Operations & Storage Facilities

Scope of Operations

On October 22, 2004 President Bush signed into law the American Jobs Creation Act of 2004, which included the Fair and Equitable Tobacco Reform, commonly referred to as the "Tobacco Buyout Bill." Under this legislation, payments are to be made to tobacco quota holders and producers and the U.S. Department of Agriculture will end all aspects of the federal tobacco marketing quota and price support loan programs, effective with the 2005 and subsequent crops of tobacco. The program for flue-cured tobacco continued through June 30, 2005; the program for all other kinds of tobacco continued through September 30, 2005.

With the passage of the Tobacco Buyout Bill, quota owners received a $7 per pound payment based on their basic quota at the 2002 marketing year level. Producers of quota tobacco received a $3 per pound payment based on their share of risk in producing the 2002, 2003 or 2004 crops. The payments will be made in 10 equal installments beginning in 2005 and ending in 2014. The funds required to pay for the buyout will be obtained through assessments on manufacturers and importers of all tobacco products sold in the United States.

Our Past

Burley Stabilization Corporation (BSC) was the farmers' representative on the auction markets in Tennessee, western North Carolina and southwest Virginia from 1953 until the close of the 2004/2005 burley auction marketing season on March 16, 2005. Through loans to BSC from the U.S. Department of Agriculture's Commodity Credit Corporation (CCC) price support program was made available to burley farmers. Through contracts with auction warehouses, processing plants and storage facilities, BSC processed the tobacco into a salable product that served as collateral for the CCC loans.

BSC administered the price support program for burley tobacco under contractual agreement with CCC. Under the price support program, BSC purchased from eligible farmers any tobacco grown within their allotted quota that did not bring the minimum price established for that grade at the auction market. The farmer was paid for the tobacco at the time of sale from the funds borrowed from CCC. Burley Stabilization Corporation then pledged the tobacco so purchased as collateral to CCC for the money borrowed.

The money borrowed from CCC to make loans to tobacco farmers was not a gift. It was a loan that had to be paid back in full plus interest and any other charges that have accrued during the life of the loan. Prior to 1982, if proceeds from the sale of loan tobacco did not cover the amount of money Stabilization borrowed from CCC, the unpaid balance was written off as a federal program cost. After a half-century, losses incurred on tobacco loans (all types) totaled less than one-tenth of one percent of the losses for all USDA commodity price support programs.

In 1982, the U.S. Congress passed legislation that mandated that the Price Support Program for tobacco be operated at no-net-cost to the Federal government. To achieve this mandate, an assessment on each pound of tobacco sold at auction or contract has been levied on farmers and gains, if any, on BSC's sale of the 1982 and subsequent crops of price support tobacco were resaved to an account to offset past or future losses. Beginning in 1986, the assessment was also paid by purchasers.

Our Future

History will record 2005 as one of the greatest, if not the greatest single year of change, in the history of the modern tobacco industry. It seems almost yesterday that our industry was thrust into a system without price support, without mandatory grading, without mandatory testing, without market information and without government guarantees. Who could fathom the abrupt dismantling of the tobacco program almost overnight that operated for 2/3 of a century? Tobacco farmers are facing the challenges of a new era—a free market system they have not experienced since the late 1930's—an era with no tobacco program and no government regulations. As a result of the buy-out many of our burley farmers opted to exit production which created a demand and need from those farmers who remain. Burley production is also moving into non-traditional areas. A grant of $264,800 has been awarded for scientists at N.C. State University to research the potential to grow and cure burley in the Piedmont and eastern North Carolina. Burley is also being produced in southern Virginia and Pennsylvania.

As we witness the beginning of a free market era for our industry, our farmers face new risk, a new competitive position and the beginning of opportunities for production expansion. Although the regulatory barriers are gone, we now have the logistical and economic barriers that have become the challenges of today. The transition challenges since October 22, 2004 have been enormous for our entire industry.

Everyone knew the buy-out had to happen if the U.S. was going to remain a stable supplier of tobacco and be competitive the global market. The new challenges we face today bring with it new opportunities to be a major player in the global market. Our competitors are closely observing our actions. If the U.S. expands leaf exports, our competitors will feel the impact of losing market share. Indicators are favorable for expansion of U.S. leaf in the export market.

The end result of transition and change is unknown, and will continue to be so for another year or two; however, in the very competitive global market price will continue to be the leading factor that sells U.S. leaf. However, there are other factors we must consider—the high quality of U.S. leaf, the global shortage of high quality burley leaf, a stable production environment and more favorable currency exchange rates. A lot of work is continuing to provide our farmers with labor-saving production techniques and new and improved varieties to enhance the quality of U.S. tobacco. Production efficiencies and cost cutting measures are a must for any chance of profit. Farmers are encouraged to continue following good cultural practices from the greenhouse to the market and market tobacco separated by 3 to 4 stalk positions and tobacco free of foreign materials and excess moisture. Integrity of the product is a must for customer satisfaction as we seek production stability and the ability to successfully compete in the global market with quality U.S. burley tobacco. Exports offer the only growth opportunity for U.S. tobacco producers.

“Grown in the U.S.A. It matters!”

As the U.S. tobacco industry redefines itself, Burley Stabilization and other tobacco cooperatives are redefining their role in order to continue to serve our farmers and provide additional marketing options.

Tobacco Cooperatives have played a major role in the industry since the late 1930’s, and with vision and foresight can continue to serve the tobacco farmers and have a major role in the future. In this new environment, the need for organizations to serve farmers is greater than it ever has been. Although the buyout signals the end of an era, it gives rise to new challenges and opportunities.

At Burley Stabilization Corporation, we feel strongly that farmers have access to alternative marketing opportunities. BSC is working with some existing burley warehouse operators to ensure that the farmers in our traditional operating areas (western NC, southwest VA and TN) have access to open and fair markets for their crop. During the 2005 burley auction season, open auction sales were held in Ashville, NC; Abingdon, VA; Greenville, TN; Carthage, TN and Fayetteville, TN. This initiative provided a marketing alternative for those farmers not producing under a private marketing contract and for farmers with a tobacco crop that was grown but not purchased under a contract. The long term goal is to allow burley auction markets in the region to survive the post-buyout transition, and develop a solid business model that will allow them to continue to serve a vital role in ensuring the competitiveness of the U.S. burley tobacco industry in the global market. In this transition period, Burley Stabilization will not be able to offer a price support structure or receive tobacco under consignment. We hope to continue this service at some future date.

Other areas of service:

• To work with the domestic manufacturers and leaf merchants for the orderly distribution of existing inventories so as not to disrupt the green market.
• To work with the industry in promoting U.S. Burley tobacco in the global market, including efforts to establish new customers, regain former customers, and expand existing markets.
• To serve as an active voice for burley farmers on issues of interest at the state, national levels.
• Proactively serve burley farmer interests in future production and marketing issues.
• Work with agricultural leaders to assist burley farmers’ diversification efforts or grants to improve burley production infrastructure.
• Develop value added tobacco products containing burley tobacco grown in the United States.

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 product--our first export--our first industry. The first crop was planted in Jamestown, VA in 1612.

Our industry has a very colorful past that not only contributed to the prosperity of the southeast but also to the development and stability of our nation. Our industry has experienced many changes since 1612 as it adjusted to the conditions and social attitudes of the period. The tobacco family is facing a transition period with more questions than answers--the right course is far from clear. Change is never easy. How we face our changing environment will dictate our future.