SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOC REVIEW THE IMPACT OF THE PROPOSED TOBACCO SETTLEMENT ON PRODUCERS
TUESDAY, FEBRUARY 3, 1998
House of Representatives,
Subcommittee on Risk Management
and Specialty Crops,
Committee on Agriculture,
The subcommittee met, pursuant to notice, at 9:15 a.m., in room 1300, Longworth House Office Building, Hon. Thomas W. Ewing (chairman of the subcommittee) presiding.
Present: Representatives Smith of Michigan, Everett, Lewis, Bryant, Chambliss, Smith of Oregon [ex officio], Baesler, Bishop, Goode, McIntyre, Etheridge, and Boswell.
Also present: Representatives Jenkins and Clayton.
Staff present: Paul Unger, majority staff director; David Dye, chief counsel; Gregory Zerzan, associate counsel; Stacy Carey, subcommittee staff director; Callista Bisek, Ryan Weston, Wanda Worsham, clerk; and Beau Greenwood.
OPENING STATEMENT OF HON. THOMAS W. EWING, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS
Mr. EWING. The meeting of the Subcommittee on Risk Management and Specialty Crop hearing to review the impact of the tobacco settlement on tobacco producers will come to order. The meeting of the subcommittee has been called today to consider the proposed tobacco settlement.
Ladies and gentlemen, I am indeed pleased that you are all here today. I think that many of you are familiar with the settlement negotiated in June of 1997 between the States' attorneys general, the trial lawyers, the public health advocates, and the tobacco companies. None of us here today that I know of were a part of that negotiation. The goals, as outlined in the preamble of the settlement, are to strengthen the Federal and State regulatory arsenal needed to address underage tobacco use. Youth smoking needs to be reduced. This is a goal that I think all of us support. The percentage of students smoking cigarettes today at the 12th grade level is the same as it was in 1991: 63 percent. This statistic is unacceptable and we must do something about it.
Page 2 PREV PAGE TOP OF DOC This is not a new concern, though, for the Congress took concrete action to address youth smoking long before the FDA promulgated regulations in 1995 and the settlement was negotiated in 1997. In 1992, Congress passed an amendment to the Public Health Service Act requiring States to implement laws prohibiting the sale and distribution of tobacco to minors. The implementation of this law was unexplainably delayed for 3 years and the final rules were not issued until January of 1996.
At the same time, there were other serious issues facing our Nation's children. Consider the statistics: that marijuana use has increased 12.3 percent, LSD 4 percent, cocaine 1 percent. You know, we must be just as committed to the war on drugs as we are to eliminating underage tobacco use.
The purpose, as stated in the proposed settlement, is to reduce tobacco use. Notwithstanding that settlement, we are already seeing a decline in U.S. cigarette consumptionthis year, by 2.5 percentand cigarette experts are predicting that exports will fall between 5 and 10 percent.
The question on the minds of many of us this morning is, where does this leave the 124,000 tobacco farms? There are not many places for you to get that answer. The only reference to tobacco farmers in the settlement is a statement that FDA jurisdiction does not extend to the growing, cultivation, or curing of raw tobacco.
I have heard a lot of talk from many interested parties about their concerns for growers but I have not seen any proposals from any of them. There have been no proposals from the White House, from the tobacco companies, from the attorneys general, or from the public health groups about how tobacco farmers should be treated or, more importantly, who should pay any assistance they might receive. There is one exception: the Koop-Kessler advisory committee recommended elimination of the tobacco program with subsidy assistance for alternative crops. The June settlement addressed concerns by many. There was something in it for the attorneys general; they were going to take money back to their State. There was a lot of something in it for the trial lawyers who were going to receive major payments; something in it for the tobacco companies as they receive immunity from liability; something in it for the public health community: new HHS funding for the bureaucracy. There was nothing, absolutely nothing, in it for the tobacco growers.
Page 3 PREV PAGE TOP OF DOC Our goal today is to hear directly from the U.S. tobacco-growing community about the negotiated settlement. I want to commend many of my colleagues who are here today who have been discussing the issue at home with growers. The more information we receive, the better policy decisions we will make. Today is our opportunity to hear the views of those from many different tobacco-producing regions.
The tobacco farmers are proud and productive as any other farmer in this country. They are families that work just as hard as any other farm family in this Nation to make a living. It is high time that we lift the dark cloud that hovers over their farms. The lack of concern for American tobacco farmers has been shown by those who seek a political vote against tobacco by support of the repetitive and punitive appropriation efforts to deny crop insurance and access to farm extension services to America's tobacco farmers.
I would like to send a message to my colleagues and to the public health community who believe this is a good anti-tobacco vote that it is not a vote against tobacco; it is a vote against farm families. Congress should not, and I believe will not, pass the proposed tobacco settlement without provisions to address the concerns of those who run the 124,000 tobacco farms in this country.
Your views are very important to us. The solution is yours to develop, and I want to thank and welcome each of the witnesses. We look forward to your testimony today.
I also want to now call on the chairman of the Agriculture Committee, Mr. Bob Smith. Chairman Smith?
OPENING STATEMENT OF HON. ROBERT F. (BOB) SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF OREGON
The CHAIRMAN. Thank you very much, Mr. Chairman, ladies, and gentlemen.
Page 4 PREV PAGE TOP OF DOC On October 1, 1997, the President called a group of committee chairmen from the Congress down to the White House and the subject was, what are we going to do about tobacco use, particularly youth smoking? And, as people responded around the room, I had a chance to say, well, whatever happens to a package, there's going to be a place for farmers to be compensated. If, indeed, it becomes the Government's decision in the public interest that there be reduced smoking and, therefore, an impact upon farmers, then it ought to be in the public interest of the Government to compensate the farmers. I noticed that the President did make that point in the State of the Union speech and, yet, there's no money in the budget for either that compensation or any part, as the chairman mentioned, of the proposed settlement money for farmers. So, we must do that.
And I compliment you, Mr. Chairman, on a strong statement in support of farmers because this committee is the place where farmers and ranchers are represented. And this is the place that is going to originate the impact and the protection for tobacco farmers in this country. We are all interested in promoting the problems of youth smoking and we will do that and this committee will be part of that. And, yet, we do have a responsibility and obligation, as you have identified, Mr. Chairman, to protect farmers who grow a legal crop. And this committee is united in that effort, so we're here to listen to youto your suggestionsas to what level of injury there might be, how farmers might be compensated, and, if there is to be an overall decision and final result of a tobacco program in America, it is going to include compensation for farmers.
Thank you, Mr. Chairman.
Mr. EWING. Thank you, Chairman Smith.
Due to the time constraints today, we're going to operate under the 5-minute rule and ask the indulgence of the members here if they have an opening statement to submit it. I would, thoughif anyone feels very strongly and wants to make a short statement before we start, we will do that. Your full statement can be put in the record. Anyone who wants to make a short statement?
Page 5 PREV PAGE TOP OF DOC We have several. We'll just go down the line. OK? [Laughter.]
OPENING STATEMENT OF HON VIRGIL H. GOODE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA
Mr. GOODE. Thank you, Mr. Chairman. I, too, want to say I appreciate all who are here today to testify and I want to commend you on your especially strong and good opening statement, as Chairman Smith stated. I think your figures were very telling. If the administration had spent as much time attacking cocaine, LSD, and heroin as it spent on tobacco, maybe they would have been dead-level too.
I've heard in the southside of Virginia's fifth district more discussion about the tobacco settlement legislation than any other topic and I can tell you that farmers, warehouse people, those who work as graders, checkers, equipment dealers, farm supply dealers want some type of legislation that recognizes the impact that this settlement will have on them. To date, that has not been done.
In our area, we have the Virginia Tobacco Growers Association, Concerned Friends of Tobacco, and Virginia Agricultural Growers Association. They would like to see a payment to the quota holders, transitional payments to those that lease, and a system that allows tobacco to continue to be growing in our part of the Nation. And I can tell you that I will not support any legislation unless those needs are recognized and addressed in it. Thank you.
Mr. EWING. Thank you, Mr. Goode.
OPENING STATEMENT OF HON. RON LEWIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF KENTUCKY
Mr. LEWIS. Thank you, Mr. Chairman, again for arranging this hearing today and providing the opportunity for our subcommittee to hear from the tobacco and farm organizations and the farmers whose very livelihood is at risk today. I also want to express my appreciation to each of you gentlemen who have taken the time and expense to travel here and participate on our panel. Your input is important to this committee as we attempt to forge ahead in determining how we can best protect the interests of our tobacco farmers and rural communities, for this hearing is about the farmer. Today we can focus our attention on the tobacco growers and the difficulties they are facing in an increasingly hostile environment.
Page 6 PREV PAGE TOP OF DOC There is not a tobacco supporter in this room that does not recognize how successful the tobacco price support program has been for our farmers and their communities. The existing price control and quota system has served us well, yet we would not be assembled here this morning if we had the confidence that the program was secure. Mounting litigation and increasingly negative public opinion toward tobacco compelled the tobacco companies to seek a national settlement.
I think we can all agree that we have never seen a greater assault on tobacco. We witnessed an unprecedented number of tobacco-related votes in the Congress this past year and there is probably more uncertainty now than there was 6 months ago on the prospects for any future national tobacco legislation. If I have learned anything from listening to the farmers back home, the present uncertainty demands that we remain flexible and keep our options open.
With or without a settlement, we will again be fighting an uphill battle just as we did last year when the House narrowly defeated a proposal to end crop insurance and extension services for the tobacco farmers. The reality is that many Members of Congress and health care groups believe it is inconsistent for the Federal Government to provide a Federal tobacco production program while waging a campaign against smoking. Let's not overlook the fact that tobacco taxes amount to six times the gross income earned by producers on one acre of tobacco. Now, even greater excise taxes are being proposed that would further punish our farmers, the tobacco-dependent communities, and those consumers who choose to use the product Kentucky's farmers so proudly produce.
Aside from some token gestures of goodwill and vague commitments, the States' attorneys general and the health advocates have yet to support any concrete plan to compensate the farmers and their communities for the anticipated loss of tobacco income.
As recently as the State of the Union address, President Clinton offered merely a brief mention of the tobacco farmer when he urged support for comprehensive tobacco legislation. The Congress has been presented for consideration a huge $365 billion settlement proposal with no provision for any of these funds to assist our farmers. These are hard-working people who are raising a legal crop whose family farms will be seriously threatened by any legislation that compromises the tobacco program.
