Hemp study finds limited job, profit potential

Industrial hemp in Manitoba, Canada. The yellow flowered plants are volunteer canola ( meaning the field was sown to canola the previous year and these are plants that grew from seed that fell on the ground at harvest.) Laura Rance/Manitoba Co-operator
Industrial hemp in Manitoba, Canada. The yellow flowered plants are volunteer canola ( meaning the field was sown to canola the previous year and these are plants that grew from seed that fell on the ground at harvest.) Laura Rance/Manitoba Co-operator

With the Kentucky Department of Agriculture likely to move forward next week on licensing potential hemp farmers, the question becomes how much of a demand is there likely to be to grow it?

In late July, the University of Kentucky released a report that was less than enthusiastic about the crop's prospects for the state.

UK agricultural economists Leigh Maynard and Will Snell found there could be a place for hemp in the farm landscape, but profits and jobs might be limited.

In the short run, according to the study, a new Kentucky hemp industry might produce "dozens of new jobs" rather than the hundreds touted by lawmakers earlier this year.

"If there's a market, it's a small market, but it's growing and it's an opportunity for our farmers," Snell said in an interview.

And even if Kentucky farmers could grow as much hemp as Canada, it would equal less than 1 percent of what state farmers make on other crops already, he said.

"Canada has 60,000 acres of hemp," Snell said. "We had 1.5 million acres of corn, 1.5 million acres of soybeans and 600,000 acres of wheat last year alone."

But he and Maynard did find potential for hemp as a seed crop, which could compete with the profitability of mainstream grain crops at the upper levels.

"Some of our top-end scenarios for hemp did indicate $200 to $400 net return (per acre), which is nothing to sneeze at," Snell said.

Although hemp won't necessarily replace tobacco or even grain production for much of the state, it could be viable particularly for Central Kentucky if federal restrictions are eased to allow farmers to grow hemp legally.

"It can only help," Maynard said. "The farmers aren't going to dive in without some assurance that it will be economically viable. ... (Hemp) could give them one more opportunity to earn income."

The Kentucky Industrial Hemp Commission probably will begin putting together regulations for licensing in the wake of Thursday's decision by the U.S. Justice Department to allow states that have legalized recreational marijuana to move forward.

The UK study was requested by the hemp commission as a prelude to the General Assembly battle earlier this year that resulted in a law that allows Kentucky farmers to grow hemp if it somehow becomes legal.

Agriculture Commissioner James Comer led the fight to establish a framework for licensing farmers and monitoring hemp for illegal marijuana. Comer lobbied lawmakers for the bill, saying it would generate hundreds of jobs for Kentuckians and give farmers a lucrative alternative crop.

He said last week he wasn't worried that the study would take away from all the political capital he's invested in passing hemp legislation.

"I'm very optimistic of industry hemp," Comer said. "In defense of UK, it's very difficult to do an economic impact study of an industry that doesn't exist."

Comer said that he has met with "executives of a Toyota supplier in Central Kentucky, and they are very interested in doing exactly what Mercedes and BMW are doing, and that's using hemp fiber for the dash and door panels and gear panels. If that happens, you can throw that study out. We're the fourth-biggest automotive state, we're a player in the automotive industry, and the hemp would work perfectly with that."

In the spring, Comer's office received calls from a variety of companies interested in getting in on hemp.

"We've had more than 20 people, credible business people, come to our office, wanting to process hemp," he said.

And they will be key for Kentucky to bridge the gap between farmers and the market, because if the federal ban is lifted, Kentucky won't be the only state jumping on board.

"One of the key levels of entrepreneurship — the companies that are going to buy directly from farmers — that has to be local," Maynard said. "First-level processors are critical to the success."

Current hemp commission chairman Brian Furnish said he was still hearing from interested businesses.

"I think right now you already have processors for what's most important, and that's the seed," Furnish said. "But there's no seed grown here. So the first question is what seed grows best here. And Caudill Seed is very interested in working on that."

Furnish, who lives in Cynthiana, said it was a big hemp-growing area into the 1940s, and he thinks it could be again because the terrain is too hilly to support row crops such as corn and soybeans.

Right now, land like that is mostly used for hay, which doesn't pay much, especially compared to the potential from hemp.

"They're talking $250, $300 returns on their budgets," Furnish said of the UK study. "Those numbers look pretty good with a field I'm making $40, $50 a year off of."

The UK study found that despite the potential, no one has really stepped into the conundrum of handling hemp fiber, which is difficult to harvest and process.

But if the state can exploit Kentucky-specific niches such as automotive parts and horse bedding, hemp proponents argue the economic potential could be enormous.

Martin Smith, CEO of United Global Co-opportunities in Lawrenceburg, agreed. Smith has worked to develop the market for kenaf, a plant similar to hemp but without its drug-related baggage.

Last year, he grew 200 acres of kenaf and said it had shown potential for everything from cattle feed to fuels to car parts.

Smith would like to see UK use his experiences with kenaf as a template for how hemp could be developed.

"Every market has its benefits when it has a competitor. I believe it's a plus for both products when hemp becomes relevant," Smith said. "There's a lot of good coming from this, building the economy."

Smith is an example of the type of entrepreneur who could provide the all-important link between hemp farmers and first-stage processors, Maynard said.

"Kenaf can be viewed as a case study to learn from. Given its many uses, what kept it from taking off? Would hemp face the same challenges?" he said in an email.

Both crops might give farmers another option," Maynard said, "but we would only recommend it if they can assure themselves of a buyer."

Kentucky Industrial Hemp Commission meeting

When: 10 a.m. Sept. 12

Where: Kentucky Department of Agriculture, 111 Corporate Dr., Frankfort

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