Tobacco farmers are looking at what could be a bleak year after leaf dealers cut the amount of contracts they will offer this year. The cuts, which some predict will range from 30 to 80 percent, could result in the smallest tobacco crop grown in the U.S. in decades. The drop is attributed to increasing competition from other tobacco producing countries and ongoing trade issues between the U.S. and China.
Speaking this week, area tobacco farmer Jim Jennings said that with the elimination of the price support program for tobacco and the shift to an open contract system, growing tobacco has been on a more traditional “supply and demand” basis. As American tobacco is the most expensive tobacco, leaf dealers and tobacco companies have increasingly turned to other markets.
“Tobacco is in worldwide production and we have the most expensive,” said Jennings. “It all boils down to cost, and we have to compete with other countries.”
Jennings added that the largest buyers of American tobacco have been in the export market, with China being the largest buyer. The ongoing trade disagreements between the U.S. and China have also caused more business to go to other countries. “Agriculture has taken the brunt of all of that, as it always does,” said Jennings.
Although few might realize it, the U.S. is not the largest tobacco producer in the world, and it’s not even close.
In 2017, China grew nearly 37 percent of the tobacco grown in the world. At a distant second was Brazil with 13.5 percent and India with 12.3 percent. The U.S. ranked fourth with around 4 percent of the tobacco grown.
Although China is by far the largest tobacco producer in the world, the country is also the largest consumer, with more than 350 million smokers. China also produces 42 percent of all of the cigarettes made in the world.
For years, China was the largest importer of U.S. grown tobacco. That is changing rapidly.
In 2015, North Carolina exported $184 million worth of tobacco to China. By 2017 the figure had dropped to $156 million. The imposition of a 35 percent tariff on tobacco imported by China has made China turn elsewhere for their tobacco. The big winners have been Brazil, India and Zimbabwe, which are all seeing booming tobacco industries.
Starting in the 1930s, the U.S. government had a system of price supports for tobacco, and those supports set quotas and the amount of tobacco that could be grown. The idea was to keep prices high by limiting supply. However, the government pulled the plug on price supports for tobacco, and for tobacco farmers, the world began to change.
One of the early casualties was the traditional tobacco auction system which dated back to the early days of the American tobacco industry. By the late 1990s, big tobacco companies began to bypass the auction system, instead offering contracts to farmers.
Within 20 years, the price support program was history, and with it a lot of the security tobacco farmers had enjoyed.
Jennings said that he also feels that the growing number of alternatives to traditional cigarettes is also helping to lower the demand for America’s tobacco crops.
“Electronic cigarettes and ‘heat-not-burn’ smoking devices are chief among the alternatives that have been cutting into the traditional cigarette market,” said Jennings.
Phillip Morris has developed the “heat-not-burn” devices that still use tobacco but, instead of burning tobacco, the electronic device heats the tobacco to 662 degrees, which is hot enough to produce an aerosol but not hot enough to actually burn. The lack of actual smoke, says Phillip Morris, reduces the toxic agents compared to traditional cigarettes. These devices are now widely available in Europe and are expected to be introduced to the American market.
E-cigarettes are yet another option which heats a liquid, usually made of a glycerin based mixture, to produce a vapor which can contain nicotine.
“I think the consumer is probably driving this,” said Jennings. “The reason is because cigarettes are expensive and somewhat harmful to you. There are nicotine delivery devices available now that are more appealing to modern day consumers.”
Whether from trade issues or increased competition from alternative devices, U.S. tobacco farmers are feeling increasing pressure, with less demand for their crops here in this country and increasingly fierce competition from other countries selling good quality tobacco at bargain prices.
“Some farmers are dropping out,” said Jennings. “They don’t have any choice. Economics, that’s just what it is. Where is it going in the future? I don’t know. I wish I did.”