Oral History Interview with W. Ben Crain

[Begin Tape #1, Side #1]

KLEE: The following is an unrehearsed interview with Mr. Ben Crain for the Kentucky Oral History Commission. The interview is being conducted by John Klee in at the Fourth Street Warehouse with Mr. Crain. Today is . Let's begin, if you don't mind, just tell me a little bit about your background. You were raised on a farm in . . .

CRAIN: John, I was born in 1940 in , . Grew up on a tobacco farm. We called it a tobacco farm because that was the main source of income and still is. Grew up, as I say, there and went to schools. Graduated from as it was then in 1957, and attended the . Obtained a degree in agricultural economics from the university, and that's [inaudible].

KLEE: What was your thinking about going to the university and getting a degree in agricultural economics. Were you wanting to farm or did you want to get into agri-business or . . .

CRAIN: John, I think my . . . my primary objective at that time was to continue my association with farm people. I did farm part-time, full-time, in 1962 and `63 and I think it was during that period that I made up my mind that I needed to look elsewhere for a living as . . . as . . . as a potential future employer. I saw how tough it was and got some firsthand information then, how to make it on a tobacco farm.

KLEE: Now you . . . you went into the tobacco buying business for R. J. Reynolds.

CRAIN: Correct.

KLEE: Was that . . . you had then . . . how did you make those connections?

CRAIN: Well it . . . to back up just a little bit, I decided . . . to completely answer your first question, how did I decide to go to the university . . . my parents . . . my mother was a schoolteacher and of course my father was a farmer and my mother had always pushed me, of course, to get a degree, continue that education. There was never any question, I don't think, that I would not go to college, and I received a part ag scholarship and a part baseball scholarship to the university and that made my mind up for me what . . . what I was gonna do. And during the last year of college, I think I began to see some . . . my grandfather and others that . . . or began to think that I might be interested in continuing my work years in the tobacco industry. My first experience, of course, was on the farm, and then some experience in Gary Wright's tobacco warehouse here in , working for my grandfather. And that kind of whetted my appetite for the tobacco industry. In 1962, I [inaudible] again some older friends of the family, was introduced to some people with R. J. Reynolds Tobacco Company, some with Brown & Willamson, and also some with American Tobacco Company. And in late `62, early `63, in talking with those three companies, they each told me to go on and get my military obligation out of the way, and as we all remember those days, it was almost impossible for a college graduate to get a job of any significance unless you had your military obligation fulfilled. So that's what I did. I joined the . . . along with four of my good friends from the university, we joined the Reserves, and went to . . . went on active duty for six months, beginning in February of `63. And upon completion of that obligation, sometime late in August, got out of and Fort Sam Houston, Texas, came home and started looking for a job. And interviewed with Cargill, a grain company up in , with John Deere, those being the primary two that I can remember. And I saw primary because I did have job offers from those two. And in early September, mid- . . . let's say mid-September, after having been to Minneapolis for an interview with Cargill, a second round of interviews, I had made up my mind to take the position with Cargill. And came back home and had to let them know by Wednesday morning. And on that particular Wednesday morning, I sat down at the phone to call Cargill and tell me I would happily accept the job and in remembering the times, was . . . there was about two hours difference in time between Minneapolis and Versailles and decided to go to the mailbox. And when I walked down the hill to the mailbox at my parents' house, got . . . got the mail about , . In that particular Wednesday delivery was a letter from R. J. Reynolds Tobacco Company offering me a job with . . . with them, starting to work in that November. And walking back up the hill, keeping in mind that I always wanted to say in the south to work if possible, and Cargill was not gonna offer me that chance, I changed my mind and decided to wait for the job offer with Reynolds.

KLEE: And you . . . were you . . . were you buying . . . course you were with the company and there's a training period, but you were buying both in the south, the flue-cured market and the burley market eventually?

CRAIN: Absolutely. You start with a tobacco company as a trainee, what they call a buyer trainee. And you start at the bottom as . . . as what they call the factory foreman, doing all the . . . those supervision or supervisory jobs that revolve . . . evolved around the . . . getting the tobacco, at that time, put into hogsheads for shipment to the redryer. They included weighing, invoicing and just generally supervising labor.

KLEE: And you were learning . . . I guess the philosophy was you were gonna learn about different kinds of tobacco doing that?

CRAIN: Absolutely. That was . . . that's R. J. Reynolds premise for starting someone out there. Strictly on the job training, with the idea that if you're subjected to the kind of tobacco they want, that eventually it's gonna filter through your hard head and you'll know what they want to put in their product.

