tobacco COMMUNITY REINVESTMENT FUND

The Rural Advancement Foundation International is pleased to announce the availability of applications for the 1999 Tobacco Communities Reinvestment Fund. The fund is a pilot project to support on-farm and community demonstration projects which can supplement tobacco and reduce dependence on tobacco income through production, marketing, and processing of other farm products.

The Reinvestment Fund is available to residents of Columbus, Edgecome, Harnett, Johnston, Pitt, Wake, and Wayne Counties. All farmers who derive a major part of their income from tobacco, as well as farm and other community organizations, are eligible to apply for these cost-share funds, which will be awarded on a competitive basis.

The Reinvestment Fund will give high priority to innovative projects which show farmers a new direction or opportunity, particularly those that involve collective/group activities. For this round of the Reinvestment Fund, the Board will only accept applications for projects
that fit into one of the following four categories:

1. Innovative Marketing . Applications will be considered for the development and strengthening of group marketing associations. Funds may support: market research (buyer/market analysis), value-added product development (packaging and product formulation tests, etc.) and improvements in distribution channels (storage facility improvements, etc.).
   
   
2. Alternative Uses for Tobacco Greenhouse. Tobacco greenhouses are often vacant for extended periods (up to 10 months) during the tobacco season. Through alternative uses there are opportunities for tobacco growers to increase annual revenue by taking advantage of vacant greenhouse space.
   
   
3. Nursery Production (wholesale). Cost-share grant funds will be considered for ongoing or start-up nursery propagation and distribution to wholesalers, particularly in the area of woody perennials. Applicants should be keen on describing what market(s) they are targeting for sales.
   
   
4. Commercial Goat Processing and Marketing. To strengthen commercial goat production, applications will be considered for innovative and collective marketing proposals. Proposals should contain aspects of value-added product development and methods for increasing direct marketing. Strong consideration will be considered for group activities that incorporate retained ownership (group processing/labeling, etc).

Applications must be postmarked by March 1. For a copy of the Producer Grant Application Package or the Community Grant Application Package, please contact project or RAFI staff.

WHAT'S GOING ON WITH tobacco?

With a 35 percent cut in quota over two years, everyone in the flue-cured world is understandably concerned about the future of tobacco and how farmers can survive. There seems to be another news story every week about new marketing restrictions, tax increases, and lawsuits seeking payments from tobacco companies. Talk of baling and buyouts, contracts and corporate mergers leave us all confused. Combine this with record lows in grain and livestock prices, and we're all worried about the future.

Tobacco companies blame the quota cuts on the December Master Settlement, Asian economic difficulties, and an increasingly hostile attitude towards smoking in this country. Economists explain that we're in the middle of an adjustment period, as world tobacco stocks are at a record high and companies project decreasing consumption worldwide. Some people blame frivolous lawsuits, and others claim that higher taxes are driving Americans away from cigarettes.

So what is really going on with tobacco? Is it on its way out or is it just going through a bad stretch, only to bounce back once again like the tough crop that it is? The answer is probably somewhere in between.


WORLD CONSUMPTION
World consumption declined very slightly in the past year, though not nearly at the rate that domestic buying declined. As domestic flue-cured growers face an 18 percent quota cut and burley growers a 28 percent cut in 1999, world cigarette consumption declined 2 percent in 1998. The growth rate of smoking in Asia is the fastest in the world, so a recovery in the Asian economies could hold world cigarette consumption steady or rising, even with expected declines in the United States. Though cigarette sales fell by 4.5 percent in North America between 1990 and 1995, they increased by 5.6 percent in Eastern Europe and 8 percent in the Asia-Pacific region.


EXPORTS
Exports are down in numbers, but up in profitability. U.S. cigarette exports in January-September 1998 were down slightly in quantity and up 1.5 percent in value from January-September 1997. This difference is due to increases in price at the retail level. According to the USDA, U.S. cigarette exports fell 11 percent in 1997 due to greater offshore production by U.S. manufacturers.


