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January/February, 2007


United States
An 18-year growth spurt for dark leaf
Lexington, KY — The demand for dark tobacco continues to improve in response to the sustained expansion in the domestic consumption of smokeless products, an economist at the University of Kentucky said in December. This consumption surge has gone on for 18 consecutive years.

In addition, dark tobacco growers continue to benefit from the scarcity of quality dark tobacco production anywhere else in the world, said economist Will Snell. Also, there is an ongoing close relationship between growers and domestic smokeless tobacco manufacturers.

Grower prices for dark tobaccos have fallen since the buyout. “But the smokeless tobacco companies did provide large enough price incentives to entice most growers to remain in the industry” in the past two seasons, Snell said.

The U.S. Department of Agriculture estimated in October that combined U.S. production of dark fire-cured and dark air-cured types in 2006 would be 51.3 mn pounds, up 4.4% from 2005. All but about 1.5% is grown in Kentucky and Tennessee (Types 21, 22, 35 and 36), while the remainder is grown in Virginia (Type 21).

Nightmare for growers —They must grow another crop!
Tillsonburg, Ontario — Barring a miraculous turn of events before planting season, it appears that at least one more tobacco crop will be authorized by the Canadian government. That, surprisingly, is bad news for growers, who almost to a man consider their operations no longer viable and who are aggressively seeking a government “exit” plan.

Farmer Brian Edwards of La Salette, Ont., told the Tillsonburg (Ont.) News in December that the industry has shrunk to such a low level that farmers cannot function economically. “You can’t operate a factory at 20% [of capacity],” he told the newspaper. “You certainly can’t operate a farm at 20%. The cash flows will not cover the debts incurred.”

Unfortunately, if a 2007 crop must be produced, it will probably be even smaller than that of 2006, said Fred Neukamm, chairman of the Ontario Flue-Cured Tobacco Growers’ Marketing Board. “Export from Canada is becoming more difficult,” he explained. “If production does continue, it could be just for domestic [use].” Marketing of the 2006 crop was set to resume in January after a holiday break that began on Dec. 20. As of that date about 36 mn pounds of Ontario leaf had been sold at an average price of CAN$1.60 (US$1.38) per pound. The crop target is 55 mn pounds. Sales were expected to end at the end of January.

The cooperative and its political friends are pursuing a buyout of quota with funding coming 60% from the federal government and 40% from the province. There are 271 mn pounds of quota, and the farmers want to sell it at a price of CAN$3.30 per pound. Most proposals for a Canadian buyout would prohibit any further production of leaf in the country, although the legality of that had not been established.

Almost all Canadian tobacco is grown in Ontario, except for a few farmers in Quebec who grow tobacco for local cigarette manufacturers there. The leading Canadian cigarette brands are British style, and almost all tobacco grown in Canada is flue-cured.

Canadian growers have a longstanding reputation for excellent management. But they have always been hindered in their efforts to grow export quality leaf by the relatively short growing season in the tobacco areas, most of which have been on just north of Lake Erie between the American cities of Detroit, Mich., and Buffalo, N.Y.

Tobacco planters oppose VAT
New Delhi — A group of farmers from Andhra Pradesh and Karnataka have written to the prime minister and the Union finance minister expressing concern over the proposed plan to introduce value-added tax (VAT) on cigarettes, saying that the introduction of VAT on the “already over-taxed” cigarette would not be in the interest of tobacco growers.

Cultivation of tobacco is regulated by the government and about 700 mn kg of tobacco leaves are produced annually, out of which Virginia tobacco leaves, which are used in cigarettes, amount to only 240 kg. About 20% of Virginia tobacco is used for the production of cigarettes and the remaining quantity is exported.

The government’s taxation policy is based on discouraging the consumption of tobacco. However, BV Javaregowda, member of the Tobacco Board, said, “The incidence of taxes on cigarettes is already higher than that on other tobacco products like beedis, cigars and cheroots, chewing tobacco, pan masala, and snuff.”

The president of Nellore & Prakasan Districts Tobacco Growers Association, Garikapati Seetharamaiah, said, “If VAT is imposed on cigarettes it would become costly and the consumers’ preference would shift to imported cigarettes or cigarettes smuggled into the country through illegal channels. As a result the domestic industry would suffer and would not procure tobacco leaves from growers in desired quantities.” Seetharamaiah is the former vice-chairman of the Tobacco Board.

The general secretary of the Guntur-based Tobacco Growers Welfare Association, Gadde Sivaram Prasad made a point by saying, “Global leaf supply is projected to decline due to short supply in Zimbabwe, Canada, and Europe. In this context, India is well poised to increase its exports. The government should encourage its production.”

Firm seeks new rules for tobacco farming
Nyanza — Alliance One Tobacco has asked the government to officially revise the crop’s cultivation calendar to avert a looming shortage.

The international firm said the emergence of a viral disease in tobacco-growing areas could affect yields, resulting the need to regulate the timing of the crop’s cultivation.

Raphael Otaalo, the company’s divisional leaf manager, said the regulation would provide for a closed season to check and eradicate the disease. It would also compel farmers to grow the crop at the same time.

Using the agricultural calendar, former agriculture minister Elijah Mwangale earmarked tobacco cultivation for Nov. 15 to July 31 with a closed season between Aug. 1 to Nov. 14 in Nyanza.

But due to climate change, a new farming period of Oct. 1 to June 15 with a closed season of June 16 to Sept. 30 was adopted but never formally carried out.

Otaalo noted that some tobacco companies had formulated their own calendars by starting nurseries in September, creating confusion and losses in the tobacco industry.

“Bearing in mind that tobacco is a cash crop, it is imperative to note that the crop should not compete with, but supplement food production in the tobacco-growing areas,” he said.

He warned that tobacco farming, especially in Kuria District, was likely to diminish if the trend would not be checked.

“This is why we are now asking the government to ‘re-gazette’ the tobacco growing calendar and enforce a penalty to any company or farmer that violates the set dates,” said Otaalo, adding that “the Ministry of Agriculture and the Provincial Administration should then be given full authority to penalize any errant company or farmer in case there is hostility to implementation of the order.”

Last year, the country produced 10,640 tons of tobacco, fetching Sh581 mn. But production had dropped to 4,100 tons as of December 2006 partly due to the disease and haphazard cultivation.

BAT looking to improve leaf volumes
Kampala — British American Tobacco’s 134 employees in Uganda will be affected in a major restructuring exercise, the company said, adding that the development was aimed at improving efficiency and achieving long-term sustainability. According to Simon Kaheru, the acting head of corporate and regulatory affairs, the restructuring was to be put into effect Jan. 1.

“A number of positions have been merged or made redundant, which will affect 134 employees. However, 54 will be offered contractual roles,” he said. Kaheru added that the company would initially continue to employ 182 permanent staff and over 1,000 seasonal and contract staff.

“The intention of the company is to increase competitiveness of Ugandan tobacco on the world market. Our medium-term plan is to raise leaf volumes from 12 mn kg annually to over 25 mn of high-quality tobacco in two to three years,” he said.

Kaheru added that the improvement in the volumes and the resulting efficiencies should have a positive impact. BATU’s managing director, Glenn Sheppard, said the changes are designed to reinforce Uganda as a center of leaf excellence in the region and make the firm a more cost-efficient and globally competitive leaf growing, processing, and export organization. Sheppard said consideration had been given to the timing of the changes in order to minimize the impact on staff. Despite experiencing significant improvement on the cigarette side in the last two years, BATU’s leaf-growing operation has not delivered expected returns.

The acting leaf operations manager for northern Uganda, Sam Mugenyi, said operations of the company would proceed as planned. “Our esteemed farmers should know that our operations are running as planned during this transition. We have already deployed field staff and there should be no worry,” he said.

The assurance comes at a time of widespread panic among the farmers in West Nile. The announcement that the leadership of the company had been swept clean came just as the growers went into preparing their nursery beds for the forthcoming crop year.

“BATU is around as it has been since 1927. The changes are internal and they will not affect our operations. Farmers [are starting] nursery beds since we have increased prices for tobacco this season,” Mugenyi said.

In addition, British American Tobacco will increase tobacco prices for the next season by between 2% and 13%, Serhat Eroglu, the leaf director, said.

“In 2007, all farmers who deliver 30% more than their contracted volumes with 100% loan recovery will get a 5% bonus,” he added.

The company will pay sh3,300 for top-grade flue-cured Virginia tobacco, up from sh3,000, and sh2,450 for top-grade burley tobacco, up from sh2,400.

“This is a benefit from reorganization conducted at the end of 2006 to achieve greater efficiency. In fulfillment of our promise, these benefits and more will be shared with farmers,” he explained.

United States
“One-sucker” still has punch
Russellville, KY — In this post-quota, anti-smoking era, Logan County, Ky., could very well be positioned for a tobacco boom. Tobacco was the backbone of the local agriculture economy for decades, but the turn of the century has seen significant changes in the industry. Government-dictated tobacco bases and price supports are gone, as are tobacco auctions. But tobacco remains an important way of life for many Logan County farmers.

Burley growers are getting considerably less per pound for that plentiful leaf, but producers of air-cured (“one-sucker”) and dark-fired tobacco are prospering with an even brighter future ahead, according to a report in the Russellville News-Democrat & Leader. Russellville has billed itself as the “One-Sucker Tobacco Capital of the World,” while most of the Eastern Dark Fired Tobacco that’s produced is grown in South Logan and Robertson County, Tenn.

“For the last 10 to 15 years, the demand for air-cured and fire-cured tobacco has grown an average of 8% each year,” said Bradley Brown, a large-scale tobacco producer who was a longtime partner in Browns Tobacco Warehouse with his late father, Tom Brown Sr., and brothers, Tommy and Dr. George Brown. “Now that some major corporations are going smoke-free in their factories but are allowing chewing tobacco and dip, it’s going to grow even more.”

Tobacco companies have searched all over the world trying to find suitable land and climate for growing one-sucker tobacco, but none can match this area. There is no governmental limit on how much tobacco a farmer can grow now — the free-market limit is how much they can sell. The key is getting a contract for how much a company will buy from a producer before he sets the tobacco.

Being willing to grow and sell one-sucker, and having a contract to sell it are two different things. Brown says the companies only want their smokeless tobacco from growers who produced high-quality tobacco of those varieties before quotas were purchased and eliminated by the government.

Brown and his adult son Jonathan are raising 55 acres of one-sucker this year, compared to about 20 acres prior to the change in demand. On the other hand, they are raising only about five acres of burley. “There are times of year you can work with burley that aren’t good for one-sucker,” Bradley told the newspaper. “Often burley gives farmhands something to do while waiting for one-sucker to be ready.”

“One way to tell that the one-sucker market is going well is seeing new tobacco barns going up,” Brown said. “Since barns cost anywhere from $40,000 to $70,000, people don’t build them unless they plan to be in the one-sucker business over the long haul.”

Tobacco International - January/February, 2007

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