Market enthusiasts identify thousands of potential products which can be produced from industrial hemp. Such items include clothing, cosmetics, lotions, shampoos, soaps, paper, food, feed, beer, biofuels, animal bedding, building materials, insulation, car moldings among many other consumer and industrial products. Industrial hemp is grown for its seed and for the fibers from its stalk. (see Appendix I for a production and supply chain for hemp). There are many merits of hemp fiber and oil -- superior fiber length, strength, and absorbency, excellent oil quality for both industrial and feed uses, potential environmental benefits, and a myriad of other applications. Sales of hemp products to U.S. consumers have reportedly topped $500 million in recent years, while U.S. hemp imports continue to grow. (Hemp Industry Association) Kentucky was the dominant US producer of hemp during the 1840s up until the mid 1850s before cotton and imports of other materials led to the crop’s demise during the latter half of the 19 th century. In response to the demand for rope, twine, and other products during the war effort of World War II, production of industrial hemp peaked in the United States in the 1940s. Kentucky was still a significant producer, but several other Midwestern states (Illinois, Wisconsin, Minnesota, Iowa) were much larger. In 1943, U.S. hemp production established a record high of 145 million pounds (141 million pounds of fiber and 14.0 million pounds of seed), with Kentucky’s 52,000 acres possessing a 10% production market share (98% of seed production, but only 2% of fiber production). Despite expanding sales and uses for industrial hemp, along with Kentucky’s storied history of the crop, the success of an industrial hemp industry in Kentucky ultimately is dependent upon whether it is profitable for farmers, processors, and manufacturers relative to other options. The question addressed in this study is Would industrial hemp production be profitable for Kentucky farmers and be beneficial to the overall Kentucky agricultural economy? In addition to industry interviews, this study draws upon several recent Canadian studies, a recent Congressional Research Service (CRS) report, and two studies conducted at the University of Kentucky in the late 1990s. Specifically, this report offers: • A policy review and update • A review of world production and trade trends • A more in depth look at the Canadian hemp industry • An examination of U.S. market for industrial hemp and related products • Enterprise budgets to analyze hemp profitability for Kentucky farmers • Issues, opportunities, and challenges for Kentucky producers, processors and the industry Given the many uncertainties about consumer markets, infrastructure adoption, pricing information, agronomic uncertainties, potential but undeveloped markets and conflicting signals from published articles and data sources, this study does not offer point estimates for acreage or job creation. 1 This was a group effort made up of the following faculty, Lynn Robbins, Agricultural Economics (AEC); Will Snell, AEC; Greg Halich AEC; Leigh Maynard, AEC; Carl Dillon AEC and David Spalding, Horticulture.2 A Policy Review and Update Legalizing the production and marketing of industrial hemp has initiated political debate over the years among national and state lawmakers addressing this controversial issue. More than 30 U.S. state legislative bodies have introduced hemp-related legislation (e.g., production/marketing provisions, resolutions, commissions, economic studies) since the mid 1990s with twenty states introducing legislation so far in 2013. Nineteen states have passed pro-hemp legislation, with nine states including Kentucky actually passing laws to establish a production and/or government oversight framework to enable hemp production to occur if the federal law is modified, (Vote Hemp). (see Appendix II for more details) Kentucky Legislation Over the past couple of decades there has been much public discussion and even legislative attempts in the Kentucky General Assembly related to researching and legalizing the production of industrial hemp in Kentucky. In 1994, Governor Brereton Jones established a special task force to investigate the potential of fiber crop production in Kentucky, including industrial hemp. In 2001, a bill was passed into law to develop an industrial hemp research program which would be monitored by a newly created Industrial Hemp Board (HB 100). But strict federal regulations and regulatory costs prohibited any university research trials evolving from this legislation. After several unsuccessful attempts to address the hemp issue in recent legislative sessions, the issue resurfaced in the 2011 Commissioner of Agriculture race, led by the eventual winner, James Comer. The “hemp” bill, Senate Bill 50 (SB 50) was introduced by state Senator Paul Hornback in January 2013, and eventually passed in the 2013 Kentucky General Assembly. This bill established a legal regulatory framework for the production and marketing of industrial hemp, if the federal government would amend current policy or if Kentucky could obtain a federal waiver. It became law once Kentucky’s Governor Steve Beshear elected to not veto (i.e., sign) the bill, citing the challenges hemp production would invoke on enforcing illegal marijuana production in the state. Kentucky’s legislation is based on a system of issuing production licenses to eligible growers for the production of industrial hemp with a THC (or tetrahydrocannabinol, the chemical responsible for most of marijuanas psychological effects) content that does not exceed 0.3%. The program would involve the Kentucky Department of Agriculture (KDA), the state’s Hemp Commission, the Kentucky State Police and other local law enforcement personnel, and the University of Kentucky College of Agriculture, Food and the Environment. (see Appendix III for the roles to be played by