Page 7 PREV PAGE TOP OF DOC Mr. Chairman, I look forward to hearing from our witnesses today and the thousands of family farmers who rely on tobacco to put food on their table, clothe their kids, and pay their mortgages. Thank you.
Mr. EWING. Thank you, Mr. Lewis.
OPENING STATEMENT OF HON. MIKE MCINTYRE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA
Mr. MCINTYRE. Thank you, Mr. Chairman. I wanted to extend a special welcome to my friends from southeastern North Carolina that I represent, especially Mr. Larry Sampson, who is president of the Tobacco Growers Association of North Carolina, from my home county of Robeson and who also serves on the Agriculture Advisory Committee from my Congressional District.
Seven billion dollars a year of the North Carolina economy, 255,000 jobs, money that turns over seven to eight times in local towns like Rowland, where Mr. Sampson comes from, and Lumberton, my hometown, means that this is a question that is not just merely about smoking. It's a question about families and putting food on the table and putting a roof over their heads and being able to educate their children and pay their medical bills. This is how families in my district have met their financial obligations not only in recent years, but literally for generations, including my great grandfather who owned nearly 1,000 acres of farmland in my county, grew tobacco, including my step-grandfather who worked at a tobacco auction literally one block from the house I grew up in at a local tobacco warehouse.
When we talk about this issue, we are talking about the livelihood of farmers and their families and we're also talking about the very livelihood of the economic ripple effect to businesspeople and realtors, lawyers, bankers, doctors, and others in our smaller towns especially.
Page 8 PREV PAGE TOP OF DOC I was very encouraged last year that when I personally invited Secretary of Agriculture Dan Glickman to come to my hometown of Lumberton to witness the tobacco auction that he did. He came to Mrs. Clayton's district, Mr. Etheridge's district, and mine. For the first time in his life, he saw a tobacco auction in person and our district manages nearly 600 tobacco farmers, literally from every county in our district, some even from South Carolina, and saw that these are the faces of real people who have real problems and are going to have real concerns if they are left out of any potential information or settlement.
We are pleased that Mr. Glickman has taken seriously to heart our concerns. We are pleased that, indeed, as he told me last week before the President's State of the Union Address, as you all heard, the President did mention the tobacco farmer 1 week ago tonight in the State of the Union Address. So, we have come a long way from where were last year when no mention of the tobacco farmer was even made in the proposed settlement.
However, we realize that the battle has now just begun. We're ready for that battle and we welcome all of you who have joined us in the battle and those of us on this panel share your very serious concerns. We are ready to do the work to help represent the tobacco farmers and their families because we realize that it represents the very core values of honesty and integrity, of making a good living from the soil of the earth. The good Lord has blessed so many of our families through the generations, including families like my own.
So, we are ready to work, Mr. Chairman, and, to our panelists, we say welcome. I know many other friends of North Carolina are here and we're glad to have you with us today.
Mr. EWING. Thank you, Mr. McIntyre.
OPENING STATEMENT OF HON. ED BRYANT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE
Page 9 PREV PAGE TOP OF DOC Mr. BRYANT. Thank you. I want to associate myself with the remarks that have been made thus far from both sides of the aisle.
The tobacco settlement, as has been mentioned today, is going to come up for review this session and most likely, in my view, will be approved and should be approved. However, within that, there has been very little mention or reference to our tobacco farmers and, along with Mr. Jenkins here today, we represent the State of Tennessee. We are extremely concerned for our Tennessee tobacco producers.
We likely will support the comments all of you make here, especially those from our neighboring State of Kentucky, and I would also like to just quickly, if I could, make one comment about the funds.
We've got to come up with some money from this $368 billion and I'm not sure it's there right now. But, I think, a very viable alternative to this is this huge pot of money out there that is somewhat of a mystery now that is earmarked for the trial attorneys.
In the case of the trial attorneys and their legal fees, there is as we speak, a lawsuit going on in Minnesota in which the entire claim of the big State of Minnesota, and I say that it is a very large State, is something in the nature of $1.7 billion. That's what they want to get from tobacco. That's the lawsuit up there. To put the attorneys fees in context, in Florida alone the claim for attorneys fees only is almost double that: $2.8 billion which would go to a handful of lawyers in the State of Florida.
That's outrageous. That's unconscionable, and when you look at that all across this country and see what the trial lawyers are making on the backs of so many good people, most of them becoming instant multi-millionaires, possibly a few billionaires, for their work in this litigation. Now, I think they ought to be compensated fairly, but that's outrageous and I certainly view that as something Congress ought to take on, and certainly, as I mentioned earlier, a source of some funding for whatever types of programs we can come up with for our farmers.
Page 10 PREV PAGE TOP OF DOC And I simply want to close by thanking the chairman for having these hearings.
Mr. EWING. Mr. Etheridge.
OPENING STATEMENT OF HON. BOB ETHERIDGE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA
Mr. ETHERIDGE. Thank you, Mr. Chairman.
Mr. Chairman, I want to thank you for holding these important hearings on the proposed subject because this will be the first time that our farmers have a chance to be heard on this issue. Everyone else has been heard. This is now their opportunity. However, just as tobacco farmers have had to scrape and claw their way into making a living for their families each and every year, they really have had to scrape and claw their way into being able to be heard on this issue. And I want to thank you for making sure that they're having a chance to be at the table. And we've come a long way since this settlement was announced last June. No farmers were involved, no farmers had any input. None of the allotment holders were given an opportunity. And I want to thank you for that.
I want to congratulate the farmers and the different organizations and my colleagues for drawing attention to making sure their voices are heard. This morning, we have a number of people from the district that I represent in North Carolina, and some of them I've worked with over the years as a State official: Talmadge Layton from Durham, Keith Parrish, who is a past president of the Tobacco Growers Associations, Larry Barbour, Pender Sharp, Jerome Vick, Ed Bissette, Bruce Flye, whom I've worked with for many years, as Mike said Larry Sampson, and Bob Jenkins who is president of our Farm Bureau, and Larry Wooten, who is his able assistant. They will be testifying this morning and I want to thank them for coming.
You know, this national settlement, I believe, that farmers have to be included, and I'll associate myself with what my colleagues already said and try not to repeat too much of that. But I think the questions that have to be resolved starting today and over the next several weeks and months is how do we best protect the interest of tobacco farmers, those who own the quotas, and their community?
Page 11 PREV PAGE TOP OF DOC Over the past 3 weeks, I have met with over 1,200 different growers and quota holders in the second district in North Carolina. Some of them favor a buyout of the quota and a conversion to a strict market system. Others want to protect and strengthen the program. Others want a buyout and establish a private program. I think is, though, that the argument on all sides are very strong and convincing and there's no easy answer.
However, I do think there is one thing that we can all agree on: if there is any monetary settlement that is adopted by this Congress, and I think those of you in the audience today have heard that from my colleagues, that certainly the farmers and those who have invested their lives in those quotasbecause they bought land just like people bought stock on the U.S. stock market and they have a right to be compensated for it and to be protected. And we ought not to take it away and they have to have a fair share of those funds.
But, I think the biggest hurdle we face is reaching a comprehensive settlement that can be passed by this Congress and signed by the President this year. There are a lot of obstacles. But I think we can overcome them. We have a historic opportunity, I think, to settle one of the most divisive public debates that this country has seen in a long time and it'll be a black eye on this administration and on the 105th Congress if we let this opportunity pass away.
I am extremely concerned about a number of the comments I've heard in recent days of a lot of parties about it may not happen. But we must notwe may not get this opportunity again so we better work together to make it happen.
Like most members, I have been distressed by the recent reports that have come about the companies and their marketing to young children. Certainly, that was in the past. We have to deal with that but we have to make sure that it does not happen in the future.
The President's budget contains a number of programs that include money from the settlement and we haven't even agreed on the settlement. But I would say to you, if we fail to pass a responsible settlement legislation this year, I think the following results are virtually guaranteed if we fail to come up with legislation. No. 1, children will continue to have access to cigarettes. No. 2, the FDA and companies will be tied up in litigation for years over the FDA's jurisdiction over tobacco and other programs. The companies will not agree to unprecedented restrictions on advertising, and companies will continue to have a number of sponsorships in various areas.
Page 12 PREV PAGE TOP OF DOC So, I think it's important that we find a way to work together to come up with a settlement. And, the truth is, if we can't come up with a settlement, there will be no funding to compensate those people who have worked so hard all their lives and stand now to lose it all. And that should not happen and tobacco will continue to be a dominant debate and it should not be. It's been a part of our heritage and it should continue to be. There will be no winners unless we have some kind of settlement this year. And I think the winners can be our public health, it can be our farmers, it can be our States, and it can be all Americans if we can come together with this settlement we can agree on.
Mr. Chairman, let me thank you and I want to thank you again for giving the farmers an opportunity to have seat at the table in a long overdue opportunity at this debate. Thank you, sir.
Mr. EWING. Thank you.
OPENING STATEMENT OF HON. SAXBY CHAMBLISS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
Mr. CHAMBLISS. Thank you, Mr. Chairman, and without being redundant in a couple of different ways, I would just want to say thanks to you and to Chairman Smith for the strong leadership that you have provided in this arena that we are now dealing with and I want to personally thank both of you for making the effort and taking the time to come to my district to visit not only with my peanut farmers but my tobacco farmers down there. In most instances, it's one and the same, as you saw.
We are in a very unusual atmosphere in Washington right now in talking about a tobacco settlement and I think it's kind of interesting that the administration has already spent about 20 percent of this money on various entitlement programs that they are attempting to put into the new budget and, as Mr. Brown alluded, the trial lawyers apparently are claiming about 25 percent of the total settlement package. And while everybody stands up and says, yes, we want this settlement and we can't do it without looking after the farmers, none of those folks have given any idea of what they think about the people who have made this settlement possible from a financial standpoint, and that's the farmers.
Page 13 PREV PAGE TOP OF DOC We have long talked, as Members of Congress, among ourselves on both sides of the aisle and this has been a totally bipartisan effort about the fact that the companies have been represented at the table, the administration has, in effect, been represented at the table, and certainly the States have been represented, but the farmers have not been.