KLEE: That's . . . that's an interesting little phrase because that's something that you hear from tobacco people. That certain companies want certain types of tobacco, and I guess there's sort of a difference between what they want.

CRAIN: Oh, absolutely. Each company's blend . . . and of course there are very few people within each . . . each of those individual companies that know the amounts and kinds of tobacco, each kind of tobacco, or grade of tobacco that goes into the manufacture of a Winston or a Marlboro. Each company then buys, at the auction level, that kind of tobacco that they want.

KLEE: And this would be in reference to where it's at on the stalk and also color and different kinds of factors [inaudible].

CRAIN: Absolutely. In talking generally about burley tobacco, each company will buy a certain percentage of their total purchase every year from the flyings or bottom of the stalk position. Again, another certain percentage out of the middle of the stalk. The lugs, the old-fashioned lug position or long red leaf, and certainly some out of the top of the stalk, the BFR or the tips . . . tips.

KLEE: Now, R. J. Reynolds is still a buyer of tobacco, and, you know you're a warehouseman now, are they still buying the same type of tobacco? Has it . . . or has that changed and varied over the years? I'm sure it does some but . . .

CRAIN: They are still, to this day, buying the same kind of tobacco. The only thing that changed, to me, in the last twenty-five years is the way the farmer is handling the tobacco. Certainly some of this has been brought on by the companies. It used to be that when . . . in growing up on the farm in the 50's, we probably stripped our crop of tobacco out into an average of five different grades, farm grades. You'd have two different kinds of flyings, true lugs, or true C grade, a long red leaf, and a tip. And plus a throw-out grade or two. So now, generally speaking, I'm sure that probably maybe sixty percent of the farmers stripped in three grades and the remaining . . . remainder . . . two grades. Two grades.

KLEE: As a . . . as a buyer then, when there was the multiple grades, did that make the job easier because there was a certain . . . you could almost plan on the quality or . . .

CRAIN: I don't . . . John, I don't think it made it any easier. In fact, it may . . . just thinking about it off the top of my head . . . made it a little bit harder because you had standards, buying standards within each one of those grades. For example, Reynolds probably had six or seven different company grades for all your . . . your flying grades, ranging from the shorter, very bottom of the stalk, low quality X grades, all the way up to your X1's and X2's.

KLEE: Now your terminology, for someone maybe in the future that's listening to this, the farm grades are . . . you've already described those. And then of course, there's government grades which are from an elaborate list and deal with color and so forth, and damage. And then you said, there are company grades, kind of in-house things. Do they use the same kind of terminology as the government grade? Do they . . .

CRAIN: No, each company will normally have grades that will differ from . . . for example, U.S.D.A. [United States Department of Agriculture] grades. Primarily they make sure that there's no . . . confusion between the two grades. For example, one of the . . . a U.S.D.A. Grade 27 would be B1F. Okay? A company will not call their grade a B1F. They will have another nomenclature grade for theirs which might be Number 11 or it may be S. They will differentiate between the government grades.

KLEE: Right. I want . . . you'll be drawing on your experience as a buyer as I ask you other questions, but I want to get into the warehouse business. You took kind of a break between being a buyer and getting in the warehouse business, working in for a company. What . . . how did you get back in to the warehouse business. I know Mr. [William] Sturgill's involved.

CRAIN: That's very interesting, John. One . . . after I made buyer in, I think, 1971, I had at that time . . . R. J. Reynolds allowed you to stay at home for that period of time beginning at the conclusion of your burley market, normally in February until you went to your Georgia market, Georgia/Florida market in mid-July. So we were off during that period and even though we were off and had free time, we were paid, but still, most of us were establishing families and trying to pay for homes and were needing work. We couldn't sit back and fish all day. Or play golf or whatever. So a friend of mine in Versailles in that . . . in the early 70's decided to open up a fertilizer plant and asked me if I would be interested in helping them sell his product and get it delivered, which I did and beginning, I think, in 1971 and in . . . I stayed in that capacity with McCauley Brothers Feed Company . . . feed and seed and fertilizer . . . until I resigned from R. J. Reynolds. Now, that was strictly on a part-time basis. Just in the spring during fertilizer season, until June of `74. During that period, we'd had two children and it was becoming increasingly harder for me to leave home every July knowing that I would not get back probably until Labor Day and then only for short weekends as it . . . and it just got harder and harder to live out of a suitcase and in motel rooms. With small children, it's almost an impossibility to travel on the market with them. But you can't always find accommodations that you would like to have to name one reason, and it's hard on them. So in the spring of `74, I made up my mind that the time was then for me to make a choice, either to stay in the tobacco business with R. J. Reynolds, or get out. I was thirty-five years old at the time and I felt like I had to make the move one way or the other. Even though my wife didn't think I would ever do it, I did make the decision to get out of it. And then at that time, went with Graham McCauley, McCauley Brothers, on a full-time basis. And even though I thoroughly enjoyed the fertilizer and the horse feed business, which was a growing product that they manufactured, I thoroughly enjoyed it. I sincerely enjoyed my association with Graham McCauley and his family and the employees there, I still couldn't get the tobacco business out of my blood. And in mid-summer of eighty . . . I mean `75, through a mutual friend, Bill Sturgill called and asked me if I would consider having lunch with him and talking with him about the possibility of managing a tobacco warehouse. I think at that time, my eyes lit up, ears perked up, and like the dog on point, and said absolutely yes, sir, when and where? And we met for lunch and I was immediately taken by . . . by Bill Sturgill. Just immediate fondness for the man.

