Looking back at the tobacco program

Before the tobacco program began during the Great Depression, tobacco farmers were losing their shirts in a cycle of feast and famine. When it ended with a buyout in 2004, they were losing quota at a regular rate.

In its more than 70-year run, the tobacco program outlasted all but one of the New Deal agricultural programs of the Roosevelt administration. Its stated purpose was to restrict, supply and stabilize prices. In reality, it helped raise tobacco prices. For other commodities, it didn't work as well.

Authorized by the Agricultural Act of 1933, the tobacco program started as an acreage allotment and changed in 1950 to include poundage. Growers voted to assess themselves in 1985, taking the program out from under the umbrella of the farm bill.

Growers organized the Flue-Cured Tobacco Cooperative Stabilization Corporation in 1946 to administer the tobacco program. Growers also established a burley cooperative. The program covered crops, price support, and acreage control in 16 states over six different types of tobacco. Some 600 U.S. counties grow tobacco.

“The tobacco program was very successful in restricting supply and raising the price above the free market,” says Blake Brown, North Carolina State University ag economist. As an example, consider that while production in 1933 was 95 percent over 1932 levels, prices increased from 11.6 cents to 15.3 cents a pound. The quality of U.S. leaf has always been a drawing card for manufacturers. But as time rolled along, the price became a drawback.

“In the 1970s, the only place you could get quality tobacco was the United States,” Brown says. “The United States had a virtual monopoly on tobacco in the 1970s.”

Quota levels of 1.5 billion pounds and prices close to $2 a pound were common in the 1970s. With the price of quota rent attached to the price of tobacco, U.S. leaf was more expensive than tobacco grown elsewhere.

International leaf merchants and domestic manufacturers began looking elsewhere in search of developing other markets in the 1970s. That move began to put pressure on the tobacco program in the 1990s.

“International leaf merchants found a place where they could go and teach farmers how to raise tobacco” to the quality standards of U.S. leaf, Brown says. “It took Brazil about 15 years to produce tobacco that was a close competitor to U.S. tobacco.”

By 1992, Brazil's tobacco exports exceeded that of the U.S. Now, Brazil produces three times the flue-cured tobacco that the U.S. does. In the past three seasons, tobacco production in Brazil has almost tripled, according to Brown.

During the same 20-year timeframe, Zimbabwe emerged from civil war as a competitor both in quality and in price to U.S. production. When revolution hit Zimbabwe in the late 1990s, Brazil took the lion's share of that market.

The Master Settlement Agreement — reached in 1998 between tobacco companies and states attorneys general — and declining consumption contributed to a situation where the U.S. tobacco program was dying a slow death on the vine. In the 1990s, price issues resulted in an increasing amount of tobacco going into the loan handled by Stabilization.

Starting in 1997, farmers saw a continual slide in the value and amount of their quota almost on an annual basis. Over an eight-year period, growers had lost about 50 percent of their quota from 1997 levels. Many were holding on for a buyout in some form. Growers and grower groups recognized the dilemma of losing quota year after year because of price pressures and sought a buyout.

Had a buyout not passed in 2004, growers were looking at another 25-percent to 35-percent cut in flue-cured tobacco quota alone. “The buyout couldn't have happened at a more opportune time for growers,” Brown says.

EDITOR'S NOTE — Numerous resources were used in writing this article. Most notably, Blake Brown, North Carolina State University ag economist; the Congressional Record; and “Leaves of Gold,” written by Bill Humphries for the old Stauffer Chemical Company).

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