Tobacco, in the year 2000, was still ranked third among major individual row crops in the state in order of cash value of the crop. This occurred even though the tobacco quota has been reduced 44% since 1997, but 2000 yields and auction prices were sufficiently strong to help with tobacco receipts. (Acres and income of major crops shown below).

The crop is of paramount importance given the approximately $117 million dollars of farm receipts it generated in 2000 was grown in a small portion of the state's counties by about 1,500 growers. Further, it generated returns to approximately 3,000 quota owners, whether they personally produced the tobacco, or rented out the quota.
 

Monies injected into an economy spread out and affect a wide range of people. In the case of tobacco, many farm input dealers sell supplies to growers. Then these growers realize (hopefully) a profit and buy consumer goods for their families. Further, those operating tobacco warehouses benefit from the sale of tobacco when the crop is auctioned in their facility.

Aggregate government figures provide only enterprise cash market values -- not the profitability of individual enterprises. To better show the economic effects of tobacco production, a summary of estimated economic effects of the crop is shown below. These estimates are made based on tobacco sales and inputs used to grow the crop. Estimates are made based on the acreage in 1997 and the expected 2001 acreage. These estimates do not involve a mathematical model - only acres grown, costs of production and an economic multiplier.
 

Estimated Economic Effects of Tobacco Production in Georgia
Item	1997	2001 (est.)	Change 1997 to 2001
Acres Tobacco Grown	44,000	26,000	-18,000
Average Yield per Acre (lbs.)	2,030	2,200
Average Price per Pound (dol.)	$1.71	$1,70
Total Value of Crop (mil. Dol.)	$152.7	$97.2	-$55.5
Total Economic Effect of Non - Tobacco Manufacturing (mil. dol.)	$381.0	$243.1	-$138.7
Total Cash Operating  Expenses (mil. dol.)	$95.0	$55.6	-$39.4
Labor (mil. dol.)	$26.4	$15.6	-$9.0
Chemicals (mil. dol.)	$14.7	$8.6	-$6.1
Total Net Returns to Land, Quota and Management (mil. dol.)	$28.4	$19.0	-9.4
Number of Items This Net Return Would Buy (number)
Pickup Trucks	1,185	759	-426
100 h. p. Tractors	569	362	-207
Sport Utility Vehicles	1,016	654	-326
Sales Tax Generated (non-tobacco)	$9.2 mil.	$6.8 mil.	-$2.4
Full Time Jobs Created	5,621	3,578	-2,043

The projected tobacco acreage for 2001 is 4,000 acres less than last year. The 2000 year was relatively good to the state's tobacco growers as the per acre yield was 2,310 pounds, only the second time since 1965 the average yield has exceeded 2,300 pounds. In addition, the average price was $1.74. While total tobacco value was reduced, these values made total returns to land and quota better than the previous two years.

If the 2001 projections hold true, total income and associated economic activity will be the lowest we have recorded. This would mean the value of the crop would be only 63% of the 1997 level - and this is based on an optimistic 2,200 pound yield and a $1.70 sale price.
 

Annual cash receipts lost as a result of the forty-five million pound quota loss since 1997 has been shown. But as quota provides the right to grow and market tobacco, it is labeled a capital asset with which income is produced. If we use the logic that a pound of quota can be annually rented for forty cents, or, if the residual from the sale of a pound of tobacco after all non-quota expenses are paid is forty cents, then we can, with some confidence, say that a pound of quota is annually worth forty cents. Consequently, it would take $8.00 per pound, invested @ 5% interest, to generate this forty cents. Thus, Georgia tobacco growers have $360 million less in capital assets today than they did four years ago.

Further, there are an estimated 2,000 tobacco curing barns that have been idled due to less tobacco being grown The value of these barns is estimated at $24 million. And as about one-half the state's tobacco crop is harvested mechanically, there are some of these machines being less than fully utilized.

