Tobacco Contract Upsets Growers

Source from:  By Bruce Schreiner Associated Press 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 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 2008. "It's barely going to break even with what the cost of production was for this year," said Thompson, of Woodford County. Thompson, who raised 4 acres of burley tobacco this year, said yesterday 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 mark the third consecutive year that Philip Morris has kept the same overall price, which includes a base 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 yesterday. "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. Kentucky is the nation's leading producer of burley tobacco, an ingredient in cigarettes. But production has dropped since the 2004 national tobacco buyout, which ushered in a free-market system to replace federal production and price controls. Last year, Kentucky farmers produced 153.3 million pounds of burley worth $252.9 million, compared to 243 million pounds in 2000 that fetched $478.2 million. Other tobacco companies contract with burley farmers, but as the market leader, Philip Morris' contract offer is a major influence. 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 such as curing barns and greenhouses. Philip Morris plans to set aside $1.2 million next year to reimburse burley farmers for a share of those 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. Hornback said the company adjusted its latest pricing offer. It raised the base price for all tobacco grades by a minimum of 7 cents a pound, but trimmed incentives from 15 cents to 8 cents a pound, he said. "They've changed it around ... but basically the price is the same," Hornback said. Enditem