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To: Baldwin who wrote (18)	3/28/2000 6:48:00 AM
From: Baldwin	Respond to of 19

Leaf growers dealing direct / Swell of contracts puts pressure on auction system Monday, March 27, 2000 BY JOHN REID BLACKWELL Media General News Service DANVILLE -- Virginia tobacco growers have signed contracts to sell at least 30 percent of this year?s crop directly to tobacco companies, a change that deals another serious blow to the tobacco auction system born more than a century ago in Danville. More than 200 tobacco farmers in Virginia signed contracts to sell part of their crop to Star Scientific Inc., a company that has developed a way to cure tobacco with lowered amounts of cancer-causing agents called nitrosamines. The Petersburg-based company will buy about 14.5 million pounds of Virginia tobacco this year, about 30 percent of the crop, said Jim Jennings, a farmer and Star?s vice-president of grower relations. One of the growers who contracted with the company is Keith Atkinson of the Java community in Pittsylvania County. Like other farmers hurt by three years of cuts in the annual tobacco quota, Atkinson sees contract growing as one way to bring some stability to his business after years of uncertainty. ?In the past, you could have a wide swing in prices,? at tobacco markets, Atkinson said. ?This is more exact.? Last year, Star had contracts with 64 growers. This year, the number jumped to 259, Jennings said. That isn?t good news for warehousemen like Danville?s Harry Lea. With contracting, farmers bypass the traditional system of bringing their tobacco to warehouses to be auctioned off. Like farmers, warehouses have been hurt by three consecutive years of tobacco quota cuts, which reduced the amount of leaf that growers can take to auction by nearly 50 percent. With the rapid growth in direct contracting this year, warehouses are forced to consolidate or face extinction, Lea said. ?It?s hard to absorb a 33 percent volume loss without consolidation,? Lea said. ?It?s putting tremendous pressure on the warehouses in Virginia.? Lionel Edwards, general manager of the Flue-Cured Tobacco Stabilization Corporation in Raleigh, said the growth in contracting ?is hitting us in a very inconvenient year.? ?We have the smallest quota on record,? he said. Edwards said he also worries that farmers who contract will sell their best tobacco directly to the companies and bring the lower quality leaf to market. Other companies appear to be moving toward contracts. Winston Salem?s RJ Reynolds Tobacco Co. has contracts with flue-cured tobacco growers this year, but company officials declined to release how much tobacco they?ll buy that way. Philip Morris also has announced plans for a pilot program to buy tobacco directly from burley tobacco growers in Tennessee and Kentucky. ?We?re trying it on a limited scope to see how growers like it,? said Kim Farlow, a Philip Morris spokeswoman. The company has no plans right now to contract with flue-cured tobacco growers in Virginia and North Carolina, she said. The rush to produce low-nitrosamine tobacco is the force behind contracting now, said Blake Brown, an agricultural economist at N.C. State University. Farmers have several incentives to sign contracts with Star. The company supplies growers with barns that are specially designed to cure tobacco leaf in a way that reduces nitrosamines. With a Star contract, farmers are rewarded with a premium price of $2 per pound for their tobacco, about 25 cents more, on average, than a farmer would get for tobacco at auction, Jennings said. However, because it costs more to operate the special curing barns, farmers actually get about a 20-cent premium per pound, Jennings said. timesdispatch.com