Farmers strive to keep tobacco crop profitable

Strategies include boosting exports, tinkering with quotas

March 12, 2000|By Gene Metrick | Gene Metrick,Cox News Service

ROCKY MOUNT, N.C. -- Uncertainty about the future is nothing new.

But for North Carolina tobacco farmers, uncertainty has been the only constant, as they have watched the tobacco industry come under repeated assault from a series of lawsuits, tax increases and public health campaigns that have combined to produce a seeming all-out war against the one commodity they have generally been able to rely upon to turn a profit.

Cuts in the federal tobacco quota have decreased the amount of leaf they are allowed to grow by nearly half during the past three years.

Cigarette makers have floated the idea of abandoning the warehouse auction marketing system for direct production contracting with individual farmers.

Calls for an end to the price supports maintained under the federal tobacco quota system rattle the besieged producers, threatening to remove forever the income that has kept most Tarheel family farms alive while their counterparts in the Midwest have tumbled into bankruptcy and have been replaced by large corporate farming operations.

Increasing competition from tobacco grown overseas has contributed to a plunge in U.S. leaf exports while U.S. cigarette manufacturers have steadily increased their imports of the cheaper foreign leaf.

Can the end of American tobacco farming as we know it be close at hand?

Strategies for reversing the bleak outlook facing American tobacco farmers are numerous -- it all depends on whom you ask.

"The key to the long-term survival of domestic tobacco production is to become more competitive on the world market," said Jim Starkey, a senior vice president with the Richmond-based Universal Leaf Tobacco Co., an independent dealer, processor and exporter of tobacco. "And if we're going to increase exports, we're going to have to make some changes in the [federal tobacco quota] program."

Increasing exports is probably the suggestion most often raised for rescuing domestic leaf production. Exports account for the sale of nearly half of all flue-cured tobacco produced in the United States. But although the global demand for tobacco remains strong, most overseas markets have yet to recover from the economic downturn caused by the financial crises in Asia and Latin America during the mid-1990s.

"The economies in our primary buying markets are going to have to improve so they can buy our tobacco in the volumes that they used to," said Tommy Bunn, executive vice president of the Raleigh-based Leaf Tobacco Exporters Association. "It has been lean over the short term, and we're in a situation right now where we're smaller -- and the question is whether we'll continue to shrink or get back to positive growth."

Blake Brown, a professor of agricultural economics at North Carolina State University, said declining leaf exports have played a big part in the problems being felt by Tarheel leaf growers.

"The global supply will probably change some and, unfortunately, cigarette and leaf exports will probably not recover -- certainly not to their previous levels," he said.

International buyers have long been willing to pay higher prices for the superior quality of American-grown leaf. But there are limits to not only how much foreign manufacturers are willing to pay, but how much of the higher-grade tobacco they need to purchase.

"We can demand a higher price because of the higher quality, but not all manufacturers require the higher quality leaf," Bunn said. "There is a trade-off -- people are willing to pay more for higher quality, but the question is how much and in what quantity."

Lowering the price of American leaf to increase its competitiveness on the world market would mean tinkering with the federal quota system. Such a strategy would be likely to ignite a political firestorm. But it also would place the very farmers supposedly helped by increased exports into a dangerous Catch-22 of having to accept lower prices in order to grow more leaf.

"Policy makers have a very difficult time when they look at adjusting the program," Brown said. "Changes are very difficult to negotiate because some people are going to be winners and some are going to be losers."

Starkey said the federal tobacco program has been considered nearly sacrosanct for as long as he has been in the business.

"It's very difficult for the leader of a tobacco institution to stand up in front of his constituents and say, 'Here's what we've got to do to survive, and some of you are going to go out of business,' " he said. "But the whole industry is going down the tubes."

Universal Leaf already has been forced to close two of its extruder operations as well as its processing plant in Smithfield, Starkey said. The company's flood-damaged Rocky Mount warehouse facility remains closed, and Starkey said its future has yet to be decided by company officials.

"As the crop continues to decline, we'll have to size our operations to match what's there," he said. "And that will probably mean more plant closings."

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