CHASE CITY, Va. -- In the rolling, steamy farmlands of Southern Virginia, few farmers own the combines and harvesters that have come to dominate U.S. agriculture. Instead of vast fields sown and reaped by machines, the land here is punctuated by ponds, trees and rows of farm workers bending over the region's lifeblood: tobacco.

Recently transplanted from greenhouses into the soil, the plants will require hundreds of hours of manual labor and thousands of dollars worth of fertilizer before they mature into a valuable cash crop.

By the time the costly process of harvesting, curing and packing the chocolate-brown leaves is complete, the small farmers who dominate the tobacco-growing industry will have earned a comfortable, middle-class wage.

Yet these farmers face unprecedented economic dislocation that could well change the character of large chunks of Virginia, Kentucky and North Carolina.

As U.S. tobacco manufacturers and international competition work together to squeeze the profitability out of tobacco farming, small tobacco growers are losing their one sure chance -- under current conditions, at least -- to remain independent and prosperous in an age of industrialized agriculture.

This is an oft-forgotten side to the great tobacco debates that have swept the country over the past decade.

As attention has focused on Washington's attempts to stamp out smoking, a huge industry is in the midst of a painful -- and possibly terminal -- decline.

More specifically, the challenges facing tobacco and its overseers in Washington include the:

* Future of many small communities in the Southeast that still rely on tobacco farming. While governments have made a

concerted effort to discourage smoking, their policies have ignored farmers' and communities' needs.

* Appropriate role of the federal government in helping tobacco companies and farmers export their products. Thanks to help from the federal government, U.S. tobacco manufacturers have won new markets overseas, but foreign countries are rebelling at U.S. pressure to export a dangerous product.

* Viability of the proposed 75-cents-a-pack tax. Many public policy experts see it as regressive and not likely to raise as much money as predicted. In addition, Washington's onslaught raises potentially troubling questions about the role of government in citizens' daily habits.

At first blush, listing problems faced by the tobacco industry may have a familiar ring.

King James of England lobbied hard against it in the early 17th century and for much of the past 400 years it has been a controversial product.

But as Virginia Tech agronomy professor James Jones puts it, "it's never had the president, the First Lady and everyone else from every direction coming at it. Tobacco is under siege as never before.

"It's a whole new ballgame."

Of all the players in tobacco's new game of survival, the most vulnerable are the growers, who are bewildered that the government would want to take away their ticket to prosperity.

"I don't understand when I have a legal agricultural commodity and am making an honest living, why someone wants to take that away," said Jim Jennings, a farmer who grows 75 acres of flue-cured tobacco in Southern Virginia.

Growers most vulnerable

Of all the players in tobacco's new game of survival, the most vulnerable are the growers, who are bewildered that the government would want to take away their ticket to prosperity.

"I don't understand when I have a legal agricultural commodity and am making an honest living, why someone wants to take that away," said Jim Jennings, a farmer who grows 75 acres of flue-cured tobacco in Southern Virginia.

Sitting in his two-story house, Mr. Jennings has seen his revenues shrink nearly 20 percent over the past two years, and faces greater cuts in the future that could see him quit tobacco farming. For Mr. Jennings, this would mean he would lose the comfortable lifestyle that tobacco farming affords.

"Put it this way, I have a house, my wife doesn't have to work and I'm raising two children. Tobacco is what feeds my family," Mr. Jennings said.

Mr. Jennings is unsettled by proposals floating around Washington that would add between 75 cents and $1.25 to a pack of cigarettes, a move that would cut tobacco use just as demand for U.S. tobacco is dropping at an unparalleled rate.

Tobacco farmers pay to support a price-stabilization program that has held the price of most kinds of tobacco at between $1.70 and $1.85 a pound.

When demand for the tobacco declines, the farmers' stabilization program buys excess tobacco and stores it in warehouses until better years come. If production is still too high tobacco production is cut.

In recent years, those warehouses have been burgeoning with tobacco and the quota has been slashed. In 1992, it fell 7 percent and in 1993 it fell a further 10 percent, the maximum that the quota can be cut in one year. This year it fell a further 10 percent -- although the formula called for the quota to be slashed a stunning 41 percent.

All told, that meant that in pure market terms -- without the farmers' price stabilization program -- demand for U.S. tobacco fell 60 percent in three years.

"If I were forced to cut production another 20 to 30 percent, I'd have serious problems," Mr. Jennings said. "The rate we're going, we'll be there soon. Then I'll have to consider giving up farming because nothing else could support my family."

