2013 Outlook Uncertain
Coming on the heels of a very good 2012 growing season, many growers are registering guarded optimism for the 2013 season. According to the most recent U.S. Department of Agriculture crop report estimate, 2012 flue-cured production increased to 494.6 million pounds from 344.5 million pounds in 2011. The excellent quality of the 2012 crop sent average prices up close to $2 per pound.
But according to North Carolina State University researcher Blake Brown’s U.S. Flue-Cured Tobacco Situation and Outlook, the quality of the crop is only half the story behind the near record-high prices. Demand for premium flavor-style flue-cured was high, owing to mediocre flue-cured quality in 2010 and 2011 in the United States and Brazil. While it is possible that a high-quality 2013 Brazilian harvest could push 2013 U.S. prices back down, and a low-quality 2013 Brazilian harvest could keep 2013 U.S. prices high, uncertainty in forces influencing global demand of flavor-style flue-cured makes the situation difficult to predict, Brown notes.
One the one hand, U.S. demand could increase, as Chinese consumers increasingly smoke premium brands and higher-quality cigarettes. Global regulatory trends moving toward banning flavorings in cigarettes could also mean that more premium flavor-style flue-cured is required in blends to make up for the lack of added flavorings.
On the other hand, cigarette demand outside of China is stagnating. Widespread smoking restrictions and health campaigns in the U.S., unknowns concerning FDA regulation, and the possibility of a new Congress enacting another increase in the Federal Excise Tax are pushing down domestic demand. Similar trends are also present in other developed nations. And effects of the World Health Organization (WHO)’s Framework Convention on Tobacco Control (FCTC), the international tobacco demand reduction treaty, still remain to be seen.
For the U.S. tobacco farmer, these uncertainties in demand are compounded by uncertainties about the weather. Over the past several years, the weather has been anything but predictable, and the drought conditions experienced across the country in recent years coupled with unprecedented extreme weather typified by Hurricane Sandy leave growers at the mercy of Mother Nature in the coming growing season.
First Section of WHO Tobacco Treaty Adopted
The fifth conference of the WHO’s FCTC was held in Seoul, Republic of Korea, last November. The FCTC is an international treaty—the first the WHO has overseen—with the goal of reducing global demand for tobacco.
The first section of the treaty to be adopted, the Protocol to Eliminate Illicit Trade in Tobacco Products, details a set of requirements for signatory countries to help curb the trade in black-market tobacco. Several of the articles of the protocol will directly affect tobacco growers should the United States choose to enact into law the requirements imposed by the treaty.
Article 6 sets out the requirements for licensing participants in the tobacco supply chain. While not strictly required under the protocol, provisions are made for licensing of tobacco growers “to the extent considered appropriate.” If the treaty were adopted in the United States, growers may be required periodically to apply for a license, where they would have to include information such as their production capacity, criminal record, bank accounts and intended buyers.
The protocol also stipulates that signatories “shall require that tobacco growers … maintain complete and accurate records of all relevant transactions in which they engage.”
The protocol is now open for signature and will pass into effect three months after it has 40 signatories. It could therefore be in effect as early as April 2013. The United States would then choose whether to enact its provisions as federal law.
China Considers Reducing Area of Planted Tobacco
According to the state-run news agency China Daily, the world’s largest producer and consumer of tobacco is considering the country’s first national tobacco control legislation. The proposal could reduce the area of planted tobacco, as well as have wide implications for the marketing of tobacco products in China. Of the 1.3 billion Chinese, more than 350 million are smokers, says the Chinese government.
The Beijing Health Bureau has gone a step further, announcing its plan to make all public spaces in the nation’s capital smoke-free by 2015. The bureau has already begun a campaign that aims to significantly reduce the proportion of men who smoke. While the cigarettes consumed by the majority of Chinese smokers are low-quality and domestically produced, city-dwelling middle-class smokers are more likely to purchase premium, imported brands. If the legislation under consideration achieved even a small percentage change in consumption, the effects on the global market could be widespread.
— By Chris Trlica