The scenario goes something like this: Two or three years from now, when tobacco companies have lured farmers from the auction system to direct contracting, farmers are going to find themselves on the floor, after the rug has been jerked out from under them. Then prices will become a reflection of what a company wants to pay for tobacco, rather than what the market can bear.
Michael A. Farriss, Philip Morris vice president of leaf, has heard the talk and refutes that line of thinking. “There's nothing to fear here.
“Responsible, effective companies don't deal like that,” Farriss. “It would be against our own core values.” By operating like that, PM would be “eroding its own supply base. That's the worst thing you can do.”
Besides, Farriss says, the best tobacco is grown in the U.S. “The last thing we want to do is change the quality of that blend. We are fully invested in this market and need it for a fair return. You don't do that to your farm base.”
Farriss believes PM has demonstrated its commitment to the market through its “partnering” programs in burley and flue-cured.
“The name of the game is quality — who is going to grow high-quality tobacco,” Farriss says.
Direct contracting has brought the grower and the buyer closer, he believes. “The grower and the buyer have become full partners in the field,” Farriss says. “The eye-ball to eye-ball exchange is what makes it work.”
Farriss says farmers who bring their tobacco to PM's receiving stations meet with company representatives, as well as Extension personnel, who discuss blending and agronomic practices that produce top-quality tobacco.
After a successful pilot project in burley in 2000, the largest cigarette manufacturer extended direct contracts with flue-cured growers this season. Growers rushed to sign contracts. More than 80 percent of the flue-cured acreage is now under contract.
Farriss says he wasn't surprised at the wide acceptance of PM's partnering program among flue-cured producers. He points to competitive prices and stability as the main reasons for the move to contracting.
In some ways, he says, the advantage to growing under contract goes to the smaller grower. He points to burley producers as an example.