Quota abuse is suspected

February 23, 2010

TOBACCO BUYOUT PROGRAM: MP Joe Preston has heard the 'coffee shop rumours' and now wants to hear if they are true
By HANK DANISZEWSKI, THE LONDON FREE PRESS


A tobacco-belt MP said if there are abuses of the tobacco quota buyout program, he wants to hear about them.
Conservative MP Joe Preston (Elgin-Middlesex-London) was reacting to concerns by the Physicians for Smoke-Free Canada that some tobacco producers continue to grow the crop after the federal government paid $286 million to buy out their tobacco quota last year.

All but 18 growers took the buyout, averaging about $275,000, and became ineligible to get one of the new tobacco licences.
But 118 growers were licensed last summer under the new system and an estimated 22-million-pound crop was produced, the same as in 2008.
Preston said he has heard "coffee shop rumours" that some farmers are getting around the system by renting land and becoming an employee of a relative or friend who holds a tobacco licence.

But Preston calls the situation "hypothetical" and says he hasn't heard of any specific cases.

"If someone wants to come up into my office and give me a specific case, I will look into it for them," he said.

But Preston noted that policing of the new tobacco licensing operation is a provincial responsibility through the Ontario Flue-Cured Tobacco Growers Marketing Board.
That was reinforced in a statement to The Free Press by federal Agriculture Minister Gerry Ritz.

"If any recipients are in breach of their commitment to remain out of the industry, they should be reported to the tobacco board and the grower will have to repay, with interest, the assistance," Ritz said.

Despite its name, the board no longer markets tobacco and its members are now appointees working for the Ontario Ministry of Agriculture, Food and Rural Affairs.
Last May, an Agriculture Canada deputy minister sent a letter to the tobacco board advising that farmers who took the buyout could work for a licence holder if the relationship was at "arm's length" and any payments for services were at "fair market value."

Preston said the buyout program succeeded in eliminating quota, putting tobacco on a new basis geared to world prices.

Haldimand-Norfolk MPP Toby Barrett said he doesn't have a concern if licence holders hire former tobacco quota holders.

"They get the buyout and pay off the banks but they still need some income. You still have all these farm buildings and tractors sitting there and you can't live on nothing," he said.

Barrett blamed "anti-tobacco activists" for "destroying" the Ontario industry, reducing the number of producers to 118 from more than 3,000.
He said the demise of legal tobacco farms has helped fuel the rapid rise of black market tobacco "They do not have an understanding of basic economics or organized crime and go after the low-hanging fruit -- the farmer."

How the loophole works

• In 2009, with the decline of the tobacco industry, the quota system was eliminated and about 1,100 quota holders received a compensation payment averaging $275,000.
• The quotas were replaced by a licensing system, with growers selling directly to tobacco companies. Any farmer who took a buyout could not get a licence.
• All but 18 quota holders took the buyout but there were 118 licensed growers last summer and the crop size was unchanged.
• Farmers who took a buyout are allowed to be an employee of a tobacco licence holder and rent land for “fair market value.”