‘Golden age’ for old industry?
As smoking declines, research seeks new uses for tobacco
- March 1, 2012
Peter Majeranowski thinks his company could change the way we see tobacco. Forget the debates over carcinogens. If Majeranowski is right, tobacco might improve our lives significantly.
Majeranowski is managing director of Tyton BioSciences Corp., a Pittsylvania County-based company that has developed a technology modifying tobacco to produce biofuels such as ethanol and biodiesel.
“We project yields per acre that will outperform corn and soy for fuel production,” Majeranowski says. Those performance numbers could prove important as farmers face vastly increased demand for biofuels, he adds.
This alternative use of tobacco soon should make its appearance in the marketplace. “We believe that in two to three years, tobacco will be ready for commercial applications,” Majeranowski says.
Tyton BioSciences is just one of several companies in Virginia and elsewhere exploring new uses for tobacco in fields as varied as pharmaceuticals and feedstock. The payoff could be significant.
That’s good news for one of Virginia’s oldest industries, which has faced tax hikes, high-profile lawsuits, increased regulation and diminishing cigarette sales in recent years.
Industry’s past and present
It hasn’t garnered the fanfare of the Jamestown celebration in 2007, but this year marks another 400th anniversary in Virginia: the birth of the American tobacco industry.
In 1612, John Rolfe, the future husband of Pocahontas, planted Caribbean tobacco seeds in the soil of Varina Farms, a plantation on the James River in present-day Henrico County.
The experiment helped save the struggling English colony at Jamestown. A steady global market soon emerged for the Virginia-grown tobacco. “It was the world’s first agricultural commodity of consequence,” says Terry Sharrer, a former curator of health sciences at the National Museum of American History, Smithsonian Institution.
Four centuries later, tobacco remains an important global commodity, and its role in Virginia’s economy is still significant, if diminished from its heyday, which state agricultural officials estimate extended roughly from the end of World War II to the late 1980s.
Today, tobacco ranks ninth among the commonwealth’s agricultural commodities, generating $80 million annually for Virginia farmers, says Todd Haymore, the commonwealth’s secretary of agriculture and forestry. In 1991 tobacco was the fourth-ranked commodity with $198 million in cash receipts. (The state’s chicken industry now tops the list with more than $550 million in annual revenue.)
Tobacco companies still have a strong presence in the commonwealth. Altria Group (the parent company of Philip Morris USA, the largest U.S. cigarette manufacturer) moved its headquarters from New York to Henrico County in 2008. It employs about 4,600 people in Virginia, roughly half of its employee base. Philip Morris’ manufacturing facility in Richmond makes about half the cigarettes sold in the U.S. The Marlboro brand dominates production — 117.2 billion of the 135.1 billion cigarettes manufactured in Richmond last year were Marlboros.
The national trend away from cigarette use, driven in part by tax hikes, smoking bans and health concerns, has slowed the industry’s growth. The Centers for Disease Control and Prevention says the health effects of smoking cause an estimated 443,000 deaths each year in the U.S. “Cigarette industry shipment volume is declining 3 to 4 percent a year,” says Ann Gurkin, senior vice president and equity research analyst with Davenport & Co. LLC, a Richmond-based investment firm.
Altria laid off 15 percent of the salaried workers at its cigarette business and related subsidiaries last fall, citing the 158 percent increase in the federal excise tax (which went into effect in April 2009) as the chief cause for declining cigarette sales. “It went from 39 cents to $1.01 per pack, the largest federal cigarette tax increase in history,” says Steve Callahan, a spokesman for Altria Client Services who declined to say how many workers were laid off.
As smoking has declined, tobacco acreage in the commonwealth has fallen more than 50 percent in the past 20 years, from 54,000 acres in 1991 to an estimated 22,000 last year, according to USDA statistics.
Exports for Virginia leaf tobacco also have dropped. In 2010 the commonwealth’s leaf exports totaled $346 million, down 45 percent from $620 million the year before. At the same time, North Carolina’s leaf tobacco exports rose from $394 million in 2009 to $635 million in 2010. “We don’t know why” Virginia exports declined, Haymore says. “We’ve raised the issue with manufacturing and processing companies, but we don’t have a solid answer for how the numbers shifted so dramatically.”
The Food and Drug Administration, which gained regulatory oversight for tobacco in 2009, could complicate the industry’s future. “We think it will continue to have a significant impact,” Gurkin says. “It’s still evolving, and people are still learning the limits of the FDA’s oversight.”
Government regulation could make it more difficult for tobacco companies to launch new products, she says. “On the other hand, it could work as a protection in the marketplace for large companies with good products and market share.” Altria supported FDA oversight, while most of the industry did not.
