Co-op to Buy Tobacco Plant

Source from:  Media General News Service by David Rice 06/10/2004

A goal of growers is to spur manufacturers to use more domestic leaf A tobacco growers cooperative has agreed to buy a tobacco plant in North Carolina to give farmers in Virginia and other states more options to sell their crops. The Flue-Cured Tobacco Cooperative Stabilization Corp., a co-op for growers in five states, has agreed to pay $25.8 million to buy the Vector Tobacco plant in Roxboro, N.C. The plant will give the group a way to process tobacco leaf and make cigarettes. "We can move greater quantities of farmers' tobacco that way. That's the point," said Arnold Hamm, the co-op's assistant general manager. "The idea here is that as some of our cigarette manufacturers and our leaf dealers have moved toward dealing in offshore tobacco, we have no one left who is dealing in only U.S. tobacco. And that's our primary focus," Hamm said. Vector Tobacco Inc., a subsidiary of Vector Group Ltd., opened a plant outside Roxboro in 2001 to produce low-nicotine Quest cigarettes. But Vector closed the plant last year and consolidated production of all its brands at a Liggett Group Inc. plant in Mebane. In a filing with the Securities and Exchange Commission, Vector said it plans to close on the sale by July 15. "We have signed an agreement, but we haven't consummated a deal yet," Hamm said. But he said the cooperative hopes to have the plant processing surplus leaf reserves that did not fetch government support prices by the end of the current crop year, in late August. Andrew Shepherd, a Virginia farmer who serves on the co-op's board of directors, said less than 50 percent of the tobacco in U.S.-made cigarettes is domestic leaf, on average. "Hopefully we would be able to manufacture a cigarette containing all U.S. tobacco," Shepherd said. "If we can sell the best cigarette . . . at the least cost of any manufacturer, I think it will force some of the domestic manufacturers to use more U.S. tobacco, or lose market share." Shepherd said the plant is also likely to create jobs for people in the South Boston, Va., area, a tobacco-farming community near Roxboro. While the cooperative ran its own processing subsidiary in Fuquay-Varina from 1968 to 1987, Hamm said the new move into processing and cigarette manufacturing is consistent with those of other grower groups. Cranberry growers formed the cooperative that sells Ocean Spray juices. A growers' cooperative makes Growers' Own orange juice. California nut growers market their own almonds. And a Midwest cotton growers' cooperative makes denim. "This seems to be falling in line with the trend where farmers are taking control of marketing their product for the purpose of adding greater value at the farm gate," Hamm said. While the Roxboro plant would be able to convert 10 million pounds of tobacco into as many as 10 billion cigarettes a year, officials at the cooperative appear more enthusiastic about its ability to process 50 million pounds of leaf to sell to cigarette makers overseas. "What we're looking at is the future," Hamm said. "We've slowly but surely over the last couple of years developed a foreign customer base. This is a way, with or without a tobacco program, to continue to supply that customer base and assure them that their supplier will only be focused on U.S. tobacco." The cooperative contracts with such dealers as Standard Commercial and Universal Leaf to process its leaf. Universal Leaf Tobacco Co., a subsidiary of Richmond-based Universal Corp., has been providing leaf processing for the co-op. Spokesman Todd Haymore said yesterday that the company expects the co-op will still need some outside processing, even if it goes into the business itself. "Stabilization has been a good and valued customer of Universal's, and based on what we are envisioning for the 2004 crop, we hope they would continue to be a good and valued customer," Haymore said. Hamm said the cooperative will pay for the plant out of more than $240 million in reserves that it holds. While some small cigarette makers have chosen not to join a 1998 settlement between the industry and the states, Hamm said that the cooperative will participate in the settlement. Enditem