OVERSEAS PRODUCTION and SALES
Tobacco companies are manufacturing and selling more of their products overseas. Only 18 percent of the cigarettes RJ Reynolds sold overseas in 1997 were made in the United States. Philip Morris makes more profit selling cigarettes abroad than in the United States, and RJ Reynolds and Brown & Williamson will soon do the same.


IMPORTS
Imports are on the rise. Imports of flue-cured tobacco rose 7 percent in 1998, while burley imports rose 15 percent. Overall imports reached a record high this year at 41.6 percent of tobacco used in the country, an increase of more than 10 percent since 1990.


CIGARETTE PRICES and TAXES
Cigarette companies have raised the cost of cigarettes 63 cents per pack in the U.S. in 1998. Economist Blake Brown of NC State has predicted that a price increase of 70 cents per pack would lead to a decline of 28 percent in domestic cigarette sales over the next three years. North Carolinians buy 900 million packs of cigarettes per year. If the 1998 price increases lead to a 28 percent decline in consumption, 648 million packs would be sold in North Carolina next year. However, total manufacturer gross revenue after the price increase would be the same, while the cost of production would decrease by 28 percent.

State and federal taxes are a decreasing percentage of the retail cost of cigarettes. According to the Tobacco Institute, state and federal taxes were 40 percent of the retail price of cigarettes in 1957; in 1997, taxes were down to 19 percent of the cost of a pack of cigarettes. Federal excise taxes are scheduled to increase 10 cents per pack in 2000 and 5 cents per pack in 2002, though further tax increases are being proposed in Washington.

QUOTA
1999's quota of 666 million pounds is the lowest in the history of the tobacco program. Over the last 10 years, quota has averaged 850 million pounds. Economist Brown predicts that the quota over the next ten years will average 750 million pounds, once companies have reduced their inventories to account for the expected decrease in U.S. consumption. This new average also would require the export market to bounce back, with no further increase in imports.

This year's 18 percent reduction of quota, combined with last year's 17 percent cut, means that 199 million less pounds of flue-cured tobacco will be grown in North Carolina in 1999 than in 1997. At an average price of $1.75 per pound, this represents a loss of revenue of 348 million dollars for North Carolina's farmers and quota owners.


BALING
Baling of flue-cured tobacco is increasing rapidly. 12 percent of leaf across the flue-cured belt was baled last year, with approximately 75 percent of that done at warehouses. This year, Cooperative Extension Specialist Mike Boyette projects that 65 percent of tobacco will be sold in bales, with over half done on the farm. Balers are selling quickly around the South. Balers will likely become an essential additional capital investment on the farm within a few years time, with no price premium paid for baled tobacco.


SO WHERE ARE WE HEADED?

No one really knows. Domestic tobacco consumption is declining. Overseas smoking rates are increasing, but their purchases are highly dependent on the economic situation in every country. With an increasingly hostile attitude towards tobacco in the U.S., and cheaper labor and more lax regulations overseas, some predict that the major companies will take more of their production and processing capacity overseas. Expect to see more consolidation in the tobacco industry, just as in all other international corporate activity. Some people see an increasingly mechanized and vertically integrated future of U.S. tobacco, with all production under contract, inputs purchased from leaf buyers, and mandatory baling. Given the prices of grains and hogs in this era of "free trade" and "high efficiency," this prospect is troubling for all those for whom tobacco has paid the bills for so long.

HARNETT COMMUNITY FORUM

Acting on a felt need to provide leadership during a time of agricultural crisis, four churches in Coats and Angier have organized, with RAFI's help, a community-wide forum, "Supporting Harnett Farming Communities." The Tuesday, February 16 forum will be from 7-9 pm at the Coats Senior Center and is open to everyone in Harnett County .

Rev. Jesse Mooney of Coats Baptist will open the evening by welcoming those who have come from local farms, homes, churches, banks, service clubs, agricultural agencies, and retail businesses to discuss the current plight of the Harnett County farmer and how the whole community can get behind special efforts it will take to respond creatively to the crisis in the tobacco world. Anyone who wants to contribute ideas and offer support to Harnett farming communities will have the opportunity to speak. Farmers will speak first to tell their story and to explain what they need to survive the coming growing season, in which the tobacco quota has been reduced 18% for the second year in a row. Although no "silver bullet" is expected to emerge as a solution, it is the hope of the forum planners that an atmosphere of solidarity in the whole community will be created at this first meeting so that future undertakings by farmers will have the entire community's support behind them.

