Date: Thu, 02 Apr 1998 12:35:06 -0500
From: Louis Proyect <lnp3-AT-columbia.edu>
Subject: M-I: Semi-feudalism in Brazil


April 2, 1998

In Brazil Tobacco Country, Conglomerates Rule

By DIANA JEAN SCHEMO

SANTA CRUZ DO SUL, Brazil -- When Blasio and Claire Lehman were married
here 22 years ago, farmers could build a future on tobacco. Four years
after their wedding, they bought a piece of land. A few harvests later,
they were able to build a simple wooden house.

In those days, tobacco companies bought their leaves on the free market,
and price was related to supply and demand.

But in an age of global competition, most of those smaller tobacco
companies have been swallowed by conglomerates. The remaining ones decide
prces among themselves, and punish growers heavily should they decide to
sell elsewhere.

For the 160,000 tobacco growers of Brazil, the leading exporter of tobacco,
that has meant disaster. Local officials estimate that 35 percent of the
tobacco growers here will end this harvest owing more money than they earned.

The Lehmans' son Ismail, who dreams of going to a university, has offered
to quit high school -- only temporarily, he says -- to save the family $35
a month in bus fare.

"All we're doing is falling," Mrs. Lehman said, "deeper and deeper each
year."

The tobacco companies call their approach an "integrated system of
production." The small farmers call it a new feudalism, and say they would
quit growing tobacco if they could switch to another crop.

"We think about it every day," said Mr. Lehman.

"But everything we think of needs a lot of money to start up," his wife
added.

Helio Friedrich, a city councilman in nearby Ven=E2ncio Aires from the
left-of-center Worker's Party, said: "We have a system in which a half
dozen companies are strangling the growers. Each year they come up with a
new way to squeeze the growers tighter."

The tobacco companies have legal advantages and tax incentives to help them
compete in the world economy. In Rio Grande do Sul, the heart of tobacco
country, state tax incentives to Souza Cruz, the biggest company, amounted
to $770 million, while Philip Morris received $195 million.

The tax break is supposed to create jobs. But at the modern Souza Cruz
proessing plant, the permanent work force has dropped to 180, from 1,000,
through a combination of technology and streamlining, said Guido Knies, a
senior manager.

In calculating what they pay growers, the big companies join together to
estimate the growers' cost of production plus a modest margin. To help
enforce their control, the companies hold back a share of the farmer's
payment until the entire harvest is delivered.

The companies say that the growers like the arrangement and that they are
merely suffering a difficult year in which the harvest has declined 35
percent because of heavy rainfall.

"There is no bad faith on our part," said José Luiz Gaiad de Camargo,
manager of corporate communications, science and regulation at Souza Cruz.
"What we have is a bad year."

Souza Cruz, which controls 84 percent of the Brazilian cigarette market,
increased profits 40 percent last year, to $275 million. Company brochures
cite success in keeping down costs as the reason for the growing profits.
Its stock price has risen 38 percent in two years.

At the same time, despite substantial inflation and cost increases for the
growers, the price they get their tobacco has remained stagnant.

Four companies dominate the tobacco market in Brazil -- Dimon, CTA and
Universal Leaf, in addition to Souza Cruz. Though they are competitors in
the world market, they all operate by the same rules in their dealings with
the farmers.

The squeeze on the growers begins at the start of the season, when they
must take bank loans to buy kits from the companies that include seeds,
pesticides, herbicides and fertilizers, a plastic sheet to cover the soil
and protective gear for applying the chemicals. The growers say they do not
have the technology to extract seeds in the quantity they need.

The growers must not only pay for the kits; they must also pledge to sell
their harvest to the companies.

The companies also hold back 15 cents for each kilo of tobacco the farmer
delivers as insurance that the grower will deliver the rest of the promised
harvest. The companies contend that they do this so their technical
assistance will not be wasted, but the practice also leaves growers little
recourse in disputes over acompany's valuation of their crop.

The companies tightened the pricing noose after farmers' strikes for higher
prices in the late 1980's. When supply fell in 1991, the growers and the
companies negotiated a 50 percent increase in payments.

But shortly after that the companies banded together, with all offering the
same terms to the growers. That ended any opportunity for the growers to
negotiate prices.

Nelson Proen=E7a is the secretary for development of international investment
for Rio Grande do Sul. His office has granted nearly $1 billion in tax
breaks to the tobacco companies, but he said the local government had no
say in pricing matters. "Those are private contracts," he said.

Growers also contend that the companies classify crops at cheaper grades to
save money. But Luiz Kr=FCgler, director of national marketing for Souza
Cruz, said that if growers believe their tobacco is not being graded
fairly, they can appeal to national Government inspectors. Growers respond
that the inspectors are poorly trained, and seldom disagree with the
companies.

When growers try to withhold crops because of a disagreement over grading,
police officers help the companies seize the crops.

The growers, many barely literate, rarely question the companies' right to
operate the way they do.

Virginia Etges, author of "Subjugation and Resistance: Gaucho Farmers and
the Tobacco Industry," said the farmers shared a very traditional concept
of the world, "where loyalty and honesty are very important values."

"The companies have absorbed this language and appropriated it for their
own ends," she said in an interview.

A group of growers, sitting on a porch one recent Sunday afternoon,
listened to the story of one neighbor whose crops had been seized. "Well,
he owed the money," one grower said, shaking his head.

Glenio Haas, a 38-year-old father of three, said he was dreading the
arrival of the police at his farm. He had delivered part of his crop to
Souza Cruz at the top rate -- $35 an arroba, a bundle of about 33 pounds.

But he balked when the company wanted to pay him $18 a bundle for the rest
of his crop. He agreed the second parcel was not top quality, but believed
it was worth more than $18. He took his tobacco home, saying he would
rather not sell.

At the price the company was offering, his family would have earned about
half Brazil's minimum wage for each month worked, Mr. Haas estimated.
Harvesting and curing tobacco involves round the clock attention in some
phases, with farmers sleeping in the curing buildings to stoke and control
the oven.

"The truth is that the farmer sacrifices enormously to plant," he said.
"If, at the time of selling, they tell you it's worth less than you think,
there are no words for how revolted you become. The only thing that's left
is for us to go hungry."

Othelia Baerle, 30, who lives down the road, figures that her family may
well end up owing $1,000 at the end of the year. During the four or five
months the processing plants are functioning, she supplements the family
income by working there, earning $150 a month. "That's all we live on," she
said.

The Lehmans are doing only slightly better. By the end of the harvest in
June, they expect to have earned only $900 for the whole year for the work
of the couple and their two teen-age sons.

Ten years from now, they said, they expect the concentration of power that
swept through the tobacco companies will overtake the small farmers and
that many will sell their land in desperation, leaving farmers who stay
behind to work as hired labor on land that once was theirs.

Copyright 1998 The New York Times Company




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