Diversification offsets losses, labor unknowns for tobacco grower Bowen
Since he’s been farming, Steven Bowen of Halifax County, Va., has seen higher labor costs and questionable availability, lower demand domestically for his products, a decline in purchases from China, an uncertain future under a new federal administration, and a host of other negatives such as weather affecting his and other growers’ livelihoods.
Bowen estimates his tobacco labor cost runs around $850 an acre. That cost includes H-2A migrant and local labor.
Last year, H-2A labor was in question due to COVID-19. Farmers weren’t sure that foreign and U.S. governments would allow migrant workers to enter the country and if they would receive them in time to transplant.
The same unknown scenario may play out again this year, depending on the progression of the pandemic.
Also, the 2021 Adverse Effect Wage Rate for guestworkers under the H-2A program was frozen by the U.S. Department of Labor in late 2020 for the 2021 growing season; however, the United Farm Workers union sued in a U.S. District Court in California. As a result, a federal judge ruled that the labor department couldn’t freeze these wages, claiming it would encourage farm employers to hire foreign labor over domestic workers, according to Agri-Pulse Communications.
The AEWR methodology was previously based on the Farm Labor Survey, indicates the content service lexology.com.
Upon urging from farmers, the DOL had planned to change the methodology of using the Farm Labor Survey to using the Bureau of Labor Statistics’ Employment Cost Index. The DOL had intended to freeze the AEWR rates for 2021 and 2022, based on the 2020 level.
In 2023 and subsequent years, the DOL had wanted to go by what the index was for wages, giving farmers a more predictable AEWR rate, according to the content service.
Upon his ruling, the federal judge changed that thinking and instructed the DOL to publicize the rate in 2021 based on the current Farm Labor Survey.
Growers are just waiting to hear how much the AEWR increase will be. The rate may rise from $12.67 (the 2020 rate) in Virginia to a proposed $13.15 an hour, according to mobilefarmware.com, and an estimated $14.05 in Delaware and Maryland, up from $13.34 in 2020.
The local labor cost may go up as well.
The 2020 and early 2021 (at least up to Feb. 12, 2021) minimum wage in Virginia was $7.25 an hour.
On April 22, 2020, the Virginia General Assembly agreed to Virginia Gov. Ralph Northam’s legislative amendment to raise the minimum wage to $9.50 an hour effective on May 1, 2021, $11.00 an hour on Jan. 1, 2022, $12.00 an hour on Jan. 1, 2023, $13.50 an hour in 2025, and $15.00 an hour in 2026, according to the National Law Review.
Of course, the federal minimum wage could rise to $15 an hour, depending on what current President Joe Biden and his administration and Congress agree to in proposed legislation.
For several years now, more regulations and restrictions are being imposed domestically and internationally. This and the sign of smokers looking to kick the habit or switching to alternatives have driven down demand for tobacco products.
The spat between former U.S. President Donald Trump and China leader Xi Jinping led to China pulling out of its commitment to purchase more U.S. leaf.
Blake Brown, an economist at North Carolina State University, says in the past two years, contracted pounds have declined dramatically for U.S. growers. “This is mainly due to China Tobacco leaving the U.S. market,” he says.
Starting Jan. 20, 2021, Biden took office with his own administration being regularly appointed. The unknown of what ag policies he will pass leaves farmers with more uncertainty such as possibly higher fuel prices and more regulations and taxes.
With all these declines and unknowns over the years that had threatened his farm profit, Bowen said he realized he needed to do something to turn these negatives into positives. Rather than seek off-farm employment to make up for the greater costs and uncertain times, this farmer decided on a new approach — diversification.
That led to the following:
• Over several years, Bowen has increased his acreage of conventional flue-cured tobacco. It’s now up to 120 acres.
• In addition, he has bumped up his organic flue-cured tobacco to 15 acres.
• He added burley tobacco to his mix and raises about 10 acres.
• Also, Bowen plants 1,000 acres of grain such as soybeans, corn and wheat, up from about 300 to 400 acres in 2016.
• For the past two years, he has grown hemp for cannabidiol (CBD) production. He plants 20 acres. Bowen said it works hand-in-hand with tobacco. He and other growers can utilize the same tobacco equipment and labor for planting, working and curing both crops.
• Additionally, he grows about five acres of sweet potatoes that he sells commercially.
Bowen raises these crops on farms in the Virginia counties of Halifax and Mecklenburg, which is just a few miles from eastern Halifax, as well as Granville County, N.C., which is about four miles from his farm.
“We try to get diversified,” Bowen says. “So far, it’s worked out better than expected. For the size of our operation, we’ve doing about all we can do. We could add a few acres of tobacco, if the companies want it, but we’re getting maxed out.”
Belief is that China may reenter the U.S. market, which means good news to many farmers. Bowen says, “Everything’s kind of a bright spot with China coming back to the market.”
“We had hoped that China Tobacco would return to the U.S. market and that 2021 contracted pounds would be up,” Brown says. “It appears that China will purchase U.S. tobacco again so that is good news. It will be a bit surprising if China Tobacco is not back in the U.S. market for 2021.
“Unfortunately, the EU [European Union] just levied a 25-percent tariff on U.S. tobacco,” he said. “This is a retaliatory tariff stemming from a trade dispute between the U.S. and EU over subsidies in the airline industry.
The dispute has nothing to do with tobacco, but U.S. tobacco and sweet potatoes were targeted by the EU in addition to other U.S. exports to the EU. This may offset the positive impact of China returning. So it’s hard to say whether 2021 contracted pounds will go up or down. Hopefully, the trade dispute will be resolved quickly, but it’s unlikely to be resolved in time to impact the 2021 season.”
Bowen may be impacted by the tariff on tobacco and sweet potatoes, unless the new presidential administration works out better relations with the EU. “With the new administration, the labor law in getting labor and the minimum wage going up to possibly $14 or $15 an hour, it has its ups and downs,” he said, “but we’re hoping for the best.
“As far as the future, it mainly depends on labor, [which is his largest expense], the amount of money we have to pay to our labor, and whether people are willing to purchase our product.”
He adds that tobacco and hemp are very labor-intensive crops, so the mention of a labor increase, whether H-2A or local, will drive up his costs and reduce his profits—something he wants no part of for the next growing season.
On a bright note for Bowen and other farmers, Brown says the outlook for corn and soybeans is good for this year.