In my district, over the last several weeks, I've had some meetings with farmers and got their input as to what they expected to come out of this settlement from a grower, from a quota holder, and from a warehouseman standpoint and I'm going to have an opportunity to bring those ideas here but I am just extremely pleased today that we have the gentlemen who will sit before us to tell us what they thinkthe farmer, the warehouseman, and the quota holderought to be looking towards receiving out of this settlement.
I've got a couple of individuals who will be testifying on the first panel; Mr. Wayne Dollar, who is president of the Georgia Farm Bureau. Wayne and I go way back. He lives only a few miles from me down in Oclochnee, GA, a large community of about 400 people. When Wayne left Oclochnee and had to move to Macon, when he became president of the Georgia Farm Bureau, he took his family with him and it decreased the population of Oclochnee significantly. But I'm very pleased to have Wayne here. He's been a good strong leader. And the Honorable Dane Perkins, who is a warehouseman from down in Berrien County, GA. Dane and I also go way back. He practiced law and, Mr. Chairman, you can appreciate this, in addition to being a tobacco warehouseman and farmer, Dane decided to get into politics last year, I guess it was, and was elected superior court judge, which is our highest court of general jurisdiction and I'm just extremely pleased to have Dane here today to testify along with Donnie Smith, who I will introduce a little later. Thank you, Mr. Chairman.
Mr. EWING. Thank you. Well, that's the way we are able to stay in farming, is getting that outside income, Saxby. [Laughter.]
Page 14 PREV PAGE TOP OF DOCOPENING STATEMENT OF HON. EVA M. CLAYTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NORTH CAROLINA
Mrs. CLAYTON. Thank you, Mr. Chairman. I also want to join my other colleagues in thanking you for having this hearing and also for your generosity for allowing me to sit at this panel and participate in that.
I want to welcome those who are from North Carolina who are testifying, and welcome the others who have come from various States to testify and we look forward to the presentation.
I wanted to say, Mr. Chairman, I really do not smoke, do not encourage other people to smoke, and I certainly don't think children should smoke. So, I applaud all efforts to reduce children who smoke because they should not. But, at the same time, as we move into this worthy public policy, there is consideration that we must save.
North Carolina farmers grow quite a lot of tobacco, both burley and flue-cured tobacco. Over 65 percent of all the flue-cured tobacco is grown in North Carolina and in the eastern North Carolina, in particular in my district, the First Congressional District, I grow or they grow in my district, the producers make more than any other district in the Nation. Reported in 1995, there was more than 225 million pounds in 1995.
And, I want you to know, Mr. Chairman and my colleagues, that these North Carolina farmers and tobacco farmers are no different from any other farmers. They are farmers who care about their children, they care about making a decent living, they care about their values, they work hard just like anywhere else. In the final analysis, they are growing a legal commodity and they want to be treated as any other farmer who is growing a legal commodity. Like any other American farmers, they till their soil carefully, they plant their crop, they also hope for a great yield and market their products just like any other commodity. So, in the end run, they would like to have the opportunity to make a decent living for their families.
Page 15 PREV PAGE TOP OF DOC I would say also once you know that planting tobacco allows for small farmers, in particular, small, disadvantaged, minority farmers, to be active in farming and Mr. Ewing has said that how we stay in farming is to have the outside crop. You are absolutely right. But how small farmers stay in farming is to have a commodity that has a yield sufficient for them to have a good supplemental living.
In fact, the average farmer in North Carolina is 172 acres to 319 acres as contrasts to the average farm in America has 419. And the very reason is because tobacco, as a commodity, allows them to have that opportunity. It will almost take 8 times more acres of cotton, 15 times more acreage of corn, 20 times more acreage of soybeans, and 30 times more acreage of wheat to equal the income of one single acre of tobacco. It's the reason why small farmers have that opportunity.
Again, according to the North Carolina Department of Agriculture, there were more than 44,000 allotment holders and 17,000 tobacco growers in our State as a whole. In North Carolina, tobacco provides 15 percent of the total agriculture cash receipts. So, this isn't any small incidental involvement. As already indicated, more than $7 billion in 1996. So, if you multiply that 10 times, you know then agribusiness provides the backbone for many rural areas.
And I cannot comprehend what will happen to the rural counties in my district if that value is pulled from the value of the land, pulled from those communities. What happens to the retail shop or to the hardware store, the supermarket store, or to the bank, for that matter? Because tobacco is the backbone of many of my counties.
The total economic impact will be felt not only in income and value of lands or the taxes that go to support schools, but also in jobs. In North Carolina alone, more than 108,000 jobs are related either to the processing, the growing, or to production of tobacco. So, we are talking about a significant amount of money.
Page 16 PREV PAGE TOP OF DOC Again, this is not to say that the public policy of reducing teenage smoking isn't a worthy one, but it is to say that the Government has an obligation as they pursue that public policy to understand the, we'll call it, great havoc, and as they do that, they must consider the following principles. The core principles in my judgment are: one, they should make sure that the quota equity must be protected because the value of land reflects its worth; two, the farm income stability must be preserved in order to protect against market volatility caused by the settlement, or, I should say, market volatility caused by extra taxes there may be; three, global export markets access must be preserved; four, economic assistance for impacted communities must be provided, including tobacco producers, quota holders, and tenant farmers, and displaced workers through producer investment tax credits, additional monies also for land grant to make sure that there is research available to assist our farmers; and, finally, we cannot ignore the youth in this community, the education opportunities for those who depend upon those taxes. In my judgment, all of these things should be considered.
Finally, I would say it is the small farmers, Mr. Chairman, including socially-disadvantaged minority farmers, that are essential as we go forward. They will be devastated as any settlement or substantial increase in taxes are warranted.
Thank you, Mr. Chairman.
Mr. EWING. Thank you, Mrs. Clayton.
OPENING STATEMENT OF HON. WILLIAM L. JENKINS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE
Mr. JENKINS of Tennessee. Thank you, Mr. Chairman. I certainly appreciate an invitation to participate in this hearing and I certainly appreciate all those who have come here to testify.
Page 17 PREV PAGE TOP OF DOC I represent the First Congressional District of Tennessee. There are more than 38,000 farms there and a vast majority of them have tobacco allotments and a vast majority of them grow tobacco. I've been involved in farming and tobacco farming for my entire lifetime.
It's been said, like the song says, here this morning many times, many ways that we've had negotiations for months now about the settlement of these tobacco lawsuits and there's been no participation by the farm families across this country and there's been no consideration for the farm families across this country. Although it's been said, I think it's worth repeating.
Now, it's my hope that, as this enters the Congressional arena, that the Congress will, for the first time, consider these farm families and protect the interests of not only the farm families but the communities in which these farm families live. I certainly intend to, with my freshman vote here in the House of Representatives.
And there's one thing that has not been mentioned that I think is worth mentioning. There's a fear, both within the tobacco industry and outside the tobacco industry, that the present course of action that this country has set will eventually drive an entire industry out of this country and into other countries. Now, what's the net result going to be? Eventually, we're going to have a high-priced, imported and sometimes contaminated cigarette. They're still using DDT in many parts of the world to kill tobacco worms, I'm told. And we haven't done that for years, although I've certainly dusted it and I'm sure a lot of other people in this room have.
But, we would lose all the benefits that we have with this industry, we would still be strapped if that happened with all the difficulties that are connected with tobacco, and, Mr. Chairman, this to me does not make sense and I hope that whatever we do, in the months ahead, that the Congress will help to put a little sense into this situation. Thank you, sir.
Page 18 PREV PAGE TOP OF DOC Mr. EWING. Thank you, Mr. Jenkins.
OPENING STATEMENT OF HON. SANFORD D. BISHOP, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
Mr. BISHOP. Thank you very much, Mr. Chairman, and I'd like to certainly join all the others in thanking you for holding this very important hearing.
After our district work period that has been full of meetings with farmers where I was repeatedly asked about the status of the tobacco for the buyout, I'm glad to see that the committee is beginning the session by trying to get a handle on this matter.
I want to thank you, Mr. Chairman, for inviting at our request Mr. Wayne Dollar who is president of the Georgia Farm Bureau Federation, and Mr. Dane Perkins who represents the Tobacco Quota Warehouse Alliance, both from Georgia. I want to thank these two gentlemen for taking the time to come and to bring a perspective to this debate that has not been brought before. I certainly appreciate the hard work that Mr. Wayne Dollar last month undertook on behalf of the Georgia Farm Bureau Federation and the tobacco farmers in Georgia to go around south Georgia in the tobacco growing areas and to meet with farmers and to get from the grass roots what the concerns were and to try to help us build a consensus.
While there now exist many questions of uncertainty for our constituents whose livelihoods hang in the balance, I hope today we can begin the process of building a consensus from the ground up over the question of how we proceed, for it's only through consensus that we will ever be able to speak with a clear and a coherent voice to our many colleagues in this body who may not understand that tobacco has virtually defined family and financial security for many generations of Americans.
Mr. Chairman, I was married to the daughter of a tobacco farmer who grew up on a tobacco farm in North Carolina, and I heard for a number of years the many woes the tobacco farmers faced and, ultimately, the demise of that family farm. And I hope today, as this debate proceeds in Congress and as we proceed to complete it, that the tobacco farmers of Georgia, North Carolina and all across this country will not suffer the same demise that her family farm suffered. I hope that our colleagues on the committee will keep in mind what the Kentucky essayist, Wendell Barry, said about the conundrum of tobacco in America: ''The ruin of farmers solves no problem and makes many.''
Page 19 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
Mr. EWING. Thank you, Mr. Bishop.
If any member would like to submit their full statement for the record, or if there are any additional statements, they may be included at this point.
[The prepared statements of Mrs. Clayton and Mr. McIntyre follow:]
STATEMENT OF HON. EVA M. CLAYTON
Good morning. I would like to thank Subcommittee Chairman Ewing and Ranking Member Condit for convening this hearing and for your graciousness in allowing me to participate.
I would also like to recognize and welcome the many North Carolinians on today's panels: Mr. Bob Jenkins, president of the NC Farm Bureau; Mr. Bruce Flye, president of the Flue-Cured Tobacco Cooperative Stabilization Corporation; and Mr. Larry Sampson, president of the Tobacco Growers Association of North Carolina.
Let me state from the outset, that I do not smoke and do not encourage others to smoke. However, the decision to smoke is one best left to mature adults. Children should not smoke, nor should they be enticed to smoke.
