Friday, April 04, 2014 11:51 PM
N.C. still center for flue-cured leaf
Growers expanded operations in tobacco belt
By Stephanie CreechTimes Managing Editor
Greenhouses at Sharp Farms at Rock Ridge are filled with tobacco seedlings at various stages of development.
The oldest seedlings have already been clipped several times to keep their growth in check. Pender Sharp lifts a foam flat filled with seedlings off the bed of water its floating on revealing a mass of tender roots.
Sharp and other tobacco farmers in the region are racing against the calendar. Fields where these seedlings will grow this year have to dry out enough so the soil can be fumigated to protect the tobacco against disease. But farmers have to wait about three weeks after fumigating the land before the tobacco seedlings can be safely transplanted. At this rate, tobacco transplanting won’t start until at least mid April. But that’s only if a window of dry days opens up.
Sharp is thankful for days when the gas keeping the greenhouses warm enough for the seedlings to grow can be turned off and the plastic sides of the greenhouses lowered allowing the warm spring air outside to keep the seedlings content. Sharp and his family are ready for another tobacco season. A row of green Powell tobacco harvesters are lined up under a nearby shelter. They’re clean and repairs have been made since they were parked last fall. Sharp points out that some of the harvesters date back to 1997. They haven’t felt the need to upgrade because the technology behind the harvesters hasn’t changed that much.
"I’m extremely optimistic about the tobacco industry,” Sharp said.
Sharp thinks the U.S. tobacco industry is in a good position. World demand for leaf grown here is good. But Sharp cautioned that we’ve got to be price conscious.
Prior to the tobacco buyout and the ending of the federal tobacco program, Sharp said there were theories about how people would use the buyout money to get away from growing tobacco.
"In fringe areas, yes, that was absolutely true,” Sharp said.
But here in the heart of the tobacco belt, counties along the I-95 corridor including Wilson County, farmers are growing more tobacco than they were prior to the buyout. Tobacco is still a profitable crop. The soil, climate and infrastructure here are conducive to growing tobacco.
"Very few people here transitioned to other crops,” Sharp said. "Tobacco is still the primary cash crop.”
Consider the growth in the number of acres of flue-cured tobacco grown in Wilson County alone. In 2003, growers here planted 5,910 acres of tobacco. In 2012, growers planted 9,800 acres of tobacco in the county. State statistics show the largest jump in the number of acres of tobacco planted in Wilson County happened between 2005 and 2006. In 2005, 6,250 acres were planted compared to 8,200 acres planted in 2006.
The ending of the buyout payments that tobacco growers and former tobacco quota holders have been receiving over the past 10 years marks another milestone in what Sharp sees as a 15-year change that we’ve been through with the tobacco industry. The last of the buyout payments arrive this year.
Nationally, one of the effects of the tobacco buyout has been a shift in the concentration of where flue-cured and burley tobacco are grown. Flue-cured production is centered here in North Carolina while burley production is centered in Kentucky. North Carolina has led flue-cured production for years. But since 2007 flue-cured production in Florida, for example, is so low it’s no longer measured by the U.S. Department of Agriculture. Flue-cured production in Georgia and South Carolina has also dwindled since the buyout started.
Blake Brown, Extension economist and Hugh C. Kiger professor with the Department of Agricultural and Resource Economics at North Carolina State University, said he expected to see an expansion of tobacco production in eastern North Carolina and a contraction in other areas. Brown said we have seen a lot of consolidation of farming operations. The buyout sped up the consolidation process. But other things happening in the tobacco industry played a role, too. Brown points to the move to baling tobacco and companies contracting with farmers to grow tobacco as favoring the move toward consolidating.
Brown said one reason we’ve seen expansion of tobacco in Wilson, Nash and surrounding counties is because farmers here were better able to expand their operations than farmers in other areas of the state. In this regard, growers here have benefitted from consolidation.
An estimated 120 million pounds of flue-cured tobacco was sold on the Wilson Tobacco Market in 2013. Growers from across eastern North Carolina bring their tobacco here to be sold. That tobacco had an estimated value of over $258 million. Norman Harrell, Wilson County Extension agent, said "due to the challenges presented during the year, namely the excessive rainfall, it is estimated that the amount of tobacco sold on the Wilson Tobacco Market was about 15 percent less than expected.”
Last year marked the 124th season of the Wilson Tobacco Market. At least 12 different companies have been actively buying tobacco directly from growers via contract on the Wilson market for the past few years. As Harrell describes it, "there are no other tobacco markets in the United States that compare to the volume of leaf moved through the Wilson market.”
Last season, the Wilson market had two warehouses selling tobacco at auction because of the interest in giving growers an option other than contracting to sell their leaf.
At the county level, flue-cured tobacco brought in an estimated $44 million in 2013 for Wilson County farmers, down from just over $50 million in 2012. Demand and prices were high for the 2012 tobacco crop due to the lost production in 2011 due to Hurricane Irene. Flue-cured tobacco income in Wilson County in 2011 was around $28 million.
