Kentucky Ag News
U.S. hemp market 'small but growing:' UK
University of Kentucky College of Agriculture, Food and Environment
The University of Kentucky recently released the findings of a report analyzing the economic potential of a hemp industry evolving in Kentucky. Due to much uncertainty and limited data regarding markets and production variables, the report did not offer specific estimates of acreage and jobs.
Our analysis reveals that the U.S. market for products made from industrial hemp in the United States is relatively small, but it is growing. This is especially true in regards to hemp seed, unlike the trend in the late 1990s. These markets will likely continue to grow, and under certain assumptions (which are still very speculative at this point), hemp production for the seed-only enterprise could be profitable for Kentucky farmers.
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
This study evolved following the passage of the Kentucky hemp bill (Senate Bill 50) earlier this year. This bill established a legal regulatory framework for the production and marketing of industrial hemp if the federal government amends current policy, or if Kentucky obtains a federal waiver.
While industrial hemp cannot currently be legally produced in the United States, U.S. consumers can purchase hemp products made from hemp produced in other nations. Sales of hemp products to U.S. consumers (primarily hemp-based foods, supplements, and body care products) have reportedly topped $500 million in recent years, while U.S. hemp imports continue to grow (exceeding $11 million in recent years).
Various sources reveal that hemp is grown in more than 30 countries worldwide. China is the dominant producer. Europe remains an important player in the global hemp market, but its share of the world market has been declining. On the other hand, Canada is emerging as a growing influence on global hemp production and trade, and will likely be the chief competitor if production becomes legal in the United States.
Canada’s hemp industry has been evolving over the past two decades. Starting in 1998, commercial production became legal with grower licenses issued by Health Canada. Since 1998, hemp production has been extremely volatile based on market opportunities and the profitability of other crops. However, Canadian hemp acreage has been growing steadily since 2008, increasing to 58,000 in 2012. This growth came on the heels of improving processing technology, research, government financial support, increasing number of Canadian businesses developing hemp products, and overall growing demand; primarily import demand by the United States, which accounts for approximately 90 percent of Canadian international sales. Canada's gross producer hemp seed cash receipts have been around $30-35 million in recent years. Early estimates are for around 70,000 acres to be planted in 2013 and one industry source indicates a goal of 100,000 acres by 2015.
Key findings of the UK Ag Economics hemp report include the following:
• Despite different assumptions and methodologies, our budget projections appear fairly consistent with other studies; generally indicating that hemp seed production can compete with the profitability of mainstream grain crops under the upper range of our hemp seed yield and price levels.
• Hemp fiber has great upside potential, but little of that potential has been realized. Hemp fiber production does not appear profitable relative to other crops, given our assumed range of fiber prices and yields.
• While showing some positive returns, under current market conditions, it does not appear that anticipated hemp returns will be large enough to entice Kentucky grain growers to shift out of grain production, except perhaps at the highest assumed prices for a hemp seed-only enterprise. Lower grain prices and/or higher hemp yields or prices could expand this observation.
• If hemp proves to be profitable in the short run without any barriers to entry, the emergence of new producers from other states and nations could easily result in oversupply and price volatility; which could erode away long term profits to levels comparable with other row crops.
• The development of local Infrastructure appears critical to limit transportation costs and provide economic support to an uncertain industry.
• The development of a local research base of knowledge, an interested and willing/educated grower pool, and state financial incentives could encourage a processing industry to ultimately decide to locate in Kentucky.
• If Kentucky’s hemp industry would materialize to the size of the Canadian hemp industry, projected gross sales would total less than 1 percent of current Kentucky farm cash receipts.
• In the short run, employment opportunities evolving from a new Kentucky hemp industry appear limited (perhaps dozens of new jobs, but not hundreds). As the industry matures, the number of jobs generated by this industry could grow but remains very uncertain.
Unfortunately, this study does generate a lot of remaining unknowns and questions for further analysis and production research. Some would include:
• Will early concentration of processing, technology, and experience provide Kentucky an early advantage in the U.S. market, or will the Canadians' two decades of market research, production, and market development be challenging to the Kentucky market?
• Can Kentucky hemp producers capture the straw bedding market for horses? The enterprise analysis in this study clearly reveals that, without significantly higher fiber yields or fiber prices, hemp bedding will not be an attractive bedding alternative, despite interest expressed by several individuals in the central Kentucky equine industry.
• Does Kentucky have a competitive advantage in terms of growing seasons and soils to generate higher yields and/or better quality hemp?
• How will other states and other countries respond to Kentucky hemp production?
• Will Kentucky and U.S. production displace Canadian and other imports, or will a potential change in federal hemp policy broaden the market for hemp products?
This article was written by
Will Snell, professor of agricultural economics in the University of
Kentucky College of Agriculture, Food and Environment. The article first appeared in the July 30
edition of Economic and