I applaud all efforts to curb and ultimately reduce the incidence of youth smoking in the United States. Tobaccothe mere word engenders many strong feelings and opinions in most Americansand especially in those of us who serve in Congress.
With regard to the pending tobacco settlement, no matter how you feel about tobaccoone must view it for what it is: a legal commodity grown by many American farmers.
North Carolina farmers grow quite a lot of tobacco, both burley and flue-cured. Over 65 percent of the total U.S. production is grown in North Carolina. In fact, my constituency, the First Congressional District, produces more flue-cured tobacco than any other in the Nation. These Eastern North Carolina farmers produced over 225 million pounds in 1995.
Page 20 PREV PAGE TOP OF DOC These North Carolina farmers, our tobacco farmers, want the same things as other Americans: a good quality of life overall for them and their families, for their children to have a good education, for them to have sufficient resources with which to provide their families with food, shelter and other amenities of life. Savings for their retirement, a secure environment in which to live and work, and most importantly, hope for the future.
These farmers, our tobacco farmers, care about their children as well as other children in their community, instilling in them the values of honesty and hard work. Many of them are third and fourth generation tobacco farmers, even though some of them must seek additional employment off the farm as teachers, business people, factory workers and other occupations. Many of them serve as leaders in their communitiesin their schools, in their churches and synagogues, and other local and civic organizations.
Like other American farmers, like those in your home States, these North Carolinians prepare their land, till it carefully, plant their crops, tend their fields, harvest their yields and market their productsmuch like other commodities such as corn and wheat. These farmers are often small, family farmers. The average farm size in North Carolina is 172 acres319 acres less than the national average of 491 acres. Tobacco is one of the main reasons that small farmers are able to stay in business, because no other crop yields as much income per acre. Most of these farmers are unable to find an alternative crop that provides a comparable income.
It would take almost 8 times more acres of cotton, 15 times more acres of corn, 20 times more acres of soybeans and 30 times more acres of wheat to equal in the income from a single acre of tobacco.
Farmers would have to acquire the land, secure the needed equipment, purchase the required seed, fertilizer and pesticides, and then, hire the necessary laborundue and perhaps impossible financial burdens for all farmers, but especially for the socially disadvantaged farmer.
Page 21 PREV PAGE TOP OF DOC According to the North Carolina Department of Agriculture, there are over 44,000 allotment holders and 17,000 tobacco growers in our State. In North Carolina, tobacco provides 15 percent of the agricultural cash receipts, accounting for more than a billion dollars in economic interests for tobacco farmer, their families and their communities.
The total economic impact from tobacco in North Carolina totaled over $7.7 billion last yearmoney earned by many North Carolina farmers and agribusiness entrepreneurs and employees.
The money earned by farmers and those employed in tobacco-related businesses flows into their communities, spreading those profits around. It has been estimated that the agriculture dollar turns over an average of 10 times in the farmer's local community. Do the math- $7.7 billion times 10 equals $77 billion dollars.
Seventy-seven billion dollars that flows from those citizens who sell the seeds, fertilizers, pesticides, farm machines, groceries, clothing as well as other important goods and services. That revenue also streams into county, State, and Federal tax coffers.
The total economic impact is also felt in terms of jobsover 108,650 North Carolinians are tobacco farmers or employed in tobacco-related jobs.
Therefore, it is absolutely critical, as we continue the process from which a settlement will emerge, that we who serve in both the Senate and the House permit these hardworking farmers to continue to earn an honest living doing what they do wellgrowing tobacco.
The present tobacco program operates at no net-cost to the Federal Government and, through the deficit reduction marketing assessment, actually contributes an average of $30 million dollars a year to the U.S. Treasury.
The continued existence of the program is vital to the continued ability of the tobacco farmer to survive in the modern world of agriculture. I believe, as Congress contemplates the broad policy implications of the proposed tobacco settlement, there are some core principles that are essential to keep in mind: (1) quota equity must be protected because land values reflect the worth; (2) farm income stability must be preserved in order to protect against market volatility caused by the settlement; (3) global export market access must be preserved; (4) economic assistance for impacted communities must be provided, including tobacco producers, quota holders, tenant farmers, and displaced workers, through producer investment tax credits, additional monies for land-grant and 1890 colleges, and other incentives; and (5) create a Youth Development Fund to give our rural youth increased opportunities via organizations such as 4-H, Future Farmers of America, and Farm Bureau's Agriculture in the Classroom.
Page 22 PREV PAGE TOP OF DOC I ask that as discussions of the proposed settlement continue in this hearing and elsewhere, please keep in mind the small farmer, their families and their communities that will be affected.
These small farmers, including socially disadvantaged minority farmers, are essential to the continuation of agriculture in North Carolina and the vitality of our rural areas.
STATEMENT OF HON. MIKE MCINTYRE
I would like to begin by welcoming everyone who has made the trip here today to speak with us about this most important issue. I would like to extend a special welcome to my friends from the Seventh Congressional District of North Carolina, especially Larry Sampson, president of the Tobacco Growers Association of North Carolina from my home county of Robeson.
The importance of tobacco production in my State of North Carolina cannot be overstated. Tobacco is responsible for a $7 billion annual component of North Carolina's economy each year and provides jobs for more than 255,000 North Carolinians. And with money from the production of tobacco turning over seven or eight times in tobacco communities, the impact this crop has on local, rural economies is enormous. At the heart of those figures, however, are farmersoften times small, family farmers like the ones here todaywho work extremely hard to make an honest living by growing the legal crop of tobacco. For generations, farmers in the southeast have fed, clothed, and sheltered their families, supported their communities, and provided for a future for their children by growing tobacco.
I am very concerned, however, about the cloud of doubt and uncertainty that has been cast on tobacco producers and their communities by the proposed global tobacco settlement. Therefore, I joined my colleagues from tobacco producing states last year in speaking to representatives from non-tobacco states and the administration on the potentially negative impact the settlement could have on our tobacco growerstobacco growers who were left completely out of the settlement negotiations last spring. We have made our case time and time again that the implications of the settlement reach far beyond the tobacco industry and state health costs.
Page 23 PREV PAGE TOP OF DOC To date, I am very encouraged by the response we have received from that effort. Last August, Secretary of Agriculture Dan Glickman accepted an invitation to visit with tobacco farmers in eastern North Carolina, which included a stop at a tobacco auction in my hometown of Lumberton, NC, where he heard first-hand the concerns of nearly 600 tobacco farmers in my district. The input Secretary Glickman received on that trip has spurred President Clinton to announce on several occasionsthe latest coming during his State of the Union speechthat no comprehensive tobacco legislation would meet with his approval unless it directly and adequately addressed the concerns of tobacco farmers and their communities. This combined with signs of support from even the most unlikely of areasthe health industryindicates that we have won the initial battle in the fight to protect growers from the negative impact from tobacco legislation. We have succeeded in bringing grower concerns to the forefront of this debate -- a far cry from the starting point last year that saw farmers shut out of the tobacco settlement negotiations.
But our work has just begun! It is now up to us as representatives of tobacco-producing states, along with the farmers and the communities that we represent, to address not only the problems that could emanate from the settlement, but also to correct the problems that currently plague tobacco farmers and threaten the viability of tobacco production as a means to make a living.
The tobacco program, which has provided the much needed stability and support price since the 1930's, is itself becoming more and more politically unstable. Yearly appropriations fights prompted by the political agenda of some members of Congress over the very existence of the tobacco program threaten the long-term stability of a program that not only is of no burden to American taxpayers whatsoever, but also pumps millions into Federal coffers annually. More importantly, these yearly fights have eroded the peace of mind of tobacco farmers who have for generations used the program as a means to provide for their families and remain productive, taxpaying members of society. The annual fights must end.
Page 24 PREV PAGE TOP OF DOC Declining quota levels threaten the very integrity of the program itself. Reductions in quota such as the 17 percent drop for the upcoming year jeopardize the investment of allotment holders and result in alarming increases in quota rent rates that significantly reduce the profit margins for growers who lease quota. With farm profit margins already razor-thin, further reductions in quota will end tobacco production as a means to make a living for thousands of farmers across the Southeast.
The increased importing of foreign-grown tobacco has emerged in recent years as an enormous threat to domestic producers. With estimates of foreign content in domestic cigarettes reaching as high as 28 percentup from 16 percent less than 10 years agothis issue must be addressed before domestic producers find themselves facing further reductions in quota and a shrinking market for their product.
The solution to these problems will not be an easy one, but it is one that is attainable. It is attainable provided we as representatives of tobacco-producing states, the producers and the communities we representand the rest of the agriculture communitystay together, work together, and maintain a positive attitude about the future of agriculture in this Nation. And we must act now. The old saying justice delayed is justice denied is very applicable here, as failing to arrive at an appropriate solution to the problems facing our tobacco growers now will almost certainly end the availability of tobacco production for thousands of small farmers who rely on it to support their families and communities and provide for a future for their children.
Mr. EWING. The Chair asks that the witnesses help us by meeting our time constraints by summarizing their oral testimony. We will be, as I said before, operating under the 5-minute rule. We would like to give the members here the maximum opportunity to ask you questions and get to some of the problems and issues that they feel are important here.
The Chair would also ask that the witnesses remain available throughout the hearing to comment on issues that may arise later in the proceedings.
Page 25 PREV PAGE TOP OF DOC After our first panel has testified and answered questions, we're going to proceed to what we call an open panel and if anyone in the audience is interested in taking part in that open panel, they should receive from the staff a card which they can fill out and then turn back in and as many as possible we will try and hear today.
I'm going to now start with the first panel who has been most patient in waiting at the table while they heard from the members and I will introduce each as we go along. And the first witness will be Mr. Bob Jenkins, the president of the North Carolina Farm Bureau.
STATEMENT OF BOB JENKINS, PRESIDENT, NORTH CAROLINA FARM BUREAU FEDERATION
Mr. BOB JENKINS. Mr. Chairman, members of the committee, thank you for the invitation to share the Farm Bureau's thoughts on tobacco legislation.
North Carolina has systematically, over the years, been diversifying its agricultural economy. North Carolina has evolved from being wholly dependent upon this single crop to being the third most diversified State in the Nation. Tobacco income fuels this transition. It is a $1 billion annual crop for our farm families. The no-net cost tobacco program and its positive impact in the marketplace have funded our diversification efforts.