Johnston, Pitt, and Wayne County churches are also in the preliminary stages of initiating plans for community-wide forums in their areas this winter and spring. To get further information on these efforts call Ed King, Church Liaison, with RAFI's Tobacco Communities Project at 919/929-5564.

"There are many different interests in the tobacco growing community, so it is a little frustrating when they ask us to agree on exactly what we want," he said. "The guy who grows a hundred acres of tobacco and leases all his quota isn't going to want the same deal as some retired farmer who leases out his quota. Everybody is different."

- Larry Wooten, vice president of the North Carolina Farm Bureau

WELCOME TO NEW STAFF

The Tobacco Communities Project is pleased to welcome two new staff members to its efforts of supporting tobacco farmers in Eastern North Carolina.

Charles Thompson, a produce, grain, and cattle farmer from Moore County, is a recent graduate of the animal science program of North Carolina State University. Part of a family farming operation in Carthage which has made a successful transition from tobacco to direct marketing vegetables, Charles will work closely with growers in Harnett, Pitt, and Edgecombe counties. He will focus on livestock and produce activities. "Farming has done alot for me and my family, and this project gives me the chance to give back to others some of the experience and good fortune that we've had," says Charles. "I'd like to see a few farmers still around 20 years from now."

Michael Brown, a recent arrival to North Carolina, has extensive experience in marketing, cooperative formation, and value-added product development. Having worked with farmer groups locally, nationally, and internationally, he is ready to make North Carolina his home. Michael will focus on Wake County, marketing, and the Tobacco Communities Reinvestment Fund. "Farmers need to find a way to make their products stand out in today's global marketplace." he says. "You've got a changing set of consumers in North Carolina, and my goal is to help farmers find a way to reach them."

Please welcome Charles (910-947-5107) and Michael (919-969-2617) to your communities. Feel free to call them or other project staff with any questions or concerns.

POSSIBLE OPTIONS FOR tobacco SETTLEMENT PROGRAMS

Both Phase I and Phase II of the Master Settlement contain provisions and funding targeted towards farmers, quota owners, and tobacco dependent communities. Both phases propose the establishment of foundations in North Carolina which could compensate those involved in the tobacco economy for the loss of income due to changes in the tobacco economy. These are still very open-ended regarding how any money would be structured and distributed, though money is scheduled to begin arriving in North Carolina within the next couple of months.

For the sake of discussion, RAFI has compiled the following list of options which are currently being considered. We do not specifically endorse any of these options. What we do encourage is that farmers and other tobacco community members educate themselves on these options and make their concerns known to their General Assembly members. No single one of these options is the perfect solution for everyone; some mix of options is the most likely policy outcome. There may also be other options not on this list. Please add your ideas to the discussion:

1. Compensate growers for reduced acreage. This would allow growers to pay down debts accumulated for higher levels of production.
   
   
2. Provide quota owners with compensation for reduced production. Consider different rates of compensation for different levels of quota (for example, $5/lb. for the first 20,000 pounds, $4/lb. for the next 20,000 pounds, etc.) so those who rely on quota income for basic income are covered first.
   
   
3. Connect quota compensation with phasing quota owners out of the production system and the establishment of a "privatized" tobacco program. The privatized program, known as the Robb plan in the debate over the 1998 McCain bill in Congress, controlled tobacco production through a licensing system rather than rental of quota. This would maintain a supply control program which could support the price of tobacco, while removing the price of quota rental from production costs.
   
   
4. Cost-share grants and low interest loans for development of agricultural enterprises by those who want to remain in farming. Match these with technical and business development support.
   
   
5. Provide funds to communities for feasibility studies and development of value-added processing and marketing operations for agricultural-based enterprises.
   
   
6. Provide support for putting together farmland conservation plans which conserve farmland for future use, preserve assets and income value for heirs, and provide tax savings to landowners who wish to retire.
   
