<strong>China, Virginia: Tobacco Industry in Dan River Region Experiencing Surge in Demand</strong>

Source from:  Lynchburg (VA) News & Advance  03/06/2013

The tobacco industry in the Dan River Region is experiencing a surge in demand for American-blended cigarettes in the global market, especially China.

The trend is affecting tobacco growers in Pittsylvania County, said Stephen Barts, extension agent with the Virginia Cooperative Extension in Pittsylvania County.

A rise of middle-class consumers in China – with more purchasing power – is driving a demand for higher-quality cigarettes, Barts said.

"The quality of tobacco produced here is better than in most places in the world," said Barts, who raises about 15 acres of tobacco with his brother.

A weak dollar is playing a role in the increase, as well. Before 2008, it was much cheaper to buy only slightly lower-quality tobacco in Brazil, Barts said. That is no longer the case, and companies are seeking to buy American tobacco. Also, crop conditions in the South American country have declined in the last two or three years, Barts said.

While cigarette smoking is on the decline in the U.S., other parts of the world are seeing an increase.

From the 1940s to the early 1970s, nearly half of U.S. adults smoked cigarattes, according to an August 2012 Gallup poll. That figure has fallen since the mid-1970s, down to about 20 percent in 2012. There has been a 2-percent to 3-percent drop per year in America, Barts said.

However, developing countries like China are seeing adult smoking levels similar to those in the U.S. in the 50s and 60s, Barts said.

"There are more smokers in China than there are people in the United States," Barts said. "That is a huge market."

In the nation's five tobacco-growing belts in the South, there were 1.2 billion pounds grown in the 1970s, said Harry Lea, tobacco receiving station manager at United Tobacco Co. in Danville. That number is down to slightly more than 400 million pounds, Lea said.

In the U.S., there has been a more recent decrease of tobacco supply due to the hurricane in 2011 along the 1-95 corridor in eastern Virginia and North Carolina. Roughly 150 million pounds of tobacco were lost in a 24-hour period – about 1/3 of scheduled U.S. production for that year, Barts said. About 450 million pounds were projected to grow that year, Barts said.

Robert Mills Jr., who grows 37 acres of tobacco in Callands, said there is more of a shortage of tobacco supply than there is a rise in demand, with a decrease in crops due to drought conditions and hurricanes. Also, high grain prices are driving farmers and land into grain production, which has also caused tobacco supply to drop, he said.

"It's the fact that supplies are so low," Mills said.

Decreased supplies pose an opportunity for tobacco farmers, Mills said.

"It's good for us in the industry," said Mills, who serves on the boards of directors for the Virginia Farm Bureau and the Virginia Department of Agriculture and Consumer Services. "It's giving us an opportunity to increase our production."

Mills, who has increased his tobacco production by 20 acres, said he saw a good-quality tobacco crop last year. He grew tobacco for 10 years and stopped for five before deciding to grow it again two years ago.

More companies are buying tobacco than five years ago, Mills said. Within 100 miles of growers in the Dan River Region are several tobacco-buying companies, including JTI, UTC, Phillip Morris USA, Phillip Morris International and R.J. Reynolds, among others.

"I've seen more enthusiasm in growing tobacco this year than I've seen in probably the last 15 years," Mills said.

About 19,000 acres of flue-cured tobacco were grown in Virginia in 2012, representing a 10-percent to 12-percent increase since 2010, Barts said.

However, the manufacture of tobacco-production equipment, such as tobacco barns, has not kept pace, Barts said. Production capacity is a concern.

"You can only grow so much tobacco in any given structure," Barts said.

Tobacco production capacity in the U.S. is about 525-530 million pounds per year, Barts said.

Another issue is the cost of tobacco production, which is an extremely capital-intensive crop, Lea said.

Fuel, fertilizer and equipment costs are rising at a record pace, Barts said. A new tobacco barn, where the tobacco is cured, is about $30,000-$34,000 Lea said.

Pittsylvania County is the largest tobacco-gowing county in the state, with about 5,719 acres of flue-cured tobacco in 2012, compared to 5,354 acres in 2011 and 5,199 acres in 2010, Barts said.

Daniel Moore, who raises about 40 acres of tobacco with his father in Rondo near Callands, sells to companies in the region including Phillip Morris and JTI. New tobacco barns are expensive and land is difficult to acquire, Moore said.

"It's hard for farmers to afford a $40,000 barn," Moore said.

Many growers have left the industry since the tobacco buyout began in 2004, and more will probably leave in 2014, when the payouts end, Lea said. In addition, young people are not entering the industry and there are not many young farmers left, Lea said. However, demand remains strong in the historic Old Belt, includingVirginia and northern North Carolina, in addition to the growing global market in countries like China.

"That puts more pressure on the market now," Lea said.

Tobacco buying companies in Danville purchase at least 50 million pounds of the plant per year, generating about $100 million for Dan River Region farmers, Lea said.

"Danville is still a hub of tobacco sales," Lea said. Wilson, N.C., has been the largest hub, with Danville the second biggest, Lea.

Tobacco-buying companies must pay prices that will support growers to ensure they make a good profit and stay in the business, Lea said. Enditem