North Carolina growers will receive $72 million in Government payments through the Production Flexibility Contract Payments programs. States, such as Indiana, will receive $295 million. Kansas, $423 million, and Iowa, a whopping $686 million. Tobacco provides our money in the marketplace.
Our farmers are the most progressive, up-to-date, technologically advanced farmers in the world and have already embraced any commodity that makes an adequate profit. We still have a long way to go. There is no agricultural alternative to replace tobacco's income.
By your actions on this program, you will be determining the economic future and well being of rural North Carolina. North Carolina grows two-thirds of the flue-cured grown in this country. Tobacco will be consumed in the world for the foreseeable future and will be grown somewhere, so why not in North Carolina?
Page 26 PREV PAGE TOP OF DOC The tobacco allotment system allows county governments to generate significant revenues enabling them to provide a host of programs and services for the economically-disadvantaged. For many rural counties, it provides the bulk of the property tax base. It helps fund schools, hospitals, social services, police, and fire protection. The program has resulted in income stability for county government. Aside from Federal intervention, nothing will replace this tax revenue in the short term.
The proposed settlement and resulting uncertainty are already affecting the tobacco community resulting in quota loss and excessive inventory buildup. Farmers need to be compensated for their equity loss and loss of farm income. Farmers that lease tobacco allotments should also receive transitional payments for their capital investments.
Uncertainty over a stable future is causing a lot of farmers to fearfully embrace hearsay and rumors. On one extreme, you can find farmers who are calling for a complete buyout; to the other extreme of preserving the program at all costs. The settlement is designed to lower the U.S. demand for tobacco, which will hurt the small, medium-size, and minority farmers.
The North Carolina Farm Bureau's position is that all growers loss of equity and income be compensated from a reliable source of funds. We would like to see a supply limiting program remain because it provides income stability for our tobacco farmers in our rural communities.
The settlement negotiations before Congress have had a most destabilizing effect on the tobacco community. The farmer made, and continues to make, good faith investments in expensive equipment, barns, and land. In the changing environment, this investment should be protected and the farmer compensated first. The end of a tobacco program without appropriate compensation will spell economic ruin for thousands in rural North Carolina.
A consensus needs to be reached between the House and Senate leadership and the White House for a reliable source of funds to compensate farmers for loss of tobacco quota and income and equity in land, buildings, and equipment. We are asking for and need the same stability, immunity, and profitability that tobacco manufacturers seek. Future uncertainty is affecting the 1998 growing season and our farmers are feeling it now. Even the bankers are concerned. A framework for compensation needs to be established, even if the settlement agreement does not pass the 105th Congress.
Page 27 PREV PAGE TOP OF DOC In conclusion, 63,630 tobacco allotment holders and 42,070 tobacco producers in North Carolina are waiting the outcome of your action. The widow, the young farmer, the elderly, and the children of rural North Carolina are at your mercy.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Jenkins appears at the conclusion of the hearing.]
Mr. EWING. Thank you, Mr. Jenkins.
Mr. Wayne Dollar, president of the Georgia Farm Bureau. Wayne, welcome.
STATEMENT OF WAYNE DOLLAR, PRESIDENT, GEORGIA FARM BUREAU FEDERATION
Mr. DOLLAR. Mr. Chairman and members of the committee and Congressman Bishop and Congressman Chambliss, I am Wayne Dollar, president of the Georgia Farm Bureau Federation and I thank you for some wonderful comments and some feeling at ease, as we were here today listening to you.
Georgia Farm Bureau represents the majority of tobacco farmers in 48 tobacco producing counties across our tobacco belt and our growers produce some of the best tobacco in the world. And I say that your views todayI thank you for listening to those and I thank you for the opportunity to be here to hear those views as it relates to a proposed tobacco buyout and settlement.
Tobacco has been good to south Georgia; without a tobacco program, our growers would be hurt severely. The income from tobacco has helped to stabilize local economies and has provided a profitable crop for farmers in most years. It is vital that any settlement by tobacco companies include tobacco farmers. Tobacco quota has been paid for by farmers with a lot of sweat and hard work.
It is essential that compensation for loss of future tobacco income and the value of quota be paid to farmers. This compensation should be at a fair and equitable level, with consideration given to quota holders and producers or tenants. Growers who want to continue to produce tobacco should be allowed to do so. Young tobacco farmers rights to grow tobacco should be protected. Also, older farmers who may want to retire should be allowed to do so with adequate compensation for the value of quota they have worked all their lives to acquire.
Page 28 PREV PAGE TOP OF DOC Tobacco is the only crop in our area that allows for the opportunity for a profit every year. Our small towns and our communities in south Georgia depend heavily on monies generated by tobacco. It is the economic backbone in many areas of our State.
It is also very important to maintain some type of a supply management program. A tobacco program provides stability to tobacco farmers and their communities. Some type of controls, maybe even Government controls, are needed to enforce limits on production and maintain the integrity of the program.
In summary, Georgia farmers want fair compensation for loss of quota and equipment. For those that want to continue to produce tobacco, provisions should be made to allow them to do so.
Mr. Chairman, I want to commend you and the committee again for your interest and willingness to help our tobacco farmers, and I thank you for the opportunity to be here.
[The prepared statement of Mr. Dollar appears at the conclusion of the hearing.]
Mr. EWING. Thank you, Mr. Dollar.
And now Mr. Wayne Ashworth, president of the Virginia Farm Bureau.
STATEMENT OF WAYNE ASHWORTH, PRESIDENT, VIRGINIA FARM BUREAU FEDERATION
Mr. ASHWORTH. Thank you, Chairman Ewing and members of the committee. I am Wayne Ashworth, a tobacco farmer, and president of the Virginia Farm Bureau Federation. With me today are two tobacco producers: Don Anderson of Halifax County, president of the Virginia Tobacco Growers Association, and Donnie Moore from Pittsylvania County.
We are here today to represent the interests of burley, flue-cured, and dark-fired tobacco producing families throughout Virginia. I will convey to you our shared observations, concerns, and recommendations to address the tobacco growers provisions should the tobacco settlement be passed by Congress.
Page 29 PREV PAGE TOP OF DOC Tobacco farmers in Virginia have appreciated the stability provided and want to maintain a tobacco production and price support program. So, today, I'd like to share with you our thoughts on the present and future well being of tobacco farmers regarding the proposed tobacco settlement and the current political realities that beset the tobacco program.
The tobacco settlement: When the tobacco manufacturers and the attorneys general announced the national settlement of tobacco issues on June 20 of last year, it sent a shockwave of concern and alarm throughout the tobacco growing community. Simply stated, the settlement will drastically reduce consumption of tobacco products through substantial increases in the price of these products. Thus, the tobacco growing community will be faced with drastically reduced production opportunities or quotas. This will represent a significant loss in quota equity, the loss of income to growers, and carries with it a huge multiple effect throughout the tobacco community.
Now, the tobacco program: To someone who has made a living and raised and educated a family as a tobacco farmer, this program is a personal issue for me. It has been very good to the whole industry. It has protected the producer against severe price declines and provided a stable income. It has afforded the industry an adequate supply of tobacco at a quality level that is world class. In order to accomplish this, it has been modified numerous times and has worked to the advantage of the entire industry for 7 decades.
However, we have to be realists. When the Freedom to Farm farm bill was passed by Congress, it effectively eliminated all farm programs except three, which I'm told is affectionately known on the Hill as those southern bastard crops: peanuts, sugar, and tobacco. This leads to the question that with close floor votes on recent agriculture appropriation bills and the current attitudes toward the tobacco and the tobacco program, is the current tobacco program sustainable, and if so, for how long?
With this scenario, I do not think that we can afford to stick our heads in the sand. I would rather deal with a policy issue before it becomes a full blown unmanageable crisis. We support the current program. However, we, as farmers, while mindful of our past and alert to our present, must be visionaries to our future.
Page 30 PREV PAGE TOP OF DOC Since June 20, the grower leadership in Virginia has worked on determining the consequences of the settlement and whether or not the current tobacco program is sustainable for the future, and, second, to reach a consensus for a comprehensive grower proposal to deal with the settlement and the tobacco program issues. This comprehensive grower-developed plan has been introduced by Senator Robb in the form of Senate bill 1582, the Tobacco Market Transition Act. Now, with this future before us, our producers are willing to make significant changes in order to address these concerns and ensure a workable price support production adjustment tobacco system.
Today, an owned quota is an asset which can be produced, leased, shared, bought or sold. Its equity value has increased over time and is a major asset when a farmer retires. Likewise, producers who own, lease or sharecrop have a substantial capital investment in equipment that is needed to produce tobacco. This radical change in Government policy will drastically reduce quota equity, production, and opportunity for active producers and result in economic hardship in tobacco growing communities.
Therefore, we recommend and support the following concepts as outlined in the Senate bill 1582: that quota holders receive $8 per pound based on the average farm quota established by the 199597 marketing year for the farm owned by the quota holder on January 1, 1997; these would be paid in five equal annual installments beginning in 1999; active tobacco producers who grew tobacco in 1997 would be eligible to receive a 40 cent per pound transition payment for 5 years based on the average amount of quota he actually grew for 1995, 1997 marketing years; compensation to quota holders and transition payments to tobacco producers will not be taxed if placed in a qualified retirement account or used to retire debt directly associated with the tobacco production incurred prior to January 1, 1998; economic development grants will be awarded to tobacco-dependent communities.
If it is determined that the current tobacco program is not sustainable, it is critical that we construct some form of supply management price support program. Without one, history has shown us that there will be massive production shift. This could mean the end of the family farm and the many communities where tobacco is grown today would be devastated.
Page 31 PREV PAGE TOP OF DOC While many commodities have moved away from the supply-limiting approach, I believe it is still appropriate for tobacco. There is no other farm product where the ultimate goal of the Government is to increase the cost to the consumer, not decrease it. The free market is not so free to tobacco farmers when essentially only a few buyers control the market. Tobacco farmers cannot take advantage of price risk management afforded other commodities by the Chicago Board of Trade and the Chicago Mercantile Exchange. To force individual tobacco growers to contract with multi-national conglomerates can only lead to economic servitude.
In this regard, we would recommend the formation of a corporation known as the Tobacco Production Control Corporation which would be a federally-chartered instrument of the United States. This corporation would undertake most of the duties presently performed by the Federal Government. However, the present quota system would be replaced by a licensing system to limit the production of tobacco.