That 30 percent reduction may not be as far off as widely imagined. According to a recent USDA study based on an optimistic set of assumptions regarding new taxes and imported tobacco, domestic tobacco production will drop 30 percent by 1998, making the future uncertain for Mr. Jennings and the nation's 100,000 other tobacco farmers.

Although the tax has galvanized the farmers, they know that the drop in demand for U.S. tobacco is deeper-rooted than one tax.

Threat from abroad

What has hurt U.S. tobacco is the sort of tough international trade that has damaged other traditional domestic industries. Foreign countries, in this case Malawi, Zimbabwe, Argentina and Brazil, produce an increasingly good quality tobacco at a much lower price -- from one half to one third the price, depending on the type and grade of tobacco.

Last year, cigarette manufacturers imported 462,836 metric tons foreign leaf, up from 182,277 tons in 1989.

"The whole argument about the excise tax misses the point. My main concern is imports," said Andy Shepherd, vice president of the Flue-Cured Tobacco Cooperative Stabilization Corp. "Imported tobacco is killing us."

Part of the demand for low-cost foreign tobacco stems from the rise of low-cost generic cigarettes. Once curiosities, these hold a third of the cigarette market. This means that fewer premium cigarettes, which use premium U.S. tobacco, are sold.

The two main U.S. cigarette manufacturers, Philip Morris Cos. and RJR Nabisco Holdings Corp., have fought the threat of generic cigarettes by introducing their own generics -- which use imported tobacco -- and by cutting the prices of their premium brands, like Marlboro and Camel.

These cuts were made possible in part by paying U.S. tobacco farmers less for their crop.

"The duty of the executives at Philip Morris is to make their shareholders rich. They don't care about us, although they always say that we are fighting on the same side. They must think we're stupid down here on the farm. They only want to keep the price down," Mr. Shepherd said.

Philip Morris and R.J. Reynolds refused to comment on their relationship with tobacco growers, but some analysts of the tobacco industry defended the manufacturers.

"They [tobacco farmers] are pricing themselves out of business. It's not the domestic tobacco companies. No one else will buy their stuff either. It's just too expensive," said John Maxwell, a tobacco-company analyst with the brokerage firm Wheat First Butcher Singer in Richmond.

Indeed, Philip Morris and R.J. Reynolds are not the only tobacco companies edging away from U.S. tobacco. Exports of domestic tobacco have stagnated over the past five years at 220,000 metric tons, despite a 9 percent increase in world demand during that period, according to statistics from the U.S. Department of Agriculture.

And recent legislation pushed by the growers may only make matters worse. Growers successfully lobbied last year for Congress to limit tobacco imports to 25 percent of the market, a move that would slash tobacco imports in half this year. That, however, has provoked an appeal by other tobacco-exporting countries to the General Agreement on Tariffs and Trade, the world trade body that could take punitive action against U.S. tobacco. Even if GATT doesn't act, U.S. trading partners may retaliate against the import restrictions, a move that would further hurt U.S. farmers.

Experts say solutions exist on paper, but would require vigorous action by farmers and public officials.

Auctions debated

Auctioning and selling U.S. tobacco, for example, harkens back to the days of horse and wagons, when tobacco was stored and sold in warehouses located a day's ride from a farm. Dozens of auctions are still held around the country each year in small warehouses. In the African country of Zimbabwe, by contrast, one centralized auction takes place each year.

USDA tobacco expert Dan Stevens estimates that changing the distribution system could shave a nickel off each pound of domestic tobacco. Growers agree that this is feasible, but that it would cost millions to replace the warehouse system at a time when their profits are shrinking.

Indeed, tobacco's marketing system is an attraction to many farmers.

Sydney Brandon, a tobacco grower near Dundas, Va., says tobacco is a desirable crop to grow because it is so easy to sell. Tobacco is supported by an elaborate infrastructure of co-ops and marketing programs that farmers and governments have established over tobacco's long history. Revamping the system would be difficult and costly, he says.

"It's pie in the sky. Who's going to do all that?" Mr. Brandon said.

Another proposed measure to make U.S. tobacco more competitive would eliminate the county-by-county allotment system, which limits the amount of tobacco each county in the tobacco belt can grow. Designed to prevent overproduction and a collapse of prices, it also adds as much as 40 cents to each pound of tobacco.

The reason? Former farmers are allowed to keep their allotment of tobacco and "lease" it to other farmers for 30 to 40 cents a pound. Mr. Jennings, for example, leases 26 of his 75 acres at a cost of 30 cents a pound, adding $20,000 to his annual production costs.

