Friday, November 16, 2001

Decision dooms tobacco auctions


No help coming from co-op

By Terry Flynn
The Cincinnati Enquirer

        CARROLLTON — The Burley Tobacco Growers Cooperative won't take steps to prop up auction warehouses, which means the time-honored Kentucky tradition will crumble.

        More Kentucky burley tobacco farmers continue to sell their crop under contract directly to tobacco companies under a new system, spelling almost certain doom for the state's tobacco auction warehouses.

        “It's the beginning of the end, in my opinion,” Big Burley tobacco warehouse owner Bill Diuguid said Thursday. “It doesn't look like the farmer is going to wise up, and it's up to the farmer whether the auction system survives.”

        The contract system was started by Phillip Morris just last year, and approximately two-thirds of Kentucky's tobacco crop is now under contract to the major tobacco companies instead of going through the federally protected auction, according to Burley Tobacco Cooperative Association president Henry West.

        The Cooperative Association, which fiercely fought against institution of the contract system, has decided not to take any extraordinary measures to support warehouse auctions. Mr. West said the feeling is, with the massive migration to the higher per-pound prices offered at contract sales, the warehouse system probably is gone whether the co-op takes any action or not.

        The state Agricultural Development Board recently declined to use tobacco settlement money to subsidize auction prices. At that time, Gov. Paul Patton challenged the co-op to use its $27 million in reserves.

        Mr. Diuguid said prices at auction “are cheaper than the contracts. And we're seeing a lot less farmers bringing their crop to the auction warehouses. If this continues, the auctions will be history, and then the next step will be to throw out the price support system. When that happens, the tobacco companies will pay whatever they want.”

        State Rep. Royce Adams, D-Dry Ridge, who raised tobacco for many years and now leases his tobacco acreage in Grant County to a tenant farmer, agreed that the demise of the auctions would swing the balance of power in purchasing tobacco to the large companies.

        “It's in the cards,” he said. “The goal of Phillip Morris was to break the price control system. If that happens, we'll be at their mercy and they'll give us what they want.”

        Mr. Adams said he has contracted his tobacco this year “because my tenant (farmer) contracted the tobacco he grows on another farm, and I figured it was easier just to have him contract mine. I probably would have gone to the auction if I didn't have the tenant.”

        He said he favors the idea of a buyout, under which the federal government would purchase the tobacco allotments of anyone wishing to sell and move to another type of farming.

        “If we get the buyout, the people who want to get out of the business can get out, and it would put tobacco in the hands of the people who want to grow it, the large farms,” he said. “The problem is the way to fund it. Something has to happen to start the buyout program.”

        Steve Wood, manager at King Burley warehouse in Maysville, agreed that the days of the tobacco auctions are numbered.

        “With the contract system, you don't have auction fees or warehouse charges,” he said. “The farmer already knows what the price will be from the company, and he knows about what he'll receive.”

        King Burley is a contract warehouse for Phillip Morris, and Mr. Wood said, “On average, a person leaving this (contract) system is 17-18 cents per pound ahead of someone going through the auction system.”

        Mr. Diuguid, whose father began the family's Carroll County warehouse business in 1935, said he is trying to lease the company's newer steel warehouses.

        “But the older warehouses, with the wooden floors, will probably just be torn down,” he said. “It's the end of an era.”

       



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