Cigars and Cuba: 50 Years of History
- | From Cuba, January/February 2009
Alejandro Robaina walks slowly with a gentle shuffle from his bedroom to the porch of his pink stucco house, just outside the western Cuban town of San Luís, to greet visitors. The famous tobacco grower, who will be 90 years old this spring, is still tired from his late morning nap, but the same generous and warm smile in his deeply lined face surfaces from his grogginess. His eyes look a little glazed and dull. His thoughts are more reflective. His words are more deliberate. He is weary after what amounts to nearly a century of life on one of Cuba's greatest tobacco farms.
"It's always difficult in the countryside," says Robaina, during a lunch at his plantation in October. "It's going to be difficult for people to plant tobacco this year. They just don't have anything. There is nothing here. They are more likely to plant beans than tobacco."
Two hurricanes last September raised havoc in most of the key agricultural areas of Cuba, although Robaina's wrapper tobacco farm in the Vuelta Abajo was less affected than others. The rich red soil here had dried, and was ready for planting. His three large curing barns were still standing and functional. But tobacco growers in other parts, particularly east of Pinar del Río in the Semi Vuelta, were much less fortunate. They had little or no provisions and their land and curing barns were in ruin. Their dire predicaments put a question mark over the tobacco crop for this year as well as cigar production in the near future.
But cigar production in Cuba has always had its ups and downs. The political change on the island after Fidel Castro came to power 50 years ago has been seismic, with pervasive sociological and economic upheavals. Yet the way Cuba grows tobacco and produces cigars remains essentially the same with the exception of the nationalization of factories and some farms.
"Growing tobacco has always been a hard life in Cuba," says José Orlando Padrón, the patriarch of one of Nicaragua's best cigar manufacturers. Padrón, 82, was born on a tobacco plantation near the town of Pinar del Río, but left the island in the early 1960s. His relatives still own and work the Vista Hermosa farm there. "It was [a hard life]. It [still] is, and it will [continue to] be hard. Life doesn't change in the countryside."
Most of the farms that grow tobacco for Cuba's cigar industry remain in the hands of families, but the government took over some of the large farms of Padrón's era under two key agricultural reforms beginning in 1959. Venerable locations such as El Corojo, La Esperanza and San Vicente are all government-owned and -managed. The grand houses of rich families are now offices, or divided into apartments for workers. The warehouses that once were full of tobacco are gone or used for other purposes.
"Everything was done in the La Esperanza before the revolution," says Carlos Toraño, who lived on the great finca near San Luís as a boy before emigrating from Cuba to Miami in the early 1960s, like so many others. He now makes cigars under his family name in Nicaragua and Honduras. "We did everything with the tobacco from the seedbed to the fermentation to the selecting and to the aging. We sent the tobacco in bales to the factory ready for rolling. We had hundreds of people working for us. We had three or four massive warehouses [to process and age the tobacco]. The tobacco was sent all over the world, especially Tampa. There were so many factories in Tampa. Now there are none."
The fundamental difference in growing tobacco and making cigars now compared to 50 years ago is that the government controls or owns everything. "It's very simple," says Hiroshi Robaina, the grandson of Alejandro who has been managing the family-owned property on his own for the last three harvests. "We have one client, and we have one place to buy everything. At least prices are up three to 10 times in the last few years for good tobacco."
According to Daniel Solana, a former vice minister of agriculture and head of Cubatabaco, a governmental organization that once oversaw the entire production of cigars on the island, more than 100,000 farmers and their families plant tobacco each year in Cuba and most are members of cooperatives, which band together for financing, agricultural supplies and knowledge, and sales of leaf tobacco. Solana is retired, but he has lived through the changes in the country's cigar industry, and believes it has never been better.
"It's a total change [from 50 years ago]," says Solana. "The farmers grow their own tobacco, and in the final stage, when the tobacco is totally dry in the curing barn, the government buys this tobacco. This tobacco goes through processing and selection in the government warehouses and then is shipped in bales to the factories."
