Replacing Tobacco

The Evolution of Agriculture in Durham County

A Brief History of Durham Tobacco

1865 – Civil War ends, John R. Green’s small store inundated with orders for Brightleaf Tobacco

1874 – W.T. Blackwell partners with Green, founds Bull Durham Tobacco Company

1881 – W. Duke Sons and Co. established

1885 – James B. Duke acquires license for and purchases first automated cigarette rolling machine

1890 – Duke consolidates four major competitors into the American Tobacco Company

1907 – ATC indicted under Sherman Antitrust Act

1911 – Broken up into ATC, R.J. Reynolds, Liggett & Myers, and P. Lorillard

The Quota System

• FDR establishes Federal Tobacco Quota System in 1938 as part of New Deal

• Included poundage quotas and acreage allotments• Control on supply; maintained stable price• Became important financial assets; could be sold and

traded like stocks and bonds• When farmers grew old and retired, would lease

quotas to neighbors in return for tending other crops as well

• Ended by the Fair and Equitable Tobacco Reform Act of 2004

The Tobacco Master Settlement Agreement

• 1965 – Congress mandates Surgeon General Dr. Luther Leonidas Terry’s warning be printed on cigarette packages

• Explosion of anti-tobacco litigation follows• 1998 – Facing lawsuits from attorney generals of 46

states, Phillip Morris USA, R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., and P. Lorillard Tobacco Co. settle out of court

• Manufacturers agree to pay $206 billion in damages over 25 years

• North Carolina to receive 38% of the funds ($78 billion)

The TMSA in North Carolina

• Three institutions established to distribute funds• Golden LEAF Foundation allocated 50% to improve

state’s economic and social conditions• Tobacco Trust Fund received 25%, charged with

helping tobacco-related businesses and individuals, including farmers, quota holders, and individuals who lost tobacco-related jobs

• Health and Wellness Trust Fund gets 25% to improve health and wellness of North Carolinians with emphasis on reducing youth tobacco use

2000 2001 2002 2003-2004 All YearsTotal ($) % Total ($) % Total ($) % Total ($) % Total ($) %

Grant Funding Total 5 073 945 10 509 836 17 141 030 73 893 546 106 618 356

100

Agriculture 2 604 450 51 3 364 250 32 4 458 129 26 2 994 500 4 13 421 329 13

Tobacco diversification 2 384 450 47 3 364 250 32 4 458 129 26 2 994 500 4 13 201 329 12

Supporting tobacco farmers to grow tobacco

200 000 4 0 0 0 0 0 0 200 000 0

Supporting tobacco farmers—unrestricted

0 0 0 0 0 0 0 0 0 0

Equally Beneficial to tobacco and non-tobacco farmers

20 000 0 0 0 0 0 0 0 20 000 0

Inclusive Economic Development

2 469 495 49 7 145 586 68 12 682 901 74 70 899 046 96 93 197 027 87

Economic development 1 177 235 23 3 060 801 29 4 203 576 25 4 968 000 7 13 409 612 13

Workforce Preparedness 1 292 260 25 4 084 785 39 3 366 559 20 1 956 262 3 10 699 866 10

Biotech consortium 0 0 0 0 0 0 60 000 000 81 60 000 000 56

Economic stimulus grant 0 0 0 0 5 099 766 30 3 453 130 5 8 552 896 8

Site certification 0 0 0 0 13 000 0 521 654 1 534 654 1

Percent Changes in Golden LEAF Foundation (GLF) Grants by Category and Year: North Carolina, 2000-2004

The Death Blow

• Federal Tobacco Quota Program ended in 2004, primarily as response to international competition

• Program kept US tobacco prices stable while international prices dropped

• Widening price gap between foreign and domestic leaf caused decline in exports, shift to overseas production, and loss of domestic market share to foreign producers

• Declining demand for US tobacco forced government to reduce quotas

• Farmers, needing sufficient acreage make their investments in machinery, equipment, and buildings effective, bid more to rent quotas

