift toward cigars. With the support of a new government agency called INFONAC--which was created by the nation's central bank president, who lived in Estelí--Estelí grew rapidly into the cigar capital of the country.

"INFONAC [Instituto de Fomento Nacional, or Institute of National Development] strongly developed and collaborated in promoting the planting of tobacco, cigar factories and all that," Plasencia recalls. "INFONAC would buy all the imports--insecticides, fungicides, the cloth for the shade-grown wrappers--and machinery necessary and would make them available to the industry. There was an enormously large amount of cooperation on the part of the government in developing and promoting the tobacco industry."

Like the Plasencias, the Perez and Toraño families have been involved with Nicaraguan cigar tobacco since the 1960s. Jaime Toraño, in association with Alfredo and Silvio Perez, began growing tobacco in the Estelí area in the late '60s, according to Jaime's nephew, Carlos Toraño. The younger Toraño now heads Central American Tobacco and Toraño Cigars and is associated with Habanicsa, a factory in Estelí that makes the Carlos Toraño label, among others. "At that time, and for a long time, the main client was General Cigar," he says. "Most of the tobacco that was grown was candela." (Candela is a once-popular green-leaf wrapper that is seldom found on premium cigars these days.)

"The truth is that in the 1970s, Nicaragua became the alternative in the United States to Cuban cigars and tobacco," Toraño says. "The basic brand, without a doubt, was Joya de Nicaragua, [which] became the standard of quality cigars in the United States." By 1976, Nicaragua was responsible for almost a fifth of U.S. premium cigar sales, second in production to the Canary Islands. The Central American country was also becoming the worldwide alternative for premium leaf tobacco, all of it descended from Cuban seed introduced in the 1960s.

The cigar industry in Nicaragua flourished until the Sandinistas took over in 1979. The new government still supported tobacco, but it took away much of the land. "We continued after that with the Sandinistas, but not farming ourselves directly," recalls Alfredo Perez. "They grabbed all the farms. The government was the owner." The Perez family had already expanded their activities to Ecuador. "We never stopped [working] in Nicaragua," Perez adds. "We couldn't farm the tobacco ourselves during the Sandinistas, but we were the ones who bought the tobacco from the government, gave them technical assistance and sold the tobacco." Now ASP Enterprises Inc., the Perez's Miami-based tobacco business, rents the land from private owners, plants the tobacco directly, processes it and sells it all over the world. (Today, Silvio Perez still oversees the family's tobacco operations in Estelí, while his son, Alfredo, and Alfredo's children concentrate on other aspects of their tobacco business.)

The Sandinistas' impact was widely felt. By 1990, exports of Nicaraguan premium cigars to the United States stood at 1.25 million. "In the 1980s, the tobacco industry practically suffered a great reduction," says Omar Ortez, the president of Condega, Nicaragua-based Agroindustrial Nicaraguense de Tabaco, which makes the Felipe Gregorio, Orosi, La Gianna, Hoja de Habano, Flor de Florez and Diamante brands and employs about 1,800 people. "Factories were working here, but there was not a large amount being produced. There was an increase in the planting of burley [cigarette tobacco] and a reduction in wrapper leaf. Only filler leaf was planted."

During those days, Ortez managed state-owned farms in Estelí and Jalapa. His own family's property was not confiscated because the acreage was too small. "There was not a broad sales structure during the Sandinista years. There was also a reduction in the quality of the tobacco because they were trying to produce volume," Ortez adds, noting that during the U.S. embargo, in the second half of the 1980s, most of the Nicaraguan production was sold to East Germany. Other tobacco insiders have claimed that some Nicaraguan tobacco ended up in Cuban cigars, though the Cubans deny it.

Another problem that arose during the Sandinista regime led to the destruction of the country's wrapper crop. During these years, the Cubans brought technical assistance and additional seed to Nicaragua. But a batch of seed they brought in around 1980 had not been sterilized and it carried blue mold, a tobacco fungus that ravaged the crop and wiped out wrapper production in Nicaragua.

In 1990, the Sandinistas, believing their own public opinion polls, felt confident enough to hold elections in an effort to win crucial international respect and assistance. They were voted out. The widow of Nicaraguan martyr Pedro Joaquin Chamorro, Violeta Barrios de Chamorro, was chosen to lead the government. Her son-in-law, Antonio Lacayo, served as minister of the presidency--a post similar to the White House chief of staff--from 1990 to 1996.

