TOBACCO INDUSTRY Growers begin pinching pennies
States are going to bat for tobacco growers.
CINCINNATI (AP) -- Tobacco growers are being squeezed between the government's plan to phase out a 1930s-vintage price support system and cigarette makers' refusal to pay millions under an agreement tied to a master settlement of anti-smoking lawsuits with 46 states.
In 1998, cigarette manufacturers agreed to pay the states $206 billion over 25 years. The following year, in a deal known as Phase II, they said they would pay tobacco growers $5.1 billion over 12 years to soften the effect of reduced demand for tobacco.
When Congress passed the $10 billion buyout legislation last year to pay growers the equivalent of about five years of sales, tobacco companies said that ended their Phase II obligation. Since buyout payments won't start until later this year, many growers were left short of cash.
"A lot of that money has already been spent, and here they come and say you ain't going to get it," said Bob Koehler of Ripley, vice president of the Ohio Tobacco Growers Association. "That puts a lot of boys in a pinch."
No final payment
The four major tobacco companies contend that under terms of an amendment to the Phase II agreement, they don't have to make the final payment of 2004 and are entitled to a refund of payments made earlier in the year.
Bill Phelps, spokesman for Phillip Morris USA in Richmond, Va., said officials in the 14 tobacco-growing states where Phase II payments were made agreed that tobacco companies would be entitled to repayments in the year the buyout was enacted. The states dispute that.
A judge in North Carolina ruled in favor of the tobacco companies last month, but the state Supreme Court there agreed to hear the states' appeal directly, bypassing the appellate courts. Thursday was the deadline for filing briefs.
Tobacco quotas were established to prop up prices and limit the amount of leaf that a grower could legally market. Ohio, one of the smaller tobacco states, has an overall quota of 10.9 million pounds divided among nearly 15,000 growers.
At about $2 a pound, the average grower makes about $2,600 a year -- supplemental income rather than a livelihood. Most Phase II payments due in December would have been a few hundred dollars.
Not so for Lamar DeLoach, of Metter, Ga., one of the nation's largest tobacco growers and president of the Tobacco Growers Association of Georgia. He sold up to 2 million pounds of tobacco a year in the late '90s, and expected to receive a Phase II check for $250,000 last month.
"That's a quarter million dollars cash flow I didn't have Jan. 1 to meet my obligations," DeLoach said. "I had to renew some notes in the past couple of weeks, and there were a lot of other farmers at the bank. There's a lot of farmers at the end of their string."
Even if growers get a favorable ruling in North Carolina, the buyout likely will force some growers out of business, said Ed Cruttenden, executive director of the Ohio Agriculture Department's Tobacco Program.
"It would remove hundreds of thousand of [quota] holders from tobacco forever," Cruttenden said. "The net impact of this is ... by the end of the program in 2014, about 75 percent of all tobacco farms we know of will be gone."
DeLoach, who farms about 5,000 acres with corn, soybeans, wheat, peanuts, cotton and tobacco, expects changes. He has cut back from 550 acres of tobacco last year to about 100 acres this year, and plans to turn more land to growing vegetables that customers would pick themselves.