Senator Dole acknowledged that the economic collapse of North Carolina was creating a situation of distress for thousands of families (Dole, 2004a). In those years, the agricultural crisis together with the closings of textile and furniture manufacturing resolved in foreclosures, plant closures and layoffs for thousands of workers. Throughout the state, families struggled to even put a meal on their tables.
In 2002, the U.S. Conference of Mayors reported that families with children in Charleston (the center of the tobacco-growing region) made up 95 percent of the people requesting food assistance in the state (U.
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S. Conference of Mayors. 2002:7). Something had to be done to solve this crisis, said Senator Dole, and in her vision the solution was a tobacco buyout. A tobacco buyout would help farmers to be more competitive in the world market; it would relieve farmers from their debts; “and restore hope to countless North Carolina farmers who have labored all of their lives under the sun to feed America.” In October 2004, Congress legislated the end of tobacco quotas in exchange for a one-time buyout. The Fair and Equitable Tobacco Reform Act of 2004 ended the tobacco quota program and established the Tobacco Transition Payment Program (TTPP) (Halich and Snell, 2007).
Basically, with the TTPP the government could buy the farmers’ quota and in exchange for quotas it provided annual transitional payments for ten years to eligible tobacco quota holders and producers (Brown, 2005). Payments lasted nine years, beginning in 2005 and continuing through 2014. In 2004, Senator Dole saluted the buyout as a “monumental achievement” (2004b): “rather than having to quit the farm, this buyout gives our farmers the ability to compete in the free market.” “By buying out these quota holders, the U.S.
Government gives families … the ability to pay off the bank for loans made against an ever shrinking collateral,” said Senator Dole (Dole, 2004b). Although seductive, Senator Dole’s idea was rather optimistic. In fact, while the buyout represented a temporary relief for farmers, it was not a solution for their crisis. In was just the same old, same old story: the final step in a decade-long federal policy meant to “liberalize” the tobacco industry, terminate the quota and price support provisions, do away with small farmers and transition to the big, industrial farm (Brown, 2005). It is no surprise that the buyout payments were funded by product manufacturers and importers such as Philip Morris, who “invested” in the buyout to “help” American farmers transition from a subsidized economy to the market economy.
For the past decades, the tobacco industry in the U.S. has been dominated by the Big Four Tobacco companies: Philip Morris, RJ Reynolds, Brown & Williamson, and Lorillard. A merger between RJ Reynolds and Brown & Williamson in summer 2004 created Reynolds American Inc., thus turning the Big Four into the new Big Three (Halich and Snell, 2007).
In recent years, the lower raw material costs and cheaper labor of the harvesting and curing stages of tobacco in Brazil, Taiwan, or the Philippines have transformed these countries into large centers for tobacco growing and exportation (Halich and Snell, 2007). Mostly outsourcing tobacco leaves and labor for low prices abroad, these farms have gradually decreased their investments in the United States. The declining demand for tobacco in the U.S. has been detrimental to tobacco producers, and while the livelihood of U.S.
tobacco farmers decreased, the government had to compensate for the low profits of tobacco farmers with increased quotas (Halich and Snell, 2007). For almost seventy years, U.S.
farmers had used quotas as collaterals for loans, thus obtaining new resources to invest in their harvest the following year. However, the system was “inefficient” for the tobacco corporate giants, who did not find low-enough prices to buy in the United States (Brown, 2005; Rice, 2004). In fact, it was not convenient for the Big Three; it was not convenient for the federal government, who had to give assistance to farmers; and it was most of all not convenient for the farmers, who had to invest in quotas, inputs for production and labor despite the plummeting market-value for tobacco and decreasing price support. In this context, the government introduced the TTPP in order to reduce the burden of quota payments to farmers (Rice, 2004). Under the TTPP, farmers growing tobacco have to produce specifically for the supply chains of major processors, wholesalers, and retailers, rather than selling commodity crops locally to the highest bidder. In this typical “contract farming” arrangement, the grower was not faced with the quota production constraints, but had to follow the exact customer specifications of their buyer.
In contract farming, the grower provides the land, the buildings, the equipment, and the labor. The company provides the “management direction” (i.e., makes all the decisions) and the market outlet. This often results into a new requirement for the grower to respect the various conditions of the buyer, in terms of management practices, chemical and fertilizer applications, disease control, curing management, and market preparation (Barlett, 1989; Durrenberger, 1998; Qualman, 2001). Under the contract system, there is no longer a market where the government can purchase tobacco rejected by the companies (Halich and Snell, 2007).
The contract system does not guarantee a buyer nor even an established set of prices in the market, as prices will be relative to