Pedro Perez—Former President, Tabacalera
A talk with the man behind Tabacalera, Spain's $7 billion tobacco company.
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Perez: Yes. And this is why we were approaching American companies. We thought at the time that General was the best company for us. It was the leader in the premium segment.
CA: Did you talk to other companies besides General Cigar?
Perez: This is quite confidential.
CA: Explain to me how you see an association benefiting each party?
Perez: Well. General Cigar is the appropriate complement for Tabacalera and vice versa. In the sense that, for Tabacalera, General Cigar can be the company for increasing our presence, and increase the portfolio of General Cigar with the United States. For instance, General could introduce our Canary Island cigars, which are, as you know, wonderful cigars. General has the distribution in the United States. Macanudo, to begin with, could be introduced in Europe through Tabacalera. We can give General the muscle for their products in Europe.
CA: How can the association between Tabacalera and General Cigar benefit your business in the United States?
Perez: The market in the U.S., thanks in part to your excellent work, is booming for the first time in many years. Last year was a year of recovery in the U.S. cigar market. The evolution this year is confirming this trend and we perceive that this trend can be maintained in the future. It means that, as you know, the United States is suffering a shortage of good, handmade cigars. We have the capacity to supply more handmade cigars and we have a wonderful product.
CA: You are the largest purchaser of Cuban cigars. The embargo is not going to last forever. What plans or ideas do you have after the embargo that will benefit Tabacalera and will benefit General Cigar?
Perez: And also Cuba, of course.
CA: But how will the association help General Cigar? Is this deal in preparation for the end of the embargo so that the very next day after the embargo ends, you could be selling Cuban cigars in the United States?
Perez: It is quite clear that we have a severe shortage of Cuban cigars. Being the first client of Cuba made it necessary to work with the country and this is why we designed a resource program where we give all supplies necessary for the tobacco crop.
CA: For the entire farming operation, or just the portion that relates to your needs?
Perez: Related to our needs.
CA: That means about 50 percent of the tobacco farms, in the Vuelta Abajo, for example, would be financed directly by you? Do you get involved in the farming operations directly such as owning land or leasing land?
Perez: No, this is the way that it works: In advance of the crop, the Cubans provide us with a list of needs and the supplies they consider appropriate every year by item. We then buy the items and we ship them to Cuba. We assure that every farmer, cooperative and other growing concerns receive these goods.
CA: What are the items they receive?
Perez: Everything. Fertilizer, pesticides, implements, clothes and shoes.
CA: How many acres do you support through your activities?
Perez: Well, there are a total of about 26,000 hectares [57,000 acres] of tobacco land in production in Cuba. [Tabacalera supports half of that acreage.] We also work with the factories.
CA: How much in dollar value does your investment represent?
Perez: Roughly $25 million.
CA: Does that mean it's rolled over?
Perez: Yes. It's a sort of a pre-financing mechanism.
CA: So you put up $25 million, then you buy and they deliver your cigars; they deduct the $25 million, you pay them the difference. You are like a bank. And next year, same thing happens. And I assume each year as their production goes up, your loan goes up?
Perez: Yes, For instance, the plan for this year was, in cigars, 28 million cigars.
CA: Of that 28,500 acres, does that cover just tobacco for cigars or for bulk tobacco, too?
CA: Everything. What percentage of that would have been for cigars?
Perez: You have to take into account how land is used for tobacco production. You have a number of acres which have traditionally been used for growing wrapper.
CA: In dollar value, of the $25 million, how much would go towards cigars, versus how much would go for leaf?
Perez: I say, more or less half.
CA: This is obviously a critical service that you're providing Cuba because they're so desperately in need of financial support to be able to grow tobacco and manufacture cigars. It sounds like a win-win situation.
Perez: That is the target.
CA: What are you doing to help increase production? Financing existing production is all right, but to what extent are you involved in their planning of increasing production so that their exports grow?
Perez: Of the elements we discussed two years ago, we made plans to almost double the production. We decided to provide incentives.