He said that the change occurred in the early 1960s when the revolutionary government created Cubatabaco, which was primarily in charge of cigar and cigarette production on the island as well as retail distribution of tobacco products and matches. The organization controlled more than 100 cigar factories that had been nationalized a few years earlier, when small independent rollers or factories (called chinchalles) were phased out. Meanwhile, tobacco farming was centralized under the National Institute of Agrarian Reform. The names of the organizations have changed, but essentially the system works in the same way today, with the government controlling tobacco growing and cigar production. In the late 1960s, the government moved to include more women in producing cigars under the so-called plan tabaquera, Solana says. Until the revolution, women accounted for only about 5 percent of the workforce. So Cubatabaco, under direct order of Castro, organized a program to teach women how to roll cigars as well as learn tobacco processing. One of the schools later became the home of Cohiba and Davidoff. El Laguito, which is in the Havana suburb of Siboney, remains the "mother factory" for Cohiba, overseeing all the production for Cuba's most prestigious brand.
"This plan was a total success," says Solana. "About 10,000 women were hired to take part in this plan. Each municipality in Havana had one training center where the women were taught how to roll cigars. This also served the purpose of creating a workforce that could in time replace the old cigar rollers. The women rolled cigars with the same level of quality that men rollers produced, and new job opportunities were made available to women. This plan was later extended to the rest of the country . . . . Nowadays the ratio has changed significantly: 65 percent of the rollers are women and only 35 are men."
The biggest change for cigar production after the revolution was the end of the export of premium tobacco in bales because of the U.S. trade embargo imposed in February 1962. "Before the revolution the best wrapper and filler tobacco from the best farms went directly and only to the United States," Solana adds. "The cigars were then rolled in the United States. They were rolled in Tampa [and Trenton, New Jersey]. The statistics show what I am saying. We have never again exported, after the revolution, any wrapper or filler tobacco [to the United States]. All the filler tobacco grown in the Vuelta Abajo stays in Cuba. None of it is exported; so it has been for 50 years . . . . That means the best quality tobacco for Cuba."
The newly established state-run cigar business went into full swing in the early 1960s. The government realized that cigars could be a steady source of foreign currency for the social and political programs of the fledgling communist state. Some people believed that Castro, who at the time was a keen cigar smoker himself, had the idea to produce one single brand instead of the dozens of names from Partagas to Sancho Panza, but Solana strongly refutes this. "This is not true at all," he says. "It was totally the opposite. We had clear instructions from Fidel to continue to create new brands for export cigars."
However, the loss of the U.S. market, both for rolled cigars and leaf tobacco, drove the new government to create a strategy for selling the country's premium black tobacco. According to Jean Stubbs in her book Tobacco on the Periphery: A Case Study in Cuban Labour History, l860-1958, "The cigar export industry had been particularly badly hit by the US embargo, given that (on 1958 figures) over two-thirds of the volume of leaf exports [and] half the volume of cigar exports—even higher proportions in terms of values—were accounted by the US market."
There was also a brain drain from the island as many educated Cubans left their homeland. Many of the key people in the cigar trade in Cuba migrated by the time the embargo had been imposed. Benjamin Menendez left slightly before then, but he remembers his cigar factory, H. Upmann, being nationalized, and the loss of knowledgeable and experienced people in the cigar trade in Havana. "The government was not ready for it," says Menendez, who after leaving Cuba produced cigars in the Canary Islands and Brazil before working for Altadis U.S.A. Inc. and General Cigar Co. He still consults with the latter. "They didn't have the contacts. The first echelon walked out."
Without the U.S. market, Cuba realized that it had to focus its cigar-selling efforts in Europe, mostly Spain, France, Switzerland, Belgium, Holland and Great Britain. The Soviet Union and other Eastern Bloc countries later became important markets as well, although mostly for machine-made and cheap handmade cigars. According to Stubbs's book, cigar exports were about 79 million in 1958 and dropped to about 55 million in 1970 before increasing to about 120 million by 1976.
"We had lost the U.S. market at that time," says Solana. "We started developing other markets that included the countries from the former socialist bloc. The socialist countries were not a major market but, without doubt, they were seen as a new opportunity to increase our sales. We sold around 10 million cigars to this market each year. Cubatabaco also opened two representative offices abroad: one in Holland and another in Spain. The main purpose of these offices was to promote Cuban cigars throughout the world."
