Program offers perspectives on hemp in North America
MADISON – Like many other states, Wisconsin has experienced an explosion of interest in growing hemp – some from farmers looking for an alternative enterprise and some from first-time growers without a farming background.
In light of all the interest in a plant that can yield nutraceuticals, fiber, grain and feed, organizers of the annual Wisconsin Agricultural Outlook Forum (held in Madison January 28) invited speakers with deep knowledge about hemp in various parts of North America.
Tyler Mark is a professor of ag economics at the University of Kentucky who has become an expert on the economics of hemp production in his state. Kentucky farmers only grew 32 acres of hemp in 2014 but farmers wanting to grow the plant for fiber and grain licensed 60,000 acres last year and harvested 20,000 acres.
He predicted that by this year there will be hemp grown in all 50 states even though “we still haven’t gotten there in terms of economics.” This growth in interest, he noted, means that there is a “tremendous amount of product coming on the market.”
One challenge for hemp growers is that there is a lack of processing capacity; a second challenge is that “venture capital has gone out of the market,” he said. Growers may have to hold onto their product for six or nine months or even longer.
“That’s something producers don’t think about when they put the crop in the ground,” Mark added.
Two agronomic models are being used in Kentucky. Some growers plant the crop thickly by mechanical means and others are growing individual plants under a strip of plastic, the way a vegetable grower might cultivate tomato plants. With the commercial method, hemp can be harvested with a combine. In the other model, there’s a lot of hand labor. Some farmers are considering using a chopper and ensiling the plant material.
There have been pie-in-the-sky descriptions of how easy it is to grow and how much money can be made from hemp. Mark cautions anyone wanting to try their hand at hemp production that “CBD can’t alter the fundamentals of economics.” (CBD oil is refined from hemp plants and can be found for sale nearly everywhere, from drug stores to truck stops.)
Hemp has pests and diseases like any other crop and it cannot be grown on marginal land, as some have asserted. “If you grow hemp on marginal land, you will get marginal hemp.”
As the industry matures, the prices farmers pay for seed and for cloned plant material will be a huge factor in profitability. “A lot of producers bet the farm on this crop,” he said. But he also predicted that the hype is going to continue and that brings people into the budding hemp industry who have no agricultural background, which could spell trouble for them.
As the hype and interest continues, Mark said he expects oversupply issues to continue as well. This industry is going through some growing pains and when he talks to would-be hemp growers he asks them:
- How many acres they can effectively manage?
- Do they have access to a market?
- How much money do they have to invest?
- Do they have a contract that they can understand?
- Is there a method to mitigate their risk?
- What is their Plan B?
- What happens if the crop needs to be destroyed?
Wisconsin: Late to the game
Agricultural economist Paul Mitchell said Wisconsin is behind in the hemp game – 14 states have more years experience and 10 states have more committed acres. The Renk Agribusiness Institute at the University of Wisconsin-Madison, headed by Mitchell, funded a Wisconsin hemp marketing study last year. It found that 83 percent of hemp growers had start-up capital that came from personal funds. Only 10 percent had investors and 11 percent relied on loans.
The survey showed that when it came to finding buyers for their product, 35 percent of state growers relied on referrals and 34 percent used social media. Twenty percent relied on cold calls to find buyers.
When the survey was conducted, 27 percent of growers had not found a buyer and 42 percent said “maybe” they had found a buyer. (Economists at the UW-River Falls used data from a 2018 survey of 143 growers and processors done at the state Department of Agriculture, Trade and Consumer Protection, a 2019 hemp marketing survey and information gathered directly from involved industry persons.)
Mitchell said he was surprised the study showed that not even one-third of state growers had a buyer lined up.
He sees several barriers to growth in the state’s hemp industry – lack of a grower network, seed availability and ongoing high cost of seed (with many stories of fraud), weather (welcome to agriculture), labor availability, lack of specific equipment, formal financing and global competition.
Mitchell urges growers to be realistic on prices for business planning purposes and said would-be growers should “never underestimate the capacity of agriculture to over-supply any market.”
The burgeoning growth of a hemp industry in Canada and China may quickly overwhelm any production that happens in Wisconsin.
But if food processing capacity is counted as a strength in production of hemp products, Wisconsin has more advantages than almost any other state or region, he said. “We are good at processing food. And packaging, we’re really good at that. Other states would love to have that.”
