Tobacco company to cut leaf purchase in half

Associated Press

RALEIGH — R.J. Reynolds Tobacco Co. will cut its leaf orders by nearly half this year, according to North Carolina tobacco growers.

Company spokesman David Howard declined to discuss the second-largest U.S. cigarette maker’s purchasing plans on Sunday.

“In terms of our purchases, our strategy is based on what we think volumes would be, what we anticipate what our needs will be. As the year goes on, that might change,” Howard said.

State Agriculture Commissioner Britt Cobb said his department had been besieged with calls over the weekend from farmers who had been told the news.

“The word is filtering around pretty strongly,” Cobb said Saturday. “Farmers are worried. All we can do is just continue trying to develop some new markets for leaf tobacco.”

Cobb said he had heard that Reynolds would be slashing planned purchases from contract tobacco growers by between 42 percent and 48 percent. Reynolds and Richmond, Va.-based Philip Morris USA, the country’s top cigarette maker, together purchase most of North Carolina’s flue-cured tobacco.

Lenoir County farmer Kenneth Jones said he was angry that the cuts were occurring four months after Gov. Mike Easley and lawmakers agreed to a tax credit worth roughly $130 million on the company’s cigarette exports. The credit will be administered annually over the next 13 years.

“I think that the governor and the legislature ought to get together and take away those incentives from R.J. Reynolds,” Jones told The News & Observer of Raleigh. “It seems to me just a slap in the face to come out and do that after we tried to help them.”

Cobb said he believed one instigator for the cuts could be the ongoing merger between Reynolds and Louisville, Ky.-based Brown & Williamson Tobacco Corp., a move that is expected to bring 800 new jobs to Winston-Salem. The promise of jobs helped the tax credit push through the Legislature, as did Reynolds and Philip Morris’ consent to purchase about 45 million pounds of surplus tobacco.

If the companies had not bought the product, the federal government would have been forced to reduce the amount of tobacco farmers could grow this year under the price-support, or quota, program.

“Certainly one of the benefits from that was to reduce what the quota cut could be,” Howard said.

Some farmers now believe that action may be hurting them now, speculating that Reynolds bought more than it needed for political currency.

“Let’s hope the reduced orders don’t hurt the quotas later this year,” said Scott Bissette, Tobacco Program Administrator for the North Carolina Department of Agriculture.

Bissette and Cobb said the ripple effect of the decision likely wouldn’t stop with Reynolds contractors, and said the state government would step in as best it could with the typically three-month-long auction process.

“We’ll offer assistance in any way we can, but the biggest help that they need is a home for that tobacco,” Bissette said. “The warehouse auction is a viable alternative, where they can sell up to their quota.”

Bissette also pressed the importance of opening up new markets overseas. Reynolds itself is buying increasingly more tobacco overseas.

Some farmers blame the price support system itself, saying the United States wouldn’t be importing 55 percent of its tobacco from overseas if U.S. farmers could lower their prices and compete with the foreign growers.

“It’s very tough times,” Bissette said. “Just tough times on the farm.”