RJR to cut leaf buys
Contract cuts of 48% rile tobacco farmers
15 March 2004
By David Rice
JOURNAL
R.J. Reynolds Tobacco Co. is cutting the amount of tobacco
it buys from
State Agriculture Commissioner Britt Cobb said that his
office began getting calls last week from upset farmers who reported that their
contracts with Reynolds were shrinking by 42 percent to 48 percent for this
year's crop.
"The only ones we've heard anything like this from are
the Reynolds growers," Cobb said.
"It's just a very, very unfortunate situation,"
he said. "A farmer's going to grow their quota, so what's not under
contract they'll take to the auction. We'll just hope that Reynolds and Philip
Morris and the other companies need more than they think they'll need."
The U.S. Department of Agriculture announced in December
that based on the purchase intentions of cigarette-makers, farmers will be
allowed to grow 10.4 percent less tobacco this year than they did last year, and
less than half the amount they grew in 1997.
Tommy Payne, Reynolds' executive vice president for
external relations, referred to several reasons for the reduced leaf purchases:
shrinkage in Reynolds' market share; gains by discount cigarette-makers known as
"nonparticipating manufacturers" (NPMs) that did not participate in a
$206 billion settlement with the states in 1998; and a restructuring at
Reynolds.
"Given the volume declines and restructuring and the
increase in NPM volume, that is what we need right now," Payne said.
"We haven't needed as much because our volumes are down. So we have
existing inventory to cover our volumes for the year."
Payne said that Reynolds was among the cigarette companies
that bought 45 million pounds of leaf out of stabilization reserves in December
to help reduce the size of the quota cut this year.
But he singled out the discount cigarette-makers among the
main culprits in Reynolds' shrinking purchases. "The industry as a whole is
hurting, except for the NPMs," he said.
Individual companies' buying intentions are proprietary
information, so little is known about exactly how much leaf Reynolds buys in the
In the
"If it were Philip Morris, it would be
disastrous," Brown said. "I think it's safe to say they buy more than
60 percent of the market."
In general, the purchase reductions will be made across the
board among growers who contract with Reynolds, rather than eliminating some
growers' contracts altogether, Payne said.
"We're maintaining about the same number of contracts,
as opposed to renewing half the contracts," he said.
Sam Crews, the president of the Tobacco Growers'
Association of North Carolina, said that Reynolds' purchase of warehoused leaf
in December probably contributed to the company's reductions now. "Pay me
now or pay me later - we're in kind of a precarious position now as
growers," Crews said. "You would hope that they're going to buy some
of that tobacco at auction. If they cut their domestic purchase intentions 48
percent - wow, that's a lot."
Some growers are upset that Gov.
Mike Easley and the General Assembly agreed to give Reynolds a tax credit worth
at least $10 million a year to assist its merger with Brown & Williamson
Tobacco Corp. before the company made clear its leaf-buying intentions, Crews
said.
Rep. Bob Etheridge, D-2nd, said yesterday that Reynolds'
cuts show that Congress needs to approve a buyout of federal tobacco quotas.
"This is another blow to
"There can be no question that
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