Many Ky farmers would get payments under deal to dissolve century-old tobacco co-op.
Thousands of Kentucky farmers would receive cash payouts under an agreement to close down a century-old tobacco cooperative based in Lexington.
The settlement, if approved, would dissolve the Burley Tobacco Growers Cooperative Association, which was formed in the early 1920s to help market the crop that was a mainstay of Kentucky agriculture for generations.
Groups of members began trying this year to dissolve the organization through a vote and a lawsuit, and pay out the assets to farmers.
The deal reached between the co-op and the members pursuing the dissolution would resolve those efforts.
Under the deal, the co-op would liquidate its investments and sell its property, which includes four million pounds of tobacco and the headquarters building on South Broadway in Lexington, near the University of Kentucky.
The amount available to pay out to members will be determined by what the tobacco and building bring and the value of investments when they’re liquidated.
However, attorneys involved in the deal said they believe there will be at least $20 million available to divide among farmers after settling debts and paying costs and attorney fees.
The settlement will set aside $1.5 million for a new organization to advocate for the interests of tobacco farmers.
As the market for U.S. tobacco declines, it’s important to have an organization to press growers’ interests with tobacco companies and work on measures to help farmers, including legislation, said Al Pedigo, president of the co-op board.
“Collectively we can do a lot better with that than we can individually,” Pedigo said.
The deal says up to 25 percent of the gross amount realized from the liquidation could go to attorney fees, but the total could be less.
Fayette Circuit Judge Julie M. Goodman would have to approve the settlement. She has scheduled a hearing July 29 on issues in the deal.
The money would be distributed equally to farmers who were members of the co-op from the 2015 crop year through the 2019 year.
The number of farmers who will qualify hasn’t yet been established, but attorneys familiar with the case estimated 3,200 to 3,500 farmers will qualify.
If there is $20 million available and the final membership class is 3,200 farmers, that would be $6,250 each.
The payout would not come in one lump sum because the assets wouldn’t be sold all at once, but if the proposed settlement holds up the intent is to send the first check by the end of the year, attorneys said.
The attorneys involved in working out the deal included Nathan Billings, who represented farmers trying to dissolve the co-op through a vote; Robert E. Maclin III, an attorney for growers suing to dissolve the co-op; and Kevin G. Henry, an attorney for the co-op.
“This is a good solution for tobacco farmers,” Billings said. “We all agree on that.”
Most co-op members are in Kentucky, but there also are members in Ohio, Indiana, Missouri and West Virginia.
A committee will establish the final membership rolls and help liquidate assets. It is made up of three co-op board members and three growers who were trying to dissolve the board.
If Goodman gives preliminary approval to the proposed settlement, co-op members will be notified of how to file claims and a web site will be set up to provide information.
The deal includes provisions for farmers to object to the provisions.
The co-op was a key player in Kentucky’s agriculture economy for more than 60 years as a part of the system of price supports and production controls the federal government created in the Depression to help stabilize farm income.
Those supports helped tens of thousands of farm families in Kentucky and other tobacco-growing states.
But faced with growing opposition to smoking, the government ended the price-support program in 2004, leaving farmers to bargain with cigarette companies for contracts to provide leaf.
Farmers have faced a number of challenges since, including fewer potential customers because of corporate consolidation, competition from foreign tobacco, declining demand and increasing production costs.
Many people have quit growing tobacco.
Kentucky farmers grew 173 million pounds of tobacco on 2,600 farms in 2017, down from 497.8 million pounds on 46,850 farms in 1997, before the price-support program ended.
The co-op has bought tobacco from some members in recent years to help provide a market, and made a foray into the developing hemp market, but didn’t have much luck with either.
The co-op lost an average of $436,000 a year buying and selling tobacco from 2013 to 2018, and its net worth had gone down $2.5 million from 2014, according to an analysis by the Kentucky Center for Agriculture and Rural Development.
Some members argued that the co-op no longer provided sufficient benefits to members and was wasting money that could be given to farmers, leading to the efforts to dissolve it.
The board approved a plan in February to pay out most of the co-op’s assets to members while keeping the board and $3.5 million to operate, but that didn’t satisfy some members.
Pedigo said the settlement before Goodman isn’t what he would have favored, but was for the best because continued litigation would have sapped the co-op’s resources.
“It’s a healthy compromise and now we need to move on,” Pedigo said.
