Tobacco Industry Woes : Push to Snuff Out Subsidy Lights Fears

EAST BEND, N.C. — If Congress kills the federal tobacco program, Charles Wooten says softly as he steers a pickup truck across the red clay soil of his prosperous tobacco farm, “there’ll be ghost towns in this state from the mountains to the sea.”

A few miles down Tobacco Road, self-styled rebel farmer Jim Canoy, head of a group pressing Congress to do away with 47 years of tobacco price supports, scoffs at such dire predictions. Canoy argues that a free market is just the tonic for an industry threatened by anti-smoking crusaders, costly stockpiles of surplus tobacco, billowing imports and wasted export opportunities.

“I’m not going to let up until it’s fixed so anybody in the United States can grow tobacco if they want to,” Canoy rasped. He especially objects to the federal government’s production control system, under which farmers have to pay for the right to grow tobacco.

Turmoil in Industry

The diametrically opposite views of these two tobacco farmers reflect turmoil in the American tobacco industry that is unprecedented in its more than 300-year history. The tobacco industry--which dates to the days when Jamestown colonists learned from the Indians how to grow the golden leaf and thus helped finance development of the New World--today is beset by at least three major problems:

--It has become so deeply entangled with the government that many industry leaders contend it can no longer stand on its own, especially when U.S. growers face a rising level of cheaper imported tobacco.

--Farm subsidies in general are under assault because of soaring budget deficits, and the tobacco program costs taxpayers an estimated $100 million a year to subsidize about 200,000 tobacco growers.

--The idea of government subsidies for tobacco has become particularly hard to defend in the face of mounting evidence of the health hazards posed by tobacco--evidence that the government itself has helped develop and disseminate.

Much at Stake

At stake in the debate over the tobacco program is not only the livelihood of the industry but also the future of smoking in the United States. Without the federal program, the price of cigarettes would probably fall, but the tobacco industry contends that the quality of its product would drop just as fast.

What is spreading alarm and controversy through the fields and curing sheds of the tobacco states--chiefly North Carolina and Kentucky--is an increasingly powerful drive in Congress to abolish the government price support program outright.

Says Rep. Thomas E. Petri (R-Wis.), chief sponsor of a bill to abolish the tobacco program, “It makes no sense to warn people about the hazards of smoking on the one hand and subsidize tobacco on the other.”

The drive for repeal promises to influence the struggle over all the government’s farm price support programs. President Reagan is proposing to slash farm benefits across the board, and the tobacco lobby’s most powerful friend in Washington--Senate Agriculture Committee Chairman Jesse Helms (R-N.C.)--is well positioned to help him if his colleagues do not support tobacco.

“Whatever farm bill comes out of the Senate will have to have Helms’ stamp of approval,” Rep. Leon E. Panetta (D-Carmel Valley) notes. “That’s very important leverage.”

Helms and other tobacco-state lawmakers have served notice that the multibillion-dollar dairy program--which Petri would like to preserve for his Wisconsin farmers--is especially ripe for counterattack. “I expect maybe Mr. Petri will hear from us” when Congress takes up the dairy program, said Rep. Larry J. Hopkins (R-Ky.), the senior Republican on the House Agriculture subcommittee on tobacco.

Under the tobacco program, the government grants “allotments” based on history of tobacco production. To grow tobacco, farmers must have allotments--many of which are “leased” each year from non-farmers who have acquired title to them over the years through inheritance or purchase.

Subsidized Prices

With an allotment, a farmer is eligible for payments on tobacco at a subsidized price--currently averaging about $1.75 a pound. If the market price exceeds the subsidized price, farmers can sell their tobacco and pocket the profit. If it does not, farmers in effect sell their tobacco to the government for the subsidized price.

These days, with the dollar high and foreign tobacco prices low, the government increasingly ends up getting the tobacco.

Compromise Sought

In an effort to save the program, a leading cigarette manufacturer and key farmer groups have begun urgent negotiations on a compromise plan designed to reduce the cost to Washington. The two sides are close to a deal under which farmers would accept sharply reduced price supports, and cigarette makers in return would buy up today’s massive stockpiles of tobacco and help farmers pick up future costs of leaf stored by the government.

Program supporters hope that this proposition--which still has to be ratified by other cigarette companies, the Reagan Administration and possibly Congress--will deflect congressional enemies, who think they finally have the votes to repeal the price-support program this year.

Opponents forced major changes in the program in 1982 and 1983 after coming within a few votes of killing it in 1981. Tobacco farmers must now pay “assessments” designed to offset most of the government’s cost of operating the subsidy program.

