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Industrial Hemp in the United States: Status and Market Potential

Posted on January 19, 2000

A recently released USDA report, Industrial Hemp in the United States: Status and Market Potential, discounts the prospects for hemp as an economically viable alternative crop for American farmers. The U.S. market for hemp is, and will likely remain, a small, thin market. Long-run demand for hemp products is uncertain and there is potential for oversupply (Canada’s 35,000 acres seemingly oversupplied the North American hemp market in 1999).

The issue is controversial because industrial hemp and marijuana are different varieties of the same species, Cannabis sativa, which is classified in the United States as a Schedule I controlled substance, regardless of its narcotic content, under the Controlled Substances Act as amended.

Among the key findings of the USDA report:

  • Given the average size of farms in the United States (near 500 acres), just a few farms could have supplied the hemp seed, fiber, yarn, and fabric equivalent of 1999 import levels.
  • Despite the similarities between hemp and linen, the lack of a thriving textile flax (linen) U.S. production sector (despite no legal barriers) suggests that hemp would not be able to sustain an adequate margin of profit for a large production sector to develop.
  • Although the market potential for hemp seed as a food ingredient is unknown, it probably will remain a small market, like those for sesame and poppy seeds.
  • The prospects for hemp oil in food markets are limited by its short shelf life, the fact that it can’t be used for frying, and its lack of U.S. Food and Drug Administration approval as “generally recognized as safe.”
  • Overall, hemp production was profitable only at the higher end of the estimated yields and prices reported in four State analyses summarized in the Estimated Costs and Returns section of the USDA report. It seems questionable that U.S. producers could remain profitable at the low end of the estimated net returns for hemp, particularly given the thinness of current U.S. hemp markets.

Background

Since 1995, a total of 19 States (Arkansas, California, Colorado, Hawaii, Illinois, Iowa, Kansas, Maryland, Minnesota, Missouri, Montana, New Hampshire, New Mexico, North Dakota, Oregon, Tennessee, Vermont, Virginia, and Wisconsin) have introduced hemp legislation. The legislation in Minnesota and North Dakota permits the production of industrial hemp, provided farmers obtain licenses from the U.S. Drug Enforcement Administration (DEA).

The first test plots of industrial hemp in the United States were planted in Hawaii in December 1999. To gain DEA approval of the project, scientists were required to enclose the plot inside a 12-foot-high fence with infrared surveillance. The project received $200,000 in funding from a hair-care company that uses hemp oil in its products.

Previous experience in the United States and other countries indicates that industrial hemp grows well in areas where corn produces high yields. It can be grown as a fiber, seed, or dual-purpose crop.

Hemp fiber — Hemp is a bast fiber plant similar to flax and jute. Current markets for bast fibers (the long fiber cells on the outer portion of the plant stem) include specialty textiles, paper, and composites. Hemp hurds, the inner woody portion of the stem, are used in various applications such as animal bedding, composites, and low-quality papers. As joint products, finding viable markets for both hemp bast fiber and hurds may increase the chances of a successful business venture. Hemp industry sources and some academic studies cite many potential uses for hemp fiber and hurds. However, for these applications to develop or expand, hemp will have to compete with current raw materials and manufacturing practices.

Since there is no commercial production of industrial fiber hemp in the United States, the “size” of the market can only be gauged from hemp fiber and product imports. The near-term, low-end size of the U.S. market for hemp as a textile fiber might be defined by considering the domestic production and acreage required to replace imports of hemp fiber, yarn, and fabric in 1999. (There are no data available on imports of apparel and household furnishings containing hemp fiber — as well as any other products made from hemp fiber, yarn, or fabric.) Assuming a potential U.S. yield of 1,550 pounds of fiber per acre and using linen yarn and fabric conversion factors, the estimated import quantity of hemp fiber, yarn, and fabric in 1999 could have been produced on less than 2,000 acres of land. Given the average size of farms in the United States (near 500 acres), a few farms could have supplied the hemp fiber equivalent of 1999 import levels.

As a specialty bast fiber, hemp’s closest competing textile fiber is linen. A longer term, high-end size of the potential U.S. market for hemp fiber could be defined as domestic production and acreage required to replace hemp and linen imports. The hemp fiber required to replace the equivalent level of hemp and linen fiber, yarn, and fabric imports in 1999 could have been produced on 250,000 acres — roughly 40 percent of 1999 tobacco acreage, 5 percent of U.S. oat acreage, or 0.4 percent of wheat acreage.

