U.S. Tobacco Experiencing Slight Uptick

Source from:  Sunday, July 06, 2008By Jen DeGregorio Business writer 07/07/2008

The nation's tobacco industry appeared to be riding the path to extinction as the number of farms harvesting the green, leafy plants plummeted in response to falling cigarette consumption nationwide. But a 2004 federal buyout program, which ended government price controls for tobacco and a quota system restricting the amount farmers could grow, appears to have had the unintended consequence of increasing crop production. Three years ago, U.S. farmers planted just 297,000 acres of tobacco, down from more than 1 million acres of the plant in 1974. But tobacco acreage and harvests have crept up ever since. Last year, farmers planted 356,000 acres and harvested 780 million pounds of tobacco, up 21 percent from the 2005 harvest of 645 million pounds. Some farmers have exited the business altogether, relying on buyout payments to help them transition from the quota system. Others, however, seized an opportunity to feed a growing demand for cigarettes worldwide. Although tobacco is known to cause cancer and other illnesses -- killing 5.4 million people a year, according to the World Health Organization -- use of the plant has risen in many developing nations, although it has fallen off in the United States and other wealthier countries. Meanwhile, political unrest has shut down farming in some nations once known for their tobacco trade, such as Zimbabwe and Malawi. "Now, all of a sudden, there is demand for tobacco here again," said Mark Ryan, who owns the D&R Tobacco company in North Carolina. "Now that there is greater demand, (farmers) can grow more." Still, domestic cigarette producers are selling fewer cigarettes overall, according to Mark Smith, a spokesman with Santa Fe Natural Tobacco Co., who estimated a loss of between 2 and 3 percent in industry sales each year. Santa Fe has bucked the trend, with sales growing by 10 percent each year, Smith said. Although owned by cigarette giant Reynolds American Inc., Santa Fe has capitalized on its image of a "natural," alternative product. The company advertises that its cigarettes and roll-your-own tobacco pouches are free of additives and offers a line of organic varieties that are sold throughout the United States. Santa Fe sells certain products in parts of Europe and Japan. "I think there is a growing trend in that," Smith said of the demand for organic tobacco. Santa Fe sells a special "perique blend" of cigarette and roll-your-own tobacco, which includes the rare breed of tobacco grown only in St. James Parish on just seven farms that together comprise 40 acres. Perique farmers did not participate in the quota system and are therefore not eligible for payments from the federal tobacco buyout. Enditem