Tobacco industry faces uncertainty
Feb 20, 2002 12:00 PM, By Cecil H. Yancy Jr. Farm Press Editorial Staff
There's a lot of activity going on these days in regard to a tobacco buyout. Speaking at the recent 40th annual Tobacco Workers Conference, Blake Brown, North Carolina State agricultural economist laid out “Seven Points for Consideration in a Tobacco Buyout.”
“Opportunity knocks,” he said. “Find the door, open it and walk through.”
He called the talk, “An Economic Stimulus Package for Rural Southern Economies.
“Tobacco price can no longer be controlled effectively through production controls,” Brown says. The reason: the United States controls only 7 percent of the worldwide market, and has only a 9-percent share of world tobacco exports.
Change should be facilitated, not impeded. “With barn retrofits and contracting, many older and smaller growers want to leave tobacco farming,” Brown says. “Current payments, such as Phase II, create uncertainty concerning whether or not a farmer must grow tobacco to receive payments. Brown believes compensation should either let farmers leave tobacco production or make their operation more viable. Program changes should allow geographic relocation of production.
Is a farm program needed? Production control won't stabilize or raise prices, he points out, but “will health advocates require production control to prevent excessive production expansion?” On the production side, a safety-net program, like many other farm commodities, is desirable. But a safety net would also likely require federal funding. Is this possible, he asks? Competition among tobacco buyers is another point to consider. If sufficient competition doesn't exist among buyers, then some sort of government sanctioned price arbitration process may be desirable. (Philip Morris has 50 percent market share in the U.S. market; R.J. Reynolds, 23 percent; B&W, 12 percent; and Lorillard, 10 percent.)
Funding for a buyout. A new cigarette excise tax would likely be a “deal stopper,” for a buyout, Brown says. Capturing a scheduled five cent excise tax increase for a fixed period of time would raise $1 billion. Phase I and Phase II funds have been mentioned as a possible source of funding for a tobacco buyout. One manufacturer has mentioned support for a tobacco buyout alongside FDA regulation of cigarettes. Brown says, “Phase II funding could derail the quota buyout, but may not be possible without it.”
Define the objective clearly and stick to it. “Don't be side-tracked by compensation or funding sources,” Brown advises. “Don't become too focused on a post-buyout program.” He also says, “Be realistic about quota values and transition payments. Growers would probably be better off if they didn't talk about quota values.
Related organizations must avoid the dangers of incentives for self-preservation. “The role of the farm-related organization should be defined,” Brown says.
Recognize stakeholders and seek consensus. This involves growers, quota owners, cigarette manufacturers and health advocates.
Brown's paper and other tobacco-related economic issues are located on the Internet at www.agecon.ncsu.edu.
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