Tobacco.org

Tobacco co-ops competing for place in current market 

• Perhaps the most drastic changes among the tobacco cooperatives has been made by the Burley Stabilization Corporation (BSC), which served Tennessee, North Carolina and Virginia.

• In 2010, it moved its headquarters 200 miles to get closer to its primary production area, and it has implemented an aggressive new contracting and marketing program. . . .

THE BURLEY STABILIZATION Corporation moved its headquarters from Knoxville, Tenn., to Springfield, Tenn., to be closer to its primary production area, says Daniel Green, BSC chief executive officer (shown here in front of the Springfield office).

The role of the tobacco grower cooperatives that formerly administered the tobacco price support program has changed drastically since 2004.

It had to: the price support program was ended after that season, and the cooperatives had to find new services to offer to their members.

. . .

Springfield, where the cooperative already owned some storage facilities, proved to be the best choice. But the cooperative also obtained a warehouse in Greeneville in eastern Tennessee to continue to serve its members there and in neighboring North Carolina and Virginia.

Because tobacco farmers in those areas typically grow on a relatively small scale, Green predicted the Greeneville facility will receive 35 percent of the pounds delivered from this crop, but will serve 60 percent of the growers. "We are expecting about 600 growers to deliver tobacco to that facility."

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PM Buyout Lawsuit  

Last week, Philip Morris filed a federal lawsuit challenging the United States Department of Agriculture’s ("USDA") calculation of tobacco buyout assessments under the Fair and Equitable Tobacco Reform Act of 2004 (“FETRA”) for fiscal years 2011-2014. See Philip Morris USA Inc. v. Vilsack, Civil Action No. 3:11cv087 (E.D. Va. 2011). On December 10, 2010, USDA issued a regulatory amendment which revised the FERTA regulations to provide that buyout assessments for large cigars for fiscal years 2011-2014 will be calculated using the federal excise tax rate (“FET”) in effect in fiscal year 2005, rather than the new FET rates that took effect under the Children’s Heath Insurance Program Reauthorization Act (“CHIPRA”) in April 2009.

According to the lawsuit, the result of using pre-CHIPRA FET rates to calculate assessments is that cigarette manufacturers and importers must pay a higher assessment than they would pay if the assessment was calculated using the post-CHIPRA FET rates in effect now. The use of pre-CHIPRA FET rates also results in higher annual user fees imposed under the Family Smoking Prevention and Tobacco Control Act of 2009.

The outcome of the lawsuit will affect all tobacco manufacturers.

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PRIME TIME INTERNATIONAL COMPANY v. VILSACK 

In 2004 Congress enacted the Fair and Equitable Tobacco Reform Act ("FETRA"), 7 U.S.C. § 518 et seq., repealing a system of quotas and price supports for tobacco production and providing for payments for ten years to producers and persons who had established marketing quotas to ease the transition. These payments are funded by quarterly assessments on manufacturers and importers of tobacco products. Prime Time International Company, a manufacturer of small cigars, challenged its assessments for three quarters of FY 2005, asserting claims under FETRA, the Information Quality Act, 44 U.S.C. § 3516 note, and the Due Process Clause of the Constitution. The district court granted summary judgment to the Secretary and Department of Agriculture on the FETRA and due process claims, and dismissed the IQA claim pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. Our review is de novo, and we affirm in part and reverse in part. . . .

USDA's determination of Prime Time's assessments for three quarters of FY 2005 was an adjudication, attendant to which Prime Time had rights to an administrative appeal and judicial review. See 5 U.S.C. § 551(7) (defining "adjudication"); 7 U.S.C. § 518d(i), (j). Prime Time's contention that USDA violated the IQA when it did not respond to a request to disclose and correct certain information underlying the tobacco assessments thus fails.

Accordingly, we reverse the grant of summary judgment to USDA on Prime Time's FETRA claims, we do not reach its due process claims in view of USDA's representation about requested data that will become available to Prime Time upon remand, and we affirm the dismissal of the IQA challenge, although on a different ground than relied upon by the district court.

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Organic tobacco--An idea whose time has come? 

There are many reasons why a farmer might want to take up organic tobacco production, but the most appealing is that growing organic tobacco is more profitable.

