Fraud imperils Md.'s tobacco industry Buyers want state farmers to clean up their act

August 11, 1991|By Ted Shelsby | Ted Shelsby,Sun Staff Correspondent

Upper Marlboro -- It's called "nesting," and it's nothing new.

Nesting probably is the nation's oldest form of business fraud, dating back to colonial times. Who knows, maybe George Washington even dabbled in the practice.

In nesting's most flagrant form, tobacco farmers hide inferior grade leaf in the center of 200-pound baskets of top-dollar tobacco. Or they slip rocks, cinder blocks and metal plow points into baskets to boost the weight at auction.

Though centuries old, nesting has become so prevalent that it threatens a Maryland industry dating back to the first settlers at St. Clements Island.

One major buyer, Reemstma Co. of Hamburg, Germany, has threatened to pull out of the Maryland market if tobacco farmers don't clean up their act. Such a move could have dire consequences. Foreign buyers set the top price that farmers receive for their crop each year. And Reemstma, alone, bought 60 percent of the leaf sold at April's auction.

The nesting problem comes at a time when Maryland's tobacco industry is shrinking. Only 9.4 million pounds were sold at auction this spring, bringing the estimated 1,000 growers $13.1 million in consolidated sales. In 1982, 37.5 million pounds were sold, pumping about $57 million into the region's economy.

Farmers "are risking the future of the industry for some small, short-term gains," Claude G. McKee, head of the University of Maryland's experimental tobacco farm here, said of the nesting practice.

Mr. McKee, commonly referred to as "Mr. Tobacco" because of his knowledge of the industry, has seen the practice firsthand.

In late April, near the end of this year's auction season, he and other industry officials visited the Dibrell Brothers Inc. and K. R. // Edwards Co. tobacco processing plants in Danville, Va., and Smithfield, N.C., to determine the extent of the problem.

The evidence was overwhelming. "We saw a lot more than we anticipated," Mr. McKee said. "The biggest thing was the deceptive hiding of off-grade tobacco in the center of the baskets."

About 20 percent of all the baskets of tobacco being processed at the plants were nested, he said. One half of the nested baskets had inferior grade tobacco hidden in the middle.

There was also a sizable mixture of trash -- straw, paper and lots of plastic -- in the tobacco. That may be accidental. Still, it is a major problem for the processors. Cleaning debris from the leaf, Mr. McKee explained, involves shutting down the conveyor belt picking line at a cost of "a couple hundred dollars a minute."

Jerry Weinstead, executive vice president of Dibrell, said that his company is having "a real big problem with Maryland tobacco." Dibrell processes tobacco for foreign buyers, and Mr. Weinstead noted that "they paid $1.90 a pound, the top price this year, and they want $1.90 tobacco, not $1.10 tobacco in the middle of the bottom of the basket."

He compared the practice with a consumer purchasing a prime steak at the supermarket and getting home to find a big portion of fat hidden in the bottom of the package.

There have been nesting problems in other tobacco-growing states, Mr. Weinstead said, "but farmers there have straightened it out. Maryland still has the problem. The foreign trade does not want to leave Maryland, but they are real upset about what's going on there. Once they leave, it's almost impossible to get them to come back."

One company, Mr. McKee said, returned the purchase tickets from about 500 baskets of leaf it had acquired at the April auction to the State Tobacco Authority, an office of the Maryland Department of Agriculture that monitors the industry. The tickets listed the names of farmers who nested.

The tickets were returned by a company that acquired about 25 percent of the tobacco sold at auction this year. So Earl "Buddy" Hance, chairman of the State Tobacco Authority, said: "We're working on the assumption that we are only aware of 25 percent of the problem.

"Not everyone is doing it," he said, "but it seems like the farmers who are doing it are doing a lot of it." In some cases, a single farmer might have 20 to 30 violations.

Some growers are "as hot as hell over this," Mr. McKee said. "They're saying, 'Print the names of the guilty parties in the newspaper.' "

"It's a criminal offense as far as I'm concerned," said Steve Walter, a Hughesville tobacco grower. While the state has no plan for publishing the names on the tickets that were returned, the Maryland Department of Agriculture will writing warning letters to about 300 growers suspected of nesting. The letters will be mailed in early September, as farmers start stripping their tobacco and preparing it for auction, Mr. Hance said. "It will be a personal letter. It will say, 'We'll be checking your tobacco next year.' "

Mr. Hance said that the authority will "closely monitor" sales at next year's auction, including making random samplings of baskets after they have been sold. While the state no longer locks offenders in pillories, the penalty for nesting can be pretty tough, said Craig A. Neilson, an assistant state's attorney assigned to the state Department of Agriculture. Today's laws, he said, allow for a $500 fine, up to three months in jail or both.

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