You decide: What does the tobacco buyout mean?
But what does the tobacco buyout really mean? Will it help tobacco growers and tobacco regions, and if so, by how much? Also, what does the buyout mean for tobacco product consumers?
The tobacco program, developed in the Depression years of the 1930s to help farmers suffering from low prices, was one of several similar programs developed for most major crops (all the other programs have been eliminated).
The idea behind the program was simple: Limit tobacco production, and the price will rise. That is, growers could make more money selling less tobacco at a higher price than selling more tobacco at a lower price. The government controlled production by limiting who could grow tobacco (only those holding a government provided "allotment"), then capping total annual production (called the "quota") each year.
For decades, the program worked well for growers. Tobacco became a very profitable crop, and tobacco revenues pumped billions of dollars into North Carolina's economy. In the 1980s, the program began operating on a "no net cost" basis to the federal government. Curiously, because the program kept tobacco prices higher than they would have been without the program, it actually curtailed smoking to some degree by boosting cigarette prices.
But two major forces worked to unravel the program. One was the reduction in cigarette consumption. Smoking declined from 43 percent of U.S. adults in 1966 to 23 percent in 2002. Second was the emergence of lower-cost tobacco from foreign producers, particularly in Brazil and Zimbabwe. Not only did these foreign producers take foreign sales away from U.S. growers, they also entered the U.S. market. By 2000, foreign-grown tobacco made up half of U.S.-manufactured cigarettes.
Consequently, the federal government continually reduced U.S-grown tobacco production. In just the last seven years, flue-cured tobacco production was cut in half. North Carolina's tobacco-growing revenues were likewise cut by almost half over the same period.
So tobacco growers saw the writing on the wall. They expected future production and revenue cuts and were willing to eliminate the program so long as they received some assistance for coping with the transition.
The result was the tobacco buyout. Beginning in 2005, the tobacco program will be eliminated, and there will be no federal restrictions on growing tobacco. In return, current tobacco allotment holders in North Carolina are expected to receive $3.8 billion over 10 years, with cigarette companies providing the funds.
Is this a big deal? Yes, it is. It will change the economies of many rural North Carolina communities. Yet we should put it in perspective. The average annual impact is $380 million, but the North Carolina economy generates $300 billion of income each year. The tobacco buyout will help but not transform rural North Carolina. We still must address issues of education, work retraining and infrastructure.
Experts think the tobacco buyout may cut the number of tobacco farmers in North Carolina by 75 percent. Yet because the remaining tobacco farms will be larger and more efficient, the amount of tobacco grown in North Carolina may actually increase, and eventually, cigarette prices may fall.
The dismantlement of the tobacco program represents the end of an era in North Carolina. Tobacco now becomes competitively produced, subject to price fluctuations and market analysis like all other crops.
You decide if this is progress.