Tobacco Farms Rebound

Source from:  London (Ontario) Free Press 05/04/2010

It was supposed to be a goner, but after shrivelling to near extinction, Ontario's tobacco crop is ready to rebound big time this year. And for at least one industry observer and critic, the rebound doesn't pass the smell test and is being done on the backs of taxpayers. The number of people licensed to grow tobacco this year has more than doubled -- to 264 under a new licence system from 118 under the old quota system. After years of dwindling tobacco production, the federal government scrapped the quota system two years ago. Tobacco growers -- mostly centred in the Elgin-Oxford-Norfolk area -- were paid a total of $286 million for their quota in return for a vow to get out of the industry permanently. Fred Neukamm, chairperson of the Ontario Flue-Cured Tobacco Growers' Marketing Board, estimates this year's tobacco crop should jump to 49.5 million pounds, up from 22 million pounds last year. That's far below the peak production of 238 million pounds in 1974, but it's roughly equal to Canada's annual consumption of cigarette tobacco, says Neil Collishaw of Ottawa-based Physicians for a Smoke Free Canada. Collishaw said that because of loopholes in the exit program, many of the same tobacco growers who took the buyout are back in business by striking a deal with a licence holder who could be a friend or relative who did not take the buyout. He said the federal tobacco buyout program appears to have done little but enrich tobacco quota holders, while tobacco production has rebounded enough to meet domestic demand. "Tobacco growers can thank the taxpayers," Collishaw said. But Neukamm said the number of producers and the crop size has increased because manufacturers are putting more Ontario tobacco in their cigarettes. Under the new system, farmers sell their tobacco on contract to manufacturers. Under the old marketing board system, manufacturers paid a premium price for Ontario tobacco and gradually substituted it with cheaper imported tobacco. The marketing board, despite its name, no longer markets tobacco and the price of tobacco has dropped to about $2.15 a pound, making it more competitive with imports. Collishaw said the cigarette manufacturers manipulated the market by squeezing out Ontario tobacco until the marketing board collapsed. "They can force changes to the system to their benefit -- eliminating the collective bargaining power of farmers by getting rid of the marketing board as a middleman." Neukamm, who isn't growing a tobacco crop this year, says production may be rebounding because farmers have tobacco equipment they want to use and farms can operate more efficiently by growing as much tobacco as they can sell. "There's been a cost readjustment and some people believe they can make it work," Neukamm said. He said the growing number of producers is due to "intergenerational succession planning," with sons, daughters, nephews, nieces and grandchildren taking over family operations. He said the industry seems to be surviving under the new model. Collishaw is not surprised more farmers are getting back into tobacco. While demand from manufacturers is up, the number of producers is still down from a few years ago. He said tobacco farmers are also eligible for a $100,000 interest-free loan under the federal government's advance payment program to put in their crop, an option available to most commodity groups. "If you can use the money you got in the buyout and still do something you know, it all makes sense," Collishaw said. Enditem