THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, September 27, 1995 TAG: 9509270412
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: ASSOCIATED PRESS
DATELINE: SARATOGA, N.C. LENGTH: Long : 102 lines
For many North Carolina families, tobacco allotments are passed down like fine china, making luxuries possible generations after any of them actually farmed the land.
``I wouldn't have that Lincoln Town Car sitting out there,'' says Christine Gardner Gay, 72, who lives next door to her identical twin sister in two of this tobacco town's most prominent homes.
Like many residents in these parts, the twins hold a precious commodity: a tobacco allotment.
With minor exceptions, farmers in the U.S. can't sell tobacco without an allotment, a strictly rationed permit that allows for a specified amount of tobacco production.
Allotments were designed in the New Deal era to help stabilize a shaky industry. Today, hundreds of thousands of Southerners consider them their patrimony: Those who inherit allotments may not farm the land, but they lease the allotments for a handsome sum to those who do.
But that inheritance is threatened. The problem is that the U.S. allotment system limits farmers' production, keeping American tobacco prices high and less competitive in the world market. Production of lower-priced tobacco is climbing in places like Brazil, Malawi and Zimbabwe.
The price factor is splitting the ranks of allotment holders, who once enjoyed an untroubled political harmony. It is pitting farmers against many nonfarmers, and some allotment holders against each other, the Wall Street Journal reported.
``Tobacco growers are facing a very large threat,'' says A. Blake Brown, a tobacco economist with North Carolina State University in Raleigh. ``And these are very divisive issues - even among the participants in the program.''
Some are willing to support either a freeze or lower tobacco ``support'' price if convinced it were prudent.
Thousands of others, however, fear killing the goose that lays the golden eggs.
The fight is critical to this region, for the way allotment holders manage their quota system in the face of this international competition will help determine the future of the industry and of the income that has made their lives so comfortable.
Here's how the allotment system works today:
Under federal legislation, a limit on the production and sale of U.S. tobacco is set every year based on estimated demand. Meanwhile, another federal formula, based on past prices and expected cost of production, sets support prices for the various grades of tobacco. This year, for instance, the average support price for a pound of flue-cured tobacco is $1.59.
Finally, a federally sanctioned loan program enables industry cooperatives to buy any tobacco that doesn't fetch its support price. The cooperatives store the tobacco until selling conditions improve. If they have to sell some of the tobacco below the target price, the co-ops can get their losses reimbursed through assessments on growers and manufacturers.
Unlike other farm-support programs, the tobacco system is paid for, not by taxpayers, but by growers and manufacturers, through self-assessments.
Today, most allotment holders are in Kentucky and North Carolina, although the crop is grown in more than a dozen other states. Most allotment holders command the right to grow a relatively small amount of the crop.
In North Carolina, the average allotment for flue-cured tobacco is about nine acres, yielding about 20,000 pounds of tobacco and generating perhaps $10,000 in annual lease income for an allotment holder. The farmer of that land, meanwhile, may turn a profit of between $1,000 and $1,500 per acre.
In Kentucky, the average allotment of burley tobacco, the most widely grown variety in that state, is about one acre yielding 2,200 pounds, earning roughly $1,000 a year in rent.
Throughout the country, there are at least 350,000 separate tobacco allotments. Statistics indicate that only a minority of allotment holders farm their quotas, although Agriculture Department officials aren't certain of the exact numbers. In North Carolina, for example, an estimated two-thirds of allotments are held by nonfarmers.
In terms of generating profit for participants, the tobacco allotment system has been one of the most successful farm-support programs in U.S. history. In North Carolina, a typical farm can generate gross revenue of more than $4,000 per acre, more than 10 times the $300 to $400 that Midwestern farmers can expect from an acre of corn.
In turn, small towns such as Saratoga, home of the Gardner twins, and Kenly, site of the Tobacco Farm Life Museum, owe much of their relative prosperity to flue-cured tobacco, which accounted for nearly $1 billion in farm receipts in North Carolina last year.
Obviously, the more policy makers do to shrink the U.S. market for tobacco, the more important international exports become. But to significantly increase sales on the world market, U.S. farmers would probably have to lower prices, and then vastly expand their production to get reasonable profits from the narrower margins.
The U.S. share of the world's flue-cured tobacco was 9 percent in 1994.
All these issues could be rendered moot if Congress should do away with the tobacco program, which is, industry observers say, distinctly possible in today's anti-smoking environment.
Without government sponsorship, the supply constraints that now prop up the tobacco-growing business would be difficult to enforce, economists say.
KEYWORDS: TOBACCO
by CNB