Growing Anxiety

Source from:  By David Rice JOURNAL RALEIGH BUREAU NASHVILLE, N.C. 08/04/2004

The end of price supports would fall unevenly on those linked to the fate of the tobacco industry Dale Bone pulled his Explorer - the one with 400,000 miles on it - off Interstate 95 and into a broad, sandy field just off the highway. He nodded at the single field where he has 270,000 pounds of tobacco quota assigned and is growing 70 acres of leaf this year. "We've bought every pound of tobacco - every bit of it - on that farm since 1989," he said. "I bought every damn pound on it since 1989." Despite dramatic cuts over the past seven years in tobacco quota - the government-issued license to grow the golden leaf - Bone owns almost 400,000 pounds of quota and remains the largest quota owner in North Carolina. Though he wouldn't get the largest payout in the state, Bone would receive more than $4.7 million over five years if a $9.6 billion buyout of the federal tobacco program that passed the U.S. House becomes law. Quota owners would receive $7 a pound for their allotments under the House plan, so he would get $2.78 million for the 397,119 pounds of quota he owned in 2002. Growers would receive $3 a pound, so he would get another $1.96 million for the 652,970 pounds of leaf he grew in 2002. Bone says that a buyout is not agricultural welfare, but compensation for quota that has been eliminated with the decline of tobacco. "I have invested over the years more money than I'm going to get for it. So it's not a welfare program. I've invested over the years in tobacco allotments," he said. As the forklifts buzz by and the tractor-trailers roll away from the loading dock at his operation near Nashville, it's clear that Bone isn't the stereotypical farmer as much as he is an agribusinessman. Bone farms 5,500 acres in four counties in Eastern North Carolina. Tractor-trailers leave his $8 million packing shed every few minutes carrying cucumbers bound for plants in Michigan and Canada. His sweet potatoes go as far west as Billings, Mont., and as far east as Israel. The cantaloupes that migrant workers pick today on Bone's farms will be in stores in Maryland and Pennsylvania by morning. During the harvest, he ships a tractor-trailer full to a local food bank every day. And even though he is the largest quota owner in the state, tobacco ranks fourth among his income-producing crops. But Bone points out that unlike many quota owners who inherited their quotas, he has spent several million dollars since 1982 to buy all but 22,000 of the 400,000 pounds he owns today. "They say you're going to get all this money. They don't say how much you spent," he said. "I would not get as much money back as I paid for it.... It's something we worked hard to build." Could still grow tobacco Bone and other growers would still be able to grow tobacco after a buyout. Though Bone and other large quota owners knew that they were buying an asset that could decrease in value - as it has by more than half since 1997 - they argue that a buyout of the quota in which they have invested millions is the same as the government using its power of eminent domain. "We've paid county taxes on it. It's like they're taking your property. If they take your property to build a road on it, they compensate you for it," he said. An analysis by the Winston-Salem Journal and Media General News Service of records of the 70,094 quota owners and 10,118 tobacco farmers in North Carolina in 2002 found that most of the money from a buyout would go to the biggest quota owners: Almost $2.3 billion, or more than 60 percent of the $3.7 billion that North Carolina would receive from a buyout over five years, would go to the top 10 percent of growers and quota holders. More than 92 percent of the buyout money would go to the top 50 percent of growers and quota holders. Some 267 quota owners and growers would receive payouts of at least $1 million over five years. And while the payments would be stacked toward the upper end among the largest owners and growers, it's also true that the typical quota owner would receive $14,000 to $20,000 from a buyout. The median quota holder owns 2,030 pounds of tobacco and would receive $14,210 from a buyout over five years. Of 65,534 parties that would receive buyout checks, 34,741 would receive less than $20,000. The bottom 50 percent - 32,770 recipients - would receive $291.6 million, or less than 8 percent of the money. Under a competing buyout plan that passed the U.S. Senate recently and is now in a conference committee to be reconciled with the House plan, quota owners would receive $8 a pound and growers $4 a pound. But they would also lose $2.6 billion that remains in so-called "Phase II" payments over the next six years that the tobacco industry agreed to pay growers and quota owners after a 1998 settlement with the states. Depending on who foots the bill and whether a buyout is combined with regulation of tobacco products by the Food and Drug Administration, the proposed buyout already has had its share of critics. Reynolds officials oppose plan Officials at R.J. Reynolds Tobacco Co. oppose a Senate-passed plan that would couple a quota buyout with FDA regulation and impose new fees on cigarette makers to pay for the buyout. Tommy Payne, an executive vice president at Reynolds, told members of Congress in 2002 that many quota owners aren't active farmers. Payne testified that Bradford Creek Golf Club in Pitt County would receive $109,191 from a buyout. "I'd bet serious money they are not stripping stalks on the 18th fairway," he said. Last year, Reynolds pointed out that 86 percent of the quota owners who would get payments don't grow tobacco themselves. "The bill will not 'save family farms,'" the company said in a presentation to members of Congress. "The vast majority of the revenue ... will go to quota holders, about 85 percent of whom are not actually farmers." The company also pointed to a 2002 study that found that almost $3 billion in "Phase II" payments that tobacco companies have already made to farmers and quota owners has more than offset losses caused by the companies' $206 billion settlement with the states. Reynolds dropped its opposition to a buyout when the House came up with a version that did not include a tax on tobacco companies or FDA regulation. But the company has renewed its opposition to a plan passed by the Senate this month that would include both FDA regulation and assessments on the industry. Officials at industry leader Philip Morris USA - which wants FDA regulation of tobacco products - described a buyout in similar fashion last year when FDA regulation was dropped from a House