Unpaid debt of some growers who borrowed funds to buy some of these assets is a major concern for these operators. In effect, some growers are still paying for a capital asset that no longer exists or one that has little market value due to lack of utilization.

Some monetary relief was given during the 2000 year in the forms of Tobacco Phase II Settlement Monies and by Loss of Quota funds appropriated by Congress. Five different payments were made, although two of them were scheduled to be paid in 1999. The phase II payments were a part of a twelve year settlement by tobacco companies to tobacco growers to help compensate for lost tobacco income. The other payments by Congress were to help compensate for lost quota in the amount of $1.00 per pound lost. These payments were divided 50/50 between quota owner and tobacco grower.

The total of all payments last year per pound of quota lost since 1997 is estimated to be $1.65. As this was divided between quota owner and grower, neither individual(s) has received funds sufficient to help replace the capital assets and lost revenue.
 

Tobacco currently can generate $3,500 - $3,800 receipts per acre. This sounds like a lot of money - and it is. But tobacco is one of the more expensive farm commodities to produce. Profit per acre depends on various factors, such as: How much debt is being carried? How efficient is the grower? Often forgotten is - How many families does this farm support?

Any tobacco alternative is difficult to assess, as there are no official figures to estimate their profitability. To illustrate: Official GASS data shows gross receipts for Georgia farmers in 1999 was about $6 billion - and profit was about $2 billion. But no data is provided to show the contribution to profit of each enterprise. But, let's look at some enterprises that may be considered "alternative".

When we speck of alternatives to tobacco, many minds turn to vegetables. After all, gross receipts from vegetables in the state have more than doubled during the past ten years. But this doesn't give any indication of profit from any of these crops. Onions and tomatoes show relatively high gross per acre income - but there is no indication of profit.

Given that vegetables have no type of built-in risk reduction mechanism, most growers who venture into this area start out small. The learning curve for vegetable production is long - and the marketing mechanism has a lot of bends and turns. While tomato production may appear lucrative from the previous graph, keep in mind these are only figures. Actual experiences and problems are not shown.

We are not advocating one try any specific alternative. Before you try anything different, think about what you enjoy doing.

BUT ONE ALTERNATIVE ON THE HORIZON - that may become a reality, is direct marketing - or contracting.

Several leaf dealers and tobacco manufacturers have indicated they will offer contracts to Georgia tobacco growers in 2001. This is totally different from our sales mechanism of over fifty years. Some growers are expressing doubts. Some view it as these companies gaining more control over the individual grower. Some have no comment.

We don't offer advice on whether or not to go this route. Our only suggestion is to study carefully any proposed contract. Are there provisions that mandate some practices of tobacco production? If so, are they mutually beneficial? How does the profit potential compare to the present market structure? What are the long term implications of contracting?

This practice is a part of the overall direction of the food-fiber industry. To illustrate how it may be coming to pass, let's look at some excerpts from the October , 1966 issue of the Kiplinger Agricultural Newsletter. While these comments apply to food, the same logic is now appearing in the tobacco industry. Some of them are:

"The fight for the consumer's stomach is heating up - a slugfest among restaurants, super markets, and other providers. Convenience is behind it - and people have money to buy this convenience. Many are reorganizing stores - trying new marketing techniques".

The next statement can apply to tobacco growers: "This means new demands on processors. Retailers want more control over quality, taste, packaging, delivery frequency. Processors requirements of producers will follow suit. They will increasingly demand commodities grown to specifications."

"This will bring challenges to ag producers. Will involve a struggle to find solutions to problems. But it will provide opportunities to carve out a niche - deliver what's wanted".

An individual tobacco grower has nowhere near the bargaining power of current tobacco buyers. The current quota and price support system has helped even the scales. Now the big concern of most of us is will contracting reverse this balance of bargaining power?
 

We oft hear the statement that "the alternative to tobacco - is tobacco". Few enterprises generate revenue like tobacco. And we still have a lot of infrastructure in place to grow the crop - and a high quality crop. We contend that tobacco will continue to be grown, although maybe in a different structured business.

