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Canada\'s Tobacco War

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U.S. growers wondering about a world with no buyout can look north of the border for a possible answer

By David Williams

“There will be suicides.”
Hearing that phrase in a political argument is usually a good sign of rhetoric run amok. But in the fertile soil of southern Ontario, where tobacco has been grown, cultivated, cured and sold for centuries, the phrase takes on a darker notion.
They are words of desperation, reflective of a group of people with nothing much to gain, little else to hope for and a quiet concern that lends a human face to the politically tinged future of Canadian tobacco farmers.
Above all, the phrase is a chilling one to those who know the quiet secret of Canadian tobacco—there have been suicides among the farmers, as far back as 25 years ago, when the growers were first pinched by a Canadian government bent on eradicating smoking from within its borders.
In the mid-1980s, when the federal and provincial governments began their constriction of tobacco through exorbitant taxation and strong anti-smoking sentiment, some farm families began to see a crop that was being legislated out of existence. Faced with mounting taxation of their product, shrinking crop sizes and few alternatives, a few hard-working Canadian agriculturalists found their redemption at the end of a rope—one they rigged themselves.

Health Canada is the federal health bureaucracy that is tasked with maintaining Canada’s national health system. The organization is engaged in a decades-long battle to make Canada one of the largest smoke-free countries in the world, spurned on by an aging population of smokers who are developing health problems and creating a larger demand for the country’s nationalized health services.
The primary weapons in the campaign have been the powers of taxation and of quota restriction, as well as social change. The Canadian government has effectively used both weapons to choke tobacco to death.
In 1999, growers harvested over 140 million pounds of leaf and the government received just over $4 billion in tax revenues from tobacco. The crop has shrunk dramatically through quota restriction until just seven years later, in 2006, Canadian growers put approximately 35 million pounds through to harvest.
Retail numbers are just as bleak. After dropping from 52.2 billion sticks in 1999 to 40.1 billion in 2004, cigarette sales have dropped off 6 percent per year for the last three years and are expected to take another 6 percent dip in 2008.
At the same time, the taxes collected on tobacco more than doubled – to nearly $9 billion.
The damage has been done across the board. Canadian tobacco sales overall, which topped out at around 155 million pounds in 1997, have dropped to approximately 70 million pounds in 2005. Canada’s tobacco sales figures for 2005 are lower than either its domestic or export totals were back in 1991. Domestic sales are down a third since then, and import sales are down by half.
This season, tobacco companies fixed the target crop at just 33 million pounds, down 22 million pounds from last season. The announcement was made at the recent 50th anniversary meeting of the Ontario Flue-Cured Tobacco Growers’ Marketing Board. Chairperson Fred Neukamm was acknowledged in the London, Ontario Free Press that his industry was “in death throes.”
Currently, a pack of 25 cigarettes in Canada sells for approximately $9.25, largely because of federal and provincial taxes designed to discourage smoking. In addition, anti-smoking campaigns in Canada have been so energetic and absorbing that smokers are fast becoming social pariahs.
The country has passed a law that forbids smoking in all public places. Laws are being considered that would prohibit smoking in cars with children, or in a home in which a child lives. Those bills are given a good chance of passing the Canadian Parliament. Advertising by anti-smoking groups has framed smokers as being out-of-touch addicts who must be forced to quit for their own good, ostracized from public restaurants, bars and sporting events.
The International Research Development Centre, a Canadian government-backed organization that “helps developing countries use science and technology to find practical, long-term solutions to the social, economic and environmental problems they face,” published a book in 1996 by Rob Cunningham called Smoke and Mirrors: The Canadian Tobacco War that essentially outlines the Canadian government’s role in tobacco control measures and in support of tobacco farmers.
Cunningham, an anti-smoking advocate who is now a policy analyst with the Canadian Cancer Society, asserts in the book that Canadian government programs have already assisted tobacco farmers with price supports while tobacco was popular, and with a variety of programs geared at helping farmers make farming more profitable when it was not.
The anti-smoking tactics have been severe—and to their credit, effective. The average percentage of Canadian citizens who smoke is down from 45 percent to nearly 22 percent.