KDA, the Kentucky Hemp Commission, licensed industrial hemp growers and the makeup of the Kentucky Hemp Commission). Recent Federal Action Following passage of SB 50, the fate of hemp production in Kentucky moved to Washington DC. In recent years there have been several bills introduced in the U.S. Congress to allow the production of industrial hemp while maintaining the illegal status of marijuana production. Specifically these bills amend the Controlled Substances Act to differentiate industrial hemp and marijuana based on its THC content and transfer regulatory authority from the federal government to individual states. The most recent legislative action, the Industrial Hemp Farming Act of 2013 (H.R. 525) was a bipartisan bill introduced in the U.S. House of Representatives by Thomas Massie (RKY), with 28 original co-sponsors, which currently has increased to 42 co-sponsors. This bill was followed with a companion bill (S. 359) in the U.S. Senate, introduced by Senator Ron Wyden (D-OR), with co-sponsors Senators Rand Paul (R-KY), Mitch McConnell (R-KY), Jeff Merkley (D-OR), and Bernard Sanders (I-VT). These similar bills call for the removal of the federal restrictions on the cultivation of industrial hemp by defining it as distinct from marijuana (based on THC content) and allowing its production and processing in accordance with state laws. These bills were referred to the Judiciary Committees in both chambers in addition to the Committee on Energy and Commerce in the U.S. House. If enacted, this legislation this could lead to the production and processing of industrial hemp in states that have adopted a regulatory legal framework, but would still be subject to DEA regulations. Another option would be for Kentucky to receive a federal waiver from the DEA which would provide an exclusive opportunity for Kentucky growers to produce hemp or allow universities to develop research programs. While both of these outcomes face many political challenges, there is strong support by Kentucky legislators, both state and federal. Kentucky’s two senators, Mitch McConnell and Rand Paul, along with Kentucky’s Congressmen Thomas Massie, John Yarmuth, 3 Brett Guthrie, Ed Whitfield, and Andy Barr have publically revealed they support federal action to allow industrial hemp production to move forward in Kentucky. Citing drug enforcement concerns and lack of economic evidence, Kentucky’s Congressman Hal Rogers opposes the effort. While the two stand-alone Congressional bills have not been addressed by their respective committees, pro-hemp legislators have recently attempted to move federal hemp legislation forward by attaching it to the Farm Bill. The U.S. Senate, which passed its version of the Farm Bill, failed to include a proposed amendment that mimicked the Senate’s version of the Industrial Hemp Farming Act of 2013. In a joint statement Kentucky Senators McConnell and Paul stated the exclusion of the industrial hemp amendment was one of the reasons they opposed the Senate Farm Bill. They further stated “Although we’re disappointed in the lack of consideration of our industrial hemp amendment, it is only the beginning of our legislative efforts. We are committed to continuing to look at all options to win approval of this important legislation for job creation in Kentucky.” In the U.S. House, Kentucky’s Congressman Thomas Massie was successful in getting a hemp amendment he cosponsored to be a part of the final House Farm Bill package. Unlike the Senate hemp amendment which enabled farmers to grow industrial hemp, the House amendment only allowed production of industrial hemp for university research. With much uncertainty regarding future action on a Senate/House farm bill conference committee, other federal hemp legislative options include to attach it to another bill or to move forward with the original bills as stand-alone legislation. In addition to Congressional action, Kentucky’s Governor Steve Beshear recently wrote President Barack Obama asking for his help with hemp, stating “While experience in Canada tells us that the economic opportunities in the hemp industry are still largely unknown, we want to explore any and all opportunities that have the possible potential for job creation and enhancing rural economies in areas of our state.” World Production, Trade and Price Trends After a steady and significant decline during the 1960s-1980s, the Congressional Research Service (CRS) chart below (using FAO data) reveals that world hemp acreage in aggregate has been fairly stable over the past decade (see Figure 1). However , it is important to point out that the FAO data excludes data for Canada and other North/South American nations, which would lead to a modest increase in total world hemp acreage (along with production) in recent years. While overall total production has been increasing, seed production has been increasing relative to fiber production. Figure 1: Hemp Fiber and Seed, Global Acreage (1999-2011) Source: CRS Report, FAOSTAT, faostat.fao.org/site/567/default.aspx#ancor.4 Notably, world hemp fiber production fell from over 300,000 metric tons in the early 1960’s to less than onefourth that level in 2011. (see Figure 2) However, it appears that global fiber production has been fairly stable over the past twenty years, despite declining acres devoted to fiber production (indicating that yields have improved). Due to high costs of transporting fiber, world trade is relatively small --averaging 942 metric tons from 2007-2011. Trends in the global hemp fiber market may be signaling that economic opportunities for hemp fiber products are challenged. Figure 2: World Hemp Fiber Production 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 Metric Tons Source: FAOSTAT Figure 3 www2.ca.uky.edu/cmspubsclass/files/EconomicConsiderationsforGrowingIndustrialHemp.pdf
Posted on: Sat, 29 Mar 2014 20:15:39 +0000
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