Posted on 03/15/2004 9:22:16 AM PST by SheLion
RJR to cut leaf buys
Contract cuts of 48% rile tobacco farmers
15 March 2004
By David Rice
JOURNAL RALEIGH BUREAU
RALEIGH
R.J. Reynolds Tobacco Co. is cutting the amount of tobacco it buys from North Carolina farmers by almost half this year, state officials say. Growers aren't happy about it.
State Agriculture Commissioner Britt Cobb said that his office began getting calls last week from upset farmers who reported that their contracts with Reynolds were shrinking by 42 percent to 48 percent for this year's crop.
"The only ones we've heard anything like this from are the Reynolds growers," Cobb said.
"It's just a very, very unfortunate situation," he said. "A farmer's going to grow their quota, so what's not under contract they'll take to the auction. We'll just hope that Reynolds and Philip Morris and the other companies need more than they think they'll need."
The U.S. Department of Agriculture announced in December that based on the purchase intentions of cigarette-makers, farmers will be allowed to grow 10.4 percent less tobacco this year than they did last year, and less than half the amount they grew in 1997.
Tommy Payne, Reynolds' executive vice president for external relations, referred to several reasons for the reduced leaf purchases: shrinkage in Reynolds' market share; gains by discount cigarette-makers known as "nonparticipating manufacturers" (NPMs) that did not participate in a $206 billion settlement with the states in 1998; and a restructuring at Reynolds.
"Given the volume declines and restructuring and the increase in NPM volume, that is what we need right now," Payne said. "We haven't needed as much because our volumes are down. So we have existing inventory to cover our volumes for the year."
Payne said that Reynolds was among the cigarette companies that bought 45 million pounds of leaf out of stabilization reserves in December to help reduce the size of the quota cut this year.
But he singled out the discount cigarette-makers among the main culprits in Reynolds' shrinking purchases. "The industry as a whole is hurting, except for the NPMs," he said.
Individual companies' buying intentions are proprietary information, so little is known about exactly how much leaf Reynolds buys in the United States . Farmers have suspected for years that Reynolds was shifting its leaf purchases to cheaper tobacco in Brazil and other foreign countries.
In the United States , "Reynolds is not buying a huge amount anyway," said Blake Brown, a professor of agricultural economics at N.C. State University . "Reynolds is a fairly small buyer in a still reasonably sized market.... Certainly their use of tobacco is not going to drop by 48 percent.
"If it were Philip Morris, it would be disastrous," Brown said. "I think it's safe to say they buy more than 60 percent of the market."
In general, the purchase reductions will be made across the board among growers who contract with Reynolds, rather than eliminating some growers' contracts altogether, Payne said.
"We're maintaining about the same number of contracts, as opposed to renewing half the contracts," he said.
Sam Crews, the president of the Tobacco Growers' Association of North Carolina, said that Reynolds' purchase of warehoused leaf in December probably contributed to the company's reductions now. "Pay me now or pay me later - we're in kind of a precarious position now as growers," Crews said. "You would hope that they're going to buy some of that tobacco at auction. If they cut their domestic purchase intentions 48 percent - wow, that's a lot."
Some growers are upset that Gov. Mike Easley and the General Assembly agreed to give Reynolds a tax credit worth at least $10 million a year to assist its merger with Brown & Williamson Tobacco Corp. before the company made clear its leaf-buying intentions, Crews said.
Rep. Bob Etheridge, D-2nd, said yesterday that Reynolds' cuts show that Congress needs to approve a buyout of federal tobacco quotas.
"This is another blow to North Carolina 's farm families and even further evidence of the overwhelming need for Congress to pass a tobacco buyout this year," Etheridge said in a prepared statement.
"There can be no question that North Carolina 's farm families are facing a crisis," he said.
• David Rice can be reached in Raleigh at (919) 833-9056 or at drice@wsjournal.com
Crazy, isn't it! Sure don't know WHO to believe.
But if the buyout/FDA Regulation go hand in hand, that will be the end of sales of tobacco products as we know it.
Which, to me, would be a BIG loss for the Tobacco Farmers. I don't know why they would agree to something like this!
Because, if the FDA were able to "regulate tobacco," they would have to ban it, because they couldn't deem tobacco as safe. Same as Big Macs...........
There is something going on with this, and outside of money, I can't put my finger on what it is.
Like I said: if the FDA can regulate tobacco, then this will be a huge loss to the tobacco farmers. They would HAVE to start planting something else.
But the tobacco farmer's aren't equipped to grow other products. Their tobacco farm equipment doesn't fill the bill for other kinds of plantings.
If the tobacco farmer started planting something else, they would have to spend thousands of dollars for new equipment.
I still can't figure this out.
State and federal governments have a virtual monopoly on the profits from the sale of cigarettes. They make more money on each pack of cigarettes sold than anyone in the business - including the manufacturers.
Not surprisingly, the object of the crime is money—$206 billion to the states and billions more to contingency fee lawyers. The cover for the crime is the maddening complexity of the Master Settlement Agreement, which documents the deal. The real victims are the people whom the states and their lawyers set out to protect—smokers, who get nothing out of the settlement yet must pay the entire cost.
There probably is, She, but I don't think this is a result of what goes on behind closed doors.
This is strictly a result of three things, the MSA between the Giants of the tobacco world and the states, the smaller companies that didn't buy into it, and the tax increases by the states on packs of cigarettes.
The smaller companies have been gaining market share year after year since the MSA went into effect, and the tax increases by the states have driven smokers to look for the cheapest way to go. Many have turned to stuffing, or rolling, their own but even more have gone the way of discount tobacco stores selling generic brands or ordering on the 'net from overseas.
Taken all together I fully expect to see the other giants lower their leaf buying also.
It's going to be a real hardship for the tobacco farmers. The government wants the farmers to start planting something else. But it's going to be a real hardship for them, since their tobacco farming equipment is entirely different then what they need to plant and harvest other crops. They will have to spend thousands of dollars to buy new equipment.
The government is really messed up on this.
The irony of this is: smokers still smoke. But most smokers are finding alternative ways to smoke without paying into the state coffers anymore. It's the American Way to shop cheap, and while it's still all legal, the government should know that we aren't all SHEEPLE out here.
Smoking isn't for everyone, that's for sure. And I respect you for quitting. I just enjoy it too much. Smoking was ok for all my past family members and my present family members. We haven't seen any of the doom and gloom from smoking that the highly paid professional anti-smokers are putting in the news.
When I was growing up, smoking was called a "bad habit." Now we are all "addicts." Oh well....whatever floats their boat.
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