For more than 70 years, tobacco production has been indentured to the Appalachian region of Tennessee, Kentucky, Virginia and North Carolina. But now that the tobacco buyout has released growers of those geographical restrictions, production may shift to more efficient areas.
“In the flue and burley regions of Tennessee and Kentucky, there will be a shift from northeast to central and western parts of the state, out of the Appalachian region and more to the western parts of the states,” says Kelly Tiller, assistant professor of agricultural economics at the University of Tennessee. “Flue-cured will probably move eastward into the Piedmont region, while burley could move into North Carolina.”
While most tobacco production specialists agree there will be no single hot spot of production, some believe the Piedmont region is the most likely candidate for increased activity.
“While Virginia will decrease somewhat in production, the most competitive region will be eastern North Carolina and south Georgia,” says Blake Brown, associate professor of agricultural and resource economics at North Carolina State University Will Snell, Extension professor of agricultural economics at the University of Kentucky, believes the western shift in Kentucky will result from availability of better resources in those areas. “We may see shifts to the west because of factors such as land availability, economies of scale, size of farms, and full-time versus part-time producers in central regions.”
The biggest factor determining the direction of the move will be yield potential, according to Steve Isaacs, Extension professor of agricultural economics at the University of Kentucky. “The move will be to areas with a cost advantage and areas with better yield potential. Areas with good yield will be low cost, whereas areas with poor yield will be high cost areas of production.”
Though producers can take advantage of fixed costs by choosing areas with adequate barn space, Isaacs doesn't believe barn availability will be a key player in geographic shifts. “You can cure burley tobacco in low-cost barn structures for less than $300 per acre, and some farmers would rather do that than build expensive barns.”
The feasibility of the shift toward cheaper areas of production may be dependent on the profitability of other crops grown in that region, Snell says. “You have to look at net return versus growing other crops. In western parts of Kentucky, the grain economy drives the management decisions. If grain prices are lower, tobacco may be an attractive alternative.”
Though the shift may force less persistent growers to drop out over time, it could also allow smaller, more efficient growers to prosper, Tiller says. “Some smaller, economically valuable operations with an advantage in the final product will expand, especially if manufacturers and companies are willing to pay.”
Tiller says the driving force for expansion is the level of potential profitability smaller producers could attain. “It's really a question of return on investment. Some determinants will include the degree of risk and profit margin.”
While the disposition of existing loan stocks by grower associations and the Commodity Credit Corporation could result in increased consolidation of farms, Brown says he's still not sure companies are interested in excessively large farms. “Expansion will be dependent on the company-grower relationship. They want farmers who concentrate management on growing high quality tobacco. Farms that average 100 to 300 acres of tobacco, with emphasis on premiums for quality, will be most common.”
Besides grower production quality, companies will also consider long-term competitors, low cost producers and growers who meet their specifications, Brown says.
With quota costs and land availability no longer a constraint, low-cost producers will focus their energy on making more money, Isaacs says.
That freedom now gives producers who needed additional income sources with the quota system the chance to specialize in tobacco, Snell says. “Some low-cost, efficient growers who may have previously viewed diversification as the only answer may want to look at specialization.”
The degree of expansion will be based largely on the price companies are willing to shell out, Tiller says. “It really depends on what manufacturers and leaf dealers are willing to offer, and we don't know that price structure just yet.”
The biggest short-term challenge for companies will be securing an adequate tobacco supply, Snell says. “There is definitely potential to grow more. We need more interest to grow crops, or companies will look elsewhere, like overseas or outside the traditional area. I'm not optimistic we can grow more without a price incentive.”
University of Georgia Extension Tobacco Specialist J. Michael Moore doesn't expect a large increase in tobacco acreage in his state or in north Florida.
“We have to fumigate and irrigate everything in the lower Southeast. So, even considering the potential for increased yields, I don't see much incentive for moving acreage here,” says Moore.
There are other problems in the lower Southeast, such as tomato spotted wilt virus, which could discourage new growers, he adds. “You're faced with the very real possibility of losing up to 30 percent of one year's crop to tomato spotted wilt virus. I'm just not convinced we'll see drastic moves of tobacco quota in Florida and Georgia,” he says.
For now, tobacco specialists agree that production will not stray far from traditional areas, and smaller producers will take at least two or three years to expand their operations.
“The first few years, I don't see there being a big shift in production location. It will be more of a redistribution within historical areas of tobacco production with an emphasis on product quality,” Tiller says.