Cigar exports stayed at about the 120 million level until the end of the 1970s, when an attack of blue mold decimated the entire 1979-80 crop, and Cubatabaco reduced exports to compensate for the shortfall in tobacco. A wet harvest in 1981-82 only added to the woes of the country, although the blue mold was controlled with antifungal chemicals. "The blue mold [in the '79-80 crop] wiped it all out," says Solana. "The loss in money was immense—several millions of dollars. Factories were unable to produce cigars due to the lack of tobacco. We lost the money that was used to buy chemicals against the blue mold. The economy suffered greatly."
With less tobacco and consequently lower cigar production, Cuban exports dropped to about 50 million cigars by the mid-1980s. The worried government decided in 1984 that a young and highly respected economist, Francisco Padron, would take over as head of Cubatabaco. He was given a free hand to do what he wanted. "In 10 years, I put exports at about 110 million cigars," says Padron, who is now retired and writing books in Havana. The outspoken pragmatist lasted a decade with Cubatabaco, which was renamed Habanos S.A. in 1994. He drastically changed the way Cuban cigars were distributed and marketed in the world as well as introducing foreign investment in the cigar industry for the first time since the revolution.
The quality of Cuban cigars reached a new high in the late 1980s and early 1990s, but exports seldom reached more than 100 million. The overall Cuban economy was thriving thanks to a huge amount of Soviet aid as well as trading revenues. Farms in the Vuelta Abajo had the resources to grow quality tobacco and it was processed and aged properly. Factories had experienced and diligent workers who produced some of the best cigars in the history of the island. Demand was steady abroad for their cigars. Cubatabaco would sell the cigars to importers in key markets, then each agent would be responsible for the distribution and marketing of the brands. Some countries had a number of agents or distributors, although the biggest markets such as Spain and France were controlled by state monopolies. Some outside companies such as Davidoff and Dunhill sold their own Cuban cigars under their own labels.
"You could argue that there was more brand building in those days, certainly at a sales force level, because we were selling our brands against other Cubans as were the other Cuban distributors against ours," says Simon Chase, who began selling cigars in the 1970s for the United Kingdom's Hunters & Frankau. "The retailers had more power in those days, too, with many of them having their own long-standing frontmarks for certain sizes. We stood out because we did more marketing—advertising, PR and promotion—than the other U.K. distributors. We were able to create new packaging and, in certain cases, new sizes with the minimum of control from Cubatabaco."
But Chase said that Padron didn't like such autonomy in key markets because he thought it was confusing to the consumer. Moreover, Padron said that he could make Cuba more money by taking an active role in the distribution. "If I am the owner and I have the cigars, I want to control the distribution and not just the sales," says Padron. "I want to control the quality of my cigars and the way my cigars are handled, as well as participate in the profits."
Padron chose the best agent in each market and told it that his organization wanted 50 percent ownership of its company. If the agent said no, he wouldn't ship it the cigars it needed. "So I broke in one day 240 contracts," he recalls. "I don't remember exactly, but on the same day, I sent the telex to everybody all over the world."
He claims none of the agents fought the change. Nonetheless, a few did, and the biggest fallout was with Davidoff of Switzerland, which had become one of the most prestigious Cuban brands in the 1980s. "I wanted 50 percent of the sales profit from Davidoff cigars," says Padron, who added that Cubatabaco owned the Davidoff brand name in key markets such as France and Spain at the time. "They wouldn't agree. But it was fair because the name Davidoff was made because of the Habanos cigars! I told them that I would not send them cigars anymore if they didn't agree."
After several meetings, the Swiss firm decided, in the early 1990s, to move its cigar production to the Dominican Republic, and paid Cubatabaco $9 million for the brand in markets it did not already control. Davidoff claimed that it broke the production agreement with the Cubans because of inconsistent quality in its cigars, and it made a strong public relations campaign in France and Switzerland to say so, including a public bonfire of thousands of Davidoff Cuban cigars in Paris.
"It would have taken six or seven years to come to a decision on this dispute in court," Padron says. "And it would have cost about $1 million a year in lawyer fees. I thought it was better to take the money."
Padron launched the Linea 1492 Siglo line of Cohiba a short time after the Davidoff agreement, which covered all five sizes of the Swiss company's prestigious Château line. Ironically, Davidoff couldn't get permission from the top Bordeaux wine estates to continue the range in its factory in the Dominican Republic. Some, such as Château Lafite, only wanted to be associated with Cuban cigars.
