Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, February 22, 1994 TAG: 9402220039
SECTION: BUSINESS PAGE: A-9 EDITION: METRO
SOURCE: MICHAEL STOWE staff writer
DATELINE: LENGTH: Medium
Operating costs at tobacco warehouses have increased drastically - insurance costs alone have risen 78 percent in five years, the operators argue, yet the state code, which restricts their charges to 3 percent of the selling price, hasn't changed.
James Cozart, owner of four of the warehouses, said state officials don't realize how the law is crippling the warehouse industry.
"If the people in the Agriculture Department really knew what was going on, I think they would be ashamed of themselves," he said.
Warehouse operators have defied the state law since October, when they obtained federal warehouse licenses. Unlike state licenses, these allow operators to charge a flat storage fee based on the weight of tobacco, rather than a commission based on the selling price.
The warehouses - in Scott, Washington and Lee counties - have filed suit in federal court saying the federal law preempts the state code. They are seeking an order preventing the Virginia Board of Agriculture from enforcing it.
State officials contend in court briefs that the commission restrictions aren't excessive. They say the burley warehouses shouldn't have been granted permits under the federal Warehouse Act, because their primary purpose is selling, not storing tobacco.
A hearing is scheduled in Roanoke's U.S. District Court today.
The state law says burley warehouses can charge growers 3 percent of the sales price of the tobacco, plus 25 cents per stack. A stack can equal as much as seven bales; each bale averages 70 to 80 pounds.
Under the federal statute, the warehouses set their own prices. They charged a flat rate of $7 to $7.20 for each 100 pounds of tobacco during auctions earlier this year.
"But we're still the cheapest around," Cozart said, adding that unregulated warehouses in neighboring states charge commissions as high as 7 percent or $12 per 100 pounds of tobacco. The increase in fees cut farmers' profits about $372,000 this year, lawyers for the state said in a motion filed with the court.
"This entire case involves a question of additional revenues for warehouse operators at the expense of tobacco producers," the document said.
The Virginia Farm Bureau Federation has been joined by the North Carolina Farm Bureau and the American Farm Bureau in its opposition to the increase in warehouse fees.
If the burley warehouses are allowed to continue ignoring the state law, the case could have implications for the entire tobacco industry, said Phillip Anderson, the Roanoke attorney for the farm bureaus.
Only Virginia and North Carolina regulate the amount of commission that burley warehouses can charge, but every state regulates the profits of flue-cured warehouses.
Flue-cured tobacco is cured in heated barns and is the predominant type harvested in Virginia. Burley tobacco, which is grown in far Southwest Virginia, is air-dried.
There are 210 flue-cured tobacco warehouses in the South, and if they are allowed to set their own prices, the net loss to farmers could exceed $22 million a year, according to a court document.
by CNB