Kentucky Turns the Page on Tobacco

Until not very long ago, tobacco was the major cash crop for many Kentucky families and communities. The hard work associated with its production often bound one generation to the next. Those times of a solid tobacco economy and of family solidarity that comes with setting, growing, housing, and preparing leaf for sale are fast disappearing.

Migrant workers--mostly from Mexico--replaced many family members in the production of tobacco in the last 15 years, especially as many small producers leased their quota to larger units where migrant labor was more cost effective. With the ratcheting down of quota, less tobacco is being produced, and its contribution to the state's economy has slipped.

What is tobacco's future? And whatever that future is, what does it hold for tobacco farmers? And what about communities where tobacco has undergirded the local economy?

Tobacco Numbers: Past and Present

For decades, tobacco was the major agricultural enterprise in Kentucky, produced on a large number of small farms. Sales from Kentucky tobaccos in 2003 (the last year for which figures are available), including burley, dark fire-cured, and dark air-cured, amounted to about $431 million, a little more than 40 percent of the more than $900 million of four years earlier.

Although tobacco is the top cash crop in Kentucky and accounts for 12 percent of Kentucky's total farm receipts, tobacco sales in 2003 were fourth in top revenue-producing agricultural commodities. The top three--horses ($800 million), cattle ($544 million), and broiler chickens ($507 million)--surpassed tobacco.

The drop in tobacco income is due largely to a drop in the federal quota for quota holders. Since

1997 the tobacco quota in Kentucky has dropped by more than half. Why?

The federal government lowered quota for several recent years due to lower demand for U.S. tobacco, said Will Snell, extension economist for tobacco. Declining domestic consumption is due to higher prices and increasing health concerns. That lower demand for U.S. tobacco also is influenced by the increasing use of foreign tobacco, which was once considered grossly inferior to American-grown tobacco. With improvements in the quality of foreign tobacco and increased competition from new manufacturers whose major selling point is price, large, traditional companies have increasingly fi lled their tobacco products with foreign tobaccos.

"Competition from foreign tobacco will continue to put pressure on Kentucky tobacco producers," said Snell, whose family, like many families in Kentucky, has raised tobacco for five generations.

Snell believes the recently passed buyout should slow down the use of foreign leaf in American tobacco products. "However," he said, "it seems pretty clear that the use of foreign tobacco is here to stay, given the business climate tobacco companies face."

The Tobacco Buyout and Beyond

The much-discussed tobacco buyout was enacted into law in mid-October.

The law pays quota owners to give up their quota; growers also will also receive a payment. Payments will be distributed over a 10-year period starting this year, although there is a mechanism by which recipients can receive accelerated (but discounted) payments. The buyout is funded by quarterly assessments on tobacco product manufacturers and importers.

"It is probably the most significant ag policy event that has affected Kentucky since the development of the tobacco program in the 1930s." Snell said. "The buyout will inject millions of dollars into local and rural economies annually, but it also will change the landscape of the Kentucky tobacco economy forever."

Kentucky tobacco quota owners and farmers will share just under $2.5 billion during the next

10 years, with an allocation of $7 per pound for quota owners and $3 per pound for growers who leased or sharecropped their quota. (Quota owners who also raised their tobacco will receive $10 per quota pound.) Dark tobacco, which is produced on an acreage basis, will be converted to a poundage equivalent.

"We've been working for years to get a buyout," said Dean Wallace, executive director for the Council for Burley Tobacco. "Tobacco has been in trouble for several years. We are fortunate to get this bill through this year. There will be some adjustments in agriculture as a result.

Nonetheless, we will still grow tobacco in Kentucky, but there will be adjustments in its production," Wallace said.

The law also provides the end to Phase II payments--direct compensation to tobacco growers totaling some $700 million over the next six years, Snell said.

As a result of the buyout program, anyone, anywhere can grow and market tobacco, although it is likely that most tobacco produced in the future will remain in tobacco-producing states, Snell said. In Kentucky, that well may mean increased production in the western part of the state, with less in the eastern part, due to differences in farmland topography.

Further, it is likely that those who produce tobacco will produce it on larger tracts and will contract their production with tobacco buyers before setting their crop. But Snell still believes there is a future for the mid-size grower who is efficient in producing quality tobacco. Nonetheless, he believes that 75 percent of current quota owners and growers likely will stop raising tobacco.

Even though cost of production for those who pay for leasing quota will decline, the price of tobacco also is likely to drop. Lower prices will fuel demand somewhat for American leaf, but gains will be limited in the near future as competitors adjust their prices as well, he said.

What about tobacco farmers who leave production--as many will?

Some likely will leave farming altogether, but many tobacco farmers are diversifying their operations.

A small market exists for genetically modified tobacco varieties that can be grown for chemicals (biofarming). That market may escalate rapidly as technologies develop. A cadre of faculty at the College of Agriculture is working diligently to fine-tune both varieties and techniques to make biofarming feasible and profitable.

A Short History of Tobacco 1400 s Columbus observes Caribbean Islanders using tobacco as snuff. 1860 s Kentucky tops Virginia as the country's leading producer of tobacco. 1914-1918 Tobacco becomes increasingly popular as a result of U.S. soldiers being given cigarettes in their rations. 1930 s Congress passes laws that establish the quota system to help control production and marketing. College of Agriculture scientists begin to research tobacco diseases, cultural practices, and varieties. 1960 s MH30 introduced as a chemical sucker control agent. Much of the work to evaluate its efficacy conducted at University of Kentucky. 1970 s Tobacco baling evaluated at University of Kentucky. Baling saves labor costs of hand tying and is quickly adopted. 1979 Blue mold wipes out fields of tobacco in certain areas. 1980 s UK evaluates fungicides to help protect tobacco from blue mold and sets up blue mold warning system. 1990 s Float system of transplant production evaluated at UK and is widely adopted by mid-decade. 2000 to present UK continues to research tobacco, especially development of varieties that have potential for production of proteins and chemicals. 2004 Federal government eliminates the quota system.

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