Farmers Say Tobacco Cash Crop Again

Source from:  By LAUREN ETTER The Wall Street Journal Sunday, September 23, 2007 09/24/2007

Tobacco is back in the American farm belt. Three years after the federal government stopped subsidizing it, the leafy crop is gaining new popularity among U.S. farmers. Cheaper U.S. tobacco has become competitive as an export, and China, Russia and Mexico, where cigarette sales continue to grow, are eager to buy it. Since 2005, U.S. tobacco acreage has risen 20 percent. Fields are filled with it in places such as southern Illinois, which hasn't grown any substantial amounts since the end of World War I. For decades, Martin Ray Barbre, who farms the lush rolling hills here, was not eligible for federal price supports to grow tobacco under a program dating back to the Depression, making it economically infeasible for him to do so. The same was true for many farmers in 33 other states. Now the tarry plant is the most profitable crop Barbre grows on his 4,200-acre spread. "If somebody told me seven or eight years ago that I'd be growing tobacco today, I'd say they were crazy," said the gruff, 52-year-old farmer, plucking a yellowing leaf from one of his plants and taking a deep smell of the raw, woody aroma. As laborers from Mexico and Honduras used axes to chop down 6-foot plants and hang them on wooden planks to dry in the sun, Barbre explained the attraction of the crop. Even factoring in higher labor and other costs, he's netting up to $1,800 an acre from his 150 acres of tobacco, compared with $250 an acre from his corn. He credits tobacco with boosting his annual income by about 35 percent since he started planting the crop three years ago. Although corn is flirting with near-record prices at around $4 a bushel, "There's no way corn can get high enough" to compete with tobacco, says Barbre, shaking his head. "There's just too much money in tobacco." Barbre's profitable tobacco business adds a wrinkle to the debate over the farm bill Congress is preparing to take up. Many farmers say that without the system of subsidies for commodities such as corn, cotton and soybeans, they'd be at risk of going under. But critics say the system fosters inefficiency, distorts international trade and supports mainly the wealthiest farmers. Now, these critics can point to tobacco as evidence that subsidies are unnecessary. With tobacco, "we are finding that farming can be done without subsidies," says David Orden, a professor at Virginia Tech and an agricultural economist at the International Food Policy Research Institute. Price supports For more than 60 years, subsidies were as integral to tobacco farming as rich soil and a damp climate. In 1938, Congress passed the Agricultural Adjustment Act, a New Deal-era law crafted to support the thousands of small farmers of all sorts who had been financially devastated by the Depression. The law guaranteed tobacco farmers in many states a minimum price for their crops. It allotted quotas to farms that produced tobacco at the time the law was enacted, which dictated how many acres they could plant. Tobacco buyers were penalized for buying from growers without quotas. Growers who didn't own a quota had to buy or rent one from those who did. The system propped up prices and limited production to narrow geographic areas and to plots of land rarely larger than 10 acres. The system was junked in 2004 through a $9.6 billion buyout of tobacco growers and farmers who owned quotas, with tobacco companies funding the payments. Thousands of tobacco farmers, many reaching retirement age, collected their checks and stopped growing the crop. Some farmers planted strawberries or tried to raise catfish in their farm ponds. In 2005, tobacco acreage dropped 27 percent from the year earlier, to 297,000 acres. In South Carolina, acreage has fallen to about 23,000 in a state that traditionally plated 60,000 acres of the golden leaf. With the government no longer supporting prices, those dropped, too, to $1.64 per pound from $1.98, according to the U.S. Agriculture Department. Cigarette makers worried that they wouldn't have enough supply. But predictions from some quarters that tobacco farming was headed for extinction in the U.S. proved incorrect. Today, farmers can grow as much tobacco as they want, wherever they want. Economies of scale have kicked in. Arnold O'Reilly, for one, figured it made sense to grow even more. Before the buyout, he says, the tobacco he