Wednesday, September 19, 2007

In Today's Farming News

Tobacco farming is booming in Illinois. Didn't know that there were any Illinois farmers who grew tobacco? Neither did I. According to yesterday's Wall Street Journal, significant amounts of tobacco hadn't been grown in Illinois since the end of World War I. Beginning in 1938 with the passage of the second Agricultural Adjustment Act, it didn't make economic sense for Illinois farmers to grow tobacco because only farmers from certain states (Illinois not included) were eligible for the tobacco subsidies that the AAA set up. That changed in 2004, when Congress enacted a law disbanding the tobacco subsidy and quota system.
The system was junked in 2004 through a $9.6 billion buyout of tobacco growers and farmers who owned quotas, with tobacco companies funding the payments. Thousands of tobacco farmers, many reaching retirement age, collected their checks and stopped growing the crop. Some farmers planted strawberries or tried to raise catfish in their farm ponds.

In 2005, tobacco acreage dropped 27% from the year earlier, to 297,000 acres. With the government no longer supporting prices, those dropped too, to $1.64 per pound, from $1.98, according to the U.S. Agriculture Department. Cigarette makers worried that they wouldn't have enough supply.

But predictions from some quarters that tobacco farming was headed for extinction inthe U.S.. proved incorrect. Today, farmers can grow as much tobaco as they want, wherever they want. Economies of scale have kicked in.

("U.S. Farmers Rediscover the Allure of Tobacco" by Lauren Etter, p. A1)

The acreage under cultivation is rebounding, according to the article, although it is not back to its 2004 levels, and larger farms are now beginning to be seen. In addition, farms are cropping up in states, like Illinois, that had not seen tobacco cultivation in decades. Tobacco requires a different sort of farming than Illinois farmers are used to -- less mechanized, over a longer season, requiring more intense supervision from the farmer -- but the profits per acre far exceed those for traditional Illinois crops like corn and soybeans: $1800 per acre for tobacco versus $250 per corn. It seems to me that everybody is happy: the farmers are taking home more money (including those who were tobacco farmers before 2004 who had to rent their tobacco quotas), the tobacco companies are getting reliable sources of tobacco, and the taxpayers aren't being hit for subsidies. Well, everyone except the anti-smoking zealots.


mamacita said...

Sometimes it seems to me that farmers are especially susceptible to jumping on a bandwagon -- like the new Illinois tobacco farmers -- only to get burned in a few years when prices drop, or the soil gives out, or political winds change, or what have you. But I hope it holds up for them. Actually, no, I hope worldwide demand for tobacco goes down, but barring that, your relatives may as well be the ones making money off it.

Ben W. Brumfield said...

This sort of thing has been long predicted. The quota system was distributed on a per-county basis back in the 1930s. As a result, the distribution of tobacco was frozen then, and immune to the changes wrought by the mechanization of the 1980's. (Not quite immune -- within counties, production tended to concentrate in flatter areas with larger fields, but this was still an intra-county change).

Economists funded by NC agriculture departments made a number of studies in the 1990's on the effects of dismantling the quota system. They didn't venture outside of the quota area (MD->FL), but were able to use quota rental prices to predict the effects of removing the supply-cartel system regulated by the stabilization cooperatives.

In all cases, they predicted that production would almost disappear in the Old Belt of VA/NC, and move southwards and eastwards into the flatter fields of the coastal plains, where crops may be larger and can utilize machinery more effectively.

It makes sense that states that had not produced tobacco before 1930 would start now, as grain prices stay low and the Old Belt and Middle Belt of the eastern states become less desirable farmland due to rising real-estate costs and small, hilly fields. This mirrors the spread of flue-cured tobacco cultivation to Zimbabwe, Brazil, and Malaysia over the last two decades.

Incidentally, both you and Mamacita should read Breaking the Land, by Pete Daniel. It does an amazing job of comparative agricultural history, looking at the effects of mechanization, patterns of land tenure, and government regulation on the Southern crops of rice, tobacco, and cotton. It ends with a cri de coeur about the unintended consequences (the great migration) of New Deal policies in the cotton areas of the Deep South and on rice farmers of Louisiana and SE Texas.