Burley Stabilization Corporation • 835 Bill Jones Industrial Dr. • Springfield, TN 37172 • T: 615.212.0508
Archaeological discoveries have confirmed the smoking of tobacco by prehistoric Indians as early as 800 A.D. Tobacco was introduced to Spain in 1519, and in 1573 Sir John Hawkins introduced England to tobacco from Florida. By the late 1580s pipes smoking became popular in England with Sir Walter Raleigh being a celebrated pipe smoker. Smoking at that time, as today, was not well received by all segments of English society, and many anti-tobacco articles were published. The best known was A Counterblaste to Tobacco issued by King James in 1604 for the purposes of shaming the English into giving up what was perceived as a vile habit, the taking of tobacco. Tobacco is more deeply rooted in our history than any other commodity. No American product has had a more dramatic history. Tobacco was our first agricultural productour first exportour first industry. Americas commercial involvement with tobacco began when a young Englishman named John Rolfe acquired seed from the Spanish colonies of Trinidad and Caracas. The tobacco early settlers found growing near the settlement named for Englands James I in 1607 was a strong leaf described by the colonists as poore and weake, and of a byting taste. In 1612, just two years after his arrival in Jamestown, VA, Rolfe planted the first crop. Although far superior in quality to the native leaf, the heavy, strong product would most closely resemble the coarsest, darkest type of chewing tobacco sold today.
Four times in the preceding quarter-century, Britain had tried to establish settlements in the New World. Jamestown, the fifth attempt, was close to failure when Rolfe began his experiment. Rolfe shipped 200 pounds of tobacco from his farm to England in 1613. The tobacco was well received, and London merchants began to demand more. At the same time, the settlers saw that exporting tobacco was perhaps the one way to ensure the survival of their colony. Rolfe returned from a 1616 promotional trip to England to find tobacco literally being grown in the streets.
It is interesting to note that governments tobacco tinkering can be traced back to the Colonial Era. Jamestowns deputy governor had to order that no man could raise tobacco unless he also grew two acres of corn to assure the colony of food. As overproduction of tobacco soon occurred in Jamestownall tobacco had to be inspected, only the top nine leaves could be harvested from each plant and no more than 1,000 plants could be raised by any one tobacco grower.
From Rolfes first shipment, the British saw the trade and tax revenue potential of Americas new crop. In 1660 they passed a series of acts which basically declared that all American tobacco must be shipped to British ports and customs duties paid to the King. Some historians see in these restraints on the commerce of tobacco the seeds of the American Revolution.
As more colonists reached the New World, cultivation of tobacco spread. At one time or another, every colony along the Atlantic seaboard grew the golden leaf. However, Virginia and Maryland remained the center of this agriculture. What is now Delaware was the first colony founded expressly to produce export tobacco. This project failed because of Indian hostility; however, planters soon crossed into the territories that were destined to become Tennessee and Kentucky. Others ventured into Ohio, Indiana and farther west, making permanent settlements where tobacco could be grown.
At the end of the Colonial period, the colonies of Virginia, Maryland and the Carolinas were exporting an average of 100 million pounds of leaf annually. Under British rule, most American-grown leaf was shipped to England for manufacture; however, once the colonies gained independence, small factories began to spring up. Most major factories were concentrated near the leaf markets of tobacco-producing districts. Principal centers were Richmond, Petersburg, Lynchburg, and Danville in Virginia, and New York City and Philadelphia.
Cigarettes were available in American cities since the mid-1800s; however, most of the 19th century tobacco users stuck to chewing, dipping, snuff, or smoking cigars or pipes. James B. Duke formed one of the early cigarette manufacturing companies, W. Duke and Sons Co., in 1881. After Congress reduced the cigarette tax from $1.75 to 50 cents per pound effective July 1, 1883, the Dukes immediately cut their cigarette prices in half. They offered the least expensive packs on the market.
The first American cigarettes were often blends of expensive Turkish leaf and less costly bright. The first product to gain any real popularity was the Virginia cigarettemade only of bright leaf. The skill needed to roll shredded tobacco into a compact cylinder prevented the cigarette trade from expanding as much as it might have. At that time, a well-trained cigarette maker could produce only four per minute. James Bonsack developed the first cigarette making machine that could produce up to 120,000 a day, equivalent to the output of 40 hand-rollers. Duke acquired the rights of the Bonsack machine, and in 1890 orchestrated the merger of the 5 leading cigarette firms. The new company, American Tobacco Co., controlled 90% of the nations cigarette manufacturing. Twenty years later the company had 80% of the entire tobacco industry under its control. The Supreme Court ruled in 1911 that the American Tobacco Company had violated the Sherman Anti-Trust Act and ordered the dissolution of the company. From this dissolution the Big Four emerged -R.J. Reynolds, Liggett and Myers, Lorillard and American.
