Snuffed out

Commerce | Tobacco farmers reach the end of the quota road

Issue: "MS-13: Criminals next door," June 18, 2005

For Talmage Layton, tobacco is like family. The 57-year-old North Carolina farmer has been raising the plant for nearly 40 years, and he says: "We look after it as though we would our children. . . . We feed it when it's hungry; we water it when it's thirsty; we set it up when it falls down . . . we send it away from home when it matures."

Life as a tobacco farmer will soon drastically change for Mr. Layton and thousands others as the government ends a 67-year-old tobacco program with a $10.1 billion buyout. Farmers have until June 17 to sign up for their cut, and analysts think most will cash in.

The government initiated the program in 1938 to aid Depression-era farmers in an unstable market. Officials guaranteed a set price for tobacco by limiting the amount of tobacco grown and gave each farmer the right to grow a percentage of the national crop by issuing allotments, or quotas. Quotas raised the price of tobacco higher than it would have been without the program and gave farmers stable prices for their crops.

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The quotas fluctuated each year as the demand for tobacco fluctuated. In recent years, declining smoking rates have driven down the demand for tobacco, and the government has cut quotas by as much as 50 percent.

Foreign tobacco growers have also entered the market, selling the crop for a much lower price and eroding the market for American tobacco.

The losses have bankrupted some small tobacco farmers and have driven many into severe debt. The hemorrhaging drove hundreds of thousands of farmers to ask the government to scrap the quota program and allow them to sell their crop at more competitive prices. Killing the program and buying out their quotas was their only hope for survival, they said.

Congress agreed and approved a $10.1 billion buyout last October as one part of the American Jobs Creation Act of 2004. Farmers will receive buyout payments over the next 10 years.

North Carolina with its 90,000-plus tobacco farmers is set to receive $3.8 billion, the largest chunk of the buyout. Peter Daniel of the North Carolina Farm Bureau, an advocacy organization representing some 470,000 member families, says an overwhelming majority of farmers in the group favored the legislation.

Mr. Daniel has become an expert in answering objections to the buyout, such as one of the most common: Why should farmers get paid for their quotas? Mr. Daniel says the funds will help tobacco farmers transition out of a government-instituted program they've been required to follow and will also help stabilize the economy in the process.

Another objection is that taxpayers shouldn't have to foot the bill. Mr. Daniel says, "Taxpayers won't pay a dime for it." According to the agreement, cigarette manufacturers will pay for the buyout through quarterly fees over the next 10 years.

Mr. Daniel also hears complaints that the buyout will make tobacco farmers rich. He counters that though a small percentage of farmers who own larger quotas stand to gain a large payoff, the average farmer will receive around $14,000. Since farmers carry a "tremendous load of debt" from loans on land, equipment, paying laborers, insurance, and taxes, Mr. Daniel says the payout for the average farmer likely won't cover their losses, much less make them rich.

Michael Walden, a professor in the Agricultural and Resource Economics department at North Carolina State University, says the tobacco quota's demise was inevitable in a free-market economy. In a recent Carolina Journal editorial he called it "a prime example of the ultimate triumph of economic forces over political control." Competition from outside markets makes a quotas nearly impossible to maintain, he says.

What the tobacco buyout will mean for the industry at large is unclear. Mr. Daniel thinks the end of quotas will usher in more tobacco production from fewer farmers with more land. But he also thinks small-time tobacco farmers like Mr. Layton won't be easily snuffed out. "It's more than just a business for them," he says. "It's a culture. It's a way of life."

Jamie Dean
Jamie Dean

Jamie lives and works in North Carolina, where she covers the political beat and other topics as national editor for WORLD Magazine. Follow Jamie on Twitter @deanworldmag.


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