• Rising labor costs• Abolishment of quota system means no reason to grow

tobacco on expensive land around Durham

1950 1992 2007Tobacco 135 227 14 414 1 844 Cotton 21 441 349 457Grain 3 141 5 481 5 147Vegetable 1 348 1 105 2 470Fruit and Nut 732 992 1 370Dairy 5 312 900 381Poultry 5 391 3 596 4 096Livestock (Non-Dairy/Poultry) 6 262 15 177 24 759Nursery and Greenhouse N/A 2 028 2 317

Total Commercial Farms 193 679 51 854 52 913

1950 1992 2007Tobacco 2 723 413 1 473 365 549 636Cotton 576 088 58 123 211 129Grain 101 979 335 788 697 792Vegetable 64 681 63 022 333 939Fruit and Nut 31 909 37 483 79 288Dairy 224 012 322 543 161 373Poultry 247 165 2 326 483 4 087 004Livestock (Non-Dairy/Poultry) 306 989 1 783 452 3 458 974 Nursery and Greenhouse N/A 301 394 573 529

Total 4 759 165 7 074 294 10 313 628

Number of Farms by Type in North Carolina

Market Value of North Carolina Agricultural Products Sold ($1000, all values converted to 2007 dollars)

Declining Demand

• US tobacco production by year (million lbs)1950: 1,7701992: 1,7002007: 778

• Consumers more aware of health effects• Quality of tobacco worldwide has homogenized;

international buyers no longer willing to pay American prices (kept artificially high by taxation and quota program)

Mechanization

• Labor expenditures:• In 1950, average hired tobacco farm laborer paid

$888 annually (about $8,000 adjusted for inflation), makes up 53% of total farm expenditures

• In 2007, average laborer earns $8,051, but hired labor only 28% of total expenditures

• Buying up of quotas encouraged smallholders to sell• Tobacco now produced on fewer, larger farms to the

east• Fewer farms and owners with the capital to invest in

best machines means 1/10 the farms can produce ½ the tobacco

Farming in Durham

• Land around Durham expensive and not particularly suited to farming

• Soil mainly heavy red clay

• Region fluctuates between drought and heavy rainfall

• Tobacco one of the few plants that prospers

Why Bother?

• Having farmland in the watersheds helps preserve clean water for city residents

• Farmers help subsidize local taxpayer-funded services, as they pay far more in taxes than they receive in benefits

• Cultural, environmental, and aesthetic advantages

Replacing Tobacco

• Despite huge drop in tobacco production, total market value of agricultural products in NC has risen

• NC unable to compete with low cost of cash crop production in other states and overseas

• Farmers turned instead to food production

The Rise of Food

• Demand for and price of food have steadily risen worldwide for past decade

• Huge demand increases for organic and locally produced food

• Cattle ranching, hog farming, and animal aquaculture so low 1950 census lumped them into single category; today they are 31% of NC agricultural production

• Poultry 40%• Grain and fruit production double, vegetable

production quintupled

Durham County’s Response

• Production has shifted away from cash crops and towards food, but high land prices make it difficult to compete

• Durham farmers look for goods that gain value from proximity to population centers

Greenhouse, Nursery, and Floriculture

• Includes cut flowers, cut cultivated greens, potted flowering and foliage plants, and bedding and garden plants

• Due to the difficulty of shipping these products, it is cheaper to grow them near the population centers where they will be sold

• Low acreage requirements• 72% of market value of crop production in Durham

County

The Aging Issue

• Many farmers’ children have no interest in agriculture

• Farms that would traditionally stay in the family are being sold instead

• Though there are young people interested in farming, high land costs remain a barrier to entering the industry

• Older landowners are pushed to sell to developers• Solution: subsidy or loan to help young people

purchase farms of their own

Biotechnology: the Future of Agriculture?

• North Carolina has become the center of America’s biotechnology industry

• Food modified to increase crop yield, reduce vulnerability to environmental stresses, increase nutritional value, improve taste, texture, or appearance, reduce dependence on fertilizers and pesticides, etc.

• Biofuels from corn and algae• Flu vaccines from tobacco• Insulin from potatoes, tomatoes, tobacco, lettuce