For North Carolina Tobacco Growers, All That Glitters is Not Gold

Source from:  High Point Enterprise  09/01/2004

For many growers, the proposed government buyout of tobacco quota is not as golden as it appears. Although several Triad farmers would become instant millionaires if a buyout is approved this year, many farmers say the government owes them a settlement. "The quota system is broken and the government should fix it," said High Point grower Zane Hedgecock. "This is like a payout on a 401k retirement plan that many people get. We've invested for years and the government has reduced our business." The Hedgecock family, tobacco farmers for generations, would reap hundreds of thousands of dollars in a buyout. The High Point Top Ten list, compiled by a farm subsidy watchdog group, starts at $110,000 and climbs to $322,000. The report, issued this summer by the Environmental Working Group, said 462 individuals, companies or estates would get more than $1 million each. An estimated 7,100 Triad farmers would receive $437.6 million of the $3.8 billion in payments. Overall, North Carolina growers would get 40 percent of the settlement, the report said. "It looks like a lot of money, but we do deserve it for our investments and the loss of half our quota," Hedgecock said. "The database does not explain the figures that way." The government has cut tobacco quota nearly in half since the 1990s and more cuts are expected. The 2003 quota of 526.3 million pounds was half the 1997 production. The quota has dropped largely because of declining demand and increased foreign leaf purchases by U.S. cigarette makers. The federal quota is the amount of tobacco farmers may grow under the price support system for the crop. The government determines quota by totaling the amount of tobacco cigarette makers plan to use and the reserve amount owned by the price support agency. For farmers, the quotas have become a government-granted commodity that can be sold, rented and inherited. RJ Reynolds and Richmond, Va.-based Philip Morris, the country's top cigarette makers, together buy most of North Carolina's flue-cured tobacco. Most farmers grow leaf under contract to the companies. Hedgecock has a Reynolds contract. "The overwhelming majority of the buyout, however, will go to a small fraction of the recipients who control most of the tobacco quota," the report said. Hedgecock agreed. "The larger growers will get most of it and the smaller growers hardly any," Hedgecock said. The Hedgecocks have not started counting their money. Congress must resolve two plans and decide how to fund payments. In the $9.6 billion House plan, 10 cents of the 39-cents-per-pack federal excise tax on cigarettes would pay for the buyout. Lost tax revenue would be offset by customs fees. The government would make payments over five years of $7 for quota holders and $3 for growers financed by tobacco excise taxes. The Senate's plan would make tobacco companies pay for the buyout over 10 years through user fees that could be passed on to smokers. The Senate's plan would cost $12 billion and make payments of $8 for quota holders and $4 for growers based on the 2002 quota pounds. Hedgecock, 45, could collect $100,000 if Congress approves a plan. "I'd pay my debts and save some for the college fund," Hedgecock said, "and I'd need some of it to find a way to make a living with an alternate crop." The Senate plan also includes FDA regulation of tobacco, an issue that divides the support of the tobacco companies. "The House buyout plan is an incredible rip-off of the taxpayer, mostly to benefit a handful of large tobacco interests and tobacco companies," Ken Cook, EWG president, said earlier this summer. "If there is to be a buyout, it should be paid for by tobacco companies, not taxpayers, and to protect public health, it should be accompanied by new authority for tough regulation of tobacco by the Food and Drug Administration." But too many farmers are suffering, Hedgecock said. This could be a watershed year for growers with or without the buyout. American growers are competing with South American farmers who grow comparable tobacco, but at lower prices. "I compete with countries all over the world and we need a level playing field," Hedgecock said. Many tobacco state legislators say that growers will be better able to compete on price without the support system. "If we don't get the buyout, many of us will be out of business," Hedgecock said. "If we get it, then $6 billion goes to North Carolina and we get to pay the bankers." Enditem