Tobacco farmers troubled by taxes on their cash crop

RALEIGH — For more than a century, the Sharp family of eastern North Carolina has grown tobacco, nicknamed the "golden leaf" for reasons that went beyond the cured plant's rich color.

But last week, the federal tax on a pack of smokes more than doubled. Pender Sharp says cigarette makers had already cut back orders in anticipation, leaving him to wonder if Sharp Farms and thousands of fellow growers across the South will be forced to hire fewer seasonal workers or lay off full-time employees.

Driven in part by bans on public smoking and the relentless efforts of health advocates, cigarette sales in the U.S. were already expected to drop 4 percent this year. Industry analysts say the decline could be twice that after an increase in the federal excise tax from 39 cents to $1.01 per pack took effect Wednesday.

Growers say some tobacco buyers are cutting back orders by as much as 25 percent and, in some cases, trying to renegotiate existing contracts to buy less than originally agreed. Sharp says Philip Morris USA and Reynolds American cut orders for his crop by 5 percent after the tax increase passed in January.

"It also will be a 5 percent cut to all the vendors that I buy tires, fuel, repairs and equipment from. It has a huge ripple effect in the community," said Sharp, who raised 1.5 million pounds of tobacco on 500 acres last year. "There's nothing else we're doing that comes even close to yielding the profits that tobacco yields."

For generations, tobacco growers were a protected class, as lawmakers across the South defended the golden leaf as stridently as politicians from Michigan and New York do automakers and Wall Street. It remains a huge business: The tobacco crop in North Carolina alone, where farmers produce nearly half the value of the entire U.S. output, was worth $686 million last year.

But lawmakers don't look out for Big Tobacco as they once did. In 2004, Congress eliminated a tobacco quota and price support system that dated to the Depression. On Thursday, the U.S. House approved legislation that for the first time would give the government powers to regulate tobacco products. Last week, South Carolina's House OK'd an increase of 50 cents a pack, up from 7 cents. If enacted, the extra revenue would help pay for fund health insurance for low-income workers.

In Raleigh, where there were spittoons North Carolina General Assembly until the mid-1980s and a smoky haze in the halls until a few years ago, House members voted this week in favor of a limited ban on public smoking. They're also considering a once unthinkable $1 per pack increase in the state tobacco tax, which until 2005 was only a nickel. Other states have also approved or are considering tax increases.

In her first month in the U.S. Senate, North Carolina Democrat Kay Hagan railed against the federal tax increase, which will pay for an expansion of a children's health insurance program, saying it could cost the state 3,000 jobs and up to $36 million in revenue.

Then she voted for it anyway, citing her support for the children's health care, a decision tobacco growers like Sharp have trouble understanding.

"If we have programs and services that are necessary and good for all the people of North Carolina and all the people in this nation, then let all the people pay for it," Sharp said. "Don't target a few tobacco growers and consumers of tobacco products to pay for programs and services that benefit all of society."

It's a blow felt in the sandy soil fields of eastern North Carolina that are just OK for sweet potatoes, cotton, soybeans, but fantastic for tobacco. Production dropped by 27 percent to roughly 645 million pounds in 2005, the year after the quota system came to an end, but has slowly recovered in the past few years, boosted by exports and new marketing tactics.

In the face of efforts to curb cigarette sales, the nation's biggest tobacco makers are trying to convert smokers to alternatives such as moist snuff, chewing tobacco and snus - teabag-like pouches that users stick between their cheek and gum.

Growers are also looking to sell their crop overseas, and a group called the U.S. Tobacco Cooperative that buys tobacco from 3,500 growers in five Southeast states has a unit that exports American leaf to China.

But Tommy Bunn, the co-op's president, said competition from countries like Brazil and Malawi, where production costs are lower than in the U.S., limit farmers' ability to use exports as a solution to declining domestic cigarette sales.

"The export market is only so large. New customers are hard to reach and there's a lot of competition out there," Bunn said. "We are out there all the time trying our best to crack the doors on new markets."

Such concerns don't sway the health advocates who are winning their fight with Big Tobacco. Eric Lindblom, director for policy research at the Campaign for Tobacco-Free Kids, said the smokeless options the industry is counting on to maintain demand - and which will be taxed at one-eighth the new rate on cigarettes - only serve to keep people from stopping outright.

Stanley Smith, who grows about 50 acres of tobacco in Stokes County near the Virginia border, bristles at the sharp increase in the cigarette tax.

Still, along with the leaf he sells for export, he's experimenting with a purple sweet potato that's rich in antioxidants and sold in upscale groceries. For the past few years, he's been among former quota beneficiaries receiving annual payments to help them retire or ease into a new crop.

"The tobacco farmers in the United States are receiving money under the Tobacco Transition Payment Program, which tells us through that name that we need to transition from tobacco into something for the future," he said.

Vinnee Tong and Michael Felberbaum, both of the Associated Press, and The Post and Courier contributed to this report.