AGRICULTURE

Trouble on tobacco road

PETER GIFFEN July 30 1984
AGRICULTURE

Trouble on tobacco road

PETER GIFFEN July 30 1984

Trouble on tobacco road

AGRICULTURE

Valerie and Michael Hornyak have worked together on their 150-acre tobacco farm near Courtland, Ont., 70 km southeast of London, since their marriage in 1960. Their occupation provided them with a lucrative living from the $5-billion Canadian tobacco industry until they suffered a series of setbacks in which their crop was damaged by blue mould in 1979, torrential rains in 1980 and a heavy frost in 1982. The Hornyaks managed to survive the natural disasters but now they face a potentially far more serious threat: the changing fortunes of the marketplace. Along with an estimated 500 of Canada’s more than 2,800 tobacco growers, they may eventually have to declare bankruptcy, as victims of increased production costs, high interest rates and declining consumer demand for tobacco.

Canadian cigarette sales fell dramatically during the past two yearsfive per cent in 1983 alone, when Canadians smoked three billion fewer cigarettes than in 1982. Ninety per cent of Canada’s tobacco is grown in Ontario, and, because of falling demand, the Canadian Tobacco Manufacturers Council, which represents the four major Canadian cigarette manufacturers—Imperial Tobacco Ltd., a division of Imasco, and Benson & Hedges (Canada), both of Montreal, and Toronto-based Rothmans of Pall Mall Canada Limited and RJR-Macdonald Inc.—told Ontario growers that the companies will buy only 170 million lb. of tobacco this year, a 20-per-cent decrease from 1983 totals. As a result, the Ontario Flue-Cured Tobacco Growers’ Marketing Board, which represents the growers, will sharply reduce the quotas it assigns to individual farmers. For their part, the Hornyaks will only be able to sell 30 per cent of the tobacco that their land can produce. At the same time, high capital costs discourage them from switching to other crops.

In another blow for the tobacco growers, the tobacco council introduced a two-tier pricing system early this month that would place a ceiling of $1.69 for a pound of tobacco and a floor price of $1.40. The lower price, which companies will pay farmers for 46 per cent of this year’s 170 million lb., is designed to make Canada more competitive on export markets. According to the council’s director of public affairs, Jacques LaRivière, the lower price is necessary because the world tobacco market is currently saturated. With devalued currencies and cheap labor, Third World countries have undercut Canada’s to-

bacco prices by as much as 50 per cent. But growers contend that this year’s six-cent increase in the maximum price is barely enough to enable the farmers to break even. Said George Demayere, chairman of the tobacco growers’ marketing board: “If quotas are reduced, then prices should go up.”

Of even more concern to the industry is the growing consumer demand for filter and low-tar cigarettes, a trend that means manufacturers use less tobacco in each cigarette. As well, militant antismoking groups have brought increasing pressure on the tobacco industry. The Toronto-based NonSmokers’ Rights Association has waged an intense lobbying and legal assault against the $100-million annual advertising campaign that tobacco manufacturers finance in Canada each year. Recently, the association filed a complaint with the Ontario ministry of consumer and commercial relations against Rothmans. Association lawyers argued that the company’s advertisements should be amended or withdrawn because they fail to include a warning that tobacco is “highly addictive.”

For their part, tobacco companies refuse to comment on the addictiveness of tobacco and blame high federal and provincial taxes for the drop in demand and the subsequent squeeze on growers. They point to the fact that in 1983 the

federal government collected $1.27 billion in taxes, and the provinces took in $1.4 billion on Canada’s tobacco-product sales of $5 billion. Commented Robert Hawkes, president of Rothmans: “Can Canadians allow a viable industry to be taxed out of existence?”

Antismoking activists counter that the cigarette companies are not in danger of going out of business and that the sales decline is largely a result of a growing health consciousness. Said association executive director Garfield Mahood: “It is the declining social acceptability, not the taxation, that has resulted in the decline of cigarette sales.”

Still, after protests from the companies the federal government announced earlier this month that a 17-per-cent tax increase on cigarettes, which had been due in September, will now be only five per cent. And last May, Ontario Agriculture Minister Dennis Timbrell announced that the province intends to provide a $1.5-million subsidy in order to lower the cost of an estimated 80 million lb. of tobacco that will be shipped to foreign markets this year.

The industry’s troubles are not confined to Canada. Tobacco growers in the United States also face an uncertain future. Declining overseas markets and weaker domestic demand forced an 11.5per-cent drop in U.S. flue-cured tobacco quotas this year. Exports were damaged by the strong U.S. dollar, which has priced U.S. tobacco too high to compete effectively against foreign rivals. Last year, for the first time, the amount of tobacco imports to the United States exceeded exports. The imbalance led some segments of the tobacco industry and several congressmen and senators, including North Carolina Senator Jesse Helms, to urge President Reagan to restrict tobacco imports. Any restriction would do further damage to the Canadian tobacco industry, because 21 per cent of Canada’s exports goes to the United States.

Currently, some growers are pressing for a national marketing board which would have a stronger voice in negotiating with the tobacco council and in lobbying governments. And both government and the private sector are studying alternative crops for tobacco farms. Still, although a few farms have switched to peanut crops, which thrive in the same sandy soil as tobacco, most growers remain skeptical, because the changeover would be too costly. Warned the tobacco growers’ Demayere: “There are no short-term solutions. I have been around for 25 years and I have never seen so many people in trouble.” And a growing number of farmers are beginning to fear that the trouble may be permanent. -PETER GIFFEN