grew on his Hardinsburg, Ky., farm was selling for about $1.98 a pound, but he paid up to 80 cents per pound to rent a quota, knocking down his effective price to as low as $1.18. These days, he says, his tobacco fetches about $1.60 a pound, and there's no quota payment taking a bite out of it. "Before the buyout, I couldn't expand," he says. As a result, "we weren't competitive on the world market." Today he is growing 120 acres, double the 60 acres he grew just before the buyout. He has invested more than $300,000 in new farming equipment, barns and land. "I'm unlimited in my opportunities," says O'Reilly, 42. "I have nobody that can hold me back now." Will Snell, a tobacco economist at the University of Kentucky's Department of Agricultural Economics, says it's not uncommon now for tobacco farms to exceed 150 acres. Tobacco production, he says, has shifted to places with large tracts of land where the leaf can be grown more efficiently. Nationwide, the tobacco crop has been rebounding. Today there are 355,000 acres under cultivation - still down from the 408,000 acres in 2004, but on the rise. Some farmers reinvested their buyout cash in their tobacco operations. In big tobacco-producing states such as Kentucky and in smaller ones including Wisconsin and Pennsylvania, many tobacco farmers are enjoying renewed prosperity. Tobacco production in Pennsylvania has more than doubled since 2004. In Illinois, production has gone from practically none to at least 1,000 acres. Under contract T.J. Vaughan, a 23-year old grain farmer in Carmi, started growing tobacco last year with father Randy after meeting some representatives of Philip Morris at a local farm-supply shop. Upon hearing that he could grow tobacco in Illinois, Vaughan recalls thinking, "Yeah, right," he says. "Then they started talking about profitability, and we were more interested." Vaughan signed a one-year contract with Philip Morris. This year, representatives of Philip Morris held a preseason meeting with about 20 farmers in Vaughan's equipment shed. Vaughn decided at that meeting to triple his tobacco acreage to 60 acres, and he signed a new contract. He has since bought a machine to bale tobacco, steel-and-wood drying racks and a greenhouse. Philip Morris has provided about $8,000 to help cover those costs. Barbre, a stout man who sports sunglasses and walks with a swagger, has taken a winding route to Tobacco Road. He grew up on his father's cattle ranch in Carmi, population 5,400, and began farming corn, soybeans and wheat in 1975. He made a decent living, but he was on the lookout for ways to pad his retirement nest egg. In 2001, Vector Tobacco Inc. of North Carolina enticed Barbre to plant 10 acres of a genetically modified, low-nicotine tobacco for a cigarette called Quest. Because the tobacco was considered a specialty product that didn't fall under the government's quota system, it was permissible to grow in Illinois. Vector built some drying structures on Barbre's land, and it sent an agronomist named Farrell Matthews to teach him how to grow tobacco. But the project quickly wound down. A Vector spokeswoman says the company stopped growing in Illinois because it had an "adequate supply for our needs at that time." New culture, challenges In 2005, the year the quotas disappeared, Barbre heard again from Matthews. "Farrell called me one day that spring and said, 'You want to raise some tobacco?' " he recalls. The two went into business together. In exchange for teaching Barbre how to grow tobacco and for managing the day-to-day business in the fields, Matthews gets half the profits. Matthews, 52, is a lifelong tobacco grower who was raised in Kentucky and remembers hauling tobacco in a tractor to wooden barns when he was 4. He sold his tobacco farm in 2002 after realizing his children had no interest in farming. He now lives in Carmi part of the year, helping at least nine farmers grow tobacco. The partnership proved propitious for both men. Barbre says that at the time, he had "no clue" how to go it alone. Matthews says that in grain country, farmers such as Barbre aren't used to tending crops the way tobacco needs to be tended. Tobacco planting starts in March, and harvest doesn't end until December, a longer season than for most crops. Corn, soybeans and wheat are the dominant crops around Carmi. The town sits atop the oil-rich Illinois Basin, so some farmers also make money drilling for oil beneath their cornfields. Enditem