Ongoing lawsuits also create uncertainty for the industry. In December, for example, Melbourne, Australia-based Philip Morris Ltd., a subsidiary of Switzerland-based Philip Morris International (a separate company from Altria), challenged the Australian government in court over a law requiring tobacco products sold there to be in plain packaging.
In the U.S., five companies (R.J. Reynolds Tobacco Co., Lorillard Inc., Commonwealth Brands Inc., Liggett Group LLC and Santa Fe Natural Tobacco Co. Inc.) filed a suit against the FDA over its plan to require graphic images on cigarette packages. In November, a federal judge temporarily blocked the packaging plan, which would include using images of dead and diseased smokers. The case ultimately could reach the U.S. Supreme Court.
While cigarette sales fall, the tobacco industry continues to see growth in smokeless products. Revenue from its smokeless products rose 4.8 percent in 2011. U.S. Smokeless Tobacco, an Altria company, is the world’s leading producer and marketer of moist, smokeless tobacco products.
The company test-marketed a smokeless tobacco stick in Kansas in March last year. “It’s a 2½-inch wooden stick, with two-thirds of the stick coated in finely milled tobacco,” says Ken Garcia, another Alria spokesman, who declined to discuss the company’s long-term plans for the product.
Despite their fast growth, smokeless products aren’t poised to replace cigarettes anytime soon. “Overall, 60 million adults in the U.S. spend $90 billion on tobacco products each year,” Garcia says. “About 40 million of those users are buying cigarettes, while 7 or 8 million are choosing smokeless products.”
The bottom line: “The profit pool is still larger coming out of cigarettes, as opposed to smokeless,” Gurkin says. Nonetheless, smokeless products are playing an important role in Altria’s continued strength, she says. “You’re better positioned if you’re a total tobacco company.”
A bold new future?
So cigarette sales are declining and smokeless tobacco products aren’t growing fast enough to make up for the lost volume in the foreseeable future. But that situation doesn’t spell the eventual end of tobacco as a cash crop because the future of tobacco might lie in today’s research labs.
There, scientists are identifying the genes responsible for particular traits of the tobacco plant, says Chuck Johnson, a professor and extension plant pathologist with Virginia Tech. “If we cut out the genes responsible for certain chemicals, we can have a plant that looks and behaves like we want, without the undesirable features.”
Tobacco, it turns out, produces a plethora of valuable proteins and chemicals, and transgenic tobacco has the potential to change how we think of “the whole field of veterinary medicine and human pharmacology,” says Sharrer, the former Smithsonian curator. “If university researchers and small companies can prove that tobacco proteins have the same efficacy in humans, the golden age of tobacco is ahead.”
In part, that’s because of the sheer demand the alternative-use tobacco industry could face. “You have to look at the end-use markets and the amount of product they use,” says Majeranowski of Tyton BioSciences, “In our case, the petro-chemical market has demand for billions of gallons, which translates to an enormous amount of tobacco.”
The economic impact of alternative-use tobacco could be wide reaching, too. The fact that tobacco is a nonfood crop could help stabilize food prices as well as the cost of biofuels, for example. “Biofuel and food producers are suffering under increased prices of soy and corn,” Majeranowski says, noting that soy prices are five times higher than they were less than a decade ago and corn — which cost about $2 a bushel in 2002 — is now around $7 a bushel. And the costs are unlikely to come down as a result of ethanol subsidies expiring at the end of 2011 because ethanol production won’t decline this year.
“Imagine the public outcry if gas or milk prices went up that much,” he adds. “We believe that tobacco can provide biofuel producers with an alternative fuel crop that is not entangled with food prices as global demand for traditional tobacco continues to decrease.”
Some companies already are in the marketplace with products created through tobacco research. In August, Glen Allen-based Star Scientific Inc. launched its new dietary supplement, Anatabloc, after in-house and external research showed that anatabine — one of the four alkaloids in tobacco — “assists the body’s own process for regulating inflammation,” says Sara Troy Machir, Star Scientific’s vice president for communications and investor relations. It’s the company’s second product release in 20 months.
“The uses and potentials for anatabine, which is found in plants in the Solinaceae family — which includes green peppers, potatoes and green tomatoes as well as tobacco — are very exciting,” Machir says.
Of course, predicting the future based on lab research is difficult. “It takes years to refine your potential product to make sure it does what you think it will do,” says Virginia Tech’s Johnson, who has worked with transgenic researchers on tobacco projects. “The key word is potential.”
But if it makes it to the marketplace, alternative-use tobacco could secure the plant’s place in Virginia’s economy. “Reinvigorating the farming communities with a new use for tobacco puts a lot of other people back to work in various support roles,” Majeranowski says. “We’re hopeful that tobacco can bring another 400 years of prosperity to Virginia.”