Long-term tobacco program sought

Flue-cured tobacco meetings this winter in South Carolina, and other flue-cured states, have taken on the atmosphere of a discussion around a crossroads general store or an early-morning café.

Most anything regarding a buyout, auctions or regulations is fair game for questions.

In a research survey, Russ Sutton, Clemson University Extension ag economist says he found that “most of the flue-cured tobacco industry in South Carolina would like to see policy changes to sustain a long-term tobacco program.”

Sutton believes a window of opportunity exits to effect positive change. That window is the opening of the farm bill now being debated in Congress. Just how that could be accomplished is the debate and talk around the flue-cured industry these days.

At recent tobacco Extension meetings in South Carolina the talk has covered a buyout, contracting, quota reorganization, FSA regulations, quota formula and support, world trade, short-term payments to producers and overall efficiency of the industry.

Speaking to a group at the 40th Annual Tobacco Workers Conference recently, Sutton outlined the possibilities for change amid the transition.

Buyout: The word is one of the most discussed in the tobacco industry today. Everyone is talking about it, but there is yet to be a consensus agreement about what the industry can afford, what it wants and alternatives in case this is necessary, Sutton says.

The Clemson University Extension economist believes the industry must be “meticulous” in planning and executing a buyout. He says there must be alternatives; otherwise, the industry will take whatever the system will allow. “There is word that the burley leadership has been working on technicalities; it is hoped that these are comprehensive and practical,” Sutton says.

It's also not known whether a buyout could eliminate or reduce the remaining settlement payments of the tobacco settlement. It's also not known how a significantly altered tobacco program would affect the tobacco settlement.

The continuation of quota is a complex issue, Sutton says, and deals with substantial long-term assets of tobacco growers and owners. Those who rent quota question why they continue to pay quota holders for the right to grow tobacco, even though they have multi-year contracts.

Flue-cured producers are entering the second year of contracting directly with companies. There's likely to be some adjustments in this system during the coming year, Sutton says.

“It is conceivable that each company will have surpluses of some grades and shortages of others,” Sutton says. This could mean “substantial changes in grade premiums and discounts and the need for a clearing house concept between companies and buyers. Another long-term problem could be the lack of using uniform grades at all receiving points.

On the positive side, contracting has improved marketing efficiency. Along with Flue-Cured Stabilization's plan to open 14 auction centers in the belt, there will be a major cost savings in marketing.

While the marketing of tobacco changes, there are payment conflicts in South Carolina as farms have been combined or divided. The current Farm Service Agency regulations go back to the No-Net-Cost-Tobacco and Dairy Adjustment Act of 1982-83, Sutton says. In effect, the legislation moved quota into the hands of active growers.

But in the ensuing 15 to 20 years, many of those growers have retired or are now renting out tobacco and still own the quota. Phase I, Phase II, T-LAP and other short-term payments have intensified the situation to the point where quota rental rates have escalated in proportion to payments — while little or no quota is being sold, Sutton says.

“This points out the need to move quota into the hands of active growers,” he says. “Until that time, some of our producers and quota owners have serious compliance issues. Is there a need for legislation to solve or reduce this problem?

Even the quota formula is not immune to discussion of change. While it was dropped late last year, there was some talk of reducing the reserve supply level to 75 million pounds from 100 million pounds.

With contracting being the major system, would a multi-year quota formula be feasible, Sutton asks? He believes this scenario would lend itself to stabilizing the present year-to-year swings. “Should there be a variable that more fully or completely covers our exports and imports?

With contracting playing such a major role in the marketing of tobacco, how important will price support be in the future?

In regard to price support, one suggestion is to have an option for carry-over production. Two excellent growing seasons have created large amounts of carry-over tobacco. “Some have asked about the possibility of pre-delivering tobacco to the companies and Stabilization as was the case several years ago,” Sutton says. “Others have proposed a possible optional lower support price system.

The situation abroad hasn't improved the prospects of U.S. flue-cured tobacco, Sutton says. Exports are down significantly for the current year. A strong dollar has the U.S. tobacco trade overseas in trouble.

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