Cooperatives, Tobacco

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COOPERATIVES, TOBACCO

COOPERATIVES, TOBACCO. The Grangers formed associations for the marketing of tobacco after the Civil War, but the American Society of Equity was the first organized group to make a major effort to control tobacco prices early in the twentieth century. This effort, characterized by "night riders" who tried to force individual growers to market their tobacco exclusively through pools to boost its price, generated more violence than cooperation and failed in its objective.

In 1921, after a drastic fall in the price of tobacco made many growers desperate, Aaron Sapiro, a California lawyer, began to promote strong centralized tobacco-marketing associations in several of the major producing areas. To maintain tight control over the tobacco crop, these organizations employed ironclad five-year membership contracts that bound individual producers to market their crops exclusively through the association. The Supreme Court upheld the legality of these contracts in its landmark decision on the Bingham Cooperative Marketing Act of 1922 (Liberty Warehouse Company v. Burley Tobacco Growers Cooperative Marketing Association, 276 U.S. 71 [1928]). The Supreme Court victory gave commodity marketing associations the appearance of success for a few years, but in 1925 internal weaknesses and the difficulties inherent in attempting to maintain monopoly control led to their collapse.

After World War II a number of tobacco cooperatives successfully performed marketing functions for their members; many maintained auction warehouses or performed marketing or related services. The principal function of the most important tobacco associations, however, was to facilitate the administration of the federal government's mandatory price support program for tobacco. From 1969 to 1970, for example, twenty-eight tobacco-marketing associations served more than 300,000 members and had a sales volume of about $337 million.

Since Congress passed the No-Net-Cost Tobacco Program Act in 1982, the federal tobacco program has guaranteed minimum prices on tobacco to American tobacco growers in exchange for strict limits on production. The act requires that the system operate at no cost to federal taxpayers. (The program cost the federal government approximately$700 million between its inception in the 1930s and 1982.)

Based on the 1982 law, the Commodity Credit Corporation (CCC), a federal funding agency, extends loans to tobacco cooperatives in years when supply exceeds demand. This allows the cooperatives to purchase tobacco passed over at auction at a fixed minimum price, preventing sharp drops in the market price of tobacco. The cooperatives then process and store the tobacco until they can sell it at a profit, which they use to repay CCC loans plus interest.