Another market crisis: Chinese retaliate with tariffs on U.S. leaf
Worsening outlook for 2018: Workers set out flue-cured plants on the Kenneth Dasher farm near Live Oak, Fla., on March 22. Since then, the odds of a profitable crop have declined exponentially after China announced it may impose new tariffs on leaf imports (mostly flue-cured) from the U.S., just a few weeks after Alliance One International announced it will not buy American burley from this season's crop.
Who's the real casualty in the China/America trade war? Tobacco growers, it appears. On Wednesday, the P.R.C. announced new tariffs on U.S. tobacco and tobacco products. I haven't seen the documents yet, but according to wire reports, tariffs collected on our unmanufactured tobacco would rise from 10 percent to 35 percent, while tariffs on cigarettes and cigars would rise from 25 percent to 50 percent.
The impact of increased Chinese leaf tariffs will be almost entirely on flue-cured. China's leaf purchases from the United States are almost entirely flue-cured. Little if any American burley is purchased, because Chinese cigarettes are almost all British blends, made up entirely of flue-cured tobac-co. Burley isn't needed ex-cept in a few American blend brands that China manu-factures for foreign visitors.
The biggest victim in all this may turn out to be the flue-cured cooperative in Ra-leigh, N.C. The U.S. Tobacco Cooperative has supplied much of the P.R.C.'s needs for American leaf since China first began purchasing leaf here in the mid-2000s. Someone please correct me if I'm wrong, but I would expect that a substantial fall in Chinese sales would be a catastrophe for USTC. But if anyone thinks I am wrong on that, feel free to email at email@example.com.
I will have better information when I come to you again. I spent much of today trying contact my most reliable sources on international leaf trade, but couldn't reach any of them, as if they had all stayed home in shock. I will have more for you on the China question--and on Alliance One's decision to exit the burley market--in my next issue.
In other tobacco news....
Planting is on hold in North Carolina: Matthew Vann, N.C. Extension tobacco specialist, says, "As far as I know, no tobacco has been planted in the state yet, butmany growers are ready. We have had some very cold weather at times and it would be risky to plant until you are sure it is over. I would think it will be around the middle of the month till planting gets go-ing, although there might be a few crops go in before that." The greenhouse sea-son went very well in N.C., and it appears there will be no shortage of plants.
PROSPECTIVE PLANTINGS: On March 29, USDA issued its annual projection of the number of acres of tobacco that will be planted this season. I present the projection below, but it is based on a survey of farmers conducted in early March. That was before the AOI and China developments, which might well affect planting intentions. But we can consider this a starting point.
North Carolina--158,000 acres, down three percent.
Virginia--23,000 acres, up five percent.
South Carolina--13,000 acres, up eight percent.
Georgia--13,000 acres, up four percent.
All U.S.--207,000 acres, down one percent.
Kentucky-- 57,000 acres, down 10 percent.
Tennessee--9,500 acres, down 21 percent.
Pennsylvania--4,400 acres, down two percent.
Virginia--1,100 acres, no change.
North Carolina--900 acres, no change.
All U.S--72,900 acres, down 11 percent.
Kentucky--12,000 acres, up four percent.
Tennessee--7,000 acres, down seven percent.
Virginia--280 acres, up four percent.
All U.S.--19,280 acres, acres, up slightly.
Kentucky--5,000 acres, down 17 percent.
Tennessee--1,600 acres. no change.
All U.S.--6,600 acres, down 13 percent.
Pennsylvania (All)--1,600 acres, down 11 percent.
Pennsylvania (All)--2,200 acres, up 22 percent.
Letter to the Editor
A farmer's opinion on why AOI abandoned U.S. burley
I can sympathize with the burley growers. It would be great to know if AOI's international burley purchases intentions are reduced. Like you, I think there is more to it. Just like the flue-cured purchases in the U.S., it is not that the demand is down-it is that it can be bought cheaper elsewhere in the world. Therefore, they do it without regard to the economic impact on U.S. growers. Basically, the tobacco companies and leaf dealers care more about the bottom line than they care about U.S. growers!
--Tom Blair, Farmer, Pittsylvania County, Va.
DATES TO REMEMBER:
The Georgia-Florida Tobacco Tour will take place June 11-13. A partial schedule follows-check here for more details as they are available. June 11, 7 p.m. Kick-Off Supper at Brown Lantern Restaurant, Live Oak, Florida. June 12, 7:30 a.m. Leave Live Oak, Fl., for farm visits. End in Tifton, Ga. June 13, 7:30 a.m. Leave Tifton, to visit the Bowen Farm of the Coastal Plain Experiment Station, Tifton, and farm locations near Douglas and Blackshear, Ga., ending in the late afternoon.