buyout proposal. The company called the move "indefensible." "The so-called 'buyout' is not really a buyout - it is a bailout," Philip Morris said in an e-mail that circulated among congressional offices. "The amounts tobacco quota holders and growers would receive dwarf the amounts paid to growers of other commodities." The buyout would pay growers and quota holders more than $32,000 an acre, though a recent buyout of the federal peanut program paid growers less than $2,000 an acre, Philip Morris said. If no FDA regulation is included, "as a member of Congress, do you really want to explain to your constituents why you voted for a tobacco bailout that does nothing to reduce the harm caused by smoking?" the company warned members. The Environmental Working Group, an organization in Washington that opposes farm subsidies, released an analysis of quota records recently that found that 10 percent of the recipients would get 67 percent of the buyout money, and the top 1 percent would receive 27 percent. "The House buyout plan is an incredible rip-off of the taxpayer, mostly to benefit a handful of large tobacco interests and tobacco companies," said Ken Cook, the president of EWG. The buyout should be paid for by tobacco companies, not taxpayers, Cook said, and it should be combined with FDA regulation to protect public health. "The rhetoric is all about family farms. We've got an awful lot of people who aren't going to get much money at all - a few thousand dollars over five years - and people who are going to get money who aren't associated with the farm at all anymore," he said. "This is a program that people may have gotten caught up in. But that doesn't mean the government owes them a buyout of a license or what is in effect an entitlement. They've benefited from it over the years," Cook said. "No one else could grow tobacco." Cook acknowledged that the buyout could mean modest payouts to thousands of small quota holders. "Who wouldn't like to get $10,000 or $15,000? But what about the guy on the other side of the fence who raises cattle?" Cook said. "He didn't get any help with mad-cow disease." The federal government started the quota system in 1938 as a way to limit the amount of leaf that farmers grow to what tobacco companies use to make cigarettes or export. Initially, quota was issued to actual growers in allotments of less than 10 acres. But as the family tree spread beyond the family farm, more and more quota holders moved off the farm and growers had to rent quota to grow the amount of leaf they wanted to grow. As a result, the price of renting quota - about 50 cents a pound today - became part of the government support price for U.S. tobacco, pricing it well above leaf grown in other countries. Though U.S. leaf sold for about $1.85 a pound last year, leaf from Brazil sold for about $1 a pound. And the amount of U.S. tobacco used in cigarettes has steadily declined. "Not only have U.S. exports of leaf declined, but cigarettes manufactured in the United States now contain more foreign tobacco than ever before - nearly 50 percent," Thomas C. Capehart Jr., an economist for the U.S. Department of Agriculture, wrote last year. "Why is U.S. tobacco losing ground to other countries? Price, mainly. With cheaper tobacco available on the world market, U.S. tobacco is losing global and domestic market share," Capehart wrote. No apologies So Jimmy Hill doesn't apologize for the $3.8 million that his family's operation near Kinston would get from a buyout of the 300 acres of tobacco that Tull Hill Farms Inc. grows in Lenoir, Pitt and Greene counties. Though Hill and his three partners owned 207,952 pounds of tobacco quota in 2002, they rented enough additional quota to grow 786,187 pounds that year. "We're still tenant farmers. We have to rent what we grow," said Hill, who served on a commission appointed by President Clinton that recommended a buyout of the quota system in 2001. Hill pointed out that cigarette makers have bought less and less U.S. leaf, causing the government to cut quotas by more than half since 1997. Though Tull Hill Farms would get $3.8 million, "we have already lost that amount of money. We have 48 pounds left in 2004 for every 100 pounds of quota we had in 1997," he said. "What that money would do is go to make up for the loss of quota." Eliminating the quota program would remove the cost of renting quota from the price of U.S. tobacco, he said, making it easier for U.S. farmers to compete with growers from Brazil, Zimbabwe, China and other countries on world markets. Hill said that the money that farmers and quota holders get from a buyout would probably go first to pay taxes, then to pay off debt. In his family's operation, "the majority of that money will go to retire debt, absolutely. We want to try to keep our bankers happy," Hill said, hinting at the ripple effects a buyout could have through the rural economy. Hill compares a tobacco buyout to the economic assistance that the government has offered the savings-and-loan and airline industries, saying that it would help the regions that have invested in tobacco production over the years. Though they would still be able to grow tobacco after a buyout, Bone and other growers might have to do so without guaranteed price supports, growing only what they could secure contracts from cigarette makers and leaf dealers to grow. Bone, 61, has no children. But he has 105 full-time employees in his well-diversified farming business, and 800 employees if he counts the migrant workers he hires. He also has a mountain of debt associated with his industrial-scale farms. In his tobacco operation alone, he has irrigation systems, new curing barns that he bought last year, sprayers, greenhouses and harvesters. He said that every penny of the $4.7 million he would get from a buyout would go to pay off that debt. "One hundred percent of it. What I would do is probably sell equipment and land to pay off the debt, and then I'd quit," he said. "I owe a lot more than that tobacco allotment will get." Bone said he would gradually leave the business as he pays off his debt and let his employees take over. "That'd be my ultimate goal," he said. Blake Brown, an agricultural economist at N.C. State University, said that as many as 50 to 60 percent of the state's 10,000 growers can be expected to leave tobacco farming after a buyout, and many farms will consolidate into larger operations. "We've got lots of small growers out there. We've got lots who are near retirement age," Brown said. "And then, if we don't have a buyout, it may happen anyway. At some point, people just give up and say, 'I'm tired of waiting for a buyout.'" Enditem