Wednesday, September 19, 2007

Smokey and the bandits

"For more than 60 years, subsidies were as integral to tobacco farming as rich soil and a damp climate. In 1938, Congress passed the Agricultural Adjustment Act, a New Deal-era law crafted to support the thousands of small farmers of all sorts who had been financially devastated by the Depression.

The law guaranteed tobacco farmers in many states a minimum price for their crops. It allotted quotas to farms that produced tobacco at the time the law was enacted, which dictated how many acres they could plant. Tobacco buyers were penalized for buying from growers without quotas. Growers who didn't own a quota had to buy or rent one from those who did. The system propped up prices and limited production to narrow geographic areas and to plots of land rarely larger than 10 acres.

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 in the U.S. proved incorrect. Today, farmers can grow as much tobacco as they want, wherever they want. Economies of scale have kicked in." (thanks D.)

The old US system was similar to the current Lebanese system which just almost as old. It was devised to support small farmers during the great depression. When the US dropped their subsidies, (after a mass buy out, something the Lebanese government will not do), small farmers got out of business and large farmers became richer and larger...with tobacco.

Tobacco farming in Lebanon makes money to the State monopoly. This fact is well known. I used to think that the threat to remove subsidies was only meant to penalize the Southerners. I can see now that it is probably not the only reason: the US experience shows that there is great potential in planting tobacco, as international prices rise, but that the money is into large scale, capital intensive farming. For this, the current (false) subsidies system has to be junked, and tobacco farming liberalized. Then the large landowners can invest into hundreds of hectares of land and employ the current tobacco farmers as cheap labor.

1 comment:

SLH said...

Welcome to corporate globalization. If you think the tabacco industry has problems wait till Lebanon joins the WTO. Then youll have problems. This will be a mere drop in the ocean compared to the SAP of the WTO/IMF. But whos paying attention right. We gotta war to start!