Tobacco Growers Await Buyout Bill

Source from:  Watauga (NC) Democrat By Scott Nicholson 06/23/2004

Local farmers are waiting to see if a tobacco buyout will pass the U.S. Senate that could put many of them out of business — willingly. The U.S. House of Representatives passed the buyout bill as part of a larger tax bill by a 251-178 vote. The buyout would set aside $9.6 billion to distribute to quota holders over the next five years. All 12 North Carolina representatives voted for it. North Carolina is expected to be the biggest beneficiary, reaping over $3 billion. Frank Bolick, an agricultural agent with the N.C. Cooperative Extension Service, said 95 percent of Watauga's tobacco farmers are eager for the buyout. "They feel like 'Let's get this thing done and get the suspense over with,'" Bolick said. Watauga has over 1,500 quota holders, mostly smaller growers. Bolick said there are fewer than a dozen growers with 10 or more acres of burley tobacco. Bolick said many of the smaller farmers continue to grow the crop, thus keeping their quota active, in order to be eligible for buyout funds. The quota system was established in the 1930's as a way to stabilize the domestic tobacco market and set production at a consistent level. It sets a starting price for tobacco companies to purchase market crops. It also controls the amount of tobacco farmers can grow at that price. Bolick said farmers are free to grow more than their quota, but there is no guarantee of a sale and they would be at the mercy of the tobacco companies' offers. Bolick said a typical farm could grow 2,200 to 2,400 pounds of tobacco per acre by following standard practices. That would bring in a gross income of between $3,000 and $4,400 an acre, though the net profit would be about a dollar a pound. Wholesale quota prices have been hovering slightly under $2 per pound. As proposed, quota owners who grow their own crop would get $10 a pound. A quota owner who allows others to grow on his or her quota would get $7 per pound and those farmers who rent other people's quota to grow the crop would get $3 a pound. That means a farmer with average production who grew his own crop would get a buyout of over $20,000 per acre. The payments would be spread over five years. One of the Senate debates over the bill is whether to include FDA (Food and Drug Administration) regulation of tobacco products. Some Democrats wanted the regulation added, though it wasn't included in the House bill that passed. Brian Nick, communications director for Sen. Elizabeth Dole's office, said the quota buyout is a top priority for the senator. "It is vital for our North Carolina farmers and our rural communities," Nick said. "Sen. Dole is very pleased on the progress that has been made thus far, but understands there is a very difficult road ahead to obtain final passage. "Sen. Dole would prefer to not have FDA (regulation) as part of this legislation, although she would be willing to accept it if needed to get the votes in the Senate." Statewide, about 100,000 growers would be eligible for the buyouts. The funds would come from a federal excise tax on tobacco. Bolick predicts that most growers will give up on the crop after the buyout. He believes only a couple of dozen will continue — most likely under direct contract to individual manufacturers. Though some critics say the quota system keeps farmers at the mercy of cheaper tobacco being imported, Bolick said the quota system isn't really affected by that because foreign markets are unreliable. After the buyout and the end of price controls, farmers may end up competing according to the basic law of supply and demand. For smaller growers, there won't be enough incentive to continue. Bolick said most would give up the crop immediately, creating a change in the appearance of many local farms. Bolick said broccoli was being investigated as a crop to replace tobacco because much of the equipment and techniques are the same. Another side effect is that farmers might face large tax bills as they receive the lump sum payments. Bolick said some farmers will find themselves in higher tax brackets and might end up paying as much as a third of the money right back to the federal government. Early proposals were to make the payments tax-free, but right now farmers are just glad to have the bill up for a vote. "It will still be grown in Watauga, but not nearly in the same amount as before," Bolick said. Enditem