Some Tobacco Farmers Unhappy with Latest Contract Offer

Source from:  By BRUCE SCHREINER, AP Writer Friday, November 30, 2007 12/03/2007

Kentucky farmer Rusty Thompson managed to turn a profit with his tobacco this year despite a subpar crop and higher production costs. But when his thoughts turned to what he potentially stands to make for his crop next year, his first response was to pop an antacid. Thompson and other burley tobacco growers across the region who do business with cigarette maker Philip Morris USA got their first look this week at the company's contract offer for the 2008 crop. "It's barely going to break even with what the cost of production was for this year," said Thompson, a Woodford County farmer who attended one of several meetings Philip Morris officials had with growers. Thompson, who raised 4 acres of burley tobacco this year, said Friday that farmers were disheartened when the contract details were revealed at a sometimes-tense meeting he attended Thursday night. Shelby County tobacco farmer Paul Hornback said the latest offer would be the third straight year that Philip Morris has stuck with the same overall price, which includes a base price plus incentive bonuses. "Right now, people are very upset," he said. Philip Morris spokesman David Sutton said the company sought to make a "fair and equitable" offer. "We realize that the growers today face a number of cost pressures," he said Friday. "We have tried diligently to structure our 2008 contract to better support the growers facing these challenges." Hornback said tobacco growers have been strapped by higher costs for fuel, fertilizer and labor. He said the prices Philip Morris offered haven't reflected those cost burdens. "If one partner is having a tough time, you would think the other partner would step up and try to at least absorb some of that potential loss," he said. "That's not happening." Kentucky is the nation's leading producer of burley tobacco, an ingredient in cigarettes. But production has dropped since the 2004 tobacco buyout, which ushered in a free-market system to replace Depression-era federal production and price controls. Last year, Kentucky farmers produced 153.3 million pounds of burley with a total value of $252.9 million, compared to 243 million pounds in 2000 that fetched $478.2 million. Philip Morris USA is the nation's No. 1 tobacco company best known for its iconic Marlboro brand. Other tobacco companies contract with burley farmers, but as the market leader, Philip Morris' contract offer is a major influence across the Burley Belt. Sutton said the company will renew a "cost-share program" next year in which Philip Morris reimburses its eligible burley growers for a portion of their costs to purchase equipment or expand facilities like curing barns and greenhouses. Philip Morris plans to set aside $1.2 million next year to reimburse burley farmers for a share of those production costs, he said. The company also moved up the unveiling of its 2008 contract offer by a few months, heeding a request from farmers who wanted to know the terms before making production plans, Sutton said. He said the latest offer also is a "much simpler contract in terms of how growers are able to work toward the incentives." "Our relationship with our growers are very important," Sutton said. "The burley that they produce for us is obviously very important to our business." Enditem