"It doesn't sound like much, but you trim a nickel from marketing and 30 cents from the allotment, and all of a sudden, U.S. tobacco looks much more competitive," Mr. Stevens said.

True enough in theory, Mr. Jennings and many farmers believe, but hard to put into practice. Although the allotment system is costly and unwieldy, it protects farmers from fluctuations in price.

"That's what makes tobacco farming so attractive. You can figure what you'll earn. You can count on making a good living," Mr. Jennings said.

Local counties can also count on a steady stream of revenues. Virginia's largest cash crop, tobacco's impact is all the greater because it is concentrated in half a dozen counties near the North Carolina border.

And the allotment system, which calls for a certain amount of tobacco to be grown by farmers in each county, guarantees that each county receives some of tobacco's bounty.

Other crops, by contrast, are not necessarily grown by locals, so profits may well flow out of the county.

"All of the infrastructure of these counties is built on tobacco. The schools, the roads -- it was tobacco money that built this and that still pays for it," said Bobby Connor, clerk of the county court in Halifax County and a prominent tobacco farmer.

Even if the allotment system remains, small farms seem doomed. In many parts of Kentucky, for example, growers hold just a few acres and make a living from tobacco.

"There are too many two-acre, rinky-dink farmers. Some will have to get out of business. You've got to get into the 20th century before we enter the 21st century," said Mr. Maxwell, the Wall Street analyst.

Big farms vs. small

But that would also come at a price, especially to areas like Chase City, near Mr. Jennings' farm.

The land around here is rolling farmland, ideal for small farms but inappropriate for large-scale farming. If tobacco's future depends on big farms, some areas will not be able to make the transition.

Even areas that do make the transition may see their small-farm character disappear and an increase in unemployment or depopulation as small farmers are bumped off their land.

Unless, of course, they could find an alternative crop, a hotly debated topic by pro- and anti-smoking groups.

"Alternative crop. That doesn't make sense to me because there is no alternative. No crop can replace the income generated by tobacco," said Dr. Jones, the agronomy professor at Virginia Tech.

Prices for many other crops, for example, have been flat or declining -- at $3 a bushel, for example, wheat commands the same price it did 50 years ago. No farmer could break even on the small farms that characterize this part of the country.

Many anti-smoking activists argue in favor of substituting fruits and vegetables for tobacco. Indeed, some of the proposals to increase cigarette taxes would earmark funds for crop substitution.

The problem with these plans is that no state or county has tested a wide-scale crop substitution plan for tobacco.

The few small-scale efforts that have been attempted have met with strong resistance from farmers.

Farmers, for example, argue that demand for fruits and vegetables is inelastic -- produce more strawberries, for example, and you drive down the price. And few farmers here believe they could compete with the big fruit or vegetable farms in Florida or California.

"We've tried other products around here, but none work like tobacco. For the farmer, tobacco is the best crop by a long shot," said Larry McPeters, agricultural extension agent for Halifax County, Va.

Others are not so sure.

Anne Meagher Northrup, a Republican in the Kentucky legislature, has become a leading advocate of substitute farming. She says that small farmers can make as good a living growing vegetables -- if they are close to the food processing plants that turn low-value vegetables into the high-priced soups, sauces and prepared foods that Americans now buy for dinner.

As an example, she points to tomato farmers in Owensboro, Ky., who are paid top dollar for the vegetables they deliver across the Ohio River to a tomato sauce plant in Indiana.

Even this example, however, may not be applicable to many tobacco farmers. Western Kentucky is flat -- more typical of the Midwest than the rolling, bluegrass regions of the state that depend on tobacco.

Mrs. Northrup, though, points out that relatively little has been tried in tobacco areas. The reason, she says, is that local farmers and regional planners are paralyzed by tobacco companies' "scare tactics" of arguing that the tobacco belt will live or die by tobacco and nothing else.

The companies have a vested interest in protecting the status quo, she says, because if farmers believe they have no alternative, then their representatives in Congress will fight cigarette taxes on the grounds that it hurts local farmers.

"If government and the farmers got a bit more active, they could build the sort of marketing system that has made tobacco so successful," Mrs. Northrup said. "Instead, they listen to the tobacco companies, who have put our farmers close to panic," Mrs. Northrup says.

"They've convinced our farmers to go to Washington and fight the new excise tax when in fact the companies are hurting the farmers worse than anything an excise tax has ever done."

TOMORROW: Tobacco companies weigh radical plans to get out of the tobacco business, as lawsuits and anti-smoking measures end tobacco's endless profitability.