But the tobacco subsidy has shown surprising resilience, thanks largely to the political skills of tobacco-state congressmen. And Rep. Charlie Rose (D-N.C.), pointedly noting that Congress’ 50-odd “tobacco boys” have given vital support to the pet projects of numerous colleagues, is counting on enough favors being returned to stave off repeal again this year.

“We have made a lot of friends through the years with the House leadership and with the New York City and Chrysler people” on bailout bills, Rose said. “I even led a group of folks to build subways for Los Angeles, so that we could be remembered in our time of trouble.”

Even if Rose is correct and Congress maintains the program, it could self-destruct as a result of its own internal problems. As tobacco consumption has dropped and leaf in storage has grown, the cost of the assessments paid by farmers has risen so high that many farmers may walk away from the program.

Allotments Targeted

To Petri, who is backed by a coalition of free-traders, anti-smoking advocates and some disenchanted farmers, the next logical step is to abolish the entire program. Now that the government operates the subsidy program at relatively little cost, their prime target is the allotment system that regulates who may grow tobacco, how much they may grow and what they must pay for the right to grow it.

“We have got to free our farmers to compete in the world market,” Petri says. “A recent study at North Carolina State University concluded that tobacco deregulation would result in a doubling of our tobacco exports, a virtual elimination of imports and an increase in the total demand for U.S. tobacco of 50% to 100% or more.”

Opponents protest that about three-fourths of allotment owners grow no tobacco at all. “The system is feudalistic,” Petri charged. “Farmers’ profits are soaked up by a largely absentee class of landlords who own the government-granted rights to market this crop.”

The allotment system’s proponents contend that repeal would depress land values throughout the South, drive most small farmers out of business and deprive many retired farmers and widows of income derived from allotment rentals.

‘Economic Chaos’

“If you want to cause real economic chaos in the Southeastern states,” Hopkins said, “I can think of no better way to do it.”

Rose, chairman of the House tobacco subcommittee, points out that Congress has already passed legislation phasing out absentee ownership of allotments by next year. But ending the allotment system altogether, he contends, would merely throw the market open to big growers.

“If you’re hung up about smoking, don’t punish the little grower and say you saved America from the evil weed,” Rose said. “The cigarette companies will laugh all the way to the bank.”

In complete agreement is Charles Wooten, a sixth-generation grower who is getting ready to plant 32 acres of tobacco seedlings on his rolling farm west of Winston-Salem.

Doesn’t Feel Exploited

“If you don’t have some type of quota control, you could have a boom crop one year and maybe a bust for four or five years,” Wooten said. Although he finds it frustrating to hunt for quota rentals each year, especially with quota sizes being cut back as stockpiles rise, he does not feel exploited.

“Most of these (allotment holders) are widows or widowers,” Wooten said. “This is what they have invested in all their life to have as their retirement income.”

Wooten is an unusually large tobacco grower, however. Most are small-scale operators, and Rep. Panetta says that, if the tobacco program disappeared, “these small farmers can be moved into other crops.”

Rep. Hopkins rejoins: “These concrete cowboys who represent Los Angeles and New York think a Kentucky tobacco farmer sits out on the back porch with a mint julep in his hand, watching the wind blow 10,000 acres of tobacco. Well, the average size allotment is one-half acre. Try growing potatoes, corn or kumquats on that.”

Both Hopkins and Rose are pressing cigarette companies to go along with the tentative agreement that has been worked out by R. J. Reynolds, the second largest manufacturer, and farmer groups in North Carolina and Kentucky. Rose has threatened to support cigarette tax hikes if No. 1 producer Philip Morris and four smaller companies balk.

Tentative Agreement

Under the agreement, guaranteed minimum prices for tobacco would be slashed by about 30 cents a pound, bringing them closer to prices in Brazil, Zimbabwe and elsewhere abroad. In return, the companies would agree to spend more than $1 billion to buy up tobacco stockpiles at discounts of up to 90%. The deal would cost taxpayers about $450 million.

Economically, the cigarette companies would seem to profit greatly from lower prices that a free market would surely bring. But Reynolds spokesman David Fishel said that the companies are worried that quality would suffer if inexperienced, large-scale operators got into the act.

“Our biggest concern is keeping a Winston a Winston and a Salem a Salem,” he said.

The Reagan Administration, which has proposed major price-support slashes in other farm programs, has not yet decided what to recommend for tobacco. Assistant Agriculture Secretary Wilmer (Vinegar Bend) Mizell says the Administration has two goals: to please Helms and to give the industry a chance to come up with proposed changes.

Mizell, a former congressman who represented the Winston-Salem area, suggested that the Administration would go along with the industry’s tentative deal.

“If all this transpires,” he said of the deal, “I think the program will be in good shape.”