Area tobacco farmers are bringing to a close the last harvest in which they’ll enjoy the support of a quota system that has long made the industry profitable.
Cleveland farmer James Barbour doesn’t plan on changing much and isn’t incredibly concerned about his farms. But he said an altered financial landscape will have some difficult-to-project effects.
“I’m not sure yet. It’s going to be interesting what happens,” said Barbour, a third-generation farmer who owns and farms 700 acres, including about 250 of tobacco.
The change comes from an industry-funded set of price stabilizing mechanisms that end this year. Through a quota system in which surplus was bought by manufacturers at a minimum price and quotas were bought and sold among farmers, a grower at least knew there would be a minimum price for his crop. The quota could adjust from one year to the next to counter a shortage or surplus the previous year. The tobacco buyout program ended the quota system. Now, those buyout payments are set to end.
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Now, farmers, unrestricted, will grow what they can and sell what they can based on the market. They will be exposed to the risks of global competitors and bad growing conditions in their area, as well as the potential windfall of bumper crops paired with down years in other parts of the world. How the change will affect farmers, Barbour said, will vary.
“It depends on how many people were using that money to stay in business,” Barbour said. “There’s going to be some all over the board. I’m sure some farmers took the money and put it back into the operation. If they’re taking that money and using it to stay in business, some people are going to suffer.”
The very last buyout checks, totaling about $916.5 million nationwide, go out this month to about 425,000 tobacco farmers and landowners. They're the last holdovers from a price-support and quota system that had guaranteed minimum prices for most of the 20th century, sustaining a way of life that began 400 years ago in Virginia, when the leaf became the chief cash crop of the Jamestown colony.
Cigarette makers will have paid $10 billion to compensate growers for surrendering their quotas. Growers got another $5 billion from the companies as part of their 1998 settlement of state lawsuits over smoking-related health care costs.
When the last checks are cashed, surviving growers will be on their own, forced to find profits in a tremendously competitive global market. But those who remain in the business are thriving right now: Many are producing more leaf than they have in years, and enjoying higher prices as well.
Many growers took the money and got out, figuring that without guaranteed profits, there was little point in remaining in a dying industry.
Mark McLeod, who farmed down the road from Barbour, took buyout money, sold out and paid off his mortgage. He currently works for Barbour.
“I wasn’t big enough,” McLeod said.
The number of tobacco farms dropped from 124,270 in 1992 to 16,234 during the last federal crop census in 2007.
But the U.S. tobacco crop is still worth about $1.5 billion, the same as a decade ago, and production is stable, growing less than 2 percent over the last five years.
"The people who can hang on can make a substantial living," said Harry Lea, a leaf dealer and tobacco warehouse owner in Danville, Va., a one-time industry hub where tobacco fortunes in the 1800s built ornate Victorian mansions on a "Millionaire's Row."’
Barbour said he didn’t see a change coming on his farm any time soon.
“I feel like we’ll stay in business. Depends on how much you want to work for,” said Barbour, whose 26-year-old son was running the stripper harvesting the crops as Barbour ferried it by tractor to a transport truck last week. “As long as (my son) can make money at it he’ll do it, when it gets to the point he can’t, he’ll quit.”
A global, consolidating marketplace
Both competition and consumers in the tobacco industry have gone global like never before. Barbour called Brazil the biggest competitor to the southern U.S. and noted that quantity and quality of crop in a given year in the two country influences the supply and therefore profitability. The global value of the U.S. dollar also comes into play.
On the demand side, anti-smoking laws and health campaigns have prompted a continuing 3 percent to 4 percent decline in U.S. cigarette sales. Only 18 percent of U.S. adults now smoke, down from 42 percent in 1964, when the U.S. surgeon general's historic report linked smoking with cancer.
Tamara Rush and Michael Felberbaum of the Associated Pres contributed to this story.