Despite the similarities between hemp and linen, there is no industry consensus as to how closely the markets for the two fibers are allied. But since hemp fiber imports were just 0.5 percent of linen imports during the first 9 months of 1999, the near-term market potential for hemp in the United States for domestic textile production is closer to the low end of the 2,000 to 250,000-acre production-equivalent range. Moreover, the absence of a thriving textile flax (linen) production sector in this country (despite no legal barriers) suggests that hemp, flax’s close cousin in fiber uses and in production techniques, will be unable to sustain adequate profit margins for a large production sector to develop.

Hemp seed — Imports of hemp seed into North America were estimated at 1,300 tons. Given yields in Germany of about 1,000 pounds per acre, it would take 2,600 acres to satisfy the current demand for hemp seed. As with fiber imports, it would take only a few average-sized farms to meet this demand. Hemp seeds can be used directly as a food ingredient or crushed for oil and meal. Hemp seeds and flour are being used in nutrition bars, tortilla chips, pretzels, beer, salad dressings, cheese, and ice cream. The market potential for hemp seed as a food ingredient is unknown. However, it probably will remain a small market, like those for sesame and poppy seeds. Some consumers may be willing to pay a higher price for hemp-seed-containing products because of the novelty, but otherwise hemp seed will have to compete on taste and functionality with more common food ingredients.

Hemp oil — Some body-care products, such as lotions, moisturizers, and shampoos, contain hemp oil. The oil also is being sold in health food stores as a nutritional supplement. The market for hemp oil is limited by a number of factors. First, mechanical crushing produces a lower oil yield than crushing combined with solvent extraction. Nor does hemp oil undergo degumming and bleaching, as do many other vegetable oils. Some consumers prefer an oil that has been processed without chemicals, but others may dislike hemp oil’s color or taste. Second, the oil is high in unsaturated fatty acids, which can easily oxidize, so cannot be used for frying and must be kept in dark-colored bottles and has a limited shelf life. Third, to be used as a salad oil, it will have to be tested by the U.S. Food and Drug Administration and found “generally recognized as safe.” Last, as a drying oil, hemp would have to compete on functionality and price with current raw materials, such as linseed and tung oils, in established industrial markets.

State Study Findings

The USDA report examines the results of State studies on the agronomics and economic feasibility of hemp production (see Appendix III in the report.) The studies focus on different aspects of supply and/or demand. In Kentucky, for example, the State’s horse racing industry could be a significant buyer of hemp hurds for animal bedding. Because North Dakota has an oilseed crushing industry, the study concluded that hemp seed oil would provide the largest market opportunity for the State. All of the studies report hemp’s benefits as a rotation crop for traditional crops to avoid outbreaks of insect and disease problems or to suppress weeds. The North Dakota report further states that hemp rebuilds and conditions soils by replacing organic matter and providing aeration through its extensive root system.

In 1995, the majority of the Kentucky Task Force concluded that legal prohibition of Cannabis cultivation was the overriding obstacle to reintroduction of fiber hemp production in Kentucky. Significant progress on agronomics, marketing, or infrastructure development is unlikely, and of relatively little importance, unless legal issues are resolved.

The North Dakota report takes a different position. Since industrial hemp may have potential as an alternative rotation crop, the report recommends that the State Legislature consider action that would allow controlled experimental production and processing. This would allow collection and analysis of necessary baseline production, processing, and marketing data. At the same time, the concerns and costs of law enforcement agencies could be addressed.

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Table of Contents

For More Information

“Growing Industrial Hemp”, Ontario Ministry of Agriculture, Food, and Rural Affairs, Guelph, Ontario, Canada, April 1999.

“A Maritime Industrial Hemp Product Marketing Study”, prepared for the Nova Scotia Department of Agriculture and Marketing and the New Brunswick Department of Agriculture and Rural Development, Canada, September 1998.

“Industrial Hemp Licensing and Authorization”, Statistical Summary, Health Canada, June 1999.

“Determining the Feasibility and Potential of Field Production of Low THC Industrial Hemp (Cannabis sativa) for Fibre and Seed Grain in Northern Ontario”, Ontario Ministry of Agriculture, Food, and Rural Affairs, Thunder Bay, Ontario, Canada, March 1999.

“Alberta Hemp Symposium Proceedings”, Alberta Agriculture, Food, and Rural Development, Edmonton, Alberta, Canada, March and April 1998.

Copyright © 2000, USDA. All rights reserved.