Mitchell believes that Wisconsin can do both commercial and small-scale “artisanal” production in hemp. But first the state needs to solve the problem of too-high THC levels that resulted in the destruction of 14 to 18 percent of the state’s crop last year.
The state also needs entrepreneurs to develop and market new hemp products. “Processing and marketing will be the real economic impact,” he said. Wisconsin, already a leader in many organic products, may find a way to market organic hemp products.
“Wisconsin could catch up if we want to. We have comparative advantages in the food and beverage industries.”
One thing that would help the industry would be medical research into the impacts of CBD and other cannibinoid compounds. Now, such products can only make general “wellness” claims.
Dawn Thilmany, a professor of ag resource economics at Colorado State University in Fort Collins outlined her state’s “blueprint” for fostering the hemp industry. “In Colorado this is a very big deal,” she said.
While some states have simplistic two-page plans for how hemp programs will be run in their states, Colorado embarked on an in-depth discussion with many groups and stakeholders on how they wanted the state to proceed. “If there’s any chance this could become a nice, mature market we wanted to know how best to do that.”
She called it an authentic, winnowing process that included 11 state agencies and statewide public engagement meetings. There were 24 stakeholder meetings that yielded ideas on certification of seeds and clones, encouragement of new genetics and exploration of remediation for plant material that has to be destroyed.
The top comment they heard was dissatisfaction with the randomness of the level of .3 percent THC triggering destruction of the plant material. This is a nationwide requirement related to levels of THC, the psycho-active chemical in marijuana. According to press reports, 41 percent of Arizona’s hemp crop had to be destroyed for this reason. Crop destruction was 30 percent in Kentucky and Wisconsin growers destroyed 14 to 18 percent of their hemp acres due to too-high levels of THC.
Ted Haney, executive director of the Canadian Hemp Trade Alliance, in Calgary, Alberta said Canada’s hemp industry grew up “in a completely different time” – starting in 2003 -- much earlier than the current over-hyped environment. He noted that “hemp is cannabis but not marijuana. Hemp is hemp and it starts with the genetics.” His group has 400 members.
The largest hemp acres in Canada are found in Saskatchewan (27,119 acres) and Alberta (30,003 acres.) To date, every province except Nova Scotia has hemp acreage, he said. Canadian growers use an industrial model and aim for several revenue streams from their crop. They harvest various parts of the hemp plant – for food, feed, fiber and fractions.
Cultivation of hemp was legalized in Canada in 1997 and the first crop was grown on 4,000 acres in Manitoba in 1998. There, growers experienced a similar exuberance once hemp production began and quickly over-supplied the market, so much so that product “sat around for two years.”
Haney said that in Canada, the vast majority of hemp is grown for food production and growers would like to use part of their crop to feed livestock. Before that can happen, permission must be granted by Canada’s regulatory agencies and that hasn’t happened yet.
There’s a lot of interest in hemp production for fiber, he said, but the industry needs critical mass to attract value-added capital investments. One problem that his industry has solved is the too-high level of THC in hemp fields. “We don’t need to test THC because it’s all tested at the seed level. All of our testing regulations are gone. Producers buy legitimate seed. If they buy from sharks and crooks it is not hemp seed.”
The problem of “hot crops” should be gone from the U.S. industry as well, he added.
Haney envisions a $1 billion hemp industry in Canada by 2023 and they can do that by seizing the value of the whole plant. He sees “that quaint plant from the 1930s” evolving into one that will be grown on 400,000 to 500,000 acres.
“Canada is in the process of commoditizing this industry,” he said, with 90 percent of the market headed toward commercial growing and 10 percent remaining in artisanal hands-on production. “It’s either a cost-of-production advantage or a telling-of-a-story advantage,” Haney said.
Mitchell said that model would be very much like Wisconsin’s vegetable industry, with commercial growers sending their product to processing while a smaller sector of the market is bound for the farmer’s market or direct marketed. “I could very much see that model in our state’s hemp market.”
In addition to using the various fractions of the plant’s fibrous material, Haney said that research is showing there are 150 cannabinoids in hemp that may have various uses in human health and nutrition. Genetics, field trials and the setting of various ASTM standards will make this aspect of hemp growing more valuable in the future.