The license, unlike quota, would not be a liquid asset. These licenses would go to all qualified producers based on their production history established by qualifying for the transition payments.
By eliminating the value of the quota through the buyout, the producers will not face the expense of leasing or buying quotas. This is very important in that it will allow us to be more price-competitive and, by being more competitive, the decline in quota associated with the settlement would not be as drastic. The corporation would enter into agreements with the current loan associations. The associations would continue to function as they are today. For the 1999 crop year, price support would be the average price received for the preceding 5 years less average return for quota for the 1994, 1998 crop. In subsequent years, price support would be determined by the corporation.
In summary, we believe the foregoing recommendations will provide answers to the questions addressing the adverse economic impact of the settlement and the future sustainability of the tobacco program. Regardless of the extent to which you agree with these recommendations, we believe that there is agreement that the producer should be made whole by the settlement and that a tobacco program is vital to the economic stability of producers, their communities, and the States where tobacco is produced.
Page 32 PREV PAGE TOP OF DOC Perhaps we can all profit from Alfred Whitehead's view that, ''the art of progress is to preserve order amid change and to preserve change amid order.'' We appreciate the opportunity to convey our views. Thank you so much.
[The prepared statement of Mr. Ashworth appears at the conclusion of the hearing.]
Mr. EWING. Thank you, Mr. Ashworth.
Mr. Marshall Coyle, second vice president, Kentucky Farm Bureau. Mr. Coyle.
STATEMENT OF MARSHALL COYLE, SECOND VICE PRESIDENT, KENTUCKY FARM BUREAU FEDERATION
Mr. COYLE. Thank you, Mr. Chairman, and I am Marshall Coyle, second vice president of Kentucky Farm Bureau. I certainly appreciate the opportunity to come and visit with you this morning and appreciate you taking the time to hold this hearing.
I will apologize and I know you realize this voice is not the best one that you've ever heard but maybe it will hold out as I go through the remarks this morning.
You have been submitted, of course, a copy of the remarksthe testimony that we wanted to make before this committee, so, in the essence of time, I will just hit a few of the high points of that testimony.
As I come before you here today, we are continuing to market tobacco in Kentucky. When we close the market, we will return to our producers with different types of tobacco that we grow in Kentucky, more than $1 billion.
Tobacco is extremely important to the farm economy in the State of Kentucky. Tobacco is produced in 119 of our 120 counties. Kentucky has 54 counties that are considered to be persistent poverty counties and, in those 54 counties, tobacco returns more than $139 million in net farm income. Farmers, as they have produced this crop in 1997, have faced floods and drought, labor shortages, disease problems, and now we are faced with an uncertain future as we see what happens to this negotiated tobacco settlement.
Page 33 PREV PAGE TOP OF DOC The tobacco program is permanent legislation enacted in 1938 and is notusually any of those program crops have not been addressed during the farm bill. In 1996 in the farm bill, there was some addressing on the peanut, I think, in the quota and the price, but traditionally, as I have mentioned, those program crops are not addressed in the farm bill.
With passage of the FAIR Act in 1996, and when it begins to phase out the Government involvement within those crops, there is concern among our Kentucky farmers that there may be a threat to apply this same type of action to our tobacco program.
In my home county, 52 percent of our farm cash receipts come from tobacco. It is estimated that for every $1 that a farmer gets in tobacco income, that reinvests $4 in that local economy in that county. Tobacco accounts for 50 percent of farm cash receipts in 32 Kentucky counties, and over 25 percent of farm cash receipts in the remaining Kentucky counties. Kentucky has 17 of the Nation's top 20 tobacco-dependent counties.
As I appear here before you today, I do so in support of the existing tobacco growers program. Yes, that's right; the tobacco growers program. Since 1982, our producers have paid the no-net cost assessment. Each time that I sell part of my crop, I and the purchaser of that pay into the no-net cost fund. In addition to that, over the last 4 years, the Federal Government has received more than $100 million from growers and manufacturers, as we have paid on the budget deficit assessment as we have marketed our tobacco.
Since the announcement of the negotiated tobacco settlement on June 20, we in burley have met several times and we have come to agreements upon points that we would want to see included for farmers, and those points are these: we want the continuation of the tobacco program; we would expect compensation to growers in the event that the settlement results in a loss of income; and we would expect compensation to growers in the event that the tobacco growers program is eliminated or phased out; and fourthly, economic and educational assistance to our tobacco communities.
Page 34 PREV PAGE TOP OF DOC As the future of the settlement grows more murkier each day, tobacco farmers must put their trust in the basic principle that we have had for many years, and that's the principle of the existing tobacco growers program. The benefits of this program for our farmers are clear and those benefits are constant. This program brings economic stability to farm families and their communities.
When corn is marketed, there are literally hundreds of buyers or hundreds of places that that corn could be used. It can go into human food. It can go into animal food. It can be in fuel ethanol. It can be used in starch. Many other uses for those products depending upon who the ultimate buyer is. Well, we, as producers of tobacco, do not enjoy such market diversification; in fact, we have 4 companies that purchase the bulk of the tobacco that is bought for the domestic market and one company purchases more than 50 percent of that. Such exclusivity on the buying side leaves no marketing clout for our farmers in Kentucky.
The loss of the program will result in economic devastation, cheaper cigarettes, and a king-indentured servant relationship between the producer and the buyer of tobacco.
I think it's important to note that the tobacco program falls in line with some of the things that this settlement hopes to accomplish. We feel like that it does lead to higher prices, which ultimately leads to higher prices of cigarettes. The loss of the program will lead to cheaper tobacco, very possibly lead to floods of imported tobacco, which will either reduce the cost of the cigarette and/or increase the profits of the manufacturer, and all this at the loss of farm family livelihoods. Even tobacco's most avid critics have acknowledged the fact that the growers program impacts the cost of tobacco products.
Ladies and gentlemen, as you and your colleagues consider this national tobacco settlement, you will make decisions that will affect the lives and livelihoods of thousands of Kentucky farmers and their families. I appreciate the remarks that I have heard here this morning and I urge you to continue your diligence as you work through this national settlement.
Page 35 PREV PAGE TOP OF DOC Again, I thank you for the opportunity to appear before you this morning. We look forward to continuing to work with you.
[The prepared statement of Mr. Coyle appears at the conclusion of the hearing.]
Mr. EWING. Thank you very much.
Mr. Bruce Flye, president of the Flue-Cured Tobacco Cooperative Stabilization Corporation.
STATEMENT OF BRUCE FLYE, PRESIDENT, FLUE-CURED TOBACCO COOPERATIVE STABILIZATION CORPORATION
Mr. FLYE. Thank you, Mr. Chairman and committee members. I am Bruce Flye, an active tobacco farmer in partnership with my son, Randall Flye. We have both farmed all of our lives.
I am a board member and president of Flue-Cured Tobacco Cooperative Stabilization Corporation. Our board of directors is made up of tobacco farmers from the five flue-cured producing States: Virginia, North Carolina, South Carolina, Georgia, and Florida. Stabilization's primary function is to administer the price support program provided by the Federal program to flue-cured tobacco farmers. If a farmer's tobacco does not bring above the minimum support price on the auction warehouse floor, the farmer then receives the support price from Stabilization the same day of sale. Stabilization then ships, processes, and stores the tobacco until it can be sold at a later date. The tobacco program provides this service to tobacco farmers at no-net cost to the tax payer. Tobacco farmers and purchasers pay an assessment to cover any potential losses to USDA's Commodity Credit Corporation.
The negotiations this summer between cigarette manufacturers and State attorneys general excluded any participation from tobacco farmers. The final tobacco agreement omitted any consideration of tobacco farmers and their communities' welfare. It is our opinion that once this agreement is consummated, the political support of the tobacco farmers will no longer be needed by the cigarette manufacturers and the $368 billion agreement will be broken on the backs of tobacco farmers. This is happening as I speak. Imports of cheaper foreign-produced tobacco are increasing at all-time high levels threatening the very existence of the tobacco program and the livelihood of tobacco farmers.
Page 36 PREV PAGE TOP OF DOC If the tobacco program should crumble under the weight of this settlement and tobacco farmers are forced to compete at world market prices, we have been told by executives of a major cigarette manufacturer that we could expect prices to drop from an average of $1.70 per pound to as low as 70 or 80 cents per pound. The cigarette manufacturers would reap a huge windfall. This drop in U.S. prices could save the cigarette manufacturers an estimated $2 billion annually. Since world tobacco prices are dependent on U.S. prices, the ripple effect worldwide would increase this windfall substantially.
Flue-cured tobacco farmers are geared up to produce a billion pound crop of tobacco, encouraged in part by the cigarette manufacturers with their 1997 purchase intentions. Tobacco farmers invested in new equipment: transplanters, harvesters, curing barns, et cetera. This equipment can be used for only one purpose: the production of tobacco. Unfortunately, there was a 20 percent reduction in effective quota for 1998.
This reduction combined with additional quota cuts that will arise from the settlement will force many tobacco farmers out of farming. They will be unable to pay off their huge investments. Medium- and small-sized farmers, including beleaguered minority tobacco farmers, will be eliminated, leaving mostly large corporate farms to survive. Many of the family farm tobacco operations will be left with no alternative for their livelihood.
To avoid this calamity for tobacco farmers, there must be included in any national tobacco settlement the following: a guarantee that the Federal tobacco program will be protected for the length of any national agreement; 600 million pounds of net flue-cured purchase intentions by the domestic cigarette manufacturers for the length of any national agreement; if the longevity of the tobacco program cannot be guaranteed or sustained, we strongly favor compensation for tobacco quota owners, lessees, and tenants and a privatized program with authority to regulate price and production enforced by the U.S. Secretary of Agriculture.
Mr. Chairman, we need to keep the tobacco program and we need a $1 billion pound quota as in 1997. Farmers need to be protected by being included in any national tobacco settlement legislation, or, if there is no settlement, with whatever means are available to give us a future in order to make us whole.
Page 37 PREV PAGE TOP OF DOC Mr. Chairman and subcommittee members, I thank you for listening to our concerns.
[The prepared statement of Mr. Flye appears at the conclusion of the hearing.]
Mr. EWING. Thank you, Mr. Flye.
Mr. Rod Kuegel, president and CEO, Burley Tobacco Growers Cooperative. Mr. Kuegel.
