Tobacco growers' co-op getting into the cigarette business

<p>With radical changes looming for tobacco farmers, the cooperative that has run the government's price support system for decades is shifting its focus to leaf processing and cigarette making.</p><p>The Flue-Cured Tobacco Cooperative Stabilization Corp., which covers growers in several states, including Georgia, is paying nearly $26 million for a plant near Roxboro, about 23 miles north of Durham, that will at first be used to process leaf. Later this year, or early next, the co-op plans to begin making cigarettes there.</p><p>"We think this is something that will be of value to the farmers," said Lioniel Edwards, general manager of the co-op. "We want to make a premium cigarette and sell it at a reasonable price."</p><p>Edwards has no delusion that the co-op's cigarette _ which has not yet been named _ will push the big tobacco companies off the racks at convenience stores.</p><p>"We'll never compete with them," he said. "If we could get 1 percent of the market, we'd be happy."</p><p>The co-op's move parallels efforts by other crop growers' cooperatives to be involved in all stages of production, from the ground to the grocery store. Ocean Spray juices are produced and marketed by a cooperative of cranberry growers, while nut growers sell their products under the Blue Diamond label.</p><p>For the Flue-Cured Co-op, buying a factory and getting into the processing and manufacturing business makes sense as a hedge against big cigarette makers, who increasingly buy their leaf from lower-cost overseas growers in countries like Brazil and Zimbabwe.</p><p>In recent years, tobacco farmers in Florida, Georgia, South Carolina, North Carolina and Virginia have sold their tobacco primarily under contract to cigarette companies, making them vulnerable as demand for domestic tobacco slides and contracts shrink.</p><p>Now, legislation is moving through the U.S. Congress under which the government would dismantle the Depression-era system of price supports, buying out tobacco allotments held by an estimated 400,000 quota holders. Farmers generally support the buyout, which would allow prices to fall closer to world-market levels and free them to grow as much tobacco as they can, while also compensating them for the loss of their quotas.</p><p>With foreign competition, lawsuits and higher city and state taxes dampening demand by U.S. smokers and cigarette makers, American tobacco farmers last year planted their smallest crop since the 1870s.</p><p>This year, the government cut the flue-cured tobacco quota by 10.8 percent, and a 30 percent cut is forecast for next year.</p><p>Co-op officials hope the new plant in Person County will fill a gap for farmers who don't have a contract or whose tobacco is rejected for not meeting contract requirements.</p><p>The plant is nearly brand-new, having been opened by Vector Tobacco Inc. in 2001 to produce low-nicotine cigarettes. Parent Liggett Vector Brands Inc. closed the facility last year after it decided to consolidate production at a plant in Mebane.</p><p>Co-op president Bruce Flye said the plant property has been valued at $40 million, so the co-op has a sound real estate investment even if the processing and cigarette business don't work out.</p><p>Flye said tobacco processing would be the major focus of the plant this fall _ cutting, cleaning, blending and selling up to 35 million pounds of tobacco now stored by the co-op.</p><p>The plant also has the capacity to produce 10 billion cigarettes per year _ a number that sounds huge, but that actually represents only 10 million pounds of tobacco, or 2 percent of the flue-cured tobacco now being grown, Flye said.</p><p>The co-op's cigarettes will be nearly all American tobacco, except for 10 to 12 percent imported oriental leaf needed to perfect the blend, Edwards said.</p><p>A third priority for the plant would be producing preblended tobacco for smaller cigarette-makers who can feed the mixture into cigarette machines and save the cost of doing their own processing, Flye said.</p><p>Farmers seem to like the idea and know the co-op, with $220 million in assets, has the deep pockets to swing the deal.</p><p>"It's a good way to use the money, to take a little bit of a gamble for our future," said farmer Keith Parrish of Harnett County, who is president of the National Tobacco Growers Association. "We're looking at a changing world and a changing system."</p><p>For Granville County farmer Don Watkins, the math is simple: "It gives us a bigger market share. It gives us a way to move more tobacco."</p><p>Graham Boyd of the Tobacco Growers Association of North Carolina said many growers have been more focused on lobbying for passage of the buyout bill than on the new plant.</p><p>The co-op "has to redefine themselves," Boyd said. "Part of the new definition might be they're a one-stop source for tobacco."</p><p>The co-op plans to close its deal for the Roxboro plant this summer and be ready to process tobacco in the fall.</p><p>The plant is a logical extension of the co-op's role in a changing industry. When sales contracts put an end to the traditional tobacco auction system a few years ago, the co-op set up its own sales warehouses for farmers who had non-contracted tobacco to sell.</p><p>The cooperative has operated those 14 sales stations without charging farmers a commission, so profit from the cigarette plant will help pay that bill, which last year was $4.8 million.</p><p>___</p><p>On the Net:</p><p>HASH(0x2863428)</p>

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