The tobacco industry can't afford to sit back and wait on a buyout, says the director of the USDA Farm Service Agency Tobacco Division. There must be some kind of Plan B.
John “Moot” Truluck, the director of the Farm Service Agency's Tobacco Division isn't sure another miracle can be pulled off like the one that limited the impact of a quota cut this past December. “I think we all know that we're going to have to address the price situation. We have to come to grips with a buyout — whether we're going to have it or not.”
Flue-cured growers recently voted by a 93 percent margin to continue the tobacco program through 2006.
Truluck was among the speakers at the annual meeting of Tobacco Associates in Raleigh, N.C. recently. Each of the speakers addressed the current situation in the tobacco industry: Waiting on a buyout while experiencing cuts in quota production every year.
Last year, growers were faced with a more than 20 percent cut in quota, when at the 11th hour, a Flue-Cured Tobacco Stabilization-orchestrated sale of 42 million pounds of tobacco, and the Secretary of Agriculture's discretion, reduced the cut to 10.5 percent.
Truluck, a former tobacco farmer and warehouseman who went to Washington, D.C., last year to head the FSA's Tobacco Division, told those attending the annual meeting that “we need to be aware we have a severe problem. I know a 10.5 percent cut seems like a lot, but looking at the alternatives, it was almost a miracle. I'm not sure if we can pull this miracle off again next year.”
Truluck has been hearing this for years, but didn't really hear it until last December: The tobacco program is in trouble.
Truluck said it was like looking down the barrel of a double-barrel shotgun. “We were looking at the largest cut in the history of the program.”
In addition to a decrease in consumption, the price associated with the quota as well as a declining U.S. market share of the world's supply and more tobacco being put under loan is working against the current program.
The U.S. market share of flue-cured has declined to 5 percent from 75 percent in 1950; some 72.7 percent of the tobacco sold on the auction last year went under the loan.
While U.S. growers have lost market share, foreign countries such as Brazil have picked up production. Brazil currently produces about 11 percent of the world's flue-cured crop.
China produces 59 percent of the world's flue-cured crop.
Foreign tobacco content of U.S. brands has been on a steady increase since the late 1960s at the same time that U.S. cigarette consumption has declined, Truluck says. At the same time, the price of U.S. leaf has increased, in large part because of quota costs. “I think we all know that we're going to have to address the price situation.”