The cigarette industry as we know it today emerged in 1913. The most popular brands sold for 15 cents per pack. A new blend was introduced with flue-cured, burley and some Turkish and sold for 10 cents per pack. By 1930, Reynolds, American, and Liggett and Myers controlled over 90% of the market. Lorillard was late in developing a standard brand and never captured more than 7% of the market.
Prices for tobacco in the 1890s ranged between 8 and 12 cents per pound for grades medium or better. By 1904, prices had dropped to 3 cents and lower. Growers discontent led to the formulation of organizations designed to increase grower bargaining power with a price goal of 8 cents a pound. In 1904, growers in the Dark District of Kentucky and Tennessee formed the Dark-District Planters Protective Association. Buyers, in an attempt to break the Association, offered growers 12 cents per pound if they would not honor their contracts. In 1906 the Night Riders were formed to keep the growers in line. From 1906-1909 this campaign to influence prices through threats extended throughout the burley area.
As a result, the Burley Tobacco Society was formed in 1907 and the Interstate Tobacco Growers Protective Association was organized in Virginia and North Carolina. The main objective, if price demands were not met, the Association planned to re-dry, store and hold the tobacco until the price was met. With the coming of World War I, the demand for tobacco increased. Prices peaked in 1919, averaging 31 cents per pound for all tobacco. This strong market situation resulted in a subsiding of interest in the cooperative effort and growers left the associations. However, by 1920, prices had dropped in Kentucky from 24 cents to 11 cents, and in North Carolina from 49 cents to 21 cents. Interest in the cooperative movement was renewed. In 1921, the Burley Tobacco Growers Cooperative Association was formed. This was followed in 1922 by the Tobacco Growers Association of North and South Carolina and Virginia (Tri-State).
The objective of the Tri-State Association was to obtain monopoly power and thus set the prices for their leaf. Under an ironclad contract the growers would hand over their tobacco to the cooperative, which would be graded, redried and stored. The crop would be held off the market until a favorable time for selling. The growers received an advance payment when they delivered their crop and a second payment when the tobacco was sold. Merchants, bankers and businessmen generally professed sympathy for the movement. Extension and students in the state agricultural colleges worked enthusiastically at securing pledges. However, at least 43% of annual production remained under the control of farmers who refused to join the movement. Clarence Poe, editor of Progressive Farmer, stated speculators and parasites who fatten on the present system (auction sales) are trying to mislead the farmers by all sorts of insinuations, falsehoods and twisted half truths.
Basically, the manufacturers supported the Co-op. James B. Duke wished to see cooperative marketing win out in tobacco so the farmers will not plant more than the world can smoke up. However, the warehouse interest, strongly backed by leaf dealers and the time merchants, pressed the growers to desert the cooperative. Also, the warehousemen could pay the grower immediately. By 1926, the Tri-State had failed.
Prior to production control programs in the late 1930s, tobacco farmers struggled to remain on the land. Most farmers needed yearlong credit and were in debt from January through December. Banks were reluctant to make short-term credit available to farmers, who instead had to turn to one of the standard institutions of the tobacco belt the time merchant.
The time merchants provided farmers with general supplies and fertilizer on credit, charging not only high rates of interest but also credit prices, which were considerably higher than prices for cash payment. The cost of short-term credit, which banks would not provide, was extremely high. In 1926, the time merchants were charging an interest rate of 25-percent per year. Fertilizer manufacturers charged an even higher rate. About 75-percent of the tenants cash gain had to be used to pay back cash advances from landlords and settle accounts with the time merchant.
Tobacco farmers were also handicapped by a weak marketing position. Their basic inability to adjust supply to demand created a chronic tendency to overproduce. Good prices always led to increased production the following year. When prices fell, however, there was not necessarily an equivalent cutback in production. Farmers responded to lower prices by slightly curtailing acreage or even increasing production in an effort to minimize total losses. The prices buyers paid for tobacco depended on how they graded it. These grades were secret and they varied from company to company, so that the farmer had no way of knowing whether he was receiving a fair price for his tobacco. In addition, the manufacturers maintained a three-year inventory. If in any year the crop was short, pushing prices up, they did not have to buy at the higher prices. They could afford to wait. The grower could not. Richard Russell, Governor of Georgia stated, the price paid for tobacco in his state in 1932 forced him to conclude that the manufacturers of tobacco have as complete a monopoly as this nation has ever seen.
