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State Tobacco Farmers Testing New Market Dynamics

Posted on: Monday, 31 October 2005, 03:01 CST

By Elmer, Joann C

Virgil Edwards believes he can make money by growing tobacco even as the federal government reduces its regulation of the embattled industry.

With a little more than an acre left to harvest this year on his Putnam County farm, the 67-year-old farmer said he's confident a federal buyout will have little effect on his ability to make a profit.

For nearly 70 years, Congress maintamed a price-control program for tobacco crops. Under the program, tobacco grow ers were issued quotas based on the capacity of their farms and the market demand. The idea was to limit supply to support tobacco prices. Several years ago, Congress allowed farmers to lease acreage and pur chase quota allotments to expand their business opportunities. Edwards did just that. When the buyout rolled around last year, he was able to cash in.

The buyout offers money to both quota owners and farmers. With the buyout, the federal government has removed itself from the tobacco business. And without the federally established quotas, farmers are finding themselves in a free-market system for the first time since the Great Depression.

Edwards, who served as a parts manager for C&O Motors in St. Albans for 25 years, has grown tobacco for most of his life. When he left the car dealership in 1992, the tobacco business became his primary focus. He accrued debt as he built up his farm. Like many tobacco farmers, Edwards chose to use his buyout payments to pay down his debts.

"Now I can raise tobacco for play money," he said.

Edwards said he's definitely willing to give the free-market system a try.

"Obviously, without the feds setting prices, we're going to see a drop in what the tobacco companies are willing to pay. But that's not necessarily a bad thing," said Edwards, who has entered into a contract agreement with Philip Morris. "Manufacturers always said we, the growers, priced ourselves out of the market. If nothing else, now that U.S. tobacco is priced lower, we should be able to compete internationally."

Last year, the average crop of tobacco sold for $2 per pound. This year, that same pound would fetch about $1.50. It's that 50- cent decrease that has other countries eyeing the U.S.

Russia did not import any tobacco from the United States in 2003. This year, the country has imported 25 million pounds of U.S. tobacco, according to the Burley Tobacco Growers Cooperative, an organization that helps burley tobacco growers, including those in West Virginia.

Germany has upped its imports by almost 50 percent Japan is up by almost 30 percent. Belgium, Sweden, Romania and Spain also are importing more, the cooperative reports. And China, which accounts for 30 percent of the world's cigarettes, is looking to import more U.S. tobacco.

But lower prices are having another effect on the international trading market. Because U.S. tobacco has become more cost competitive, manufacturers say they don't need to bring in as much tobacco from foreign countries. The burley cooperative said U.S. imports of foreign tobacco are down 60 percent.

To account for the drop in prices, Edwards said he has streamlined his costs. Instead of eight people working on the farm during harvest, Edwards has cut it back to three, including himself.

But the 2005 harvest is full of uncertainty. Some farmers, such as Robert Trippett, have decided to stop farming tobacco altogether. The Glenwood farmer had harvested tobacco for 25 years before the buyout program was initiated.

"At this point, it just makes more sense to get out," he said. "There might be money to still make in the business, but it just doesn't seem like it's worth it to me."

But farmers like Virgil Edwards see a market full of promise.

"I figure a lot of farmers didn't harvest a crop this year because they're waiting to see what happens," he said. "But if the rest of us do all right, I think you're going to see more farmers coming back to it."

Copyright State Journal Corporation Sep 30, 2005

Source: State Journal, The

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