STATEMENT OF ROD KUEGEL, PRESIDENT, CEO, BURLEY TOBACCO GROWERS COOPERATIVE
Mr. KUEGEL. I am Rod Kuegel from Owensboro, KY and I'm here today to represent farmers, those that grow burley and dark tobacco in Kentucky and surrounding States.
I am a tobacco grower. I produce two different types of tobacco but I want to talk today, not necessarily from my own viewpoint or situation, but those of four of my neighbors. Those neighbors are at home today with their families preparing tobacco for market.
First, I'd like to tell you about Carl and Nancy Lewis. Carl and Nancy didn't ask to be born into a family of tobacco farmers, but they were. Neither Carl nor Nancy work off the farm. Their entire life has been spent on the farm raising crops, cattle, and, to some extent, children. They're not large operators as tobacco growers go, but they are about average in size for burley farmers.
Carl and Nancy will grow approximately 4,000 pounds of their own tobacco and grow an additional 25,000 pounds on neighboring farms. Along with growing tobacco, they milk a few cows, raise a few calves, grow an acre of peppers, and seem to be making a decent living. During their some 30 years of marriage, they've educated a daughter who is now a cooperative extension agent, and they've educated a son who has taught school and wants to come home and farm along with Carl and Nancy. Tobacco accounts for 80 percent of their income and, even more importantly, it's 100 percent of their life. They were born to tobacco growing families.
Page 38 PREV PAGE TOP OF DOC Another neighbor that I'd like to tell you about is Arthur McKinney. He could not be here today and would not, even given the opportunity, because this would be way too much intimidation for he and his family. Arthur has been a farmer all his life and was fortunate enough to be able to work for the railroad a good number of years and had 7 children born to him and his wife of 60 some years and they grew tobacco.
What made it especially important for them was the half-acre of tobacco that came in at the end of the year at Christmas time and at mortgage payment time. The thing most important to Mr. McKinney growing tobacco was the program that allowed him to do so. It was being able to depend on it year after year. While a lot of farmers like Mr. McKinney could not sit down and quote a lot of facts about the tobacco program and how the farm service agency works for him, what he does know is what the program overall has done for him and what stability has done for him. Because through train wrecks and foul weather and through war and all other adversities he's experienced, he knew that tobacco check would be there for him. That kept him going, and kept him looking forward to growing another crop and depending upon the stability that the program had offered him by allowing him to compete regardless of his size.
The third family member and neighbor that I would like to talk about today is Rusty and Martha Thompson. Mrs. Thompson works off the farm for the University of Kentucky, but Rusty works on the farm day in and day out, side by side with his parents. They depend on agriculture income for a living. Tobacco is a major part of his operation.
Just recently, Rusty told me how he had just purchased an additional farm and had a lot of sleepless nights over the decision, not about whether or not he could pay for the farm but about whether or not he would have the tobacco program so he could buy and pay for the farm.
All four of my neighbors that I mentioned today have some things in common. They're hard workers, they like to grow tobacco, but the thing that brings them closer than anything is the program that is a shield in front of them, a shield that protects them for a market that is shared only by a few buyers compared to many for most commodities, a shield that protects them against weather, against all of the forces that a farmer has to deal with in any commodity. When all is said and done, we have to have rain, we have to have sunshine, we have to have a willingness to work, but the program is what has kept these people going.
Page 39 PREV PAGE TOP OF DOC Now, permit me to switch just a little bit and talk about a tenant farmer. In order to protect his privacy, I don't want to call his name. We'll just call him ''Paul'' and he is a neighbor who grew up the son of a farm worker. His family did not possess many worldly goods and Paul was one of several children who worked out in the community for other farmers doing farm labor each season. After a good number of years, Paul had saved up enough money to buy some farm equipment. Later, he had inspired some landowners enough that they trusted him enough to rent their tobacco to him and he is now a tenant farmer.
Paul has a family well on its way because of tobacco and Paul has been able to shelter, feed, and educate his several children with tobacco. Paul does not own much land other than a few acres right around his house. He does not own a lot of equipment: a tractor, a transplanter, a disc harrow, and a sprayer. But, Paul has the opportunity because, as a tenant farmer, he can produce as many pounds he feels he can effectively handle. Paul has an arrangement with neighbors so that he can use their land, their barns, their tobacco sticks, and, in some cases, use their credit and, in that manner, is able to make a profitable living for his family.
In order to be a tenant farmer, one must have some equipment, access to labor, and some operating capital. All these things are hard to come by as a tenant farmer. It is very difficult to go to a banker and borrow funds but Paul has been able to do that. The reason that he has is because the banker is familiar with the tobacco program and, more importantly, he knew that stability. He knew Paul and he knew Paul well enough to know that he was going to work and that he would do everything in his power to make a successful crop. But, given all the threats against tobacco, weather-related or not, it takes a little more than that for a banker to extend credit. In Paul's case it is because of the stability of the program and that puts him on a level playing field with a lot of other folks. He has the opportunity, then, to compete in the market.
All the people I've talked about today are at home working with their tobacco. They are doing this because of the program that has protected them, the program that has made it possible for them to compete regardless of size. They've tried many of the so-called alternatives and alternatives for farmers in Kentucky is the potential to lose half of our family farms without the tobacco program.
Page 40 PREV PAGE TOP OF DOC Mr. Chairman, whether or not we have a buydown or a buyout, if we lose our tobacco program many family farms in the State of Kentucky will have a sign on them that says sold out.
Tobacco is the business that we're in and we're good at it. I was born a tobacco farmer and I don't like being condemned because I wasn't born to a rice farmer or a wheat farmer. I am a tobacco farmer. I encourage you and others in your position to make sure the tobacco program continues.
[The prepared statement of Mr. Kuegel appears at the conclusion of the hearing.]
Mr. EWING. Thank you, Mr. Kuegel.
Mr. Sampson, Larry Sampson, president of the Tobacco Growers Association of North Carolina. Mr. Sampson.
STATEMENT OF LARRY SAMPSON, PRESIDENT, TOBACCO GROWERS ASSOCIATION OF NORTH CAROLINA
Mr. SAMPSON. Thank you, Mr. Chairman. I am Larry Sampson, a tobacco farmer, from rural Robeson county of North Carolina, and president of the Tobacco Growers Association of North Carolina.
The Tobacco Growers Association of North Carolina has one message that they'd like to bring to this committee today: we, the tobacco growers, must be protected. The events that have brought us here today were not instigated by us. We're victims of circumstances. Our livelihood and our net worth and our communities and our tax base are being threatened.
For tobacco quota owners, quota is an asset. For most quota owners, tobacco is one of the largest assets they have. For tobacco growers, the cost of quota and the availability of quota are prime concerns because growers have serious investment in facilities and equipment. These facilities and this equipment is designated for use in tobacco. There is very limited multi-purpose use. Therefore, to sustain these investments, careful volume of quota is absolutely essential. Further, without tobacco production, the value of these investments is zero.
Page 41 PREV PAGE TOP OF DOC In 1998, the 17 percent cut in quota is a serious blow to the tobacco producers. This 17 percent cut came off the top. The investments are the same. There is debt service that remains the same. This cut has also put pressure on the supply of quota and, therefore, rent costs have escalated. The resulting marginal profit is now reduced to the point that any additional cuts as a result of the tobacco settlement cannot be absorbed without some changes in the current tobacco program
The most desirable scenario for change is compensation for the value of quota and the program to control production.
On December 11, our association made a public release of a proposed resolution to be presented at its annual meeting, which will be Friday, February 6, 1998. The resolution will read as follows:
In the event that a buyout proposal for flue-cured tobacco quota becomes reality, the Tobacco Growers Association of North Carolina, Inc. recommend the following provisions: owners of quota should be paid damages in the amount of $8 per pound based on quota for 1997; growers should be paid damages in the amount of $4 per pound for the average base quota produced, owned, rented, or leased during 1995, 1996, and 1997; owners of quotas and growers should be compensated on the same terms and conditions; in that all payments would be considered damages, all payments should be tax free; and growers should be allowed to continue to grow tobacco after receiving payments.
The Tobacco Growers Association of North Carolina recognizes that several different plans and offers are being considered as a contingency to the tobacco settlement. This resolution establishes the major consideration that will be essential to any discussion of damages to perceived value of quota.
Any new plan or concept must allow prices to be adjusted to world market levels. The current profit margin will not allow for price support reduction. Some buyout or buydown to compensate for the value of quota will be necessary to give growers who stay in business fair opportunity to compete on the world market. In simple terms, if the value of quota is compensated, the cost of quota will no longer be a cost of production.
Page 42 PREV PAGE TOP OF DOC A key point that must be made is quota owners and growers will be damaged by the tobacco settlement. However, if there is no settlement, we will also be damaged. So, either way we go, the economic impact does, in fact, dictate Government action. The point also should be made that the smaller the farmer, the greater the impact.
When and if we have a tobacco settlement remains a question. However, the interim period between now and the date of a tobacco settlement is a matter of great concern. The impact of no decision can be very damaging to attitudes, markets, and planning. Therefore, some immediate action to forestall disaster in 1999 is essential. At a very minimum, we need the assurances of the existence of the current tobacco program through 1999 or until the tobacco settlement is reached.
For the long term, if we are going to be without a program, make us whole. If we are going to have a program, make sure it serves today's producers.
Thank you very much.
[The statement of Mr. Sampson appears at the conclusion of the hearing.]
Mr. EWING. Thank you, Mr. Sampson.
Mr. Will Clark, general manager of Western Dark Fired Tobacco Growers Association.
STATEMENT OF WILL CLARK, GENERAL MANAGER, WESTERN DARK FIRED TOBACCO GROWERS ASSOCIATION
Mr. CLARK. Thank you, Mr. Chairman and members of the committee.
My name is Will Clark, and I represent the Dark Tobacco Association that is located in Murray, KY.
We are a very small association, and when you compare us to the other members that have spoken here this morning, we are undoubtedly the smallest. We grow a very small amount of tobacco when compared to burley and flue-cured. We grow about 40 million pounds of fire-cured tobacco and about 10 million pounds of air-cured tobacco, this all being grown in northwestern Tennessee and western Kentucky with the exception of a small amount that is grown also in Virginia.
Page 43 PREV PAGE TOP OF DOC Our growers grow very small allotments. Most of them will grow on an average of no more than about 10 acres, and our tobacco is used primarily in smokeless-tobacco products. About 55 percent of our tobacco is purchased by domestic manufacturers and about 45 percent is bought by exporters and is exported overseas primarily to Holland.
