Tobacco Cooper (USTC), the former Flue-Cured Tobacco Coop., is no longer just the “buyer of last resort” for unsold US leaf – USTC now has the best growers and the best flue-cured tobacco.
By Chris Bickers
Nearly 12 years ago, the Flue-Cured Tobacco Cooperative Stabilization Corporation lost its role as an association that administered parts of the old US federal price support program when the Fair and Equitable Tobacco Reform Act brought the program to an end. In the ensuing years, the cooperative has embarked on a rebranding mission that has made the tobacco industry aware of its new identity.
But further awareness is needed, and a nearly all new management team lead by chief executive officer Stuart Thompson is making it happen.
“The challenge we have now is to completely change the mindset about the cooperative, so that we can be seen as a progressive sales and marketing organization,” says Thompson. “The old ‘stabilization culture’ is dead, and we want to be recognized as a company totally committed to excellence.”
One big step in that direction was to adopt a new name: In 2008, the cooperative renamed itself US Tobacco Cooperative (USTC). And another was to begin to produce tobacco products for the consumer as well leaf: In 2004, the cooperative bought what had been the Vector Tobacco factory in Timberlake, NC, and since 2006 has made cigarettes and other tobacco products.
However, despite all this, there is an impression in some parts of the tobacco industry that USTC deals only in leaf that has trouble being sold. That is in part because of impressions still held about the cooperative from its old days as a loan association. In those years, Stabilization was responsible for absorbing leaf that could not be sold on the market and holding it for later sale.
Thompson himself joined USTC in 2011, several years after the end of Federal Tobacco Program, serving first as USTC’s chief financial officer, moving to the position of chief executive officer in 2014.
“It’s true that while the price support program was in effect, the cooperative was the buyer of last resort,” says Thompson. “We have since done a full 180 [degree turn] when it comes to our market positioning and reputation. We now have the best growers and the best flue-cured tobacco.”
Christobal Perez, Azul Photography
No longer limited to just buying tobacco, USTC now manufactures cigarettes and other tobacco products at a factory in Timberlake, NC.
Because many buyers are still not aware of what USTC does and all of the intrinsic value that is in its tobacco, the group is reshaping perceptions of itself and the U.S. flue-cured tobacco crop as a whole, he says. “That is why we are in the process of repositioning our company and engaging with large multinational manufacturers.”
There has been some encouraging feedback. “As we listen to what major leaf customers want, we find that the US hits every major note better than any other origin.”
In 2014, the cooperative joined the GAP Connections program (“good agricultural practices”), which helps growers adopt practices that the industry considers desirable and began with it a program of randomly auditing growers. In 2016, with the help of GAP Connection personnel, USTC will audit 100% of its growers.
“While grower audits are time consuming, they are a key part of changing the perception of US tobacco,” says Thompson. “Social responsibility and sustainability have become significant issues for all of the major manufacturers, and leaf buyers not only want growers to meet high standards, they want data to prove it.”
The goal is to ensure that the cooperative’s growers continue to embrace sound agricultural practices and produce a high quality, natural flavor crop, says Thompson. “[At the same time] they need to protect, sustain, and enhance the environment and safeguard the rights and conditions of those working throughout the supply chain.
He believes that through the efforts of USTC, the US flue-cured crop is on track to be recognized as the most sustainable, compliant, and reliable source of flue-cured tobacco in the world.
“We are working hard to drive the industry to one audit standard, and we believe the market is heading toward 100% audit of growers on an annual basis.”
This development ought to work to USTC growers’ advantage, because the US already excels in every area of leaf production management. “So this will help us to secure market share and create additional demand for US flue-cured tobacco,” he says.
US flue-cured may well be the most sustainable compliant tobacco in the world today, he adds.
“Independent audits have shown that child labor is virtually nonexistent in US flue-cured production,” says Thompson. “Deforestation and currency issues are also non-issues here.”
Among the many other advantages of American leaf:
“Neither manufacturers nor leaf suppliers have to finance the crop or bear the cost of bad debt nor overhead associated with the teams of agronomists and field technicians they maintain in other countries,” said Thompson. “In the US, those costs are borne by our growers and embedded in the green price of tobacco.”
USTC sources no tobacco through auctions or dealers and has full traceability for every bale it buys, says Thompson; “All the way back to the farm and curing barn. We only source our leaf from the US, eliminating the possibility of offshore tobaccos being added and the risk of contamination to our crop.”
Another advantage is that the tobacco trade is generally US-dollar based so a buyer will always know that he is dealing in a stable currency. In addition, compared to many other tobacco-producing countries, the US is politically stable.
“We are owned by the farmers themselves, so they have a strong incentive to produce and market a quality product,” he says.
Once the leaf from a given year is completely sold, each farmer is issued a dividend with some portion being retained by the cooperative as equity. This practice is called patronage, and it provides a financial incentive to growers to produce the best tobacco they can.
“Patronage is a unique benefit to our members that has helped us attract and retain the best tobacco farmers in the US. Our farmers understand that our patronage dividend significantly increases their profitability, providing additional cash to invest in their farming operations.”
“The goal is to pay a fair price to the farmer while maintaining the lowest possible conversion cost,” says Thompson. “We have the best growers in the United States producing the best tobacco, and we vigorously promote the quality of US tobacco.”
While there are challenges in the short term, there is a very bright future for growers.
“The cooperative is undergoing a major rebranding project,” he says. “Today, many people don’t realize that our members are the best US growers, giving us access to the best flue-cured tobacco.”
Other news from the cooperative:
- Besides Thompson, other members of USTC’s senior management team are: Tommy Bunn, president; Ed Kacsuta, chief financial officer; Wayne
Crawford, senior vice president of leaf acquisition; Mike Lynch, senior vice president for leaf sales; Jim Schneeberger, vice president of business development; Russ Mancuso, vice president of consumer products; and Ron Morgan, president of US Flue-Cured Tobacco Growers Inc.
- USTC is directed by a board composed of nine farmers. James T. Hill of Kinston, NC, is currently the board chairman.
- USTC will operate six leaf-marketing centers in 2016, in Nashville, GA.; Mullins, SC; Sanford, NC; Smithfield, NC; Wilson, NC; and La Crosse, VA. The last center is new this year. It has closed centers in Oxford, NC, and Danville, VA. It also has a storage facility in Fuquay-Varina, NC.
- USTC is the largest supplier of US tobacco to China. Almost all cigarettes smoked in China are Virginia blends that are made mostly of flue-cured leaf.