KLEE: Had he been in the . . . in the warehouse business very long?

CRAIN: Had no knowledge . . . he was a coal man.

KLEE: Right. Right.

CRAIN: Had been in the coal business all of his life. From eastern and had moved here and I think someone advised him, maybe Albert Clay to get in the tobacco warehouse business. So that's how my association with Fourth Street Warehouse came about. Mr. Sturgill and I, I think, learned the tobacco warehouse business together.

KLEE: [chuckle] But now at this point, you're president of a group of warehouses?

CRAIN: Right. That's correct.

KLEE: Includes this one and . . .

CRAIN: We currently operate four tobacco warehouses, and course the original one, Fourth Street, right here in Lexington, and in 1978 acquired the Gentry Tobacco Warehouse on South Broadway here in Lexington. In 1981, we acquired the Paris Independent Warehouse from the Marshall Family in . And in `82, the People's Warehouse in . We have also leased warehouses from time to time, generally for only one year's duration.

KLEE: While I'm on the subject of this . . . the purchasing of these . . . these warehouses, the ones that were . . . for someone to purchase a warehouse, that means somebody's getting out of the warehouse business, and there seems to be quite a bit of movement. I know that [inaudible] in Maysville . . . there's been quite a bit of in and out of the . . . of the business. Is this attributed to the nervousness of tobacco people now or . . .

CRAIN: John, I think there's probably a variety of reasons why people would choose to get out of the tobacco warehouse business. Primarily I feel like that age of management was one reason, and probably the primary reason that people were choosing to get out of the business.

KLEE: Some of them are getting older and they just wanna . . .

CRAIN: Exactly right. And I know that that was the situation when Mr. Sturgill bought this one. The three stockholders were getting up in age, and wanted to . . . to cut back on the . . . on the time demands that a tobacco warehouse requires.

KLEE: Let's . . . let me get into that subject now, about what a warehouseman does, and what . . . what you do in your . . . in your role here. These aren't in any particular order, but I'll just kind of go with them. You gotta get business. Warehousing . . . warehouses compete against each other and money is made by how much volume of tobacco you have. How do you . . . how do you approach that? Now I know, of course, this area might be a little different than, say, eastern Kentucky or northeastern Kentucky where I come from, that there's probably larger operators or people that, you know, have . . . raise maybe fifty or sixty or eighty thousand pounds of tobacco. That's maybe not that unusual here. Do you try to make appointments with those people? Do you try to catch them informally? How do you . . . how do you try to recruit business?

CRAIN: Well, certainly head-to-head contact, face-to-face contact is by far the best way to . . . to generate new business for your tobacco warehouse. In order to do that, though, prior to that time, you need to have someone do some background work for you, and we have found that . . . that the best background work that can be done for you is to have a satisfied customer leave here the first time, and him spread your . . . spread the word. It's much easier to go on a farm and try to generate new business, when that man's already heard about you, or heard about your operation. That, in itself . . . you try to make sure that that man that has been your customer and is your customer is satisfied when he leaves. And by satisfaction, I mean satisfied with the service, the surroundings, those things that you have to offer physically, and secondly he's satisfied with the price that he got for his . . . his year's work.

KLEE: It's . . . it's . . . this is hard to answer in a brief period of time, and I don't know if I've actually talked to warehousemen before for the project, but how do you . . . how do you approach those things? What . . . what kind of service . . . if I'm . . . if I'm a large farmer, you know, what do I . . . what do you do for me as a warehouseman?

CRAIN: If you are . . . you mean, if you are a potential customer?

KLEE: [inaudible]

CRAIN: [inaudible] approach you . . .