"I'm a real believer in organic tobacco," says Stanley Hughes. "Particularly because of the favorable price I get when I bring in a certified organic crop of quality tobacco. By producing quality leaf, using environmentally friendly chemicals and proven cultural practices, I've been receiving a premium price."

Hughes, who was one of the first organic farmers to cultivate tobacco under contract to Santa Fe Natural Tobacco Company (SFNTC), now grows about six acres of organic tobacco on his small farm in Orange County, N.C.

Many of the original organic growers farmed close to the company's manufacturing operations in nearby Oxford, where they could get help understanding and following the strict requirements of cultivating organic tobacco under the USDA National Organic Program. . . .

Santa Fe Natural Tobacco Company was born in 1982 in Santa Fe, N.M., when two friends had a dream of creating a better cigarette in keeping with the philosophy of Native Americans. Their goal was to use only the best part of the tobacco leaf with no additives or flavorings added. Just pure, 100 percent tobacco leaf.

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USDA Reminds Tobacco Quota Holders and Producers of Sign-Up Deadline for 2010 Payment Nov. 2, 2009, Deadline also Applies to Sales of Remaining Payments  

Agriculture Secretary Tom Vilsack today reminded tobacco quota holders and producers not currently enrolled in the Tobacco Transition Payment Program (TTPP) that they have until Nov. 2, 2009, to sign-up to receive a 2010 TTPP payment.

The TTPP, also known as the tobacco buy-out, provides approximately $10 billion in ten annual installments to eligible tobacco quota holders and producers from 2005 through 2014. Payments for 2010 through 2014 will be issued annually in January.

USDA also reminds tobacco quota holders and producers that they have until Nov. 2, 2009, to sell their remaining five annual payments to a successor to receive a lump-sum payment. Certain requirements must be met to qualify for lump-sum payments. More information on lump-sum payments is available at www.fsa.usda.gov/tobacco or by calling the USDA Farm Service Agency at (202) 720-7901. Contract holders who do not complete this process by Nov. 2, 2009, can arrange for the sale of their remaining four payments beginning Jan. 19, 2010.

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Altria to Purchase Snuff Maker UST for $10.3 Billion (Update1)  

Altria Group Inc., the maker of Marlboro cigarettes, agreed to buy UST Inc. for $10.3 billion to become the largest U.S. producer of smokeless tobacco.

The purchase, valued at $69.50 a share, won't affect Altria's full-year profit forecast, the Richmond, Virginia- based company said today in a statement. UST gained 25 percent in New York trading on Sept. 5 following reports that Altria would bid for the maker of Skoal snuff.

Altria will pass Reynolds American Inc. as the largest U.S. smokeless tobacco producer, a $3.7 billion market that's expanding about 7 percent a year. As more Americans quit smoking, Altria started testing Marlboro smokeless tobacco and said it was also considering an acquisition of a snuff maker. ``Altria is buying two tremendous brands in Skoal and Copenhagen

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Altria Is Said to Buy Maker of Smokeless Tobacco  

Altria Group reached an agreement to buy UST, the maker of Skoal and Copenhagen smokeless tobacco, for about $10.2 billion, people briefed on the matter said Sunday night.

The deal, for $69 a share, could be announced as soon as Monday, these people said. It would be Altria's first major deal since it spun off its international tobacco business in March, and it may prompt more consolidation in the tobacco industry.

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UPDATE 2-UST profit up, beats estimates  

UST Inc. posted higher second-quarter profit on Thursday, beating analysts' estimates, on increased sales of wine and smokeless tobacco, and raised its full-year earnings forecast.

Net income climbed to $139.9 million, or 87 cents per share, from $134.6 million, or 83 cents per share, a year earlier.

Excluding restructuring and other charges, the company earned 90 cents per share, 5 cents above analysts' average forecast, according to Reuters Estimates.

"The categories we compete in are growing," Chief Executive Murray Kessler said on a call with analysts. "We continue to control costs and are returning all of our cash and more to our shareholders."

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• State sees drop in tobacco production  

Tobacco warehouses dotted the landscape around Springfield’s public square, symbols of the big business that tobacco was.

Today, the metal arch is gone. With auctions a thing of the past, most of the old warehouses have been boarded up or converted into other businesses. Robertson County, like other counties in Tennessee, is experiencing a decline in the production of tobacco, a crop that once fueled the economies of farming communities across the state.

