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Strong profits predicted for tobacco growers

Tobacco Associates hold 70th annual meeting in Wilson

By Drew C. Wilson

Times Staff Writer
Posted 3/6/17
Despite decreasing product sales and despite decreasing gross revenues for total sales of tobacco products, profit margins are going up and expected to be robust for the next five years. Blake Brown, the Hugh G. Kiger professor at N.C. State …

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Strong profits predicted for tobacco growers

Tobacco Associates hold 70th annual meeting in Wilson

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Posted
Despite decreasing product sales and despite decreasing gross revenues for total sales of tobacco products, profit margins are going up and expected to be robust for the next five years.

Blake Brown, the Hugh G. Kiger professor at N.C. State University, made the comments on Wednesday during the 70th annual meeting of the Tobacco Associates in Wilson.

“It’s an interesting conundrum,” Brown said of the tobacco market in the United States. “You see a market where we have seen decreased product volumes, decreased sales. We’re seeing actually now decreased gross revenues in this industry and the ironic thing is that profit margins are going up.”

More than 100 members of the organization met at the Wilson County Agricultural Center to discuss trends in the domestic and international markets.

“This is a milestone anniversary, and it underscores the history and resilience of tobacco and tobacco growers,” said Richard Reich, assistant commissioner for the N.C. Department of Agriculture. “Here in North Carolina, tobacco remains our No. 1 crop. It is a very important part of our $84 billion agribusiness industry.”

The year 2016 was a challenging season for tobacco growers, Reich said.

“We know the combination of excess moisture and heat took its toll on our crop,” Reich said. “Many of you were likely impacted by Hurricane Hermine in September or Hurricane Matthew in October and our folks in the west experienced drought, but we’ve had tough seasons before. As an industry we will continue to face those challenges. We have challenges of policy, regulation, the value of the dollar, but as farmers, perseverance is your backbone.”

The number of tobacco farmers in the industry has declined, Reich said.

“Tobacco is our top agricultural export commodity in North Carolina and it is increasingly important for us to continue to work on long-term markets and expand the purchase of U.S. leaf in developing countries,” Reich said. “It is important for us to maintain traditional markets, especially Europe, and Tobacco Associates’ participation in established trade shows helps promote the quality flue-cured tobacco that you are all producing for these global markets.”

Reich called American-grown tobacco “the best leaf in the world.”

“Tobacco in North Carolina is still a critical, important part of the political, the social and economic fabric of our state,” said Allen Wooten, chairman of the board.

Brown said that U.S. tobacco growers need to focus on providing premium tobacco.

“Our place in the marketplace is providing that very high-quality, flavor style tobacco that will allow companies globally to improve the quality of product they have,” Brown said. “That really is the nugget of optimism that you have right now in flue-cured tobacco.”

Brown said U.S. tobacco growers are in a difficult spot right now because of strong exchange rates, or a strong U.S. dollar. This makes crops grown in Brazil, whether it’s soybeans or tobacco, much more lucrative.

“We’ll get through this. We’ve had these situations before,” Brown said. “It’s kind of like bad weather is what I would make it analogous to.”

According to Brown, domestic use of U.S. tobacco has seen a pretty rapid decline over the last few years.

“You can’t explain that just with a decline in cigarette consumption in the U.S.” Brown said. “Cigarette consumption has taken some big hits with the excise tax increases and the increase in smoking restrictions, but that still won’t account for this kind of a decline in U.S. consumption.”

Brown said it is an alarming trend that needs to be closely watched.

“This is not just exchange rates. There is something else going on here too,” Brown said. “Part of it may be that the serving size, the amount of tobacco in a U.S. cigarette, is going down.

“That’s clearly a part of it. Another part of it is the decrease that has come out of U.S. tobacco rather than some of the imports tobacco.”

Despite this, global tobacco manufacturing has been very strong.

“It is still a very profitable industry globally and it’s also very profitable in the U.S.” Brown said.

Brown said the jury is still out on the e-cigarette industry’s impact on the U.S. combustibles market.

Labor costs continue to be the highest cost for tobacco growers at about 34 percent.

H-2A labor, a temporary agricultural worker program administered by the U.S. Department of Labor, is predominantly what is used in North Carolina.

Hourly rates have risen, though, from $9.30 in 2011 to $11.27 in 2017.

“It’s great labor. It’s very reliable. It’s a good program except that they have made it extremely difficult to use and they have made it very expensive to use,” said Brown. “By the time you add all the overhead costs, the transportation costs and everything the farmers have to bear tot get them here, even a very efficient operation that spreads this over sweet potatoes and other crops still will probably have at least $15 per hour in these workers.”

Despite the cost, labor is the tobacco farmer’s greatest asset, Brown said.

“It’s one of the reasons why we have such great tobacco quality in the United States,” Brown said.

“The real opportunity for U.S. flue-cured growers is to have quality leaf being part of the product and growing markets for premium-brand cigarettes in developing countries,” Brown said. “Cigarette consumption is declining everywhere in the world now, but that’s not necessarily what you need to focus on in the U.S. What is of importance to you is the growth in premium brand around the world, particularly in developing countries because of rising incomes. That is your bright spot for the future.”

Tobacco Associates President Kirk Wayne, of McLean, Virginia, announced his intention to step down at the end of the month as the president of the organization, a position he has held for 38 years. Wayne has been in the organization for 47 years.

“It has been a challenging and rewarding career for me,” Wayne said. We have worked together not just as a team, but as a family.”

dwilson@wilsontimes.com | 265-7818

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