KLEE: Let's say that I'm already here at the door. I've got my tobacco on . . . on a truck, and I'm here at the door. What do you . . . what kinds of things do you do that . . .

CRAIN: Well, first of all, that man has . . . has been contacted one or more times during the course of the growing season by either myself or . . . or a employee, or a solicitor. You know. It's . . . it's obvious that we can't contact everyone every year, but we certainly try to get around to see as many as we can. I think we generally try to show interest in his crop, the progress of his crop throughout the growing season, really hitting the road hard in late September, October, early November when they're . . . right, when they're beginning to think about stripping tobacco and . . . and consequently sold. We try to keep them informed through newsletters what's going on.

KLEE: So your customers, you print a little newsletter for your customers?

CRAIN: Normally . . . never over two a year, and I wish, quite frankly, that we could see our way clear to pub-, publish a monthly newsletter and maybe now in the computer age, we'll be able to do that.

KLEE: Now when you . . . do you advise them on things like when you think would be a good time to sell? You . . . I don't know, that hasn't been as big a topic the last few years, but at one time, there were people that wanted to sell in the first sale, and others didn't want to sell then, and so on and so forth.

CRAIN: When I first came to Fourth Street Warehouse, everyone wanted to sell . . . everyone who had tobacco ready . . . wanted to sell on what we call the second sale, which would not be the first . . . first day or even the first three or four days of sale. That is an impossibility, scheduling impossibility. And I think the first thing that we had to do was to fill up the first sale, and we went about filling up the first sale by buying a lot of tobacco ourselves and trying to show the farmer that the first sale was just as good as the second sale. And it took about two years and now we have no trouble at all filling the first sale.

KLEE: When you . . . when you do that, when you buy tobacco, you usually do that because . . . well, it might be a very good customer, maybe, that you don't think it's brought a decent price or you wanna try to promote the sales within your own warehouse. Is that right or . . .

CRAIN: No, sir, I . . . we don't try to look at it from a basis . . . on that basis. A good customer or bad customer or anything else. And I guess this goes back to my old tobacco company training. I thoroughly enjoy pitting myself, in essence, against the current tobacco [inaudible]. If we think or I think that a . . . a farmer, and it doesn't make any difference who . . . who it is, a big customer or a small customer, if I think that his . . . for example, his flyings are worth $1.60 and the companies are trying to buy them for $1.59, then we'll buy them all at $1.60. We, in the tobacco business, it doesn't take you long in the auction to find out how much money each buyer is trying to use on each count of tobacco. You go fifteen, twenty piles, and you'll pretty much know what they have to use.

KLEE: That [inaudible]

CRAIN: That's our top price.

KLEE: That helps you because of your buying past experience . . .

CRAIN: That's right.

KLEE: Because that's . . . I guess, the way they operate. They say you have this much money to spend to get this kind of tobacco.

CRAIN: Exactly right. You're told every morning what percent to buy for the day. And also how much money, top money . . . $1.60 a pound, $1.62 a pound, to pay on those grades. And mostly, they're giving . . . giving you an average price, for all your purchases that are of a particular kind of tobacco that day. So generally speaking, your . . . you're taught as a company buyer to mind not only your own business, but to know what your competition is paying for tobacco. For example, if you are told to buy twenty percent of the sale in a day's time, you go out there and . . . and in the first half an hour of sale. If you're using more money than your competitors are using, you're gonna use your percent up, which means that after you use your percent up, the market loses your input and you're helpless; all you can do is walk the sale and they're gonna buy the same kind of tobacco much cheaper than what you were paying for it. So our job is to keep the sale moving along and make sure that we get whatever that top price that the companies have for a particular kind of tobacco.

KLEE: So when you see that happening, and you say well, you go . . . you get into the . . . into the bidding, you just wait then for later, another sale and put that back on the floor, right?

CRAIN: That's exactly right.

KLEE: Sometimes, of course, you might take a loss on it. [chuckle]

CRAIN: Absolutely. It's happened more often than . . . than it does . . . than it goes the other way.

KLEE: Right.

[End Tape #1, Side #1]

[Begin Tape #1, Side #2]

KLEE: This is side two of a tape for the Kentucky Oral History Commission with Mr. Ben Crain. We were talking about the kinds of things you do for customers, and I guess we just talked about how sometimes you . . . you enter bidding to help the customers out. Now . . . talking about the [inaudible], and some of this might seem so simple that it's foolish, but your people here at the warehouse will unload the tobacco and present for the farmer, put it . . . put it in rows. What happens at the end of the transaction? The buyers come and they . . . they buy a farmer's tobacco. If he's not happy with the price, he can reject it, is that right?

