Tobacco Farmers Bank on New Role for Depression-Era Cooperative

Source from:  By STEVE HARTSOE Associated Press Writer 06/20/2005

Like thousands of tobacco farmers, Chandler Worley has lost his safety net. Worley has farmed all of his life in southeastern North Carolina's Columbus County, but now for the first time he can't rely on a government-guaranteed, bottom-line price for his crop. A Congress-approved $10.1 billion buyout signed by the president in the fall ended seven decades of the price supports that propped up growers. But Worley, 51, is among some 3,300 flue-cured tobacco growers - about a third of all such growers from Virginia to Florida - who have decided to stay with the Raleigh-based cooperative that helped maintain stable prices under the government program. While the Flue-Cured Tobacco Cooperative Stabilization Corp. once stood for the relative security of a system backed by taxpayers, it's now headed on a risky venture to reinvent itself as a leaf-dealer, marketer and cigarette maker. Worley and other growers say they're willing to give the co-op a chance to prove itself outside the government program, despite their concerns about how the co-op has handled millions of dollars in farmers' assets built up over the years. "I hope it works out for everyone," Worley said. "(There's) still a lot of questions on whether they're going to be able to compete." Cooperative officials say they will offer members a chance to earn profits from its dealings. Also, the co-op offers competitive prices for their crop, about $1.40 a pound, said Lamar DeLoach, a grower in Metter, Ga., and member of the cooperative board of directors. Experts say they believe keeping the cooperative alive may help growers compete in a much more independent market place, and open doors for farmers who can't get a contract with existing cigarette makers. "I think there's clearly a potential and a possible place in the market for them," said Blake Brown, an agriculture and economics professor at North Carolina State University. The biggest risk is that only a portion of a farmer's crop will get a guaranteed price from the co-op, with the balance sold at auction. Under the quota system, the cooperative, founded in 1942, removed billions of pounds of farmers' tobacco from the market when it didn't get the government support price at auction. They later sold the crop to international leaf dealers or cigarette-makers. The buyout will pay farmers and quota holders for their stake in the system and has removed government control of how much tobacco they can grow. With no limit on the amount of tobacco or a promised price, some farmers have sued to dissolve the co-op, saying it's no longer needed. Another lawsuit seeking class-action status claims the co-op owes dividends to members from more than $240 million in stockholder equity accumulated over the years. The cooperative's board has said they need to remain viable so they can help farmers who don't have or don't want sales contracts with cigarette makers. The revamped cooperative has exclusive deals with about half its members who can't or don't contract to sell their crop to major cigarette-makers or leaf dealers. The cooperative spent $26 million last year to buy a cigarette plant from Liggett Vector Brands in Timberlake, about 35 miles north of Raleigh, where it will eventually make its own discount cigarettes. The co-op has contracted with New Century Tobacco Group LLC in Miami to distribute the smokes. But its main focus will be to market internationally, where cheaper tobacco has increasingly squeezed more expensive U.S.-grown leaf out of the market. The amount of domestic flue-cured tobacco used in U.S. cigarettes dropped 55 percent from the mid-1960s through 2003, said John "Moot" Truluck, head of the tobacco division at the federal Farm Services Agency. "I think that still they can act as a stabilizing force. It's just they'll do it outside the scope of the government," Truluck said. Cooperative general manager Arnold Hamm said he believes the group can restore worldwide demand for higher-grade U.S. tobacco. "If we can influence the market enough to make competitors believe it's to their benefit to use U.S.-grown tobacco, then we'll get our numbers up," Hamm said. "Furthermore, when we manufacture cigarettes by including a higher content (of domestic leaf), hopefully what that would do is we get into a foot race with our competitors." Jamey Walker, who farms six acres of tobacco in Caswell County, is taking both routes. He, like Worley, has a contract with industry giant R.J. Reynolds Tobacco Co. and signed a nonexclusive contract with the co-op earlier this year. Walker, who once farmed 50 acres, said he signed on with the co-op because the status quo simply isn't cutting it for farmers. "Farmers can't make it on current prices," he said. "I don't think we can compete with other countries." Enditem