Contract Cuts Hurt Local Economy
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I originally wrote an article with this same title in March of 2016. Now, 2 years later, it seemed appropriate to follow up. Tobacco farmers have again been hit with even more significant cuts, with some growers being cut completely out of the tobacco business. What is worse, these cuts come at a time when greenhouses had already been sown and plans were already made for the 2018 tobacco season. I’ve updated the remainder of this article to reflect the impacts 2018 contract cuts are having on our farmers and will have on our local economy.
Tobacco is grown on contracts, agreements between a company and a grower, which specify how much tobacco that company will buy from that grower. Without a contract, a grower is taking a huge risk and may end up putting a lot of money into growing a crop that he won’t be able to sell, or one that may be sold at a break-even price at best. Last year, there around 2,500 acres of contacted tobacco grown in Lee County. Tobacco is a high-value crop, allowing farmers to pay the bills, send kids to college, and have some spending money in their pocket. Our other row crops are mostly grown to rest the land between tobacco years, and often require input cost which are not much lower than the crop value, meaning little return to the grower. For example, at current prices, the average value of soybeans is around 300 dollars per acre, and that is before considering production cost which may come to 275 dollars per acre or higher. Tobacco values are in the neighborhood of 5,000 dollars per acre before production cost are figured in. Production cost are high, around 3,500 dollars per acre, but a return of 1,500 dollars is certainly much more appealing that a return of 25 on every acre farmed.
So how much tobacco are we talking about? This year, I would estimate that about 1,000 acres worth of contracts have been cut. Factor in that full per acre value since production cost are mostly spent here in the county or region, and that means about 5 million dollars’ worth of tobacco. That’s 5 million dollars that will not be earned and spent in Lee County and the surrounding area this year. All of that is money that has a trickle-down effect, which will cut the bottom line of locally owned agricultural supply companies as well as other local businesses such as restaurants and convenience stores, and probably farther down than any of us can understand.
This is not the first time cuts have hit farmers in Lee County, but the cuts never come easy. This leaves many farms with few options for replacement. Prices of corn and soybeans remain low and are difficult to produce at profitable yields on many of our sandy soils. We are still searching for an alternative crop to replace tobacco acreage that has been lost. Industrial hemp has shown some hope as a cash crop, but currently too little is known about the crop to invest many acres into it. Vegetable crops and sweet potatoes remain an option for many growers, but those crops depend mostly on local demand in order to be profitable. While I’m still confident our farmers will recover, it is important to understand the significance of these contract cuts on our local economy. However, our farmers will continue to put their best into the crops they grow, and the quality of North Carolina agriculture will help them prevail.
Zack Taylor is the Agriculture Agent – Field Crops and Livestock for North Carolina Cooperative Extension in Lee County.