CRAIN: Absolutely. The farmer has, generally speaking, thirty minutes after the conclusion of the . . . of his own sale to accept or reject the bid price. If it is, if it meets his satisfaction, if it's sold to his satisfaction, of course he goes on to the warehouse office and . . . and picks up his check. If he is not satisfied, and many times, the farmer is not sure whether he has received his price or not and [pause in tape]

KLEE: [inaudible] saying that sometimes the farmer doesn't know whether to reject a bid or not.

CRAIN: Okay, what the . . . what the farmer will do then is . . . he will normally wait for myself or someone with the warehouse to come by and look at his sale and try to explain to him why it brought, from a quality aspect, the particular price that it brought. Many times, a farmer does not quite realize what he has in regard to somebody else, and there are lines, fine lines sometimes, in between a tobacco that will bring top price, and tobacco that will bring a penny or two cents less. Most of the time, once it's explained to him, if this is a quality standpoint, the farmer fully understands and will generally let that tobacco go on to the purchaser. There are other times, I'm not gonna deny this, that I go to sleep, that we all go to sleep in sales, and to go to sleep is maybe a poor choice of words, but that's exactly what happens, that when you're selling six, seven thousand a minute, you may overlook a particular crop. Maybe it's not handled as neatly as it could have been on the farm. But the quality, it is very high quality tobacco, and simply because it's not handled neatly, it won't catch your eye when you're going through the sale. But upon close examination, you'll say, my gosh, we all missed this. All the buyers did, I missed it. Let's reject this, or let me go get the buyers and bring them back over here and look at it. And then after that, we'll either try to get the price of the tobacco raised to what it's true value is, or we'll re-offer it for sale the next day or two or three days later

KLEE: Now there's a lot of bookkeeping, it seems to me, in warehousing because there's people . . . there's leasing going on and I'm not sure, does this warehouse . . . if . . . if a farmer's made a bank loan, will he have part of his check made out to a bank, or how does that work?

CRAIN: Oh absolutely. And you're . . . you're talking about one of the areas that currently is probably the biggest headache that we've had. In trying to . . . we are, by state law and now by federal law, law, regulations . . . required to be collection agencies for lending institutions. And a lending institution can be a fertilizer dealer or a machinery salesman or a bank. And we get notices from all of these institutions. Require . . . and we are required to make the check out jointly, and under rather severe penalty, if we overlook . . . if we just overlook a . . . a notice of . . . of attachment, then we're liable for that . . . the amount of that attachment. So, as I say, that's one of the biggest problems that we have.

KLEE: Now is there . . . is there more of that happening in the last few years because of some farmers in trouble?

CRAIN: Absolutely. That's exactly what's brought it on. We are kind of at the . . . in the valley, so to speak, of farm income and farm economics. And more farmers are probably borrowing than have ever been before. We went through the peak situation on the farm in the early 80's and we all know what happened. Many folks borrowed more than they could . . . on which they could meet the obligation. And that's . . . we won't go into whose problem, whose fault that was. It was several [inaudible] fault. And bankruptcies followed in many instances. There was a lot of money lost by lending institutions, fertilizer dealers and equipment sales.

KLEE: Right. Do you also have to report to the ASCS [Agricultural Stabilization Conservation Service] the poundage that's sold and that kind of thing?

CRAIN: Absolutely. We have a very detailed set of reports that we have to fill out at the conclusion of each day's sale for U.S.D.A., ASCS, and those reports, as I say, are . . . are intricate and very exact.

KLEE: Seems to me like it's almost an impossible task to keep everything straight.

CRAIN: Well, we sometimes wonder how we do it, but every warehouse always manages to come out and . . . and get the reports made and filed on time.

KLEE: Have you gone to computer-type things and . . .

CRAIN: Yes we have. We went to computers in 1982. Wrote our own program and have expanded on it. Changed every year. Most of the time, we're forced to change it every year because of new regulations.

KLEE: We've talked a little bit about your relationship with farmers. There's some other people you have . . . in the warehouse that you have to deal with. Of course, the buyers. What . . . how does . . . how does that relationship work, between the warehousemen and the buyers?

CRAIN: Well, I always try to describe our relationship as a plank fence separating two ten-acre fields. The farmers being in -acre field, and the buying companies being in the other ten-acre field, and us standing right on that plank fence down the middle. We are the liaison, if that's the proper word, between the farmer and the . . . and the buying companies. If a buying company has a problem with a farmer's tobacco, he doesn't go to the farmer, he comes to us. And conversely, if a farmer thinks his tobacco has not brought enough money, the company that bought it didn't pay enough, then he comes to us, and we go to the company. But we're the . . . we're the middle man.

