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E-Cigarettes, Buyers' Market Hurting Kentucky Tobacco Revenue

A drop in burley prices from around $2 or more per pound in recent years to $1.40 per pound or less at current auction is a sign of “volatility” in Kentucky’s tobacco market, an agriculture economist told state lawmakers Wednesday.

University of Kentucky Extension Professor Dr. Will Snell told the House Standing Committee on Agriculture and Small Business that some burley is selling for less than a dollar a pound at auction, although the leaf is still selling around the $2-per-pound mark on contract depending on quality.

“It’s a situation where we’ve gone from somewhat of a seller’s market that we’ve had for several years to more of a buyer’s market in terms of excess supplies, and, as a result, we’ve seen a lot of volatility in our prices for this last growing season,” he said.

Tobacco companies only need around 170-180 million pounds of burley leaf from this past season, while the nation’s burley belt—that includes Kentucky—has around 213 million pounds to sell, said Snell. Meanwhile, worldwide production, including production in the African nation of Malawi which grows about a third of the world’s burley, is on the rise. Snell said worldwide burley production has grown 35 percent in the past three years as consumption falls.

“So we have excess,” he told lawmakers.

Massive flooding in Malawi in recent months could mean a better outlook for U.S. burley, said Snell, depending on how much of that nation’s tobacco crop has been damaged. He indicated that is yet to be determined.

Another hit to U.S. tobacco growers is the “e-cigarette,” or vaping, market which Snell said typically uses poor quality tobacco in products that sell at a higher price per unit than traditional tobacco products. Because e-cigarettes are not covered by the Master Settlement Agreement—the multi-billion agreement between states and cigarette manufacturers from the late 1990s—and have a higher price point, they are attractive to tobacco companies, Snell explained.

Two other obstacles growers face include the end of tobacco buyout payments and the rising value of the American dollar, Snell told the committee.

Rep. Mike Denham, D-Maysville, asked Snell if the use of tobacco in medicine has made progress. Tobacco has been used in Ebola treatment research, and Snell said other pharmaceuticals using tobacco are in testing. He added, however, that tobacco grown for medicinal reasons apparently is grown in small amounts and would not likely benefit large growers.

Rep. James Tipton, R-Taylorsville, asked Snell to share the current average cost of production per pound of tobacco. Snell said that differs based on labor costs and pounds per acre, among other factors.

“(Probably) the good yielding producer is $1.25 to $1.30 (per pound),” said Snell.

Snell said tobacco production in Kentucky is expected to reap $300 million to $350 million overall in 2015. At one time, burley was a $1 billion crop for the state.

From the Legislative Research Commission

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