Small tobacco farms may wither

Correction: Due to a reporting error, the Oct. 21 article "Small tobacco farms may wither" stated that 80 percent of North Carolina's tobacco crop is under federal contract and that tobacco company Philip Morris has not drawn up a contract "in the past few years." The story should have stated that Philip Morris contracts 80 percent of tobacco from the United States. In addition, the group continues to draw up contracts.

North Carolina has always been a state defined by agriculture.

It produces between 85 and 100 different types of commodities and is the nation's No. 1 producer of turkeys, sweet potatoes and tobacco.

Now, the tobacco buyout bill that has passed through Congress and is awaiting President Bush's signature marks another step on the long road to industry change.

When the bill is signed, small tobacco farms will have the financial means to shift gears and stay in the business - or make way for larger, corporate operations.

"To put things in context, you have to understand where things were headed in the event that there was no buyout," said Blake Brown, professor of agricultural and resource economics at N.C. State University. "The tobacco sector, the farming sector of North Carolina, was headed for an incredibly difficult time if the quota system had continued."

Brown said that the quotas, which dictated how much tobacco farmers were allowed to sell, had declined by 50 percent since 1995 and were predicted to drop another 25 percent this year alone.

"In the buyout environment we will see continued consolidation of farms," Brown said. "We will see a number of small farms transitioning to other businesses. A lot of the smaller farmers in particular are older farmers who were kind of waiting and hoping for this buyout, which will help them with their retirement."

While the state's small tobacco farms largely will disappear over the next several years, Britt Cobb, the state's agricultural commissioner, said the money will be a godsend to farmers and quota holders.

"It's going to give farmers an option to continue growing tobacco or get out," he said.

Areas of the state with economies based on small farms are going to get a much-needed infusion of money, Cobb added.

"I think what you're going to see in three years, good farmers are going to have plenty of options for their tobacco," he said. "There may be a small farm that has a quota of 30,000 pounds. In the past, that's all he could grow. Now, they'll be able to grow as much as they want."

Brown said the amount of money farmers will get under the buyout legislation, $9.6 billion in total, is generous. Tobacco growers and quota holders are slated to receive the money over the next decade.

Farmers, now free of the quota system, will be able to grow as much tobacco as they want, wherever they want.

But they'll have to sell it at world market prices. This means U.S. farmers will be competing with growers from other nations, such as Brazil, who typically can sell for less.

"You could take a philosophical viewpoint and say the small farms ... are going to receive this income coming from the buyout which gives them the opportunity to exit from tobacco production and enter into something else," said Guido van der Hoeven, an extension specialist at N.C. State. "What we don't know for certain is what's going to happen to domestic production."

To ensure a market for their crop, farmers who choose to continue growing tobacco will have to enter into contracts with large tobacco companies, such as Philip Morris or RJ Reynolds.

Bill Phelps, spokesman for Philip Morris, said his company buys about half the flue-cured tobacco grown in the state. Eighty percent of the state's tobacco crop now is under contract.

But Philip Morris hasn't drawn up a contract in North Carolina in the past few years, and Phelps couldn't speculate on future contracting.

"Quite honestly, some of the small producers were going to be out of business regardless," van der Hoezen said. "I think there's going to be, definitely, some uncertainty as to where are (farmers) going to fit."

Van der Hoezen said one option might be for some farmers to transition into specialty crops, such as cut flowers or medicinal herbs. "But the question is, 'How many cut-flower operations are going to be economically viable in North Carolina?'"

Contact the State & National Editor at stntdesk@unc.edu.