Tobacco Associates Meets

Source from:  Tobacco Reporter 03/04/2016

Tobacco Associates held its annual meeting March 2 at the Wilson Agricultural Center in Wilson, North Carolina, USA. President Kirk Wayne reported on the organization's export-promotion activities and participants in the gathering elected the 2016 board of directors. Industry experts shared their insights into the global trends that affect demand for U.S. flue-cured tobacco.

Tobacco Associates' mission is to enhance understanding of U.S. flue-cured tobacco and assist manufacturers interested in adding U.S. leaf to their products. To this end, the organization offers study missions, seminars and market analysis, among other services. In 2015, Tobacco Associates representatives visited China, Cuba and several other countries in order to spread the word about U.S. leaf tobacco.

Richard Reich, assistant commissioner at the North Carolina Department of Agriculture, said 2015 had been a tough year. "For the farmer, the season is always either too hot, too cold, too wet or too try," he said, half-jokingly. "Last year we had all of that."

Despite the challenges, Reich expressed confidence on the ability of U.S. tobacco farmers to compete in the world market. "Our soils and climate are favorable, and we are the world's most compliant supplier," he said.

Blake Brown, professor and extension economist at North Carolina State University, puzzled over the domestic use of U.S. tobacco, which has been declining at a faster rate than domestic cigarette consumption. He speculated that this development was due increased use of imported tobacco, inventory changes and/or new product designs that had reduced the amount of tobacco required per cigarette.

Looking at the upcoming season, Brown expected U.S. tobacco growers to benefit from production declines in the world's two other big flavor-style leaf producers, Brazil and Zimbabwe, which have suffered excessive rains and drought, respectively. Brazil, he said, may be looking at its smallest crop in 15 years.

The big challenge for U.S. exporters this year, he added, would be the exchange rate, as a strong U.S. dollar had made American products expensive for foreign buyers. The key, said Brown, was for U.S. farmers to continue differentiating their crop, especially from Brazil's, which has become a close substitute in recent years.

Akin Akdogan and Baldev Mistry of Star Tobacco International discussed the global leaf market, which continues to suffer from oversupply. Based on the dynamics in various regional markets, they expected demand and supply to reach an equilibrium in the second half of 2017 at the earliest.

Mistry said the leaf market would be affected by changes in blend engineering. Cigarette manufacturers are simplifying their blend structures, choosing cheaper leaf varieties and relying increasingly on artificial flavorings. The use of products such as reconstituted tobacco and cut-rolled expanded stems, had grown significantly in recent years, he said.

Darryl Jayson, vice president of the Tobacco Merchants Association, presented his audience with a surprising statistic-U.S. cigarette consumption increased from 2014 to 2015. And although the size of the increase was modest-from 264 billion to 270 billion-and the long-term trend remains downward, it stood in stark contrast to the figures discussed earlier that morning, which were mostly about decline.

ayson attributed the uptick to declining gasoline prices, which had left more money in consumers' pockets. The other beneficiaries from this extra disposable income, he said, had been alcohol and lottery tickets.

While the Food and Drug Administration (FDA) will have no direct contact with growers, its actions will still impact tobacco farming operations, according to Jason. He discussed the FDA's deeming regulations, the future of menthol cigarettes and the significance of "substantial equivalence" brand reports, which requires manufacturers to demonstrate that a new product is largely similar to one that was on the market on the arbitrary date of Feb. 15, 2007.

The latter requirement, in particular, is a concern for the fledgling vapor industry because many vapor products were introduced after 2007. If the FDA insists on the 2007 date, such products will be treated as new and be subject to the more onerous (and expensive) Pre-Market Tobacco Applications process-a requirement that could put many vapor companies out of business.

Such a development, suggested Jayson, could result in more demand for tobacco as vapers return to cigarettes. Enditem