Tobacco Marketing Strategies Evolving
Just as tobacco production has changed and health concerns have grown, marketing strategy has evolved in recent years.
Gone are the days of the tobacco auction warehouse. At one time, five warehouses operated efficiently in Moore County and provided a lucrative income for farmers and businesses alike.
That number gradually narrowed to one warehouse in 2000, when the lone warehouse in Carthage sold less than 4 million pounds for $7 million. That was the last year of warehouse operation in Moore County.
Today, most tobacco is sold under contract directly to the company. A few warehouses remain in operation in other parts of North Carolina, and some farmers still transport tobacco to those sales.
The attraction of auction sales slid dramatically as soon as the price support system was discontinued earlier in this decade with passage of the quota/allotment buyout bill, in which Congress authorized the purchase of quotas/allotments in exchange for dropping the price support system. Federal funding was not involved, with the buyout money provided by the tobacco industry.
The buyout relieved growers of restrictions on tobacco acreage. They could plant as much tobacco as they wished and could sell as much as the market could handle, but they gave up the protection afforded by the price-support system.
Warehouse System Is History
Price supports propped up growers by establishing an average price for tobacco and providing a means for sale and disposition of tobacco not purchased by companies on sale days. Tobacco not sold directly to companies was bought by a grower-owned stabilization cooperative that processed and stored the leaf until companies needed more tobacco and were willing to buy it from the nonprofit corporation.
Although the program was administered by the U.S. Department of Agriculture, it did not provide subsidies to tobacco growers. And later, when Congress passed a bill requiring fees to cover operational expenses, the program covered administrative costs through fees shared by farmers, warehouses and tobacco companies.
The buyout thus marked the end of the tobacco auction warehouse system of sales and introduced contract growing.
Jimmie Ross and his family formerly sold their tobacco under contracts with both Philip Morris and R.J. Reynolds, but this year the contract is just with Reynolds.
John Blue raises only 30 acres of tobacco this year, all to be sold to Philip Morris under contract.
Billy Carter's contract situation is different from the other two. On his family farm in Eagle Springs, Carter raises 300 acres of tobacco, about 200 of which he sells to the Albuquerque, N.M.-based Santa Fe Natural Tobacco company. This leaf is raised with a reduced amount of pesticide but is not entirely organic. The company specializes in production of tobacco designed for Native Americans and makes no health claims about its product, which fits the profile of its Native American market preferences.
Carter has sold under contract to Santa Fe since 1989, predating the quota/allotment buyout. Sixty acres are raised as organic tobacco, a product that draws a premium price. The rest of his acreage is traditional tobacco sold under contract to Philip Morris.
All three are unhappy with state and federal laws passed this year to add restrictions on the sale and use of tobacco products. Of the three, the FDA control measure recently passed by Congress and signed by President Obama (a smoker) seems to garner the least resentment.
Ross points out that the FDA bill was written with guidance from Philip Morris Company.
Under this bill, the Food and Drug Administration has authority to dictate the content of cigarettes, manufacturers are required to disclose the ingredients of cigarettes and other tobacco products, and advertising techniques are sharply limited.
Carter would have preferred an alternative bill introduced by both U.S. senators from North Carolina, Republican Richard Burr and freshman Democrat Kay Hagan. Their bill would have placed the regulation of tobacco in the hands of a separate federal agency. It didn't get off the floor.
"It was an admirable effort," Carter says of the bipartisan bill. "We would have been better off under their bill. The FDA is already overburdened. Farmers are afraid of the heavy-handedness of the FDA."
Carter adds that the FDA has not been doing such a good job of regulating the safety of food products in recent years. He points out that tobacco is a product of choice, but people must have food to survive.
"The FDA has a pretty spotty record," Carter says.
Still, the impact of the new FDA law and the state laws is not clear when it comes to the effect on the tobacco grower at the local level. In Carter's eyes, some aspects of the FDA law are ridiculous, such as establishing the content of tobacco inasmuch as FDA agents do not have authority to come onto individual farms. This means that the standards will be imposed on the people who process tobacco.
Cost vs. Demand
John Blue says too many unknowns exist in all of this legislation, the federal FDA law as well as the tax hike and the smoking prohibition in public places.
"We're pretty much in the dark," Blue says.
Ross says he is in the dark too, but he came out fighting when the legislature was debating the issues a few weeks ago. He went to Raleigh to participate in a march protesting the anti-smoking law and a proposed increase in the tax on tobacco products. He doesn't think Gov. Beverly Perdue is sympathetic to farmers at all.
"Our best governor was Jim Hunt," Ross says. He recalls that during Hunt's administration, the governor allowed prison inmates to help farmers clean up after a natural disaster.
Ross says a one-dollar increase in the cigarette tax is too much. The federal excise tax on tobacco was increased this year to help pay for the children's health insurance program.
Carter agrees that additional taxes will hurt growers, because there is a direct correlation between higher cost and reduced demand for the product. He has another fear, this one based on the likelihood that these trends will drive more small farmers out of business and concentrate tobacco-growing in the hands of a few giant corporations.
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