03/16/04 — R.J. Reynolds denies reneging on promise, says it will buy as much leaf as last year

View Archive

R.J. Reynolds denies reneging on promise, says it will buy as much leaf as last year

By Staff and Wire
Published in News on March 16, 2004 1:57 PM

From staff and wire reports

At 1:15 p.m. today, R.J. Reynolds Tobacco Co. refuted reports that orders would be cut roughly in half this year in buying tobacco. The company said it would buy the same amount as last year. RJR spokesman Tommy Payne said the cigarette maker bought 36 million pounds of tobacco in 2003 and will purchase that amount again in 2004 despite what he calls significant reductions in cigarette volume in the past few years.

The company said it purchased the equivalent of 16 million pounds of excess inventory from the Flue-Cured Stabilization Corp. last December. Payne said that was key to reducing the projected quota cut in 2004 from 22 percent to 10 percent.

Cigarette volume fell by 12 percent in 2003 and has fallen nearly 28 percent since 1998, RJR said in a news release.

Legislators should eliminate a cigarette export tax credit for R.J. Reynolds Tobacco Co. after reports that it would cut some domestic leaf orders by nearly half this year, a gubernatorial candidate says.

The Winston-Salem-based cigarette maker will reduce planned purchases from contract tobacco growers by between 42 percent and 48 percent, according to Agriculture Commissioner Britt Cobb. Reynolds has declined to comment.

The General Assembly in December agreed to expand and extend a cigarette export tax credit until 2018, for a potential $130 million over 13 years. The measure was intended to help secure 800 new jobs for Winston-Salem as Reynolds merges with Brown & Williamson Tobacco Corp.

Bill Cobey, a Republican candidate for governor, said Gov. Mike Easley, who signed the legislation, and the General Assembly should now rescind those incentives.

"Here North Carolina dishes out $130 million to RJR on a silver platter and RJR responds by turning its back on the tobacco farmers ...," Cobey said in a news release.

"This is the perfect example why incentive packages offered to specific large companies do not work," he said.

Easley said Monday he didn't know if Reynolds was reducing its purchases further this year compared to December, when domestic growers announced their purchasing intentions for 2004.

If reports of further cuts are true, Easley "will be speaking with RJR officials to encourage them to look for ways to maintain the company's reputation as a good corporate citizen and increase its purchase of domestic leaf," Easley spokesman Cari Boyce said Monday night.

One Wayne County farmer said that farmers are very upset about the reduction because the income they had planned to receive from RJR will be drastically reduced.

They will have to sell their tobacco to Stabilization at a cheaper price than they would normally sell it to RJR, said Jerry West, whose farming operation is in northern Wayne and southern Wilson County. He is going into his fifth year of having a contract with Philip Morris.

He said farmers receive around 10 cents less per pound when selling tobacco to Stabilization instead of RJR. For a farmer who has 300,000 pounds, that is $30,000 less income, said West.

He said the amount of domestic tobacco used in manufacturing has reduced considerably over the past few years and the amount of imported tobacco used is now at 55 percent.

Tommy Hooks of Hooks Farms Inc. farms with his brother in the Fremont area and they have around 45 acres of tobacco. He has a contract with Philip Morris and said he was a little surprised when he heard about the reduction.

"It sort of tells the story of where we are headed as a tobacco farming community," said Hooks. "The farmers are hurting in a time we need stability."