- The Washington Times - Tuesday, August 10, 2004

WILSON, N.C. — Greg Hipp stands next to more than 200 tons of tobacco just harvested from nearby fields, cured and then baled for sale to middlemen and manufacturers.

“It’s really good tobacco. We had a real good crop in our area,” the 40-year-old said inside the Liberty Warehouse, where Wednesday he auctioned about 15,000 pounds from his farm.

Wednesday was the first payday of the season for many of the region’s farmers as markets opened. Coupled with the quality crop, it traditionally would be a day for celebration in eastern North Carolina, the heart of tobacco country.

But Mr. Hipp and thousands of other tobacco farmers scattered through 16 states face uncertain times.

A federal system of quotas, reacting to declining domestic cigarette consumption and rising foreign competition, in the past six years has cost tobacco farmers more than half of their annual sales and income.

Congress established the quota system in 1938 to stabilize prices and support farm income, largely by limiting tobacco supplies.

The U.S. Agriculture Department each year determines quotas based on purchasing commitments from manufacturers, estimated exports and any product left over from the previous year. The limits on production help stifle supply and boost prices, but also make American tobacco more expensive than foreign-produced products.

“It’s obvious that the quota system is just outdated. It needs to be eliminated so we can compete in a world market,” Mr. Hipp said.

Tobacco farmers are the closest they have been to a quota buyout, a potential cash infusion of up to $12 billion in return for ending a system that, while still supporting income, makes U.S. tobacco uncompetitive on the world market.

North Carolina is the biggest tobacco-producing state and would be the biggest beneficiary.

“We’ve been talking about a tobacco buyout … for the last 10 years. This is the first time we have ever been this close,” said Rep. Walter B. Jones, North Carolina Republican.

The House in June and the Senate in July approved separate buyout programs as part of a broader corporate tax bill. Next month, lawmakers are expected to try to reconcile differences that include several billion dollars in payouts, funding sources and authority for new, far-reaching Food and Drug Administration regulations on cigarette manufacturing, advertising and sales.

“The long and short of it is, we have a chance, but we have a long way to go,” said Rep. Bob Etheridge, North Carolina Democrat.

Nationwide, last year’s tobacco crop generated about $1.6 billion in income — less than half the cash receipts from only six years ago.

The steep decline in income mirrors dwindling quotas.

U.S. and foreign cigarette manufacturers increasingly are turning to cheaper tobacco grown in countries such as Brazil and Zimbabwe, while health concerns, regulations, taxes and other factors diminish the U.S. taste for cigarettes.

“When we were the only source for quality flue-cured tobacco, it worked well. But now we’re trapped in this system, and we can’t afford to walk away because we have such a substantial investment,” David Blalock, a Wilson County farmer, said while walking between rows of tall, broad-leafed tobacco plants growing on about 85 acres of his land.

Investments include equipment such as Mr. Blalock’s propane- and diesel-fueled curing barns and specialized harvesting equipment. But farmers also have invested in the quotas themselves, which are attached to land in specific areas of the country.

“The federal government told me, if you want to grow tobacco, you have to buy a quota. So for the last 30 years, we’ve bought quota whenever possible,” said David Rose, a Nash County farmer who grows tobacco on about 320 acres — half of which he owns and half that is leased.

“It’s also my retirement plan. I felt like when I got ready to retire, I could rent my quota,” the 57-year-old said while watching a team of workers hustle tobacco leaves from fields and into curing barns.

But the investment is shaky. Declining demand has cut the quota by more than half since 1997, to an estimated 831 million pounds for 2004, according to USDA figures.

Quotas for flue-cured and burley tobacco, the two main types used in cigarette production, had reached almost 1.9 billion pounds in 1997, the highest level since the early 1980s.

“I’m scared that five years from now, I will have no quota and nothing to show for it,” said David Grant, who farms in Garysburg, N.C., near the Virginia border. Mr. Grant does not grow tobacco, but instead rents his quota to other producers for cash.

With a buyout, U.S. tobacco prices likely would fall closer to prices on the world market as U.S. production increases, allowing domestic companies to buy more American tobacco and farmers to export greater quantities.

U.S. producers who stay in the industry would have to become more efficient. Many older or smaller players are expected to take the buyout money and leave the business, while others are keeping their options open.

“I would pay my way out of debt and invest in another business,” Mr. Hipp said, indicating he might stop growing tobacco.

But the crop traditionally has been one of the most profitable commodities per acre in agriculture, making it an attractive possibility.

“I would like to go back into the tobacco business,” Mr. Grant said.

The House version of the buyout would mean a little more than $105,000 for Mr. Grant’s farm, several hundred thousand dollars for Mr. Hipp and more than $2.8 million for Mr. Rose’s operation, according to the Environmental Working Group, a watchdog that has been critical of the proposed buyout.

The government also would pay absentee landlords — including 91 possible recipients living in 16 foreign countries — who rent their land and quotas for income.

The Senate version of the legislation would force cigarette manufacturers to pay for the buyout. Senators also voted to maintain some limits on tobacco production, effectively keeping some protection for current tobacco farmers.

With or without the plan, tobacco farmers see their industry reaching a critical point.

Quotas are projected to fall by as much as one-third in 2005, a drastic cut that would force many smaller players out of business.

Blake Brown, a professor at North Carolina State University who has written extensively on tobacco economics, estimates that such a reduction would cut North Carolina tobacco farm receipts to less than $400 million, down from $1.19 billion in 1997.

The hardest-hit areas would be mostly rural and already economically troubled, especially tobacco-dependent tracts of eastern North Carolina, Mr. Brown wrote in a paper published April 5.

Tobacco farmers are hopeful that that will not come to pass, but still do not know what will happen.

“The thing that concerns me so much is the uncertainty. I have no clear direction where the future is at,” Mr. Blalock said.

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