Income from burley tobacco in Wilson County in 2013 was $339,700, down dramatically from $501,600 in 2012. That’s mainly because the number of acres of burley tobacco grown here dropped. Contract prices for flue-cured tobacco in 2013 hovered around $2 per pound. But the increased demand edged prices up to in some cases around $2.15 per pound, according to Brown’s "North Carolina Agriculture: Situation and Outlook” released in the fall of 2013.
The sales statistics presented during a recent agribusiness meeting also indicate that in 2013 sales from the nursery/greenhouse industry surpassed the county’s combined sales for flue-cured and burley tobacco with an estimated income of $46 million.
But tobacco still outpaces income generated by other traditional crops here in Wilson County. The next closes revenue generator is sweet potatoes. In 2013, sweet potato revenue in Wilson County reached $27.7 million, its highest level in the past few years.
Based on 2012 cash receipts, crops in North Carolina accounted for 37.2 percent of the state’s $11.7 billion in farm revenue. Out of the 37.2 percent, tobacco revenue accounted for 6.4 percent.
In 2013, North Carolina tobacco farmers harvested 181,900 acres of tobacco with an average yield of 2,000 pounds per acre for flue-cured tobacco and 1,400 pounds per acre for burley, according to N.C. Department of Agriculture statistics. Flue-cured production was down about 5 percent in 2013 with farmers raising about 360 million pounds.
Based on 2012 production figures, Wilson County ranked third in the state in the number of pounds of flue-cured tobacco produced with 23 million pounds. Johnston County ranked second with 25.6 million pounds and Sampson County took first with 26.3 million pounds of flue-cured tobacco produced in 2012, according to the N.C. Department of Agriculture.
Statistics show that since 2004-2005, Sampson County the number of pounds of flue-cured tobacco produced in Sampson County has more than doubled. In 2004-2005 some 11.3 million pounds of tobacco was grown there. In 2012, Sampson County led the state in flue-cured pounds produced at 26.3 million pounds. Sampson County took over the lead from Johnston County in 2008-2009. Sampson County is the state’s largest county in terms of land area alone.
N.C. Agriculture Commissioner Steve Troxler agrees farmers haven’t diversified as much as some expected. But he points to the growth in the number of acres of sweet potatoes grown in North Carolina and to North Carolina’s national ranking when it comes to poultry and hog production. He doesn’t think North Carolina farmers are as dependent upon tobacco as they used to be. He sees farmers making more decisions based on the profit margins for crops.
"It’s a different ballgame in agriculture today,” Troxler said. "Farmers are able to make decisions based on profit margins. There is a much different day now than it was when we got the tobacco buyout.”
One of the differences going forward is that the tobacco profit margin will have to carry the appreciation that comes with owning equipment, like curing barns and harvesters, needed for tobacco.
"I know during the time the buyout payments were coming money was coming in the mailbox that was above the profit margin generated on tobacco,” Troxler said.
What Brown didn’t expect to have happen over the past 10 years or so was to see the enormous reduction in demand for tobacco. He contends this reduction would have happened without the buyout because the reduction in demand has been fueled by the large increase in federal excise tax in 2009 and huge increases in excise taxes at the state level. The federal excise tax went up $1 per pack in 2009.
Taxes have had a big impact on cigarette consumption in the United States. Brown explained that also affecting cigarette consumption during the last five years is the restricting of smoking in public places. Brown said most states have some kind of ban on smoking in public places, like restaurants and bars, and in workplaces. The smoking bans have made it more inconvenient to smoke.
"We knew demand would continue to decline for tobacco,” Brown said. "I certainly did not anticipate how big the decline would be. It had nothing to do with the buyout. If we still had had the tobacco program in place, we would have seen it go down pretty dramatically.”
Brown thinks the tobacco program would have imploded had it still been in place.
If demand hadn’t gone down so much, Brown explained, we would have seen an even larger expansion of tobacco in North Carolina. North Carolina farmers produce about 80 percent of the flue-cured tobacco grown in the United States. Prior to the buyout, North Carolina produced about two-thirds of the flue-cured tobacco in the nation.
Pushing demand for flue-cured tobacco in 2013 was the fact that good quality flue-cured tobacco was in short supply globally. Therefore, the United States exported more flue-cured tobacco in 2013 marking an upward tick since a fairly sharp decline in 2010.
In his "U.S. Flue-Cured Tobacco: Situation and Outlook” released in December 2013, Brown indicates that "global supplies of good quality flavor-style flue-cured (leaf) is still short going into the 2014 season.” Brown also predicts continued "robust demand from China” for flue-cured tobacco.
Tobacco is affected by so many policy decisions that it makes it difficult for tobacco experts like Brown to see the future. There’s tax policies, health policies even trade policies across the world that affect tobacco.
"Overall, there’s nothing I can see that would cause us to grow less tobacco in North Carolina or in Wilson,” Brown said.
Troxler said the United States, particularly North Carolina, has never lost its recognition of having the highest quality tobacco in the world that is priced competitively. Beyond that, he points to our political stability that most areas in the world can’t claim.
"I do think as payments (buyout) run out there is going to be another analysis of where we are in the world,” Troxler said of tobacco production. "We’ll continue to be an exporter of tobacco and remain recognized as the place in the world to go get tobacco.”
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