The Tobacco Transition Payment Program, most often referred to as “the buyout,” created more questions when it was signed into law in 2004, than answers since that time, and has left tobacco farmers wondering what to do next.
Long-time South Carolina tobacco specialist, DeWitt Gooden, who came out of retirement to work on tobacco, says the emphasis on future crops has to be quality. “Farmers who have stayed with tobacco in the United States produce a high quality crop and that separates us from Brazil and other countries that have stepped up tobacco production in recent years,”
Part of the increased emphasis on quality comes from the buyer's perspective. Gooden explains that with the tobacco program gone, growers must now be more attentive to what tobacco companies want in tobacco leaves.
“One thing most companies want is more harvests throughout the year,” Gooden says. That costs the grower more money, but is critical to getting contracts, the long-time South Carolina tobacco expert notes.
Tobacco production in the U.S. was dramatically changed in 2004 with passage of the America Jobs Creative Act. Specifically, Title VI of the Act eliminated the marketing quota and price loan program, making the 2005 tobacco crop the first ‘post-buyout’ crop.
Section 641 of the Act eliminated existing Commodity Credit Corporation (CCC) tobacco price support loans.
Between March and July of 2005 CCC called the loans of nine tobacco buying association, valued in excess of $981 million, and took possession of approximately 280 million pounds of tobacco.
CCC subsequently sold back to the associations 72.7 million pounds of flue-cured, 39 million pounds of burley, 2.1 million pounds of fire-cured and 134,700 pounds of air-cured tobacco, reducing the lending agency's debt to $497 million.
Free market sales of tobacco further reduced the debt to $292 million, setting the stage for marketing the first non-government supported tobacco crop in 2005.
Over the next 10 years (2005-2014) growers and quota holders will be eligible for approximately a billion dollars a year to finalize the tobacco transition production and marketing system in the U.S. Of this money, quota owners will be eligible for $7 per acre and growers up to $3 per acre, depending on their level of risk for the 2002, 2003 and 2004 tobacco crops.
What does all this mean to tobacco growers in the Southeast? For starters, at least in the short-run, it means continued reduction of tobacco acreage in the U.S. In South Carolina, which is geographically in the center of Southeastern tobacco production, which extends from Virginia to Florida, tobacco acreage dropped from 58,000 acres to 24,000 acres in 2005.
“We have been losing market share to countries like Brazil for a number of years, and south Carolina tobacco acreage had dropped to about 28,000 acres in 2004,” Gooden explains. “Though the official number is 24,000 in 2005, I suspect it is really less than that,” he notes. Gooden believes that over the next several years as things settle from the “buyout” that tobacco production in the U.S. can recapture acreage from our competition.
Gooden contends that tobacco production can still be profitable. “Growers have to grow higher yields and higher quality tobacco and to do that they have to be more economical and efficient, he contends.
He points to soil fertility as a good example of how being more efficient and more economical frequently go hand-in-hand. In tests at three South Carolina locations, growers using the recommended rate of fertilizer produced 2,750 pounds of tobacco per acre. When nitrogen rate was upped by 20 pounds per acre, yields went up by only 50 pounds per acre, but percent immature and unripe grades went up by nine percent, far offsetting the slight yield gain. Factor in the cost and application of the extra fertilizer, and it's easy to see the economic advantage of efficiency.
Further increasing nitrogen rates by 40 pounds per acre over recommended rates resulted in no additional yield, but another 4 percent in immature and unripe grades, further reducing profitability.
Gooden has some specific suggestions for growing cheaper tobacco. First, he says match fertilizer needs to soil test. New grid sampling techniques, for example, can show variability across a field and allow a grower to apply precise amounts of fertilizer.
Second, he says to match varieties to disease problems. Variety selection, he points out, is much cheaper than pesticides. He points out that standard treatment for bacterial wilt control is $130 per acre and the best way to cut that cost and maintain quality is to select a variety that has resistance to the disease and to practice good crop rotation.
Tomato spotted wilt virus (TSWV) is another big problem, he says. “We have Admire and Platinum which also helps with aphids and beetles. Since all available varieties are susceptible to TSWV, even at $49 per acre, it is still a good option, Gooden contends.
Third, he says, use best management practices, as detailed by Extension offices in most tobacco-producing states.
Next, match acres planted to pounds that are under contract and leave lower quality leaves in the field. Labor and curing costs are still the biggest cost items in tobacco production and leaving lower quality in the fields is often cheaper than processing and selling them at significantly reduced prices, the Clemson specialist explains.
The keys to post-buyout success, Gooden contends, are to obtain and keep a contract, produce tobacco to the purchaser's specifications, reduce costs and take advantage of government programs. “Tobacco is a low risk crop for production, but high risk for costs,” he emphasizes.
“Quality is what sets us apart from Brazil and other tobacco-producing countries,” Gooden contends. To assure tobacco quality, he says growers must stick to recommended nitrogen rates, harvest in at least three stalk positions or by contract specifications, use recommended pesticide applications, irrigate if needed, harvest mature tobacco and keep proper moisture in bales and reduce tobacco specific nitrosamines (TSNA's)
Quality, he notes, can go all the way back to greenhouse production of transplants. Testing greenhouse water, sanitizing equipment, avoid over-fertilizing, waiting until Feb. 1 to seed, maintaining recommended temperature and clipping early — shooting for 6-8 clippings — all contribute to a quality tobacco crop and help hold down cost.
Proper maintenance of the curing barn also can contribute to lower cost and higher quality, he maintains. Check for leaks, especially around the door of the curing barn, and make sure the curing unit is operating properly as this can drastically improve curing efficiency.
Check the heat exchanger for leaks and cracks with a CO2 monitor or smoke bomb as sealing cracks can reduce quality-robbing TSNA's in the subsequent tobacco crop, the Clemson tobacco specialist says.
The upcoming 42nd annual Tobacco Workers Conference will look at post-buyout production of tobacco.