   
7. Improve health insurance and public health services for farm families in transition; provide mental and other medical health services to farm families who run the risk of having a higher incidence of stress related diseases, suicide, family violence, substance abuse and farm accidents.
   
   
8. Involve the broad spectrum of local communities in any non-agricultural economic development decisions for tobacco-dependent communities. Assure full, diverse local representation. Have a clear, accessible process to present ideas and apply for support.
   
   
9. Maintain the tobacco program and lock in purchase intentions for as long as possible. Expand the tobacco cooperative to provide bargaining power for its members over a broader range of commodities and/or issues.
   
   
10. You own suggestion: let us know your ideas.
    

"I think they should create a reserve of about 20 percent, because nobody knows what's going to happen four or five years out"

- Phil Carlton, chief negotiator for the tobacco industry

SETTLEMENT WATCH

The November 1998 Master Settlement agreement between the four major tobacco companies and 46 states settled all state lawsuits to recover smoking related health care costs in return for a $206 billion payment by the tobacco industry and additional restrictions on marketing. These payments, to be spread over 25 years, include $4.6 billion for North Carolina, which did not have a lawsuit pending against the tobacco companies. North Carolina's first payment of $56 million is scheduled to arrive in April.

PHASE I
At the request of Attorney General Mike Easley, the Senate of the North Carolina General Assembly approved a bill to earmark half of North Carolina's annual payments from the Settlement, approximately $175 million, for tobacco dependent communities. If the full General Assembly agrees to this by March 15, a Foundation would be established to decide how to distribute this money, with 15 Trustees appointed equally by the Governor, Speaker of the House, and President pro tempore of the Senate. If the General Assembly doesn't agree to the Foundation idea, all of the settlement money would go into a special reserve fund controlled by the General Assembly. It is likely that the other half of payments from the settlement will go towards public health needs.

PHASE II
The Settlement, which had no specific funds for farmers, included an agreement that tobacco companies would enter negotiations with tobacco state governors to look for ways to compensate farmers and quota owners for their loss of income due to a reduction in demand likely to come from the agreement. On January 21, the four major tobacco companies agreed to establish a Trust Fund of 5.15 billion dollars to be paid over 12 years. North Carolina is expected to get almost 2 billion dollars of that, beginning with a payment of 141 million dollars this year. Administration of these funds would be controlled by a Board with 14 members: the governor, attorney general, and agriculture commissioner, six growers or quota holders, two members of the state legislature, two members of Congress and one citizen with ''a distinguished record of public service.'' The Governor would make the initial appointments to this Trust Fund Board.

There are a number of unanswered questions around distribution of both Phase I and Phase II funds, though money is scheduled to begin arriving in North Carolina this spring. What constitutes a tobacco dependent community and who is a grower are yet to be defined. Decisions will also soon be made on how money should be split and what portion is to go towards agricultural purposes.

The total amount of money involved is much lower than the farm provisions discussed in last summer's McCain bill, which slated 28.5 billion dollars in transition assistance for farmers and tobacco communities. For example, if all of North Carolina's 141 million dollars in 1999 were to go to growers, with nothing for quota owners or new enterprise development, this would amount to only 33 cents per pound. Given the many needs for money in Eastern North Carolina's farm economy at present and the many people impacted by changes in the tobacco economy, competition for these funds is likely to be intense. The differing interests of large and small, young and old, quota owner and renter make a solution to satisfy everyone difficult.

REINVESTMENT FUND PROJECTS FUNDED

Three farmers and two community groups are the recipients of cost-share support from the second round of the Tobacco Communities Reinvestment Fund, a pilot fund assisting farmers to develop enterprises that can supplement tobacco income.

Billy Enzor of Fair Bluff in Columbus County is starting a catch-your-own brim and catfish and pick-your-own grape vineyard. He will use water from the fish ponds to irrigate the grapes. In addition to the pick-your-own, he will harvest grapes and fish to fill orders and have a small amount available for drive-by traffic.

Janice Massengill of Princeton in Johnston County will experiment with new techniques to continue development of her produce business. She will use plastic row covers and drip irrigation to allow earlier harvest and to extend the season, when vegetable prices are higher. Janice will continue to direct market her produce through her roadside stand and pick-your-own.