While all this was happening in the cigar world, Cuba's economy was imploding. The island was only a year into its "special period" and needed hard currency from cigar exports as well as anything else salable. It had lost most of its support and trade with the former Soviet Union, which had nearly been dismantled by that time, and the other Eastern Bloc nations. Cuba's gross national product dropped by more than one third, with exports reduced nearly 80 percent.
Cubans had shortages of everything in the early 1990s from gasoline to food to electricity. The cigar industry was also suffering, with little money to invest in the necessary infrastructure, both in farms and factories. Padron decided in 1993 to ask his key distributors for money to fund the tobacco harvest, with the payments as advances on future cigars.
"I remember speaking to the then head of our Spanish agent Tabacalera,Pedro Perez, and he told me that I wasn't sending him enough cigars," Padron says, adding that the Cubans didn't have enough tobacco to make more. "So I asked them to put in $25 million and my other agents a combined $20 million. I was financing myself. So for the first time, I put all the money in the agriculture they needed in order to increase production."
Despite all the change he initiated in Cuba's cigar industry, Padron felt compelled to resign as head of Cubatabaco in 1994 due to differences with various ministers in the government. His new ideas may have been too innovative for some officials. "I was not happy anymore and you have to be happy doing your job," says Padron, who subsequently worked for some time as a professor at the University of Havana.
But the structure for growth had been established, and Habanos S.A. and the Cuban government had big plans for cigars. By the mid-1990s, production had been ratcheted up significantly. Habanos officials were talking about exporting 200 million cigars a year by the millennium. Some even said 300 million cigars.
Although exports never reached 200 million, the unbridled expansion was a disaster. From about 1998 to 2001, the country produced close to 160 million cigars annually for export and many were of inferior quality. The main problem was construction—millions of cigars would not draw properly. Moreover, the blends for various brands were less defined. Some critics said the cigars all tasted the same and that factories used too young tobacco to make the cigars in haste.
"We learned a lot from that," admits Manuel Garcia, commercial director for Habanos, who said that the decline in quality was not due to bad tobacco but poor rolling. Essentially, the factories didn't have enough experienced rollers to make all those extra cigars.
Adds Padron, as an outsider looking in, "I told them that in order to push 200 million cigars, you have to push all the tobacco that you have in the warehouse, and start using wrapper from the same year. That is a mistake. You are going to put down the quality for the next year and the following five years. Besides, nobody was going to smoke 200 million cigars anyway."
Near the end of this production expansion, the Cuban government decided to sell 50 percent of Habanos to Altadis S.A., the world's largest cigar company. The price was $477 million. A large part of that was debt already owed to Altadis, which is also the owner of Altadis U.S.A. Ever since, Habanos has been jointly managed by a team of Spaniards from Altadis and Cubans. Last year, Altadis was acquired by British tobacco giant Imperial Tobacco PLC, although so far nothing has changed at Habanos. Cigars are a tiny part of Imperial's annual revenues of close to $24 billion.
That could change one day if the U.S. trade embargo is lifted. Through Altadis U.S.A., Imperial owns a number of key cigar brands in the United States, including Montecristo, H. Upmann and Romeo y Julieta. Owning the brands both inside and outside the States would simplify questions of brand ownership and make distribution of Cuban cigars much easier in the U.S. market.
"Let's see what happens," says Garcia. "Around 150 million Cuban cigars are consumed in the world and the American market consumes around 300 million, more than double. So Habanos is going to have a lot of possibilities in that market in case of a possible opening. It is my opinion that if we have the possibility to enter the American market, not all the smokers are going to quit smoking the other products from other origins to smoke Habanos. A group of these smokers is going to smoke Habanos, but not all of them. So I think that Cuba is creating a reserve of raw material, creating the infrastructure and [making sure] the land is available to increase our production."
Tobacco growers, such as the Robainas, are equally excited about the possibility of the U.S. market opening. Alejandro said that plenty of the best land for planting tobacco—vegas finas—is readily available. In addition, farmers in the Vuelta Abajo have the knowledge and dedication to grow and process the tobacco. When this might happen is the big question, especially for the aged Robaina. He spoke to Miami's Orlando Padrón by cellular phone the day this editor visited his farm and joked: "Orlando, are we ever going to do business together one day? Let's hope I live long enough to see the day!"