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Tobacco Cooperative Fights to Reinvent Itself

Posted on: Thursday, 7 July 2005, 00:00 CDT

Jul. 7--The name -- Flue-Cured Tobacco Cooperative Stabilization Corp. -- is a stodgy relic of an old and complicated bureaucracy. But the group says it has a crucial service to offer in tobacco farming's new era: protection from corporations that have farmers at their mercy as never before.

Many growers, however, say they don't want the safety net. They say they don't trust that the cooperative is strong enough or smart enough to help them in a time when global markets and multinational corporations control agriculture.

Instead, tobacco growers want about $240 million in assets that the cooperative has accumulated since the 1930s. Two groups of growers have filed lawsuits demanding the money.

It's a fight that reflects the changes that American tobacco farmers face today. This year, for the first time in decades, they are growing tobacco without a government price-support program.

The end of the program came with a buyout, which will mean $10 billion over 10 years to those who grew tobacco or owned rights to grow it under the federal system. Many decided to take the money and get out.

But those who remain in the business must find their way in a transformed industry.

And the cooperative is at the center of a fight about the growers' best path to success.

Many farmers have decided that there's no sense fighting the tide that has transformed American industries in recent years: corporate consolidation.

Most growers have signed contracts to grow directly for giant cigarette manufacturers such as Philip Morris and Reynolds America. They brush off concerns that the companies -- which now have the power to set prices and control all the terms of the contracts -- wield too much power over individual farmers.

The contract prices this year fell to an average of about $1.40 a pound, down from about $1.85 under price support. Under the new price structure, farmers must become larger and more efficient to make a profit.

Pender Sharp, a Wilson County farmer who contracts with Philip Morris, said the company has so far treated farmers fairly. He said the company has rewarded his knowledge and efficiency by allowing him to grow a large crop, and he doesn't expect that to change.

"They can't make their product without tobacco to go in it," Sharp said. "No one is interested in running all tobacco farmers out of business."

Sharp is among those who say the cooperative has become unnecessary and should hand over its money.

"The tobacco companies have owned this industry from day one," Sharp said. "How can

[the cooperative] possibly think they are the salvation for farmers today?"

The co-op, known to many farmers simply as "Stabilization," has been around since the 1930s. It operates out of Raleigh, and its board is made up of farmers from the five Southern states that grow flue-cured tobacco. It is funded by farmers and by the tobacco it sells.

Until this year, the co-op was little more than a government contractor that administered the federal tobacco price-support program. It had a limited role as an advocate for farmers, because Uncle Sam set the price of tobacco and guaranteed farmers that they could sell their entire crop.

Although it is no longer needed to administer price support, many farm advocates argue that the cooperative now has an even more important role: providing an alternative to direct contracting with corporations.

"It's very easy for huge corporations with vast wealth and resources to exploit very small individual farmers," said Eldred Prince, a tobacco historian at Coastal Carolina University in South Carolina, who spoke at the cooperative's annual meeting. "A cooperative would force the companies to treat farmers decently."

Prince, who wrote a book on the tobacco industry, said history has shown that, without a cooperative to "shame" them, the companies will gradually depress prices and discard farmers who don't cooperate.

Co-op leaders say they need the $240 million in assets to pursue several ventures that will create new markets for American tobacco farmers -- and keep growers from having to sign contracts with companies such as Philip Morris.

Among its most ambitious projects is the purchase of a cigarette plant, where it is processing tobacco and says it may eventually make its own brand of cigarettes using all American tobacco.

The group is also aggressively working to sell American leaf overseas.

It has set up 11 marketing centers where farmers can sell leftover tobacco at auction. And it agreed to buy tobacco from more than 1,600 farmers who either couldn't get or didn't want contracts with the major cigarette companies.

"If you don't have the co-op, you don't have anywhere else to go if the companies kick you to the curb," said Keith Parrish, a Harnett County farmer and a newly elected co-op board member.

Tobacco companies say they have no incentive to treat farmers poorly -- or to deny contracts to good, efficient growers.

"American tobacco is important to us," said Philip Morris spokesman Bill Phelps. "Thus, American tobacco farmers are too."

Many tobacco farmers aren't buying the cooperative's message either.

Partly, it is a personality conflict. Many say the cooperative's leadership has been secretive, making decisions without bothering to let the membership know. Most say they had no input on the purchase of the cigarette plant.

Cooperative leaders are doing little to quell concerns. On the advice of their lawyers, they aren't speaking publicly about the group's workings. General Manager Arnold Hamm didn't return repeated calls from a reporter.

Even some farmers who remain cooperative members say they have little faith that its ventures will be successful.

Billy Carter, a Moore County farmer and co-op member, says he can't see how the cooperative can make all-American cigarettes that would compete in a market in which most companies go to Brazil and China to keep prices low. He said the group's board has done little to explain its business strategy.

"It's just hard to see that they have the strength or the economics to make it work," Carter said.

Many accuse the cooperative of holding out false hope. They say there is no escape from the reality that large companies now run agriculture.

"Philip Morris has over 50 percent of the market. They're the giant. They can set the prices," said Graham Boyd, head of the Tobacco Growers Association of North Carolina. "I don't think the co-op can offer security or guarantees, and I don't think they can shame the tobacco companies into anything."

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MO, RAI, BTI, BATS,

Source: The News & Observer

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