Feature Story: How the Nicaraguan Crisis Could Impact the Premium Cigar Industry

During the past month, Nicaragua has experienced its greatest political crisis since the Revolution. The unrest was initially spawned by protests beginning when the government announced it was mandating an increase in contributions by both employees and employers to the country’s social security system while reducing overall benefits. This resulted in a heavy-handed response by the government against the protesters creating pockets of violence, with some turning deadly. While President Daniel Ortega announced the government was backing off the plan, it has resulted in continuing protests and unrest calling for Ortega to step down. Over the last couple of weeks, protesters have taken to some of the countries key roads creating blockades, putting a squeeze on the transportation system and affecting businesses. One of the areas affected is the city of Estelí – which is pretty much the epicenter of the cigar industry. As a result, it has raised some questions on what this could mean for the cigar industry. Now, there has been an increase in the violence resulting from the protests – which has everyone in Nicaragua on red alert.

The Blockades

One of the roads that has been experiencing blockades has been the Pan American Highway on the south end of the city of Estelí. The Pan American Highway serves as the main artery through the country of Nicaragua, stretching from the border with Honduras in the North to the border of Costa Rica in the South. Within Nicaragua, it connects Estelí with the capital city of Managua – where the main international airport (August C. Sandino International Airport) exists for both commerce and passengers. In addition, roads around the airport itself are blocked. Many businesses, including the cigar industry, are dependent on this highway and airport to get supplies and export finished goods.  This has also affected the ability of some workers to come into work. This includes people in Estelí who work in the factories. It also includes those service employees who work at the airport.

Potential Impacts of the Blockades

Specifically for the cigar industry, these blockades are causing delays. It’s important to know the industry is still very operational in Nicaragua, but ultimately a transportation delay is going to cause major problems. The longer a situation like this exists, the greater the potential impact.

When it comes to the cigar industry, the transportation blockades can impact both distribution and production. From the distribution side, getting products from Estelí to the airport could be delayed, and what does get to the airport might be delayed getting out of or into the country. At press time, there have been some reported delays. How much of the delays are actually occurring is a bit an unknown, but the longer this goes on, the greater the impacts will be.

If delays become more of a problem in the short term, it couldn’t come at a worse time for many factories and brands in the cigar industry. This is a time where production is often focused on many newer cigars scheduled to ship following a formal launch at the IPCPR scheduled to open July 14th.

If production delays happen in the factories, it could have several ripple effects. Some factories create their own brands as well as cigars for other third-party brands. Ultimately a factory has a finite capacity to make a hand-made product. If workers aren’t able to get to the factory, it impacts the output from that factory. This could result in schedules not being met. If schedules are delayed, it is possible that many third party brands, particularly smaller ones, could get the short end of the stick.

Delays could also impact areas such as box production and labeling as well. Many cigar manufacturers already will tell you this is sometimes the most challenging part of scheduling when it comes to the cigar making process. Now imagine if deliveries of boxes and bands are impacted by the blockades. Even for the manufacturers, sometimes getting wood deliveries is a challenge. Plus if box-production workers cannot make it into the factories, there is a problem. If this problem continues, the possibility exists, we will see more in the way of bundled and unbanded cigars.

Finally, the blockades are also having impacts at the airport. Several cigar manufacturers have reported shipping delays and have reported that traffic out of the airport has been impacted by airport workers who have had difficulty getting to work due to the blockades.

Safety

From discussions with cigar industry personnel I have had on the ground in Nicaragua, the safety of the workers and their families have been a paramount concern.

In general, the tourism industry in Nicaragua had been one that is on the rise. The crisis in Nicaragua has led to the State Department to recently issue a traveling warning for Nicaragua and reduce U.S.embassy staff in that country. Realistically, this will have some impacts on Nicaraguan tourism. Tourism ranges from historical (such as the city of Grenada), ecological/outdoors (volcanoes, Lake Nicaragua region), beaches, and visiting cigar factories. While Nicaragua’s tourism is smaller compared to other Central American countries, it still is important to the country. At the same time, Nicaragua has prided itself on being one of the safer countries in Central America. Now the recent political unrest has changed that.

The growth of the cigar industry in Nicaragua has ultimately led to many companies and factories opening up their facilities to bring consumers in to see the operations. It has essentially spawned a small cigar tourism industry. Some places like AJ Fernandez have lodging adjacent to the factory, and Drew Estate’s Cigar Safari it serves as a mini-resort for a cigar vacation several weeks a year.

Getting in and out of Estelí has become a major problem. Not only are there concerns for the safety of cigar tourists because of the violence, but transit logistics are becoming very difficult. Two separate cigar companies who had organized tours for consumers told Cigar Coop that they were advising 10 to 12 hour lead time to get from Estelí back to the Augusto C. Sandino Airport in Managua. The cigar tourism season slows down in the summer months as Nicaragua enters the rainy season. It will be interesting to see how things change later this fall and early in 2019.

While smaller when it comes to cigar industry tourism, Grenada is one of Nicaragua’s biggest tourist areas. There is one piece of cigar tourism to note about Grenada. Mombacho Cigars’ Casa Favilli factory is located in Grenada. It was recently cited as a top place to visit by Trip Advisor. Grenada has not been immune to the protests that have been occurring throughout the country. Over the years, Mombacho Cigars has worked hard to promote Casa Favilli as a tourist destination – probably as hard as any company has. It’s very possible safety concerns could have an impact on maintaining this status.

Safety concerns are also affecting brand owners. Many brand owners in the cigar industry live outside Nicaragua but have their cigars produced within Nicaragua. The delays are affecting these people who regularly travel in and out of Nicaragua. With increased travel time, combined with on-going safety concerns, it may not be long before many brand owners suspend travel. It remains to be seen what those suspensions will mean for incorporating innovation and managing quality control for the cigars the brand owner is having produced in Nicaragua. Some industry personnel have resorted to traveling during the overnight hours or on back-roads, but doing that could present other safety concerns.

From discussions with various industry personnel, we’ve learned that has been an inconvenience of travel. Robert Holt of Southern Draw Cigars recently said on social media he canceled a trip to Nicaragua due to the current situation in the country. The question becomes longer term how the situation will affect the amount of time cigar industry people outside of Nicaragua will spend in the country. Many cigar industry personnel maintain tight schedules between the factory and working events in the U.S. The possibility does exist for traveling delays in the short term.

Other Potential Impacts

There are some other questions that could be raised should the situation in Nicaragua continue. One question is whether these delays on the production and distribution end will ultimately have an impact on pricing. Decreases in supply and increases in demand often lead to increases in pricing.

Another question could be quality issues. While many factories don’t cut corners, there will be pressure to meet demand. Depending on how companies deal with meeting demand, a possibility does exist that quality could end up suffering in some cases.

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The goal of this story was to lay out potential impacts to the cigar industry that exist due to the political unrest in Nicaragua. In a nutshell, the cigar industry (at press time) is operational. At the same time, it has not been immune to some of the effects of the activities taking place in the country. The next few weeks will not only be critical to the Nicaraguan cigar industry, but the country of Nicaragua as a whole.

Photo Credits: Cigar Coop, except where noted