Tobacco Farmers React to Proposed Buyout

Source from:  BY JACOB DAGGER : The Herald-Sun Washington bureau 07/19/2004

Ernie Averett has worked for 20 years to acquire and farm 90 acres of flue-cured tobacco. The 48-year-old Oxford farmer has taken out loans, invested them in his crops and laid awake late into the night wondering if he'll be able to pay back the bank. Thanks to a bill passed Thursday in the Senate -- which voted overwhelmingly in favor of a $12 billion buyout of tobacco quotas -- Averett may be able to continue working that land, and with luck, even invest in a little bit more. "My quota is by far my single largest financial asset," he said, "far more than I've got invested in my own house, far more than all my other equipment put together." The Senate measure would pay quota owners $8 per pound and growers -- many of whom rent quotas -- $4 per pound based on 2002 quotas. At the same time, the bill would tighten Food and Drug Administration controls on tobacco manufacturers. The provisions are slightly different from the House version passed last month, which offers owners and growers $7 and $3 respectively. Differences will have to be worked out in a conference session later this summer before the bill can advance to President Bush for final approval. Under the tobacco quota system, which was introduced during the Depression as a means of guaranteeing tobacco farmers a reasonable price for their crops, the amount of tobacco that producers can grow is based on demand predicted by tobacco manufacturers. The problem for Averett and the rest of North Carolina's 71,000 quota owners and 11,000 tobacco farmers is that as foreign producers continue to offer cheaper product, demand -- both foreign and domestic -- shifts out of the U.S. market. Anti-smoking campaigns have further eroded demand. Quotas -- calculated by acreage and crop weight -- have decreased by half since 1997. So have North Carolina farmers' gross tobacco revenues, from more than $1.2 billion to less than $600 million, according to Blake Brown, a professor of agricultural and resource economics at N.C. State University. That has had real economic effects on farmers. Since 1996, Vaughn Compton, 50, an Orange County tobacco grower, has seen his quota holding decrease from 72 acres to 32. As a result, he now raises chickens on the side to supplement his income. Depending on the outcome of the buyout legislation, he may be forced to switch to chickens full time or explore something else altogether. "I wouldn't be thinking of a tobacco buyout if we were still farming 72 acres of tobacco," he said. "We were making a good living just growing tobacco back then." Averett, who always used his quotas as collateral on loans for new equipment, said that two or three years ago, banks stopped accepting them because of declining values and uncertainty. Brown estimated that if the quota system were to remain, quotas would fall by at least another 30 percent in the next year alone. Compton, whose family has been growing tobacco on the same Cedar Grove site since 1898, said Philip Morris, to whom he sells under contract, has given him a similar estimate. "I think it could put us out of business," Averett said. "All of us. I think it could potentially end the production of flue-cured tobacco in North Carolina. The thousands and thousands of farm families could be driven into poverty." Free handout? Opponents of the buyout equate the $12 billion to a free handout to tobacco states. Sen. Don Nickels, R-Okla., called the quota buyout a "quota rip-off of American taxpayers," adding that it would make millionaires of 500 farmers. But Averett rejects that argument. "I have bought every single pound in the open market, out of pocket, made payments on it just as anyone would make payments on a house or a car or anything else," he said of his acquisition of quotas. Big tobacco farmers "owe a tremendous amount of money to the banks," Compton added. "That's how they've gotten to be so big, by going to the bank and borrowing the money." Large portions of the buyout money will go to paying off the bank, he said. Brown said the system is simply out of date. Quotas were applied to many other commodities during the Depression, such as corn, but most failed because close substitutes were available on the world market. "Tobacco was an exception because the U.S. was the primary source of premium-style tobacco," Brown said. Producers still "would prefer our tobacco, premium tobacco, but there's a limit to what they're willing to pay," added Averett. "For many of those customers, we've priced ourself out of the market." Fewer farmers Eliminating guaranteed prices would help U.S. producers compete more effectively, buyout supporters say. But as the market system takes hold, Brown said the lowest-cost producers will take over the majority of production. Many tobacco farmers, especially those who are older or who have smaller holdings, will leave the business. According to Averett, the decision to leave the business is not purely economic. "In general tobacco farmers are a fairly old as a group," he said. "You've got a lot of guys who are in their 60s, or late 60s, so you can understand why they would use this as an opportunity, maybe their only opportunity to move on to something else or to retire." Compton said many farmers now working into what would be their retirement years invested in additional barns, equipment and quotas in the late '80s and early '90s, thinking that they could farm for another 10 or 15 years and then retire on renting the land to neighbors. Until the buyout comes through, they will have to continue farming in order to support themselves. But Scott Bissette, a tobacco marketing specialist in the N.C. Department of Agriculture, said the benefits of the buyout will not be limited to tobacco farmers. Local and state economies will experience what amounts to a trickle-up effect, he said, with farmers able to pay off loans to the bank and begin investing anew in land, equipment and community projects. "People will be able to pay to send their kids to college or to buy a new car or truck they need," said Compton. "There was a church here in our community that burned down several years ago that people would have loved to give money to help with. With the money from the buyout, they would be able to." Enditem