Lemuel Thornton of Raleigh in Wake County is developing a historical educational farm and tour site. Features will include a raised bed garden site, various farm animals, restored buildings and blacksmith shop, and walking trails. Lemuel will establish an curriculum in cooperation with the Wake County school system.

A group of Edgecombe County farmers is forming a cooperative to research the creation of a mortality disposal center for dead livestock. If this facility is established, all area farmers would reduce the cost and environmental risks of current methods of mortality disposal, while creating a by-product which could be sold to pay for continuing operation.

Columbus County is developing a local farmers market to give area growers an outlet to market product directly, give consumers an outlet for fresh, local goods, and increase business activity in downtown Whiteville. The farmers market committee is receiving cooperation and support from the Farm Service Agency, Cooperative Extension, Chamber of Commerce, and County Commissioners.

Farmers and communities who get cost-share assistance have agreed to host farm tours, hold demonstrations, and share what they are learning with others. Keep an eye on future project newsletters for an announcement of field days to demonstrate the results of these projects.

"What we got was better than nothin'"

- Jim Graham, NC Commissioner of Agriculture

UPCOMING WORKSHOPS

The Tobacco Communities Project has arranged a series of spring workshops to give farmers the opportunity to learn more about new enterprises and marketing ideas. Ideas from these workshops came from your requests over the past year. Everyone is welcome. Please call Gerry Cohn for reservations: 336-376-0592.

AQUACULTURE TOUR
On February 22 at 11:30 a.m., the Tobacco Communities Project, North Carolina Cooperative Extension Service, and Carolina Classics Catfish will sponsor an aquaculture tour and information session. Visit catfish and hybrid striped bass farms to see first hand the ins and outs of raising, processing, and marketing fish. Take the opportunity to talk with current fish farmers and extension experts and find out how aquaculture could fit in to your farming operation. Enjoy some fresh local catfish for yourself at lunch.


WHAT CAN I DO WITH MY GREENHOUSE?
What can you do with that excess greenhouse space, given the quota cuts of the past two years? Come out on March 9 at 7:00 p.m. to the Wayne County Farm Services Agency office and talk to farmers, extension experts, input suppliers, and bankers about the possibilities they see in greenhouses. Learn about vegetables, seedlings, flowers, and herbs. Speakers include Lewis Howe of the Cooperative Extension Service, Jim LeTendre of Sunny Slope Greenhouses, Cam Coor of Coor Farm Supply, and a representative from the agricultural lending division of First Citizens Bank.


SPECIALTY SOYBEANS
On March 15th at the Johnston County Extension Center and March 16th at the Columbus County Extension Center, the Tobacco Communities Project, in cooperation with the Cooperative Extension Service, will hold a workshop on specialty and organic soybeans. Featured presenters Ken Rosmann of the Heartland Marketing Cooperative in Iowa, Brian Ashford of the Board of the North Carolina Soybean Association, Eddie Pitzer of the Center for Environmental Farming Systems in Goldsboro, Mary Jo Wanamaker of L.B. Wanamaker Seeds in South Carolina, and John Hart of Bolton. Supper will be provided for both events, which will begin at 7:00 p.m.

This newsletter was produced by the staff of the Tobacco Communities Project, which is a program of the Rural Advancement Foundation International-USA.  RAFI-USA is a non-profit organization dedicated to the preservation of family farms, conservation of agricultural diversity, and a sustainable system of agriculture.  RAFI-USA's programs address the trends and changes in agriculture that affect us from the local to the global levels.  Working with a variety of farm, community, university, and government groups, RAFI promotes sustainability, equity, and diversity in agriculture through policy changes, practical assistance, marketing opportunities, and access to financial and technical resources.  RAFI-USA receives financial support from individual contributors, private foundations, churches, and fees for publications and services.

For more information  on the Tobacco Communities Project, contact:

Return to Tobacco Communities Project (1997-2000) Newsletters Index

Return to RAFI-USA website - Tobacco Communities Initiative 2003