"The most important thing [our administration did] was to try to reintegrate, to the degree possible, the tobacco installations and lands to their owners," Lacayo recalls. (The reintegration was fairly successful, he says; owners were awarded land, though not the same parcels that they had lost.)

"I never thought that a socialist government like the Sandinistas could survive in Nicaragua. So I decided to stay," Lacayo says. "I thought it would be very difficult for the Soviet Union to give the Sandinistas the same kind of subsidy as was being given to Cuba. But then [the Sandinistas' cause was ironically bolstered by] the openness with which the Reagan administration showed its aggression toward that government with the creation of the contras. A lot of European governments with a social democratic bent supported the Sandinistas to demonstrate their independence from the United States. [France's President François] Mitterand did it; [Spain's prime minister] Felipe Gonzales did it; [Italy's prime minister] Bettino Craxi did it, [as well as] some of the Scandinavian socialists. They perhaps did not have the intention of supporting Sandinismo, but they did intend to show within their own countries that they were independent and autonomous from the United States."

By the time the Sandinistas were voted out of power, they had saddled the country with a debt of $12.5 billion, a staggering sum for a nation whose annual gross domestic product then was $1.8 billion, with only $300 million in exports. The service on the debt alone was $250 million. Today, while Nicaragua boasts Central America's fastest-growing economy with a GDP tallying annual increases of 6 percent, the population of the country has practically doubled since 1978. This means that it will take another 25 years of such GDP increases just to return to the per capita income levels of 1977, according to Lacayo.

Under a law that prohibits a president from being succeeded by a family member (a safeguard designed to prevent a re-run of the Somoza dynasty), Lacayo could not run for president in 1996. Instead, he focused his energies on agriculture in the private sector and concluded that the best contribution he could make was by planting wrapper leaf.

"Nicaragua's principal problem, after the war and the Marxist system of government in the '80s, is unemployment caused by an enormous drop in production during that decade," Lacayo says. "So, in the cigar industry, the Nicaraguan has a type of oasis of opportunity, as much in the countryside as in the cities, where there are processing houses and the factories making cigars. It's been a blessing, really, from every point of view, because this is the agro-industrial activity which generates the most employment at this moment in Nicaragua. It competes with the employment generated by the coffee industry, except that the cigar industry jobs are more permanent in that they go on all year. Coffee is seasonal."

Lacayo, who earned a degree in industrial engineering from Georgia Tech and an MBA from the Massachusetts Institute of Technology, gives the economics lesson while driving around his company's fields with his associate, Jose Joaquin Bendaña. An industrial engineer as well, Bendaña is a Nicaraguan-born ex-U.S. Marine, who is now an entrepreneur living in Teaneck, New Jersey. Their shade-grown wrapper fields are located near León, a town in western Nicaragua whose proximity to sea level makes it considerably hotter than the Estelí valley in the mountains to the northeast. Little of that cooling northern breeze reaches here. Many Cuban veterans in Nicaragua see this "new" location as risky, but admit that Lacayo's first crop was of high quality. Lacayo ages the leaves in possibly the most unusual curing barn in Nicaragua--an old abandoned foundry, a relic of the Sandinista days that was built in cooperation with the Soviet Union but never used for its original purpose.

Between taking calls on his portable phone, Lacayo explains that his company, Tabacos Nicarao, is named after Nicarao, the Nicaraguan Indian leader who negotiated a peace settlement in the year 1523 with the invading Spanish conquistador Gil Gonzalez de Avila. The meeting, commemorated in the company logo showing Nicarao offering a cigar to Gonzalez, took place in the southwestern part of the country and indicates that cigar tobacco was already known as a symbol of friendship and dialogue. That belief, along with an 1856 U.S. newspaper article, gave Lacayo and Bendaña enough faith to plant in the plain of León. The article is titled "The War in Nicaragua" and appeared in Frank Leslie's Illustrated Newspaper, the Time magazine of its day.

"This great plain produces," the author wrote, "in the most amazing luxuriance, any or every thing [sic] that ever was grown in a tropical country. Tobacco, superior to that of Cuba..."

Lacayo and Bendaña are using advanced technologies to make up for their lack of experience in the industry. Drip irrigation is used to grow Connecticut shade and Habana 2000 wrapper leaf, a reddish-brown, shade-grown tobacco. Some of the fields are planted with corn and sorghum "to clean the soil of nematodes [worms] left by the tobacco plant," Bendaña explains.

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