Thursday, September 10, 2015

Tobacco farmers trying to adjust to being phased out by major corporations

A declining tobacco market—attributed to health concerns, taxes, smoking regulations and restrictions and the growing popularity of e-cigarettes—has led to a downturn in business for local growers on year-to-year contracts with major corporations, Melissa Blankenship reports for the Henry County Local in Northern Kentucky.

Philip Morris International, which "had been purchasing the majority of tobacco sold at the Carrollton, Ky., warehouse where most Henry County (Wikipedia map) farmers sold their crop, announced it would no longer serve as the buyer but instead would buy from Universal Leaf Corporation," Blankenship writes. "In addition, the Carrollton warehouse was eliminated as a selling location," meaning Henry County farmers with contracts through Universal would have to take their tobacco to neighboring towns. "Also, Universal increased the standards on growers for their end product, including a much lower moisture content allowability, which leads to problems with holding bales together, lightens the total pounds sold per acre and leads to a higher risk of rejection by the buyer." 

Former Henry County University of Kentucky agriculture extension agent Steve Moore told Blankenship, “The local and world demand for tobacco products is going down. They had all these contracts, and farmers could raise tobacco without a contract and sell it, and it would get absorbed into the system. There was too much supply and not enough demand. It was a wreck about to happen, and this is the year it happened.”

Moore said "tobacco companies went with a contract system so they could buy only what they needed, but cheap tobacco showed up outside of the contracted amounts, and the companies bought it," Blankenship writes. He "estimates that as many as 95 percent of Henry County farmers were contracted to sell their tobacco with Philip Morris International and that the company needed to cut its supply by 20 to 25 percent, which meant it had to make decisions about how many and which growers it was going to purchase from."

Moore told Blankenship, “Farmers could still grow some tobacco, but they aren’t likely to sell it for much of a profit. It’s a bust year for a lot of growers; generations of tobacco growers got cut this year. Some had made farming commitments, and now they won’t have that source of revenue and will have to make adjustments. Tobacco has been very good to Henry County farmers for a very long time. You could certainly pay your bills with it.”

That’s exactly what Henry County farmer Clint Woods—who estimates that over 15 year he has sold Philip Morris about a million pounds of tobacco—did with his tobacco money, Blankenship writes. "But several years ago, Woods began diversifying into beef cattle, corn, soybeans and alfalfa hay. His goal all along was to transition away from tobacco, which last year represented about 60 to 70 percent of his farm income." Woods, whose tobacco contract was not renewed this year, told Blankenship, "We were living off the tobacco and letting the cows pay for themselves and re-investing any profit back into the herd. We were aggressively building a herd and gaining pasture with the hope of phasing out of tobacco.” The Henry County Local is behind a paywall.

The U.S. Department of Agriculture tobacco forecast says that Kentucky burley tobacco production is forecast at 118 million pounds, down 28 percent from 2014. National burley production is forecast at 157 million pounds, down 26 percent from last year. Production of Kentucky dark, fire-cured tobacco is forecast at 32.3 million pounds, down 11 percent from 2014. Kentucky dark, air-cured tobacco production is forecast at 13.5 million pounds, down 7 percent from last year. Dark tobacco Kentucky total is forecast to be 45.8 million pounds or 28 percent of Kentucky production. About 30 percent of the money paid for tobacco in Kentucky this year will be for dark tobacco, said University of Kentucky economist Will Snell.

No comments: