By Chris Bickers
Can the United States sell more tobacco to Asia? Leaf dealer Rick Smith certainly hopes so.
“It seems like Asia is the only part of the world where we (the American leaf industry) has any potential to increase sales,” said Smith, president of Independent Leaf Tobacco, in a presentation at the recent US Tobacco Forum held in Durham NC.
There is reason for optimism in the short term and the long term, he said.
“One thing that works in our favor is that even though there is an abundance of tobacco in the world, there is no abundance of quality tobacco.”
That will help sell more leaf in China, which is by far America’s best Asian customer.
“Our increased sales there in recent years have been driven by the growing demand for premium cigarettes,” said Smith, whose headquarters is in Wilson NC. “That sector is growing because of the increased wealth of the class of people who smoke them. They demand good tobacco in those cigarettes, and that, of course, is why we have enjoyed increased sales.”
The prospects for further increases in sales to the Chinese are good, he thinks. “But we have to keep in mind that changes in their economy could affect all this as could any sudden change in exchange rates,” he said.
Picking and sorting is a problem
Eventually American farmers are going to have a problem if the Chinese don’t convert to buying the full “run” of the crop.
“Up to now, they have been able to get tobacco grown and then just take the grades they wanted—“creaming” it, so to speak,” Smith said. “But this type of picking and sorting over time is going to create a marketing problem for the leaf left behind.”
The leaf that is left over has to get sold somehow, and there has been an emergence of what you might call “secondary” auction markets to get the excess leaf into the trade. But there has been much disappointment with the prices farmers received.
“This suggests to me that this isn’t going to be a sound way to sell leaf over the long term,” he said. “We need for the Chinese to buy from all stalk positions and to buy a wider spread in grades.”
But the effect of this has been worse for some types than for others. The burley sold to China so far has not been to any significant degree competitive with domestic sales, according to Smith.
“The Chinese like the middle stalk in burley and a bright tan color, and that is not what our domestic customers generally want,” he said.
Kreteks create a market
Although the major player in the Asian market is overwhelmingly CNTC, it is not the only one, Smith calrified. He pointed to two that he thinks have promise for increased US leaf sales in the near future.
Indonesia could turn into a better customer because of “a very real need on the part of its manufacturers. The clove cigarette is the traditional blend there, and they are very high in tar,” Smith said. “The Indonesian government is anxious to reduce that tar content, and the inclusion of American leaf can be used to do it and also add a flavor element.”
An additional positive is that Indonesia is still a growing cigarette market, largely because of the growing consumer demand for higher-quality tobacco products, he added.
Vietnam is a small market, but the US may also have potential for growth there. For instance, the US flue-cured leaf promotion company Tobacco Associates has recently helped Vinataba develop two new cigarette blends. One is an English blend, the traditional cigarette type in Vietnam. The other is an American blend.
“Vinataba hopes that both will expand the middle range of brands available to the country’s growing middle class, and US growers are ready to fill that need,” he said.
Smith was less optimistic about the possibility of increased sales to Japan.
“I don’t think it is wise for us to think of Japan as a growth market. It will remain a very significant market for our leaf, but the smoking population is not growing there. That puts a limit on how much more US tobacco it can buy.”
Facilities help trade
Smith identified two recent developments that can only help Asian tobacco sales.
“The Chinese monopoly has said it will open an office in the United States soon,” he said. “Also, earlier this year, the state of North Carolina opened an agricultural trade office in Beijing to facilitate sales of this state’s farm products in China.”
These are just the kind of facilities you like to have if you are in the world leaf trade, according to Smith.
Steve Troxler, North Carolina commissioner of agriculture, said at the time of the opening in Beijing that: ‘this sends a signal to China tobacco and other companies over there about our commitment to trade with their country’.”
It should be noted that the grower cooperatives in the US have been very proactive in gaining and serving Asian customers. In particular, burley Stabilization Corporation (BSC) has taken quite a bold step by closing down and selling its long-time office in Knoxville, Tennessee. In its place, the cooperative has set up offices at its receiving stations in Springfield, Tennessee and Greeneville, Tennessee, with the main office in Springfield.
The move puts BSC personnel closer to contemporary production areas, which have changed extensively since deregulation. Plantings have generally migrated north to a certain degree and almost none is now left in the vicinity of Knoxville.
“There is obviously going to be a bit of risk in a move this ambitious, but I think it has excellent prospects for improving marketing conditions for burley growers,” said Smith. “This ties into my topic, because I understand that about half the tobacco that was purchased last year at the BSC went to Asian customers…a good sign for all of us.”
Opportunities to sell to Asia will be there for the US, “but it will require hard work from all of the stakeholders, plus lots of determination, a bit of cooperation from the end users, and maybe just a little luck for the dealers to fully take advantage of them,” Smith said.
Tobacco holds its own against cotton
The planting season of 2011 in the United States will be remembered as one of unprecedentedly high contract prices for the grain crops and more particularly for cotton. Back in the winter, there had been some fears that farmers might not elect to sign tobacco contracts and instead would grow cotton or corn.
But grower Craig West of Fremont, North Carolina, a speaker at the US Tobacco Forum, said that this apparently did not take place, at least not among flue-cured growers.
“I don’t know that there was much movement away from tobacco in favor of cotton, and though some acreage was lost due to contracts being cut back by the companies, I don’t have the impression that tobacco lost any acres to other crops because of price,” said West. “But it had real strong competition, and if we have another year of selling like the one we had in 2010, there’s still that potential that tobacco might have to compete for acreage in 2012. I have never seen that happen in my adult life.”
Compared to the other crops, tobacco has a degree of stability going for it, West points out. Just two years ago, the price of cotton was roughly half what it is now. So farmers may be reluctant to get out of tobacco in favor of cotton.
“If you stop growing cotton, you may get back in it someday,” he said. “But if you get out of tobacco, you usually never get back in.”
West noted that he is growing cotton this season for the first time in four years.
A North Carolina Extension economist agreed that there wasn’t much total abandonment of tobacco in the Tar Heel state this season. Gary Bullen thinks some consolidation of operations may be taking place, with small farms being absorbed by larger ones.
“The cost of labor is an issue for everyone, but maybe it is a bigger one for smaller growers,” he said. “The capital cost of tobacco may also weigh more heavily on the smaller growers, especially if their equipment needs replacing.”
How the tobacco crop was faring in the US
The prospects for the Georgia and Florida crop (all flue-cured), which is the tobacco planted earliest in this country, appeared excellent, though it was hoped that that the hot weather conditions of early June would relent.
“The uniformity and appearance are good,” said the Georgia/Florida Extension tobacco specialist J. Michael Moore. “I frankly don’t see how it could look so good, considering the drought and extreme heat.” The temperature in the tobacco-growing area reached 100ºF (38ºC) on June 1, only about a week before sucker control started. “Fortunately, nearly 100% of our crop can be irrigated,” according to Moore.
The South Carolina crop (all flue-cured) has good prospects, said South Carolina Extension tobacco specialist Dewitt Gooden, in early June. “We finished transplanting three weeks ago, and most is between layby and starting contact sprays.” The only problem so far has been a little tomato spotted wilt.
North Carolina had it hot, too. Much of the eastern part of the state experienced 100ºF (38ºC) temperatures around June 1 and afterward. Sandy Stewart, North Carolina Extension tobacco specialist, said planting of the flue-cured crop had been done in a timely manner.
“I have to believe we have as much flue-cured acreage as last year and possibly a little more,” Stewart said.
Transplanting of the burley crop in Tennessee and Kentucky was way behind in mid-June because of so much rain in the spring.
“We would normally like to see about half the crop transplanted by June 1,” says Daniel Green, chief operating officer of Burley Stabilization Corporation. Instead, only about a quarter was actually in the field at the beginning of the month. But much of Tennessee enjoyed a rain-free stretch starting May 31, and farmers tried vigorously to make up for lost time. Still, Green expected that more of the crop than normal would be planted in the last week of June, which is later than desirable.
In the dark tobacco areas of Kentucky and Tennessee, transplanting of dark air-cured and fire-cured was about 45% complete at the beginning of June, said Andy Bailey, Kentucky and Tennessee Extension tobacco specialist. Because of the May rains, some plants stayed in the greenhouse longer than desirable. That could lead to uneven growth in the field, he said.