Tobacco growers have faced quota loss, tobacco baling and retrofitting curing barns -- three major changes in three years. Each has either reduced farm income or has increased capital and operating costs.

It is unfortunate that the problems facing tobacco farmers are compounded by the state of the entire farm economy - both in Georgia and the U.S. A study of the two sectors reminds us of the book "A Tale of Two Cities". The overall U.S. economy has been expanding the past few years while the farm economy has had its' problems. (We would note however, that there is some concern that the U.S. economy is slowing its' growth)

Congressman Larry Combest (R-Texas) recently commented prior to a forum detailing work of the Committee on 21^st Century Production Agriculture that:

"In addition to persistent low commodity prices, energy prices have skyrocketed, which, in turn, have caused fertilizer and other input costs to jump dramatically. These factors, on top of normal production risks inherent to farming, are making it more and more difficult for farmers to see how they can continue. Cash flows are tighter than ever before, which causes ripples not just in the world of ag credit, but also with input suppliers and throughout the fabric of rural America".

This committee reported: "The persistence of very low commodity prices has rendered existing farm policy instruments inadequate to address the level of distress experienced over the past few years". As a result Congress has had to rely on emergency measures to provide additional support"

Further, the Committee wrote: "Dairy, sugar, peanuts and tobacco are commodities that have evolved into specific and unique agricultural programs". It listed a set of policy options to be reviewed, and for tobacco these were:

* The Committee emphasized that modifications to the current tobacco program recognize the importance of regional impacts to the existing program. The options to the existing program that the Commission feels should be examined includes the following or some combination thereof:

* Increasing transferability of quota across county lines and/or state lines;

* A buyout program designed to phase out the quota program;

* A marketing loan for tobacco with a view to increased export competitiveness.

Final comments of this report provides room for optimism for farmers. It was pointed out that:

Public support for U.S. agriculture has been sustained, in large part, because of the recognition that production agriculture is an inherently volatile industry. The demand for agricultural production is highly inelastic - which means when the price for farm commodities drop, the quantity of these commodities does not greatly increase (The human stomach has a limited capacity). 

But as farm prices drop, producers, who are faced with relatively fixed land and equipment, may not be able to reduce output. Thus, small changes in the supply of farm commodities and/or the demand for these products leads to large swings in agricultural commodities - and hence, swings in farm income. 

In effect, A surplus is worthless and a shortage is priceless.

Total government payments (all types) to Georgia farmers in 1999 were an estimated $400 million. Payments to all U.S. farmers in 2000 were $28 billion. These payments helped growers pay their bills. To better illustrate: Records from the Minnesota Farm Business Management Association in 1999 that assisted a group of corn - hog - soybean farmers keep records showed these growers averaged $8,000 profit for the year. Included in their receipts were $30,000 total government payments. Without these payments they would have each experienced a $22,000 loss.
 

...Is that the farm sector of Georgia and the U.S. has cash flow problems. A continued increase in farm efficiency has enabled farmers to increase production in the face of tighter per unit profit margins. The U.S. is well fed and nations away from our borders have not (or cannot) buy our surplus. The prices of many basic farm commodities are less than production costs. Farmers that go out of business cannot be readily restarted. Congress recognizes this, and has provided financial help. This assistance may not pay all the bills, but it is "sort of like a band aid" to keep things going until the farm economic climate improves.

Financial "crises" in farming seem to occur with regularity. A bit of government assistance and reduced output somewhere else in the world has, in the past, help stem the tide. We don't know how long this adjustment will require, given today's emphasis on the global economy. The problem facing tobacco growers is from two directions - First the overall farm financial problem - and second the gradual erosion of the tobacco program - a program that has been a steadying force for many years.

Prepared by: Bill Givan & J. Michael Moore. Comments made at "A Georgia Tobacco-Health Issue Dialogue", Tifton, Georgia, February 7, 2001.

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