Vaping Puts a Choke Hold on the Last of America's Tobacco Farms

(Bloomberg) -- Hampton "Hoppy" Henton doesn’t smoke, but he’s someone who clearly has nicotine in his blood. Both his father and grandfather grew tobacco on the same Kentucky land he now farms at age 70.

His children, though, likely won’t follow in his footsteps, Henton said, and it’s easy to see why. Undercut by serious health warnings, the number of tobacco acres harvested in the U.S. has fallen from 2 million in the 1930s to 302,000 in 2018, lower than in 1866, the year after the Civil War ended.

Now U.S. farmers face a new threat: The growing use of e-cigarettes that get their nicotine from processed tobacco grown much more cheaply in emerging markets like Zimbabwe. Its arrival could sound the death knell for a crop that once ruled the U.S. South, but now is forcing farmers to consider new options, from less profitable grains to newly-legalized hemp.

“It’s causing a lot of anxiety in tobacco country because they need even less tobacco from fewer farmers,” Henton said of the companies that buy U.S. tobacco. “I don’t know that they’re making a bad business decision, but they’re not taking us with them.”

Vaping Puts a Choke Hold on the Last of America's Tobacco Farms

American farmers have long competed against international growers based on the quality of the leaf they produce, rather than price. But leaf quality matters little in the production of the liquid used in e-cigarettes, thus the push by e-cigarette makers to take advantage of the lower cost of producing tobacco -- a labor-intensive crop -- in developing countries.

"The picture is pretty grim,” said Darrell Varner, president of the Council for Burley Tobacco, in a telephone interview. “It is a threat to us as growers, because we have not gotten any assurance at any time that any of the juices will contain nicotine extracted from U.S. tobacco.”

E-juice made with imported tobacco is a health risk, Varner said, because it’s hard to trace where it came from and what the production process looks like there.

Brent Leggett grows flue-cured tobacco on roughly 300 acres in Eastern North Carolina. He’s mechanized as much of the tobacco process as he can, he said, and still can’t match the prices of international producers.

‘Undeveloped Countries’

“Really you’re competing against undeveloped countries,” Leggett said by telephone. "There’s nothing that we really can personally do to change that.”

Still, Leggett’s not yet ready to stop growing tobacco. That crop makes up just 10 percent of his farm’s acreage but accounts for 50 percent of its revenue, he said. Farmers in Eastern North Carolina rely on tobacco, he said, in part because the state’s sandy soils make it less suitable for powerhouse American crops like soybeans and corn.

Vaping Puts a Choke Hold on the Last of America's Tobacco Farms

Meanwhile, sales of the new e-cigarettes have been booming, rising in the U.S. alone to $2.97 billion in 2018 from $860 million in 2014, according to IRI data compiled by Bloomberg. Late last year, Richmond, Virginia-based Altria Group Inc. spent 12.8 billion for just a 35 percent stake in e-cigarette maker Juul Labs in the latest and largest big-tobacco investment.

“Cigarette industry volumes have been declining for more than 20 years,” Steve Callahan, an Altria spokesperson, said in an email. “That said, we continue to purchase significant amounts of tobacco from more than 2,000 American farmers and highly value those relationships.”

Tobacco farmers in Kentucky’s Bluegrass region are used to fighting uphill battles to "defend the indefensible," according to Henton, who plants roughly 30 acres of tobacco each year. They expected change to come from e-cigarettes, but contracts with tobacco buyers are now shrinking faster than they thought, he said.

Vaping Puts a Choke Hold on the Last of America's Tobacco Farms

While Henton said his children will continue to farm, he doubts that tobacco will be among their crops. Meanwhile, some farmers in the Kentucky’s Bluegrass farming region are betting on an alternative cash crop legalized just last month: Hemp.

Grown for its fiber, food and medicinal uses, “hemp can be a savior,” Blake Butler, executive director of the North Carolina Industrial Hemp Association, said by telephone. Since December, he said, when the U.S. farm bill legalized hemp on the federal level, the number of farmers asking him about hemp has been steadily increasing.

Demand has skyrocketed for hemp’s derivative products, including CBD oil, the non-intoxicating cannabis extract credited with helping treat a host of medical problems. Proponents argue it’s relatively easy to grow, and they point to the crop’s long history in places like Kentucky, where tobacco acreage expanded after legal restrictions were put on hemp.

Pilot Programs

Kentucky and North Carolina have both been conducting pilot programs in recent years that allowed farmers to produce hemp if granted a license.

But the solution might not be that simple. The price of dried hemp was falling rapidly even before the farm bill lifted the lid on hemp supply, according to a slide deck posted on the Kentucky Department of Agriculture’s website. A rush of new supply from farmers around the country would likely further sink the price of hemp products.

“Tobacco is going to come down and hemp is going to go up," Will Snell, a professor at the University of Kentucky who specializes in tobacco economics, said by telephone. "But it just depends on how profitable this sector is, and consumer acceptance of these products.”

©2019 Bloomberg L.P.