Tobacco contracting gains popularity

Kevin Newsome still picks the varieties and tends the tobacco, but these days he's also listening to the needs of the cigarette manufacturer who buys his tobacco by contract. He's harvesting mid- to upper-stalk tobacco and tips as separate primings. The premium he gets makes the extra time he leaves the tobacco in the field worth the effort.

He's getting harvesting suggestions from Philip Morris USA (PM USA) as to the type of tobacco the cigarette manufacturer needs. “The better job you do with stalk positions, the more money you make,” says the 31-year-old Newsome, who farms 52 acres of flue-cured tobacco in King, N.C. Contract prices continue to outpace those at auction and marketing centers.

Company officials point to the one-on-one interaction that has developed over the past two years since contracting became widespread in flue-cured areas.

“The overall benefit to the grower is a direct business relationship between the buyer and the seller,” says Gerald Peedin, a former North Carolina State University tobacco specialist who now is manager of agronomy with PM USA. “This is the first time in this country that we've ever had this type of arrangement. With the partnering program, the farmer is in a position that he feels he's more involved in the total industry because of this one-to-one type relationship.” Peedin says he's sees quality improving because of the interaction.

At the receiving stations farmers bring in their tobacco, get it graded and are out the door with a check in a matter of an hour or so.

When Newsome brought his tobacco to the receiving station, it was weighed, checked for moisture and graded by one person. “It's nice to come down here and have one man look at your tobacco and whatever grade you've got on it, that's what you're going to get paid,” he says. “It just looked like the way to go for me. I think I'll make more money this way.”

Newsome says with the auction system he'd have the tobacco graded on one day and have to come back another. With contracting, he's in and out in a matter of an hour or so.

Scott Pope, who operates PM's Receiving Station in Kernersville, N.C., says contracting has brought tobacco marketing into the 21st century, made the process more efficient and opened up a dialogue between the grower and the manufacturer.

“I think it's an eye-opening experience for the grower when he can ask the buyer why a certain bale of tobacco got a certain grade,” Pope says.

As the tobacco is graded, the grower is side-by-side with the buyer. “The grower can ask, ‘did I harvest it correctly; or did I color it correctly — what could I have done in the field to make it a better grade?’” Pope says.

“It takes a whole lot of the mystery out of the process,” Pope says.

“I think the whole system is a plus,” says James Buchan, area leaf manager for PM. “It boils down to getting to know the people that grow our tobacco and the fact that it's traceable to the farmer. We use that information not as a stick, but as a tool to help our farmers improve the quality of their tobacco.”

This fall, PM USA sponsored four harvesting demonstrations with tobacco harvester manufacturers to “encourage better overall separation by stalk position, but especially in the upper part of the plant as a way to improve tip production,” Peedin says.

“By no means are we trying to tell farmers how to grow tobacco,” Buchan says. “The reality is, if we can give them enough feedback, the quality of the tobacco will improve.” PM USA is pushing growers to keep the tobacco in the field longer, split the upper eight or 10 leaves into two separate stalk positions and cure the tobacco more orange than they may have previously. “The fact that we split the upper eight or 10 leaves doesn't guarantee a tip grade on the upper four or five, but it increases the probability.”

Growers still must depend on the Cooperative Extension Service for timely production practices and recommendations, Peedin says. But at each receiving station, eight or nine respected, representative growers and three county Extension agents sit on a quality assurance committee, whose primary purposes are education and two-way communication. “The idea is to bring to the attention of the committee changes in management practices that might be useful in helping them and their fellow growers produce the kind of tobacco needed to maintain the quality off PM USA's products.

“At the same time, the committee approach also provides a vehicle for growers to make suggestions and express their concerns to us,” Peedin says. To date, no major issues have come up, but PM USA feels the opportunity for two-way communication is important to maintain a strong business relationship between growers and the company.

The dialogue about quality is paying off, Peedin says. He believes 2002 purchases were cleaner and sorted better than normal, even though the growing season beltwide was one of the worst experienced in years. “But we still have work to do on quality issues and we'll continue to talk about stalk-position separation, lower NTRMs (non-tobacco related materials) and TSNAs, as well as proper use of crop protection agents.” PM USA also sends a quarterly newsletter to each grower and did a special mailing this season recommending the best ways to store carryover tobacco.

Between 400 and 500 flue-cured farmers bring their tobacco to the Philip Morris USA Receiving Station in Kernersville, N.C. During the final week of sales for the 2002 crop, the lobby area resembled a barbershop. Farmers who had already had their tobacco graded were passing the time talking about farming as they waited their turn to get checks.

Two seasons have passed since 80 percent of flue-cured farmers abandoned the auction system for the newer contracting scenario. On average, contracting prices continue to run from 6 cents to 10 cents higher than auction.

Farmers such as Newsome like the efficiency of contracting and are getting used to the dialogue between themselves and the manufacturer. Newsome is priming more times and reaping a premium for his efforts.

“I'm hoping this is what they needed to do for everybody to stay in business,” he says.

Philip Morris USA has 11 receiving stations throughout the flue-cured belt.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.