Can American tobacco farmers compete in the new world leaf economy? Burley grower Joe Ramsey of Weaverville, N.C., is one of many who is having to ask himself this tough question.
It is particularly difficult for farmers like Ramsey, who grows tobacco in the mountains of western North Carolina near Asheville. It has often been hypothesized that the price support program has been all that has kept the mountain areas in burley production over the years. In several ways — small field size, hilly topography, a relatively short growing season — the mountains are not well suited to the crop.
Ramsey is aware of these factors, but he would like to continue in the crop he has been producing all of his adult life. He wants to grow six acres of burley in 2005.
“But if I don't get a contract, I may not be raising it after this year,” he says. He hasn't calculated the lowest price he could afford to accept. But at press time, he felt that if a price in the range of $1.65 per pound was available, he possibly could sign a contract. He has no idea if this is a realistic hope.
He has grown on contract before and knows that you have to meet the company's quality requirements. And a competitive cost of production will be very important. Ramsey plans on one major cost-cutting change for 2005. He has been growing part of his burley crop in a no-till program for a number of years. Next season, he tentatively plans to go 100 percent to no-till tobacco for the first time.
“It takes fewer trips through the field, meaning less labor and fuel. And for most of the work, you don't have to use your biggest equipment, meaning savings in fuel cost,” he says.
The price that will be offered for 2005 U.S. tobacco is still a mystery, although a reduction is a certainty, says Will Snell, University of Kentucky Extension ag economist. But buyers will have to provide enough of a price incentive to get the crop grown. And the competitive effect of any reduction will be somewhat limited because competing countries will no doubt lower their prices in response.
“From a demand perspective, some lost [foreign] markets could be reclaimed, but gains will be limited in the short-run,” says Snell.
Contracting companies are going to be looking for long-term relationships with farmers who can produce to their specifications, says Blake Brown, North Carolina State University Extension agricultural economist.
“There will be very high emphasis on quality specifications,” he says. “They will want the farmers to produce at a competitive price to help pull back some of the production that has been lost. But meeting the quality specifications will be the priority.”
It is very possible we might see some regional differences in pricing or in the quality specifications by region, he adds. But the initial differences between regions probably will be in the amount that companies contract in each rather than the price.
Who will American growers have to compete with on the world market? As U.S. flue-cured production has declined, Brazilian producers have increased production to pick up the market share lost by Zimbabwe and the United States, says Brown.
Those three countries traditionally have been the only significant suppliers of flavor-style flue-cured tobacco on the world market, but that may not last much longer.
While Zimbabwe, Brazil and the United States account for most flavor-style flue-cured production, China is the world's largest producer of all styles of flue-cured tobacco. Most Chinese flue-cured is not flavor-style, but there have been good indications that China could produce enough flavor-style flue-cured to meet its internal demand and perhaps for export should there be market demands.
Brazil, the United States and Malawi are the top exporters of burley tobacco. Argentina is number four in both flue-cured and burley among exporting countries, a position it has gained in the last 10 years.
Many smaller producers have increased their production significantly as the United States and Zimbabwe have fallen back. The African country of Zambia, for instance, produced only 2.1 million kilograms of flue-cured in 1995. In 2004, it produced 26.2 million kilograms, almost all for export. Its burley production increased even more dramatically, from 1.3 million kilograms in 1995 to 21.2 million kilograms in 2004. Zambia and similar producers like Tanzania and Uganda can be expected to aggressively seek to hold onto their market shares.
Even in a free market, American growers are not likely to be able to produce tobacco at a profit at prices comparable to that of the Brazilians, says Arnold Hamm, assistant general manager of Flue Cured Stabilization Corp. “I do not expect significant gains in exports next year,” he says. “There is going to have to be some settling out first.”
If there is a major attrition in flue-cured growers, it may not all occur in 2005, says Hamm. “I personally believe most of them will test the water again next year and see what happens.”
For anyone who wants to keep growing tobacco in coming years, Hamm urges an emphasis on managing for quality. “Farmers have to pay as much attention as it takes to deliver a clean, quality crop,” he says. “I can't emphasize this too strongly.“
One imponderable will be the importance contracting companies place on a grower's ability to provide a consistent supply. If a farmer fails to meet his target once or twice, will his company lose interest in him?
Just in case, Paul Denton, University of Tennessee Extension tobacco specialist, thinks growers ought to look at irrigating their tobacco where it is feasible to do so.
“There will be a strong incentive to even out production from one year to the next,” Denton says. “You don't know how the company will view variation in production, and you probably don't want to find out. If I were a grower who wanted to stay in tobacco, I would be out digging ponds right now.”
That doesn't mean a grower should plan to irrigate every field. “But I would want to be able to irrigate at least some of my acreage, especially if I was on drought-prone land,” he says.