Tobacco Farmers Bank on Private Co-Op

Source from:  forbes.com 07/04/2005

Like thousands of tobacco farmers, Chandler Worley has lost his safety net. Worley, who has farmed his whole life in southeastern North Carolina, can no longer rely on a guaranteed price for his crop after the government ended seven decades of price supports this fall. Now he's among some 3,300 flue-cured tobacco growers - about a third of all such growers from Virginia to Florida - who plan to stay with the cooperative that once helped maintain stable prices under the government program but is now going private. The Flue-Cured Tobacco Cooperative Stabilization Corp. is reinventing itself as a leaf-dealer, marketer and cigarette maker. "I hope it works out for everyone," Worley said. Worley and other growers are willing to give the co-op a chance to prove itself outside the government program, despite concerns by other growers about how the co-op has handled millions of dollars in farmers' assets built up over the years. The revamped cooperative has exclusive deals with about half its members who cannot or do not contract to sell their crop to major cigarette-makers or leaf dealers directly. Cooperative officials say they will offer members a chance to earn profits from its dealings while offering competitive prices for their crop - about $1.40 a pound, said Lamar DeLoach, a Metter, Ga., grower and member of the co-op's 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 directly with 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 concern 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 old system, the cooperative founded in 1942 removed billions of pounds of farmers' tobacco from the market when it did not get the government support price at auction. They later sold the crop to international leaf dealers or cigarette-makers. The $10.1 billion buyout of the price support system will pay farmers and quota holders for their stake in the old 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 do not have or do not want sales contracts with cigarette makers. 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. "I think that still they can act as a stabilizing force," said John Truluck, head of the tobacco division at the federal Farm Services Agency. "It's just they'll do it outside the scope of the government." Enditem