KLEE: Do different companies . . . certainly they're looking for a certain product, but in some years they can find that in different warehouses. If . . . do they favor warehouses some if they've had good relationships, or got what they wanted or . . .

CRAIN: Well, I think it's always a . . . kind of a two-way street. A tobacco company certainly does not wanna be taken advantage of, nor does the farmer want to be taken advantage of, and I think if there are warehouses that get caught doing that, it'll affect them both ways. It'll affect them first of all from their . . . their customer leaving them and going somewhere else, and it'll affect them on the buying side of the row, in that the buyer might be more reluctant to bid and be an active bidder as he could have if he knew he would receive fair treatment.

KLEE: So it's kind of a subtle thing . . .

CRAIN: Exactly right . . .

KLEE: . . . but there's some of that going on.

CRAIN: Absolutely.

KLEE: Talking about the market and how it opens different sales, you've been on markets for many years and there have been times when strange things have happened. Have you ever been on a market where far-, farmers only got . . . I don't know, upset about what was happening, the price things were bringing and . . .

CRAIN: The only market that I can think of where farmers were really upset, happened to me on a flue-cured market in in the early 70's. And it was the kind of crop that was very heavy-bodied, immature, not ripe when it was harvested. The companies did not like the crop of tobacco at all. Just did not . . . did not want to buy it to put into their products and consequently all . . . most of the tobacco was going under loan and on this one particular day, I guess this one farmer had had about all he could take of it, and he was wrong too, in his thinking. We, as buyers, certainly were not bidding on his tobacco, could not bid on it, and he took it out on us. And we got a very severe tongue lashing, with no words spared for not buying his tobacco. But we couldn't help it. Nor could he, really.

KLEE: There's . . . there have been a couple years . . . and I can't . . . can't quote the years offhand, where particularly I think in short years, tobacco would all bring the same price. You . . . were you . . . has that ever happened while you've been a warehouseman?

CRAIN: Oh yes, it has happened, and it's happened in varying degrees. In 1980-81, that was the $1.66 year, when everything from chicken feathers to oak leaves to the best tobacco that you can grow all brought $1.66 a pound. Those are the kind of years that nobody likes to see. I say nobody, maybe the farmer who produces low quality tobacco year after year after year. And we have those that couldn't raise a good crop in ideal circumstances. Or wouldn't raise it. Is rewarded as the . . . the farmer who does what he's supposed to do to sell that. That's the way I look at it.

KLEE: [inaudible]

CRAIN: I hate to see year like that.

KLEE: Made an impact on how . . . [inaudible] operate in the future.

CRAIN: That's right.

KLEE: What . . . give me some insights on that. You've been on both sides of that . . . of the fence so to speak. What . . . what causes that?

CRAIN: Well, what normally causes it, it goes back to the old law of supply and demand. And the most recent instance of that, was of course in `80-`81. Now we have had periods where, for maybe a two-week period right . . . just prior to Christmas, or a week after Christmas, after the sales resume, that tobacco will all get jammed up real close together. That really happened last year to a point. But it all wasn't bringing one price. It was all bringing between $1.68 and $1.62. But it . . . the 1980 crop that brought $1.66, there was no burley, no back-up supply of burley anywhere else in the world at that time. And they had to have . . . they, being the buying companies, whatever was produced. And they say, it's an auction system, why does it not go on above $1.66. Well I think what has happened, had it gone to $1.60, I mean $1.70 or $1.80, every company would have gone right up to that . . . to that point. So the companies realized it didn't make any difference how high they were gonna go, their competition was gonna go right with them. And I look back on that year as . . . as . . . as being a year that got us . . . began to get us all in trouble because we did not at that time have a back-up supply of burley sitting in storage somewhere.

KLEE: The pool was empty.

CRAIN: That's exactly right, the pool was empty, the cupboard was bare. So these companies said, well heck, I know we can get some tobacco, some burley tobacco grown in South America or in or other places throughout the world. And we'll go over there and make sure this doesn't happen to us.

KLEE: Start looking for their own [inaudible].

CRAIN: And I think that was the beginning of what happened to us, along with some other . . . some other things over which we had no control really.

KLEE: How . . . you know, how is the warehouse system all tied up into the program? For instance, I've interviewed people down in western and a farmer . . . some farmers sell directly to companies. Of course, they're dealing with a different kind of tobacco usually. You know, not as much volume, I guess maybe. Not enough buyers really to create an auction system, tell me what that relationship is, how the warehouses fit into the program.

