Leaf Co-op could Become Industry Player

Source from:  JOURNAL RALEIGH BUREAU by David Rice 05/12/2004

Tobacco leaders have mixed reaction to plan to buy plant Leaders in the tobacco industry had mixed reactions yesterday to word that the cooperative that represents flue-cured tobacco growers in five states is trying to buy its own cigarette plant. In a meeting with farm leaders from three states Wednesday in Raleigh, officials from the Flue-Cured Tobacco Stabilization Corp. said they were negotiating to buy the Vector Tobacco plant near Roxboro, a modern plant that owner Bennett LeBow closed this year. As owners of the plant, the growers' cooperative could offer another outlet for U.S.-grown tobacco, which cigarette-makers have increasingly shunned in favor of cheaper foreign leaf. But it could also change the role of the cooperative, which has traditionally supplied surplus leaf reserves to cigarette-makers, to that of a competitor with the likes of industry leader Philip Morris USA and R.J. Reynolds Tobacco Co. "We've really never dealt with anything like this, so it's hard to speculate," said David Howard, a spokesman for Reynolds. "If in fact this does happen, it's really no different from the hundreds of other manufacturers who have started operations in recent years. It's a very competitive market, and they would simply be another competitor," Howard said. Some farm leaders raised questions Wednesday about whether the stabilization cooperative, which holds reserves of surplus tobacco in an effort to stabilize prices, would get discounts that other manufacturers don't when it sells those reserves. Officials at Reynolds had similar questions yesterday. "It's important ... that they be treated just like any other buyer. That would be very closely monitored," Howard said. Major cigarette-makers have lost market share in recent years to discount-tobacco companies that did not participate in a $206 billion settlement with 46 states in 1998. But farm leaders said Wednesday that if it buys the Vector plant, the cooperative intends to join the master settlement with the states. That seemed a relief to officials at Reynolds. "It would certainly be appropriate that they would participate in the master settlement agreement," Howard said. A spokesman at Philip Morris declined to comment yesterday on the cooperative's potential purchase of the tobacco plant. "It's so early, it would be difficult to speculate," said Bill Phelps, a spokesman for Philip Morris. Even more than its cigarette-making potential, though, farm leaders were excited about the leaf-processing capabilities of the Vector plant to provide the co-op with ways to dry leaf and store it for later sale. Tommy Bunn, the executive vice president of the Leaf Tobacco Exporters Association, said yesterday that the cooperative currently must use leaf dealers to process its leaf. "It would take business away from the processing," Bunn said. "At the same time, there is too much processing capacity out there.... This could mothball a plant somewhere." Even if the cooperative owned its own processing plants, if it helps increase markets for U.S. leaf, that's OK, Bunn said. "Hopefully, it will expand the U.S. industry," he said. "The interest here is trying to expand U.S. tobacco back to using the capital and investments they already have. And that's done by volume. If we can expand our volume ... we're all better off." Enditem