Tobacco farmers had a bitter pill to swallow this season: For most farmers, the contracts offered for 2008 production did not keep pace with increased production costs. That meant that even if they produce leaf as efficiently as last year, they are still in danger of making less profit.
Something had to be done. At grower meetings over the winter, growers were looking for short-term and long-term solutions to the problem of stagnant grower prices.
One long-term solution might be more promotion of American leaf overseas, and an initiative is under way to bring growers of all types together to do it, with a meeting tentatively set this month in Lexington Ky.
Allen Wooten, a flue-cured grower from Burgaw N.C., and the chairman of an organization called Tobacco Associates, said at the end of February the effort to combine promotion activities for flue-cured and burley — the two leading types in this country — has been going on for about a year.
“I am fairly optimistic we are going to make some progress,” said Wooten. “If leaf tobacco export is going to continue as it has for the last 50 years, we are going to need a joint effort. It will benefit burley as much as it benefits us (flue-cured). I think the chances are better the farther we go in that direction.”
Dark and cigar leaf growers may eventually get involved in the effort, he added. “I think it will be in the best interests of all types to be involved,” said Wooten.
The first step would be to create a national checkoff to provide the funds needed to aggressively target high-potential markets overseas.
Another strategy that tobacco cooperatives are adopting is manufacturing tobacco products and selling them under their own brand names. Charles Finch of the Burley Stabilization Corporation (BSC) of Knoxville, Tenn., — which represents burley farmers in Tennessee, Virginia and North Carolina — said in February that selling finished tobacco products could be a boon to its members.
The cooperative is working with Wind River Tobacco Company of Jackson Hole, Wyo., to make several different products. A roll your own product called Nashville is already on the market, and a Nashville brand cigarette is substantially complete and could be on the market very soon. A chewing product called Big Mountain is in the planning stages.
The Flue Cured Tobacco Cooperative in Raleigh N.C., took a bigger step, buying what had been the Vector Tobacco factory in Timberlake, N.C., and making cigarettes for other companies on a contractual basis.
In 2006, it launched a roll your own (RYO) mixture called 1839 and in 2007 followed it with a cigarette with the same name.
Sales of 1839 RYO have gone well, a member of the cooperative staff said. “It is not the cheapest roll-your-own mix out there, but the high quality makes it a good value,” he said.
The farmer president of Tobacco Growers Association of North Carolina looked on the bright side in his annual message to members of the association in February.
“Contract prices rose an average of five to eight cents per pound for 2008,” said David Hinnant of Kenly N.C., who grows flue-cured. “While (that) is about half the increase growers would prefer to realize, it is nonetheless a move in the right direction.”
In addition, the adverse effect wage rate required for using H2A guest workers was lowered a few pennies per hour for the coming year, again, effectively lowering the cost of legal alien laborers. “Not a substantial reduction, but at least (it is) a decrease as opposed to the anticipated increase that was forecast.”
Hinnant predicted the volume of flue-cured contracted this year would increase over 2007.
There were beginning to be rumblings of discontent from growers over treatment by contracting companies. The executive vice-president of the Tobacco Growers Association of North Carolina, Graham Boyd, said at his group's annual meeting on Feb. 1 that farmers were skeptical about the grading of the 2007 crop.
“Each pile should be judged on its own merits,” he said. “Tobacco should sell for the same price on Oct. 1 and Nov. 1. That didn't happen in 2007.”
It seemed at times company graders were buying strictly by the calendar and color, he said.
In Kentucky, an attempt by burley growers to negotiate a better contract with the state's major buying company, Philip Morris USA, was unsuccessful. Despite several grower meetings across the state, the growers say they don't expect to have much effect on this year's contract.
“We got their attention, but not much more than that,” says Bernie Cave of Campbellsville, Ky. “But maybe we will (succeed) down the road. We are not renegades. We are just trying to be part of the contract development process.”
The group has not formally organized but may later. It is continuing to meet across the state in hopes of gaining more input into price setting and other aspects of future contracts.
Why haven't prices to tobacco farmers increased in response to the obvious increases in farm production costs in the last year?
“A decline in demand for tobacco is one plausible scenario,” said Blake Brown, North Carolina Extension agricultural economist, at the recent Tobacco Workers Conference. “Production of cigarettes and other products apparently are behind use. Are manufacturers pulling stocks down?”
But there are several other possible explanations, he added.
There has definitely been a decline in domestic consumption. But you would expect that to be a small factor at this point, he said.
If imports were down, that might explain some of the weakness in price, Brown said. But imports are up, though only slightly.
Another possibility is substitution of smokeless tobacco for cigarettes. That would have more effect on some types than others, Brown said. More smokeless consumption would likely mean more use of dark types and less use of flue-cured. And it might mean less net use of tobacco, since smokeless products may use less tobacco than cigarettes.
Economist Brown, by the way, who was very visible during the public debate leading up to the quota buyout, is reducing his involvement in tobacco economics. He remains with the North Carolina Extension Service, but he will be devoting most of his time to issues relating to alternative agricultural enterprises and to value-added agriculture. He has recently moved from the North Carolina State University campus in Raleigh to a new research facility in Kannapolis, N.C.
Brown will still be available to address questions on tobacco policy issues, but on most other tobacco subjects he has been replaced by Extension Economist Gary Bullen. Bullen can be reached at [email protected].
Another man well known in tobacco circles has left leaf work. Arnold Hamm recently retired from his position as general manager of the Flue Cured Tobacco Cooperative in Raleigh, N.C.
Hamm led FCTC during the difficult years as it converted from being primarily a loan association to a more traditional cooperative.
J.T. “Tommy” Bunn was appointed FCTC's general manager, succeeding Hamm, on Feb. 8. Bunn had been the cooperative's manager of government affairs since 2006.
Before that he had spent about 20 years as executive vice-president of the Leaf Tobacco Growers Association and its sister organization the Tobacco Association of the U.S. In this capacity, he was involved in a number of efforts related to export of U.S. leaf, including overcoming China's reluctance to import American leaf because of possible blue mold contamination.
His background in export issues will likely come in handy now as FCTC plays a growing role in world trade of US flue-cured.