CRAIN: Well, we fit into the program by offering that space and that professional help to the farmer. By professional help, I mean that normally your . . . your warehouse [inaudible] professional to a degree. Your ticket marker is certainly a professional, as is your auctioneer. And certainly your . . . your bookkeeping people are . . . are all professionals. The warehouse bookkeeping differs . . . it's entirely different from any other bookkeeping system that I am aware of. We offer that to the farmer, that space, that [inaudible], that supposedly bright, uniform lighted place to offer his tobacco for sale, in return for a commission. And we have an arrangement with a different set of rules, if you will, under which the companies agree to . . . to operate within the warehouse system. So we . . . we are the . . . we are the auction ring and provide the auction ring for the farmer's product.

KLEE: At this point in time, there is a . . . buyers, I guess companies have found this such a convenient system that they haven't wanted to go outside the system and do directly to the farms. It wouldn't be profitable.

CRAIN: Well, I think that a tobacco company, all tobacco companies first of all, they want to ensure . . . they want to be ensured that they're gonna get . . . be offered the kind of tobacco that they wanna buy for their products. If they . . . if a company went out to fifty farmers and contracted with those fifty farmers to raise a hundred acres of tobacco apiece for that company, then they would have to take, under the terms of the contract, all the pounds of tobacco grown on those fifty farmers' hundred acres of tobacco. Not all companies want all the stalk positions that comes off a farm. But if they contract, they'd have to. Under the auction system, they can come to that auction system and pick and choose the kind of tobacco that they need.

KLEE: And that kind of leaves the pool, then, to take, you know, what's left [inaudible]. Hopefully it will eventually be . . . be utilized.

CRAIN: Right.

KLEE: You're president of the warehouse association, Burley Warehouse Association. What kinds of . . . is there . . . is there a code of ethics or maybe something more official than that, that all warehouses are supposed to operate under? Some kinds of rules . . .

CRAIN: Well, as I mentioned a few minutes ago, there's really no code of ethics. But there is a . . . we have a ware-, a warehouse association. Not all tobacco warehousemen, burley warehousemen are members of this association. Roughly eighty-five to ninety percent of the warehouses operating in the burley are members of . . . of this association. And we . . . try to work with the buying companies. If we disagree, then we try to work out a compromise. And this may pertain to the kind of tickets that we're using. [pause in tape] We were talking about working with companies and how, if we have a set of rules to go by as the warehouse association, we have what we call extended condition of sale contract that each company is furnished at the beginning of each marketing year. It's really the rules of the game. It specifies what we, as warehousemen, agree to do, and it specifies what they, as buyers at our warehouses agree to do. And as I say, just generally speaking, it's the rules of the ballgame.

KLEE: How does . . . I don't know how many buyers are on the market like this, would you have, what? Eight, ten, twelve people?

CRAIN: We have seven currently buying tobacco here in .

KLEE: Now if they . . . if someone wants to buy tobacco, they have to sign a contract like this or . . .

CRAIN: Okay, first of all, we are required by state law on each market that has a tobacco auction incentive, to form a board of trade, and that is an organization of those warehouses within that sales community. And if a company wishes to buy tobacco, for example in , they must make application for membership to that board of trade. Non-participating membership. And before they can buy on this market. Now this is a local group.

KLEE: Right. Every . . . every . . .

CRAIN: Right.

KLEE: . . . center has its own board of trade.

CRAIN: Every center, every marketing center has its own board of trade.

KLEE: You said when you were talking about . . . does that include independents?

CRAIN: Oh yes, that includes manufacturers and dealers.

KLEE: So, we hear about foreign people buying tobacco, the Japanese and Germans. They [inaudible] operate through a local dealer.

CRAIN: Through a dealer, right.

KLEE: And they'll talk [inaudible] them on what they want and how they want it and how . . . those people are generally, they're American-run companies and so forth. Do the . . . have you had much contact with foreign buyers for example?

CRAIN: Oh yes.

KLEE: I'm sure they come on and look at the floor .

CRAIN: Absolutely. In fact, at the beginning of every . . . it's always on Sunday before the market opens the Monday before Thanksgiving which is our historical opening . . . the Japanese, for example, always gather, or have for the last several years at one of our warehouses here in town and . . . and have a meeting with all of the dealer companies which are going to be buying tobacco for them here in the burley. And it's . . . it's quite . . . quite an operation. It's something to see. They bring in the samples that . . . that they have gathered from throughout the burley belt, and then physically show the buying companies, the dealer companies that will be buying for them, what they want. And even . . . even stalk position.

