Tobacco Talks Turn to Contract Buying

Source from:  Daniel Pearce SIMCOE REFORMER Monday December 24, 2007 12/26/2007

Plan could be in place for 2008 crop: chair The tobacco board says it hopes to abandon its long-standing auction system and have its farmers sell their crops directly to cigarette companies by the spring. Talks with government and manufacturers on the change have been ongoing and will continue in the new year, said Tom McElhone, chair of the Ontario Flue-Cured Tobacco Growers' Marketing Board. "We're looking at putting together a contract system," McElhone told the Reformer on the weekend. "We think we could have a solution for the next growing season." The change, he said, is being proposed "in parallel" with another government buyout program for farmers. "Our main thrust is still to get an exit program," McElhone said. "The 1,559 quota holders are no longer going to be needed for this system." If it goes ahead, direct contract buying would bring a revolution to Ontario's tobacco fields. It would see an end to the supply-control system that has been in place for five decades - and made many farmers rich - and possibly the board itself. Direct contracts would also open up the industry to market forces and take farmers to a place they have vowed publicly, and bitterly, many times they would never go. When it's been suggested in the past, growers said they feared a return to the "barn buying days" of years ago when company reps came directly to their farms. Bribes, they allege, were involved while growers were offered widely differing prices for their leaf. But the proposal could also save tobacco growing in Ontario. Until McElhone took over in October, the board's official position was that the industry could no longer survive in the face of cheaper imports, the government should buy out all remaining farmers, and no more tobacco be grown in the province, period. McElhone's comments suggest the industry, which has shrunk by more than two-thirds in the past decade, will survive in some form in Ontario's sand plain. However, one of the hurdles that needs to be crossed right away is getting the cost of production down, McElhone acknowledged. The cigarette companies are indicating next year's price will be about $1.95 a pound, about 30 cents below the break-even point. "We're looking at ways to extract costs from the industry," McElhone said. Another issue is next year's crop size, which is expected to come in at around 21.2 million pounds, another steep drop that would require even more growers to leave the business. "A government decision is needed urgently," McElhone said. His statements also come only days after the board was slapped with a $13.5 million lawsuit from three growers. In a press release, the board said the growers are seeking "an interim and permanent injunction restraining (the board) from negotiating any arrangement . . . that would result in the tobacco industry coming to an end." In the interview, McElhone said: "We feel the lawsuits are baseless and we will be defending them very aggressively." Enditem