Sunday, November 12, 2000

Growers like guarantee, prices with Philip Morris

By Susan Vela
The Cincinnati Enquirer

        MAYSVILLE — In one word, tobacco grower Jamie George described how he'd feel if he hadn't signed a Philip Morris contract, which offered a guaranteed price for his tobacco crop and assured him a definite buyer.

        “Sick,” said Mr. George, 29, of Carlisle.

        This week, he and other tobacco growers began hauling their contracted tobacco to King Burley Tobacco Warehouse, one of six tobacco warehouses in Kentucky operating as receiving stations for Philip Morris Cos.' contracted tobacco.

[photo] Tobacco farmer Jamie George helps band his tobacco at the King Burley Tobacco Warehouse.
(Patrick Reddy photo)
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        Tobacco growers and warehouse owners have said they are supporting the contracting program because it is the way of the future and they want to retain a foothold in the tobacco-growing business.

        What growers said they like best about the contracts is the guarantee that they'll have a definite buyer after nurturing their crop for almost a year. They also like that Philip Morris is offering prices that they can't get in the normal auctioning system, which opens across the burley belt Nov. 20.

        The contracted growers said they welcomed the program after the federal government told them they would have to grow 45.3 percent less tobacco than in 1999.

        “This has a lot of grower acceptance. It's much more stable. It's the way of the future,” said Mike Farriss, a Philip Morris vice president.

More than pool
        In the cavernous King Burley building, there is the pungent smell of tobacco, and the whir of forklifts, which hauled the bound stacks of ragged tobacco leaves around the warehouse.

        A major difference between this warehouse and the ones that will operate as auctions Nov. 20 is the lack of the auctioneer's sing-song cadence. The auctioneer calls out the selling price of tobacco while walking down rows of tobacco.

        Mr. George doesn't miss this routine. As a Philip Morris contractor, he was able to sell his tobacco earlier than usual and didn't have to worry about finding a buyer.

        Last year, his entire crop went into the dreaded “pool” managed by the Lexington-based Burley Tobacco Growers Cooperative Association. The co-op buys pool tobacco when tobacco companies bypass it because of its quality and the leaf cannot fetch more than the price supports offered by the federal government. Last year's average support price was $1.79 per pound. The average selling price was $1.90.

        This time around, on Wednesday, he took home a check for $4,764, earning $1.99 a pound on roughly 2,400 pounds of tobacco. He's confident that the price is almost 25 percent more than he would have received by waiting for the regular markets to open.

Threat to quotas?
        But others worry that these new contract growers are focused on short-term returns when they should be worried about the long-term health of the nation's burley belt.

        “Contracting can be good, and it can be bad,” said Allen Harman, vice president of the cooperative association. “This year, it looks good, but who's to say what it could be in the future.”

        Philip Morris kicked off its pilot program in February, offering one- and three-year contracts to burley growers, who were just learning that they would have to sell 45.3 percent less tobacco than in 1999. The cut was based on pool stocks and the tobacco companies' demand for tobacco.

        The company contracted for more than 100 million pounds of tobacco. Company representatives have not released the number of growers involved but they say that more than half are small growers, who will sell less than 5,000 pounds of tobacco each.

        But, critics have said the new effort is a threat to the federal government's long-established quota system, which determines the amount of tobacco to be grown and sold each year.

        It was designed to protect tobacco farmers by keeping the supply of tobacco in sync with the tobacco companies' demand. The system also sets minimum support prices for tobacco.

        Some growers' concerns about Philip Morris' contracting effort is that its popularity will expand. Growers then, they say, will vote to end the quota system. Tobacco growers will be able to grow as much tobacco as they want. The supply will skyrocket and, because of the glut, prices will plummet.

        “It'll eventually hurt the (quota) program, and, without the program, the farmers are at the mercy of the company,” said Wayne Cropper, a May's Lick tobacco grower and board member of the Mason County Farm Bureau.

A direct link
        Contract grower Steve Wood of Falmouth said that argument is paranoid. Too many tobacco growers, including himself, want the quota system to remain intact, he said.

        “We still need the quota for stability,” he said. “We have to be the ones to vote it out.”

        Mr. Farriss insisted that Philip Morris' contracting program is merely a new means of marketing tobacco and provides growers with a direct link to Philip Morris.

        If growers don't like Philip Morris' price, he said they also have the option of taking their crop to the noncontracting warehouses such as the Kentuckiana Tobacco Warehouse in Carrollton and Ohio-Kentucky Tobacco Warehouse in Ripley, Ohio.

Rough years
        The last few years have been abnormally rough on Kentucky's tobacco growers. They have faced three consecutive years of quota cuts, which have cut their crop by roughly two-thirds over that period.

        Then there's the multibillion dollar court settlements that tobacco companies agreed to. Over the next two decades, tobacco companies will dole out $206 billion to states because of tobacco's health-related costs.

        For a separate 12-year settlement, the companies are paying $5.15 billion to compensate farmers who are losing income because of the shrinking demand for tobacco. While farmers have received their first installment, there are concerns that the money may dry up.

        The various uncertainties are enough for Terry Anderson, 31, of Hebron to treasure being a contract grower.

        Earlier this week, he delivered 20,000 pounds of tobacco to King Burley. He received roughly $1.97 a pound - about a quarter more, he said, than he would've received by taking it to the other warehouses, which charge a fee. The co-op also charges a fee.

        Mr. Anderson signed a Philip Morris contract because he was tired of the quota cuts and thought it was a sound means of growing tobacco for many years to come, as his forefathers were able to do.

        “We've got a lot more problems than just where we're selling to,” he said. “If they don't start fixing the real problems, it's not going to matter where we sell it. I want to grow tobacco. (Contracting) is not going to assure it, but it's a step in the right direction.”

        King Burley took in 310,000 pounds of tobacco on Tuesday and about 2 million pounds for the week. The warehouse will accept contracted tobacco through January.


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