The rise of the value of cigarettes in Canada—caused by high taxation and shrinking supply—has created a black market for cigarettes so strong and persistent that it has affected the crime rate and increased smuggling from the United States. At nearly $10 a pack for taxed smokes, there is a steady stream of customers for the illegal cigarettes. Convenience stores in Canada are regularly burglarized and robbed of cigarette stock.
The native tribes of Canada are allegedly using their federally protected lands along the U.S. border to smuggle tobacco into Canada and produce cigarettes on the tribal lands, mostly in the Montreal and St. Lawrence areas. Free of governmental restriction, the natives are making huge profits off a product that Ottawa cannot control or tax.
Brian Edwards of Tobacco Farmers in Crisis, a lobbying group for farmers whose intent is to lobby the government and the negotiators to an equitable exit for growers from growing tobacco, said that natives are smuggling leaf, paper and filters across the U.S. border and manufacturing illegal cigarettes on their land, selling them on the black market for a little as $7 to $10 a carton. He wants to see more governmental monitoring of the smuggled elements of cigarette making.
“They use the treaties that have been made with both levels of government to say they can do what they want on their land,” said Edwards. “There is no testing or monitoring (of the product). There is no telling where they get their leaf, or what is in it.”
Ontario has 60 percent of the tobacco consumers in Canada and grows the majority of the leaf in the country. But the same province is home to native tribes who are using illegal tobacco as a funding source, much as Native Americans have used gaming to provide a stable income for their tribes.
“Three things go into a cigarette: tobacco, paper and a filter,” Edwards said. “If the government can’t monitor those three things coming into the country after September 11, I do not know why.”
Canadian government officials are being pressured to step up efforts to curb the supply of illegal tobacco coming into Canada.
“That is about $7 billion of potential tax money that the government is losing,” said Edwards. “They get very interested in the issue once they realize that.”
Organized crime is present in the situation, as well. With huge profits to be made, things have gotten violent in efforts to protect earnings.

Canada’s cigarettes had been exclusively made in Canada and sold to Canadians. But with that market shrinking, growers are finding it increasingly difficult to sell a crop at a price sufficient to pay their bills.
Some farmers are selling their crop out the backs of their barns to the black market—a practice that carries a stiff penalty in the loss of a grower’s quota. But with black market buyers offering nearly $3 a pound, it becomes a great temptation.
“These buyers are so brazen they ride up and down the roads,” said Edwards. “Some of them even have business cards. But they are offering a price way above market price.”
Canadian leaf has a nearly nonexistent export market, where Brazilian and Zimbabwean leaf can be grown faster and cheaper. Prospects of improving the Canadian export market are very bleak.
Adding to the problems of Canadian farmers is “the Pack”—the term given to the growing amount of surplus Canadian leaf from previous growing seasons. Estimates are that there has been enough leaf in the Pack to put on the market and not have growers produce any leaf for an entire season. Edwards, however, estimated the current size of the Pack at just seven million pounds of leaf.
Current production quotas are shrinking and have been for years. Those farmers have had to cut back on production by more than 50 percent since 2002. The last quota had just 35 million pounds of leaf to split among the country’s 1,000 allotment holders.
This season, even as some farmers are setting tobacco, the government has not set a quota for the 2007 crop. Growers are simply making educated guesses on how much to put into the field—a pricey, risky gamble.

Many anti-smoking factions see a simple answer to the troubles of Canadian tobacco farmers—grow a different crop. Fruit and vegetable farming have become growing factors in Canadian agriculture, but Edwards points out that transitioning can make things more difficult for farmers already growing non-tobacco crops.
“We can grow a number of things,” he said. “But the fruit and vegetable marketplace is a fragile thing. You don’t want to harm it.”
Edwards points out that growing a varied number of fruit and vegetable crops requires a lot of land. Most current Canadian farmers have 700-1000 acres in, while tobacco farmers average 50 to 100 acres. The only effective way to grow fruits and vegetables with a profit would be in partnership with an existing grower.
Edwards said growers are looking at the possibility of taking advantage of the current green wave in agriculture, growing plants for conversion to ethanol or electricity. While promising, it does little to help farmers in the short term.

Many growers see the writing on the wall and are hoping for a negotiated way out. Australian and American governments, among others, have provided buyout programs to encourage farmers to retire or switch to other crops.
The federal and provincial governments are in negotiation with the Ontario Flue-Cured Tobacco Farmers Marketing Association to work out a buyout, and a solution was hoped for by the end of June. But negotiations have been slow. Farmers have waited several years for an agreement to be hammered out.
Government positions have held that a buyout could be construed by other non-tobacco growers as a sweetheart deal for tobacco farmers, drawing the ire of those who see the tobacco farmer as having grown rich through years of high-profit crops sold to cigarette makers.
The farmers have offered two buyout programs, which the government quickly dismissed as too expensive. Edwards said the two governments—the provincial government and the federal government—are looking at a buyout program and are struggling with how to fund it and what level of funding will be provided.
With no buyout on the horizon, and having hopes dashed of an agreement in the near future, there was very little for growers to celebrate.
In the meantime, Canadian growers have come out of the greenhouses and have planted most of the smallest crop in Canadian history.
“The U.S. buyout shrunk the crop size from a billion pounds to about 45 million pounds,” said Edwards. “But the Canadian government is not comfortable with using a plan like the U.S. buyout.”
He went on to say that the government is requiring more than a change from tobacco crops—they require a complete exit from tobacco farming. That is fine with the few growers left, who see the writing on the wall. But a buyout requires revenue sources that the government has not been willing to identify.
And farmers are squeezed in the middle.
Neukamm said in a recent statement to the Canadian press, “We, as tobacco farmers, are in dire shape—the worst shape in the 50 years of our (the organization’s) history. An exit plan is the only answer for us. We’re trapped.”