Buyout: Big Growers Poised to Get Bigger, Compete

Source from:  By David Rice JOURNAL RALEIGH BUREAU 08/04/2004

With a buyout of the tobacco-quota system, U.S. leaf prices are expected to fall - and so is the number of tobacco farms. And if Congress removes restrictions on who can grow tobacco and how much, production of tobacco leaf is expected to grow much faster in Eastern North Carolina than in the Piedmont. "Initially, we'll see the exit of a large number of farmers who have basically been waiting to get out of tobacco," said Blake Brown, an agricultural economist at N.C. State University. "This is their opportunity to do that with a little financial backing." Brown projects that as many as 50 to 60 percent of North Carolina's 10,000 tobacco growers could leave tobacco farming. He predicts that the price of U.S. tobacco will fall from $1.85 a pound to $1.40 to $1.50 a pound for one to three years, then eventually go as low as $1.25 a pound. When the amount they pay to rent quota under the current system is taken into account, Brown said, many farmers receive about $1.30 a pound for their leaf now. "There are farmers that can make it at that," he said. "They're at that price now because of the (quota) rental rates." In the absence of quotas that dictate how much leaf a farmer can grow, Brown expects tobacco companies to search for an optimum-size farm with which to contract. He is guessing that it would be a farm of 100 to 300 acres - considerably larger than most farms in the Piedmont. "The number of farms will be less, but the acreage will go up," Brown said. "I think you'll see more specialization of farms...." "The companies will search for some farm size that allows a farmer to make enough money on his crop to focus his operation on tobacco." It will be easier to build that larger operation and make a profit in the broad, sweeping fields of sandy loam in Eastern North Carolina than in the rolling clay of the Piedmont. With the elimination of a quota system that locked tobacco production in place where it was geographically in 1938, Brown expects production to grow more rapidly in Eastern North Carolina than in the Piedmont. "It'll move east," said Dale Bone, a large-scale farmer in Nash County who is growing 260 acres of tobacco in just five fields this year. "I've got fields that I own that can grow 200 acres of tobacco in one field. That's one helluva lot more efficient than growing 200 acres of tobacco in 40 fields," he said. "They ain't got fields that big" in the Piedmont. Brown says that any shift from the Piedmont to the east won't be a monumental or sudden one."The farmers that remain will be scattered around - they won't be just in the eastern part of the state," he said. "You may see some shrinkage in the number of farms in the Piedmont, but you'll also see some farmers in the Piedmont that grow more." Tobacco companies want to diversify their weather risks - they don't want a late-summer hurricane to wipe out the entire supply of flue-cured U.S. leaf. And companies know that some smokers prefer the flavor elements that the clay soil of the Piedmont can impart to the leaf grown there. "The Piedmont has two things going for it - red clay issues, and we don't have to worry about hurricanes," said one leaf-industry insider. Despite the size of his own massive operation, Bone said that smaller-scale farmers often raise better-quality tobacco than their larger competitors. "In my opinion, you wouldn't see any 5-, 10-acre tobacco farms, or 20 acres. The smallest you'd see is about 70 acres," he said. "If they pay attention to it, they can do a good job and get a good contract." Enditem