Farmers Worry That Without a Buyout, Their Future is Bleak

Source from:  By Bill Willcox : The Herald-Sun bwillcox@heraldsun.com 08/30/2004

Tobacco farmer Murray Lynch looks out his pickup truck window at the lush fields of tobacco glistening with morning dew and the workers in bright yellow slickers hustling to harvest the healthy leaves. He grows 45 acres of tobacco on his own land, and rents from seven or eight other farmers so he can grow 20 acres more, at his farm near Mebane in northern Orange County. A naturally cheerful man, Lynch harbors feelings of deep anxiety about his future. Like his father before him, he has been farming tobacco all his life. It is all he knows how to do, but in the past few years he has been borrowing money just to stay in business. His revenue has dropped as the federal government has cut his allotment in half, dramatically reducing the amount of tobacco he is allowed to grow. And there have been other expenses. Recently he had to borrow money to retrofit his barns to a new curing system to be in compliance with new regulations. "We've got so much money invested now," he said, "and I have been borrowing money just to stay in this. The last few years I haven't made any money at all." His debt has mushroomed to half a million dollars, but he is not alone. Farmers across the county are in the same boat, and they are all pinning their hopes on a tobacco buyout. Lynch has a lot riding on the buyout. He will get a little more than $1 million if it is approved. "If I get that out of the buyout, I'll already owe half of it," he said, referring to his debt. The payouts will be taxable income so a substantial percentage will go back to Uncle Sam. When it's over, he will have enough to keep on farming and not much else. One way or another, the decisions made, or not made, by Congress about the buyout will have a dramatic effect on the tobacco farms of northern Orange County. The tobacco buyout refers to a plan to end the quota system that has been in place since the Depression era. The federal government, in the quota system, gives tobacco farmers a quota, or allotment, that they can grow, and provides price support. The government, under pending legislation, would "buy out" the allotments, compensating farmers for their value, before ending the quota system. In recent years the quota has been cut 50 percent. Many tobacco growers, like Lynch, have borrowed against the equity in their farms, assuming large debts. Next year, the projections are that the quota will be cut another 30 percent. The pressures on the tobacco industry are manifold. Bob Stallman, American Farm Bureau Federation president, wrote to lawmakers working on legislation that would create a tobacco buyout program: "Billion-dollar lawsuits, a decline in tobacco consumption and a surge in the use of imported tobacco have significantly strained the federal tobacco program, but more importantly, have severely strained many tobacco farmers." Ultimately, the decline in demand for American tobacco may force Lynch out of business. His only hope, he said, and the only hope of many tobacco farmers, is the tobacco buyout. "If we don't get the buyout or something, there's going to be a lot more people on welfare, or the assistance programs," Lynch said. The U.S. Senate recently had approved a tobacco buyout. But the House had its own bill, and now a committee is trying to work out a compromise. There are important differences in the bills. The Senate bill gives the FDA broad regulatory power over tobacco, while the House bill does not. The Senate bill would put the burden of paying for the buyout on cigarette manufacturers; the House bill would put it on the taxpayer. When Congress reconvenes after Labor Day, there will be about eight critical weeks for the committee to work out a compromise to be approved by both House and Senate and signed by the president. Tobacco farmers are divided about the chances for the buyout. Lynch said he doesn't know what will happen, but Roger Tate, another tobacco farmer who lives down the road, is more pessimistic. "On both sides you've got people that are adamant that they're not going to give an inch," Tate said. "You've got people that are saying, 'It's not going to go without FDA approval.' You've got people saying, 'It's not going with FDA approval.' You've got folks saying, 'It's not going to be funded by the taxpayers' ? and the other side's saying, 'It will be funded [by the taxpayers].' They're pretty hard line. I don't see how they're going to come up with a compromise." If the tobacco buyout is approved, many older farmers may use the money to retire. Those who continue to farm tobacco will get much less money for their tobacco. The price is expected to drop from about $1.75 to about $1.25 per pound as the price of tobacco comes into line with the global market. Lynch said he would continue to grow tobacco. After all, he has the equipment, curing barns and land. He would reduce some of his fixed costs because he would not have to rent allotments from other tobacco farmers to grow enough to make a profit. "If we could take the rent out of it, that would help us compete with the foreign markets," Lynch said. He thinks American tobacco farmers will be able to compete globally on a level playing field, despite higher labor costs. He said tobacco workers in Brazil only get paid about $6 to $8 a day. If there is not a buyout, and the quota is cut 30 percent, as projected, then a wave of farm foreclosures may sweep the state and county. It is a very painful proposition that Lynch said he does not even want to think about. Enditem