Prices, which never fell below 20 cents per pound from 1920 to 1927, dropped to17.3 cents in 1928, 12 cents in 1930 and 8.4 cents in 1931. Growers responded to these low prices by voting for production controls and direct payments in 1933. The present tobacco program, as we know it today, was born out of this crisis situation.
Several Acts were passed in Congress in 1933 and 1934 to provide production controls and price protection. In 1936, the Supreme Court ruled these Acts unconstitutional. This led to the passage of the Agricultural Adjustment Act of 1938. This act, which became the basis of the present program, provided for a marketing quota and authorized payments for the difference between parity price (based on the 1919-1929 period) and market price. Marketing quotas in any given year required approval by two-thirds of the growers. Quotas were approved for 1938. The loan level was 75% of parity for flue-cured tobacco.
Growers rejected quotas in 1939 and produced the largest crop ever. Prices fell and production controls were voted back in the next year. Legislation was also passed to provide for a minimum price to be placed on each government standard grade. Farm leadership and USDA officials determined that growers should be responsible for the implementation and operation of the program through the establishment of grower cooperatives.
The co-op concept is to provide a mechanism through which loans can be made to its members, and through which tobacco that serves as collateral for the loan is received, processed, stored and sold. The basic philosophy then and today, is that growers would operate and administer their program, and further, through this plan their program could be operated on a self-sustaining basis at no cost to USDA-CCC. The overall effect of the program is that it provides the grower with a stabilized and orderly marketing system which eliminates drastic fluctuations in market price.
Price supports establish minimum prices farmers may receive for their tobacco. The average price support level is influenced by changes in the previous years market prices and farmers costs of production. Farmers deliver their tobacco to auction warehouses where government graders (financed by the farmers) place a grade on each sales lot of tobacco. This grade refers to a specific price support level. If tobacco companies do not bid one cent per pound above the government-established price support level, the tobacco was purchased by the cooperative. Price supports provide farmers with a stable market without drastic fluctuations in market price.
The cooperative pays the farmer using money borrowed from USDA. The tobacco represents collateral on the government-backed loan. The cooperatives have the tobacco processed and stored for future sale. Following the sale of the tobacco, the cooperative repays the loans in full plus accrued interest. The principal and interest on the loans are fully guaranteed by marketing assessments paid by U.S. tobacco farmers and purchasers.
Burley Stabilization Corporation was incorporated on July 16, 1953. The incorporation was to form a non-profit cooperative association, without capital stock, pursuant to the Agricultural Cooperatives Marketing Law of Tennessee and amendments thereto, to be operated for the mutual benefit of its members. The Association was formed for the purpose of handling the price support program for Burley Tobacco and providing support to Burley growers within the State of Tennessee. In 1958, at the request of USDA-CCC, the area of operations was extended to cover the Burley markets in western North Carolina. In 1971 the area of operations was extended to cover burley markets in southwest Virginia.
By the late 1940s burley production in the U.S. was increasing rapidly, making it difficult for burley producers in Tennessee to find an efficient means to handle excess production. The Federal Tobacco Program, put in place around 1940, provided a system whereby cooperatives could purchase excess production and store the tobacco until the market provided an outlet. By the early 1950s, the Flue-Cured Tobacco Cooperative in North Carolina and Burley Tobacco Growers Cooperative in Kentucky had been serving tobacco farmers in their respective regions for approximately ten years, but because of the geographic distance and difficulty of transport, there existed a great need for growers in Tennessee to organize their own cooperative.
In 1953 Tennessee growers organized a new cooperative called Burley Stabilization Corporation (BSC). The organization located its offices in Knoxville, TN and operated in twenty markets across the state. In 1958, BSC expanded its operations to represent burley producers in Western North Carolina. By 1971, BSC represented burley producers in Virginia, making it the third largest farmer-owned cooperative at that time.
BSC continued to play an important role in the administration of the Federal Tobacco Program for more than 50 years. The Federal Tobacco Program was quite successful for most of its existence, providing for stable prices by adjusting supplies each year. BSC would borrow money from the USDA, then process, store, and sell the tobacco, then repay the loans.
The Federal Tobacco Program was very successful when the U.S. dominated world tobacco production share, but it also resulted in higher prices each year, which allowed foreign producers to gain production share each year until the program was no longer effective. The solution was to eliminate the non-value added cost of leasing and get the production rights into the hands of the growers by doing away with the Federal Tobacco Program.
The Fair and Equitable Tobacco Reform Act of 2004 (P.L. 108-357), signed by President Bush on Oct. 22, 2004, ended the Federal Tobacco Program. However, BSC continues to provide an important service to growers and manufacturers by providing an additional market to growers and providing manufacturers access to uncommitted inventories of quality U.S. burley tobacco.
