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Judge orders burley co-op to pay members' proceeds

By TIM THORNBERRY
Kentucky Correspondent

LEXINGTON, Ky. — Members of the Burley Tobacco Growers Cooperative Assoc. may be paid a significant distribution from proceeds of tobacco transferred to the association by the Commodity Credit Corp. (CCC) following the 2004 termination of the federal price support program according to rulings last week by a Fayette County circuit judge.

The decision stems from a 2003 lawsuit filed by eight growers against the association, as the lawsuit was amended in 2005, claiming that approximately 63 million pounds of tobacco that was given to the Co-op by Congress via the tobacco buyout legislation in 2005 belongs to producers and not the Co-op.

The original intent of the suit was to require distribution of money from the Co-op’s 1990-91 redemption of the 1982 tobacco crop.
Judge Pamela Goodwine ordered the Co-op to pay members proceeds from the January 2006 sale of the tobacco in question saying the Co-op “has a contractual obligation to distribute the proceeds from the sale” based in her interpretation of the federal buy-out statute.

The association had interpreted the 2004 statute, as explained by USDA and CCC, to authorize the Coop to use the proceeds from the tobacco sales for continued marketing and other cooperative activities on behalf of all members.

Nearly 60 million pounds of the leaf, worth about $118 million has been sold. The judge also ordered the Co-op to sell the remaining portion as soon as feasible.

The money will go to members in the five states the Co-op serves. Besides Kentucky, those states are Ohio, Indiana, Missouri and West Virginia.

Some of gross proceeds from the sale will not be returned to growers including approximately $10 million the Co-op shelled out to make up for held Phase II dollars after a North Carolina court temporarily halted those payments soon after the buyout was passed. The Kentucky General Assembly stepped in to provide those payments to farmers along with the Co-op’s share.

That ruling was overturned in mid 2005. Supplemental Phase II dollars have or will be paid in the other five states.

There will also be credit for taxes paid and other payments.

The attorneys for the plaintiffs also announced at a court hearing on March 21, that they will seek payment of attorney fees out of any distribution to association members. Another $4.3 million had been spent in infrastructure needs, a cost share program to help producers buy equipment and make repairs for tobacco production.
It is unclear at this point what amount the Co-op will be credited.
Buyout money was distributed according to quota portions under the old federal regulation system but Judge Goodwine’s ruling said trying to distribute the funds according to the amount of tobacco a farmer grew would face “insurmountable problems” so the money will be distributed equally to those who were members between 2002 and 2004.

The judge’s decision allows both sides to propose a suitable distribution plan.

In a separate ruling, the same judge ruled that the $25 million in question pertaining to the original litigation concerning the redemption of the 1982 crop would not go directly to the members but remain to be used by the Co-op for the continued benefit of all its members.

Ray Tucker of Shelby County, who serves on the Co-op’s Board of Directors and is a producer as well, said the decision, if it stands, could mean the end to the cost share program.

“We’re trying to be as fair to our past growers as we can, but we also feel the need to lookout, especially our young growers like myself. I feel like there is a lot of room for expansion in tobacco,” said Tucker.

“Two years ago I raised 13 acres and this year I will raise 55 acres. The cost share program, which matches our money dollar for dollar up to $5,000, made it possible for us to buy a High-Boy and work on a barn last year. A lot of growers anticipated another cost share program this year but now, we probably won’t be able to do that.

The Co-op has been through a lot of changes over the last six months but my main objective is to work for the farmers.”
One of those changes was the retirement of long time Co-op director Danny McKinney. He was asked, by the Board to step down at the end of last year.

The Co-op was originally created in 1921 by growers to help combat low crop prices. When the system of quota regulations was devised in the late 1930s, the Co-op was asked to help administer that program which governed tobacco until 2004 when buyout legislation passed.

In that time frame, the organization would buy tobacco not purchased by tobacco companies and would hold it in pool stocks to be sold later.

Farmers received a portion of money up front and the remainder when their crop was sold.

This farm news was published in the March 28, 2007 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.

3/28/2007