KLEE: Right. I got a little bit off the subject. I . . . I kind of wanted to stay with the warehousing rules. I travel, you know, up to Morehead occasionally and there were some new warehouses built there not too long ago. How does that work? Can anybody build a warehouse if they want to? Do they have to join the board of trade?

CRAIN: Certainly have to join the board of trade. Most normally, a new warehouse being built is gonna have a tough time getting sales . . . sales time to begin with. And it hasn't happened for several years, but many times, they end up in court over sales fights.

KLEE: Right. And that's regulated by the board of trade? There's a certain amount of sales time available, and of course, you know, tobacco [inaudible] sold by, I guess.

CRAIN: That's exactly right.

KLEE: So if a new warehouseman isn't satisfied, they always have a legal means to redress that.

CRAIN: Absolutely.

KLEE: Course the . . .

CRAIN: [inaudible] end up in court.

KLEE: . . . the opposite's generally happened, you know, in recent years, hasn't it? Tobacco warehouses closing or burning down and not being replaced?

CRAIN: Not being replaced, and all that's brought about a reduction in volume, foreign volume, [inaudible] volume.

KLEE: What about . . . talking about that, warehouses are used really three months real heavy out of the year, and are empty for nine. I . . . I notice as I came in this one today, [inaudible] it looks like over here. Has there been much effort made to try to utilize warehouses more fully?

CRAIN: Well, I don't think that the effort has been . . . been made to thoroughly utilize them, but in order to fully utilize them around the calendar, there are some other problems that . . . that arise. Number one problem is insurance coverage. Most tobacco warehouse coverage, insurance coverage is written under the premise that they're only gonna be used, or heavily used, for about three months out of the year, which reduces the risk to the insuring company. So if you start trying to utilize the warehouse for a twelve month period, the first thing you're gonna run into is higher insurance premiums.

KLEE: And that's become a big problem, what? In the last three years?

CRAIN: Oh, absolutely. A very big problem in the last few years, and I think it's generally because of lack of knowledge on . . . on behalf of the insurance companies.

KLEE: What's . . . you know, I know that it all varies according to size and who you're insuring with or whatever, but what are we talking about for warehouse . . . insure a warehouse?

CRAIN: Well there are two kinds of primary coverage that we have to carry. Certainly the first thing, the . . . the insurance on your physical building. That is very high. I'm trying to think off the top of my head what the first one thousand dollars of coverage, or per one hundred dollars coverage. I know the premium on this one is in excess of fifty thousand dollars. And then the other . . .

KLEE: [inaudible]

CRAIN: . . . Pardon?

KLEE: That's the kind of figure . . . something like that . . .

CRAIN: The other kind of coverage that you have to have, you can't do without is the coverage on the farmers' product after it's been delivered to you and is awaiting sale. Our . . . our coverage goes for twenty-four hours after the tobacco has been sold, the day following the sale. And the reason that is necessary is because we don't have time to immediately make that tobacco available to the buying company. We have to have some time to work it out and divide it into the lots. And also, you may have a farmer's tobacco sitting on your floor or waiting to be sold for up to two weeks at a time. So, the . . . that's what we call auction form insurance. And that is the one that the premiums have escalated rapidly on in the last couple years.

KLEE: I see. Well, when you're talking about fifty thousand dollar premium, that's . . . that's a big amount too.

CRAIN: Yeah, and then you have to . . .

KLEE: [inaudible]

CRAIN: Right. And then on top of that, you throw another four to four and a half million dollars worth of auction form coverage on the unsold tobacco as it's delivered, you're gonna find yourself looking at close to a hundred thousand dollars in insurance premiums.

KLEE: As president of this organization, what . . . what kind of . . . what have been some of your bigger accounts? Of course, we're in a time period now where tobacco is probably [inaudible] as fiercely as it's ever been in history. [inaudible] politics quite a bit, or . . .

CRAIN: Yes and that . . . I think that's probably the aspect of it that I wasn't prepared for, particularly since I've been with . . . active in BAWA [Burley Auction Warehouse Association], the warehouse association, we're called on very often to . . . to offer support, offer any kind of . . . of support for the tobacco business. It could be support for the farmer or support even, believe it or not with the buying companies. And the fall before last, the fall of `85, I think I spent the last month, the last half of October, the first half of November in .

KLEE: This was during the creation of . . . or the revision of the . . .

CRAIN: Tobacco Reform Act, right.

KLEE: I forget the proper name. They . . . call it the Reynolds Plan sometimes.

CRAIN: That's exactly right.

[End Tape #1, Side #2]

[End of Interview]