Tennessee may soon drop out of the club of the biggest tobacco producers altogether, state Agriculture Commissioner Ken Givens said. The end of federal price supports for tobacco farmers and the demise of Tennessee’s smaller-scale family farms are part of the story. . . .

According to a recently released USDA report, 750 fewer acres of tobacco will be planted in the Volunteer State this year than were set out last year. If the forecast is correct, 2007 will mark the eighth straight year that tobacco planting has fallen in Tennessee.

The state’s downward turn goes against the national trend — prices crashed in 2005, driving many away from the crop, but tobacco farmers across the country planted more acres in 2006 than they did in 2005, and are expected to plant more this year than last.

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• Court dismisses suit over tobacco buyout payments 

A federal judge in Abingdon has dismissed a lawsuit by two southwest Virginia farmers that accused the U.S. Department of Agriculture of illegally slashing the growers' tobacco-buyout payments.

U.S. District Judge Samuel G. Wilson wrote Thursday that the two burley-tobacco growers lacked standing to bring the suit because they had entered into contracts with the Agriculture Department. Even if they had standing, Wilson said, they would not be entitled to relief.

William J. Neese and Daniel M. Johnson contended in their lawsuit, filed in September 2005, that Agriculture Secretary Mike Johanns overstepped his authority by deviating from a formula set by Congress that allocates payments under the $10 billion buyout of tobacco quotas.

The farmers said the agency replaced a simple calculation approved by Congress with a complex formula that cuts payments to many farmers. . . .

Philip Morris USA had intervened in the case, filing a motion to dismiss it for lack of jurisdiction.

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• TOBACCO OUTLOOK & SUMMARY  

Leaf Production Rebounds

During the second season since the termination of the program, U.S. tobacco production recovered, gaining nearly 100 million pounds. From a low point of 647.3 million pounds in 2005, production for 2006 is projected at 743.1 million as of September 1.

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Corn, Soybean Forecast May Dampen Aid 

Agriculture Department said in its monthly crop report Tuesday. . . .

Tobacco farmers are rebounding after the tobacco buyout in 2005; their crop should be about 15 percent bigger this year.

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Tobacco Production Costs and Returns in 2004 

This study focuses on factors that led to changes in the estimated residual returns to management and risk from tobacco production in 2003-04. Residual returns per acre for flue-cured tobacco declined less than those for burley tobacco in 2004 because yield increases for flue-cured tobacco helped to offset increases in economic costs. Residual returns above economic costs were calculated using data from the last tobacco surveys, conducted in 1995 for burley tobacco and 1996 for flue-cured tobacco, and updated with 2004 data on prices, yields, marketing costs, and quota levels.

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TOBACCO OUTLOOK – SUMMARY  

Slight Gain for Harvest Intentions for 2006

On March 1, 2006, tobacco growers indicated intentions to harvest 306,630 acres during the upcoming 2006 season, a 3-percent gain over 2005. Last season, harvest intentions were 319,860 acres, and 298,020 acres were actually harvested. Assuming average yields, production is expected to be around 650 million pounds, about 10 million pounds over last season. Growers are responding to favorable contract prices and adjusting to the post-buyout environment.

Tobacco leaf production during the current (2005) season is estimated at 639.7 million pounds, 27 percent lower than in 2004. . . .

The long-term decline in cigarette consumption continued in 2005 as 378 billion cigarettes were consumed, 3 percent below 2004. Yearend taxable removals were 363 billion pieces. Output for calendar 2005 was 489.4 billion cigarettes. Per capita consumption (18 years old and older) in 2005 was 1,716 cigarettes, 90 below 2004.

Cigarette exports in 2005 slipped about 5 percent

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U.S. Tobacco Sector Regroups 

The USDA tobacco program, a fixture in Southeast agriculture since the 1930s, was terminated at the end of the 2004 crop year. With the 2005/06 crop year underway, the tobacco sector is entering a new era of minimal government intervention. Growers and buyers of tobacco are adapting to changes triggered by the lifting of the restrictions, including a 27-percent decline in production. . . .

With the end of the tobacco program, U.S. tobacco production is likely to decline for a few more years. After this adjustment period ends, U.S. producers will be fewer in number, but they will be more competitive in domestic and world markets than previously. As prices fall, demand for U.S. tobacco will increase, and in the long run, production should slowly increase as well.

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