Question from a smoke-filled room:
What does Dorothy Helms, the wife of the U.S. senator, have in common with Duke University, the North Carolina National Bank, the Roman Catholic diocese of Raleigh, Christ Unlimited of Apex, the Goodhope Baptist Church and the Southall Swim Club?
The answer is that they have a tobacco habit, of sorts.
They, along with thousands of other nonfarmers and institutions in North Carolina, have a vital financial stake in the federal tobacco price support program, the most controversial chunk of U.S. farm policy.
By inheritance, purchase or gift, they hold allotments -- exclusive permits, in effect, granted in the 1930s to growers then -- that allow them to grow tobacco and receive federal price supports. Or, as is increasingly the case in North Carolina, they rent their federally bestowed allotments to farmers who then grow the tobacco that is the main component of cigarettes.
The allotment by most definitions, is a subsidy. Using U.S. Department of Agriculture production and price averages, one may calculate that farmers in the flue-cured tobacco belt of the Southeast last year paid allotment owners $279 million for the privilege of growing tobacco on their allotments.
The $279 million figured in the price of raw tobacco, the price of cigarettes and the cost of Uncle Sam's support program, which was set up in the 1930s to bolster farmers' incomes and regulate supply. The rental fees add to the farmers' production costs, which in turn push up the federal price support, which in turn pushes up market prices and which, most industry experts agree, is forcing the federal government deeper into hock as buyers turn to cheaper imported tobacco.
Again this year, as Congress considers a new farm bill and the Reagan administration presses its war against subsidies, tobacco is controversial -- so much so that Mrs. Helms' husband, Senate Agriculture Committee Chairman Jesse A. Helms, is handing out information kits to callers who are confused about the federal subsidy to tobacco.
In his speeches and in his kit, Helms assures there is no federal tobacco subsidy and that of all the farm-support programs, tobacco comes closer to paying its own way and produces more tax revenue than any other major commodity.
That, however, is only part of the story.
Even though tobacco will not be a part of the 1981 farm bill (thanks to the power of past southern legislators, it has its own authorizing legislation), it is once more in the spotlight, and there are signs that the program may be in more trouble than its most zealous supporters realize.
The flap over the links between smoking and health continues, but there are new elements in the debate this year. Government stocks of tobacco are growing, with added costs to taxpayers. Cheaper imports are flooding into the country. Farmers, particularly in North Carolina, are openly questioning the system that adds to their costs and gives allotment holders a windfall. Burley tobacco, the milder type grown principally in Kentucky, is not experiencing problems of oversupply.
Despite their avowed animosity toward farm subsidy and their promotion of "free market" agriculture, Reagan and Agriculture Secretary John R. Block have carefully avoided singling out tobacco for reform. Block's view is that with the farm bill and other policy issues, the administration is dealing with all that it can handle for now.
But within the industry, there are growing signs that without some prompt and major changes tobacco is headed for hard times -- increasing resistance on Capitol Hill to the support system and unacceptable new costs to the government.
Recent editorials and articles in The Flue Cured Tobacco Farmer, a growers' publication in North Carolina, suggest that many of the state's quarter-million leaf producers are in near-revolt against the allotment leasing procedures that force up their costs.
"The benefits of the support program appear to be migrating largely into the bank accounts of the non-producing quota [allotment] owners, with you, the actual producer, profiting at approximately the level you could be expected to without any program at all," editor Chris Bickers wrote last month.
Various studies by industry officials and agriculture academicians concur. In a January speech to tobacco workers, USDA economist Robert H. Miller warned of major troubles ahead for the industry, attributing a large part of the problem to leasing costs.
Joseph A. Kinney, a tobacco expert at the National Governors Association, echoes these views: "Tobacco is a vital agricultural commodity in the southeastern United States. The original goal of the program was to keep the family on the farm and to keep supply in line with demand. People who represent growers at all levels of government should be concerned that the program is consistent with original goals and, if it is not, then we should reevaluate it."
Although it has avoided a sticky confrontation with tobacco-state legislators, the Reagan administration is on record against the allotment system. In in its farm bill, the administration proposes ending peanut allotments, which are almost identical to tobacco allotments. At least 70 percent of peanut-allotment holders rent growing rights to farmers, which, of course, pushes up production costs.
Helms and other peanut-state legislators are not happy with that proposal. They are even less enamored of the idea of tampering with tobacco allotments. The most popular approach they talk about is further regulation of cheaper flue-cured imports, which increasingly to into American cigarettes. Fifteen years ago, American cigarettes contained about 11 percent foreign leaf; today it's about 30 percent.
Just before he left office, President Carter, at the urging of North Carolina Gov. James B. Hunt Jr., directed the International Trade Commission to investigate the import situation to determine if the U.S. support program is in danger. Some high-level USDA officials warned against such a probe, saying that import limits might provoke retaliation against other U.S. farm products, but the ITC investigation has gone ahead.
On the other side, largely because of its higher price, American flue-cured tobacco's share of world markets is plummeting. Fifteen years ago, U.S. leaf had 60 percent of the world market; today it has 28 percent.
One result of these dramatic changes is that more and more U.S.-grown flue-cured tobacco goes into the stockpile operated for the government's Commodity Credit Corp. by a grower-owned Flue-Cured Tobacco Stabilization Cooperative based in Raleigh. CCC money, borrowed from the Treasury, provides the support loans received by farmers.
If farmers don't get at least a penny per pound more than the support price at market, their tobacco goes into the Stabilization on loan at the support price. The tobacco is sold later by Stabilization and profits, if any after the loan is repaid, go to the farmer.
Since 1975, the Stabilization's stocks have grown as poorer grades of U.S. tobacco fail to sell. Inventories are now around 600 million pounds, which represent principal, interest and insurance costs to the government of some $981 million -- a potentially staggering loss if the tobacco can't be sold. Until recent years, the CCC has done relatively well in getting back its money, a point that Helms and others note repeatedly. Overall losses since the program began in the 1930s have been about $277 million, far less than any other major commodity supported by the government.
Those figures, however, do not reflect another government/taxpayer loss -- or subsidy, if you will -- to the tobacco interests. According to CCC comptroller Lester W. LeCompte, at least $591 million or as much as $845 million (no one knows for sure) has been lost to the Treasury over the life of the program.
Those amounts are the difference between the rate at which CCC has borrowed money from the United States and the rate at which it has made tobacco loans to farmers, money that will not be recovered. Under a new policy announced last month by Block, that subsidy will end. Farmers now will have to repay their loans at the true cost of CCC money.
"The new policy applies to all commodities, not just tobacco," LeCompte said. "The loan rates will be subject to readjustment on April 1 and Oct. 1, but we have no idea in this office what the change will mean in the way the tobacco program operates."
A growing thought among growers is that more costly government loans will mean higher prices and, in all likelihood, manufacturers turning to more imports and Stabilization stocks mounting. Because more than 80 percent of the flue-cured allotments used by farmers pay rentals that average about $1,000 per acre nationally, the permits are certain to get increasing attention.
The allotments -- more than 500,000 of them -- are regulated by poundage quotas established in the 1960s to put a rein on production. USDA says the average lease fee paid by farmers is 50 cents a pound.
Computer prints at USDA indicate that Mrs. Helms, for example, has a relatively small quota of 2,599 pounds. At average rates, she could lease her allotment to a farmer for $1,299.50 per year. How does she use it? The senator's aides said they were unaware that Mrs. Helms had an allotment, and the Helmses, on vacation, have been out of reach.