Our tobacco is unique. It is not like other types in the way it is cured. Our farmers have to work very hard at this process and it is not a science; it is an art which has been passed down for generations since before 1900. This process includes the laying of slabs and sawdust in a barn, setting it afire, smoking it, and trying to keep from burning it down.
This is a very laborsome process, and it is very important to the people in this small area of Kentucky and Tennessee.
I would like to give you an example of a grower at home. About 18 months ago, he purchased 4 acres of tobacco base and paid $44,000 for that 4 acres. He also purchased a farm with that base with the expectation of paying for that farm with that tobacco base. It seems awfully unfair to me to change the rules in the middle of the game. This man wants to work hard, wants to pay for that farm, and we could very likely cause him to not be able to do that.
Bankers at home will tell you that many mortgages will not be paid without tobacco and the tobacco program. I must tell you that growers at home believe that the tobacco program must be maintained if there is to be a stable tobacco market.
Therefore, at present, we believe that Senator Ford's bill best represents the growers of dark tobacco because it maintains the tobacco price-support program. The bill also grants immunity to tobacco farmers, growers associations, and warehouse employees if manufacturers, distributors, or retailers fail to comply with the terms of the tobacco settlement.
We would also hope that this legislation could extend to the FDA regulations and keep the FDA off the farm. FDA regulatory authority against tobacco farmers would bankrupt them.
Page 44 PREV PAGE TOP OF DOC We believe that the tobacco program is a must, and I would like to give an examplealthough we are very small, I think we also represent very closely some of the things that would happen if the tobacco program were to be done away with. We in our types have what we call ''barn-door buying.'' That's where the companies come out to the farmer's house and buy that tobacco directly at the barn door. About half of our crop is purchased this way. There is a saying around home, ''It's not what you grow, but who you know.''
And I want to tell you that I believe when the tobacco program is gone, I am going to see many, many fewer farmers growing tobacco. Tobacco companies will have both ends of the stick. They're going to dictate who grows the tobacco. They're going to dictate how much to pay for the tobacco. They're going to dictate what seed, what variety of seeds you grow, what fertilizer you use, and the amount. They're going to dictate when you cut it, when you set it, how you market it to them, how you bring it to them, and if they don't like it, they will send you home with your crop. My growers are not going to be happy with that. My growers like independence, and that is one of the things that this tobacco program provides for them.
I do not believe you congressmen want to hand everything over to the tobacco companies. And I believe that they will have complete control with the demise of the tobacco program.
I am not here to demand anything. We are certainly not in a position to do such a thing as that. It's quite obvious that public perception is against us. I can only ask that you, as our elected officials, try to do what is right. I would ask that you do not let politics enter into your decision. I would ask that you not let what the few might want and what people who have no interest in tobacco might want and that you fight hard to protect my growers at home who will not, in many cases, be able to make a living if you do not do what is right.
[The prepared statement of Mr. Clark appears at the conclusion of the hearing.]
Page 45 PREV PAGE TOP OF DOC Mr. EWING. Thank you, Mr. Clark. And excuse my misstatement on the type of tobacco.
But now we will go to Mr. Dane Perkins. You may be last on the witness list today, but not least, so we look forward to hearing from you.
STATEMENT OF DANE PERKINS, TOBACCO QUOTA WAREHOUSE ALLIANCE
Mr. PERKINS. Thank you, Mr. Chairman and members of the committee. I appreciate the opportunity to be here this morning and appear before the committee and tell you about the warehouse business as it is conducted in the United States.
I represent the Tobacco Quota Warehouse Alliance which is consisting of approximately 356 quota tobacco warehouses in eight States. This organization, the Tobacco Quota Warehouse Alliance, is composed chiefly of the Burley Auction Warehouse Association and the Brightbelt Warehouse Association.
Now, as far as the tobacco business goes, my father began in the tobacco business approximately 10 years before I was born in 1946. I grew up in tobacco warehouses. I played in tobacco warehouses, on trucks, trains, boxcars. I carried water to tobacco buyers as I was growing up. As a teenager my father put me in the buying line where I participated in the actual buying and selling of tobacco. My wife and I met in a tobacco warehouse. Courted 2 years and were married. We have three children. I have a daughter 21 years of age, a senior at Mercer University; a son 19 years of age, a freshman at Valdosta State University. We had a very pleasant event that occurred 10 years later, and I have a daughter 9 years old. She is in the fourth grade, and she looks forward each year to running her little hotdog stand and selling lemonade and brownies to all who come and go from my warehouse.
So, I want you to understand the tobacco warehouse business is not just a business. It is a way of life, and it is a way of life not only for my family, but for many other families in the United States in the tobacco warehouse business.
Page 46 PREV PAGE TOP OF DOC Now, before the Tobacco Inspection Act was passed in the middle 1930s, there weren't any markets of any consequence that I am aware of until auction warehouses were built and auction sales actually began at those locations. Auction markets and warehouses are an integral part of the Tobacco Inspection Act and the marketing of tobacco.
I wanted to give you a specific illustration of what I am referring to. In the Tobacco Inspection Act itself, on page 1 in section 1 under the definitions, you will find ''auction market.'' And it reads as follows: ''Auction market means a market or place to which tobacco is delivered by the producers thereof or their agents for sale at auction through a warehouseman or a commissioned merchant.'' The act goes on in section 2 and refers to auction warehouses, auction markets and warehouses in section 3 and section 5. In a number of places, auction warehouses have that legal command language, ''they shall do this,'' and ''they shall do that.'' And in section 8, ''they shall provide spaces for warehouse tickets for showing grades for the grading of tobacco.''
Now the very purpose of the Tobacco Inspection Act was to regulate the sale of tobacco at auction. And not long after the Tobacco Inspection Act was enacted, a few years later, as you might guess, it was challenged in court in the case of Curren v. Wallace. The Supreme Court of the United States, in 1939, as a part of the decision, says this,
Plaintiffs are warehouseman and auctioneers, acting as agents for the growers who own the tobacco and pay their commissionsthe warehousemen are nothing more than agents of their principal, the tobacco growers, and their business is entirely dependent upon the principal.
Now, as stated in that sentence, the tobacco warehouses work on a commission. Therefore, the plight of the tobacco quota grower is also the plight of the tobacco warehouseman. I would use the phrase that the tobacco warehousemen are joined at the hip, so to speak, with the tobacco quota growers, and any disastrous economic harm by loss of tobacco quota which a grower suffers, a tobacco warehouseman will also suffer.
Page 47 PREV PAGE TOP OF DOC We as tobacco warehousemen have large investments in buildings and equipment which we can't afford to lose either. Warehouses in rural areas are really not useful or there is not a market, I should say, for them to be used for any other purpose other than tobacco. A decrease in value on the farm from loss of tobacco quota is going to equate to a decrease in value of buildings and equipment for the warehousemen. A decrease in equity is going to leave the same effect on the warehouse as it is in growers. Bankers are not going to make loans to warehousemen just like they won't make loans to tobacco quota growers.
I built a new building, as a matter of fact, a couple of years ago. I've still got to pay for that building in payments that are spread over a long period of time, not a short period of time. These are things that we, as tobacco warehousemen, all face in common with growers.
Now, the tobacco warehouses and the growers were totally left out of the settlement. However, we feel that tobacco warehouses, as I said, are an integral and a necessary part of the Federal tobacco program. Tobacco warehousemen are totally dependent on tobacco quota production.
But don't make this mistake. Tobacco warehouses are unique from this standpoint. Other agribusinesses have the ability to sell fertilizer, gas, chemicals, or equipment to other growers that grow other crops. But tobacco warehouses are built and in business to sell tobacco, no other business.
Tobacco growers and warehousers, as I said, were left out of the settlement book. It is my understanding that NASCAR, rodeo events, and some other sponsors have been included in this. To me there is something terribly wrong with the settlement if the primary producers and the warehousemen are left out and event sponsors are in. I'm also understanding that the attorneys' fees, which have been discussed earlier today, seems to be a great problem in this, but I will state to you that if the attorneys in the matter are getting more than the tobacco growers and the warehousemen out of the settlement, then, again, there is something terribly wrong with the tobacco settlement as it is being proposed.
Page 48 PREV PAGE TOP OF DOC Let me make this clear: we work on commission. The warehousemen are asking that they receive a commission from the loss of this quota as though it was sold at auction market. But we're asking that our commission and compensation not come from the grower's compensation, from his quota, but we be paid our commissions on top of or in addition to any funds that the grower receives from the loss of his quota.
Again, Mr. Chairman and members of the committee, I appreciate the opportunity to be here and appear before you. And I direct your attention to the paper which was prepared with more facts and details in this regard.
Thank you very much.
[The prepared statement of Mr. Perkins appears at the conclusion of the hearing.]
Mr. JENKINS of Tennessee. Mr. Chairman?
Mr. EWING. Thank you, Mr. Perkins.
Mr. JENKINS of Tennessee. Mr. Chairman, the Tennessee Farm Bureau Federation has prepared a statement. I would like permission to submit it and have it made a part of the record of this hearing.
Mr. EWING. Certainly. It is so ordered.
[The prepared statement of the Tennessee Farm Bureau Federation appears at the conclusion of this hearing.]
Mr. EWING. Well, gentleman, thank you very much for your testimony today. I think that it is time that we start considering how this is going to work out for our farmers and what we can do to address those issues.
The questions I am going to ask, any of you can chime in on them and give your answer.
Page 49 PREV PAGE TOP OF DOC How many of the farmers in the different States that are represented here at the table grow only tobacco? Do we have many one-crop growers? Anybody?
Mr. DOLLAR. There is a very few in the State of Georgia that does that.
Mr. ASHWORTH. In Virginia we have a number of them that are solely tobacco producersdepend on solely for the income.
Mr. SAMPSON. Where I come from, Mr. Chairman, we don't have a lot of just only tobacco producers, but the point needs to be made that these farm operations that operate in and grow corn, beans, and cotton, and such crops as that with the tobacco, that the tobacco is the backbone of all these operations. These operations, I feel, from our operation will not stand without tobacco production and being profitable because it pays the bills and the other stuff keeps it going. And the primary reason that we work all these other crops a lot of time is that when you have to rent quota base to grow, you rent these farms to get the quota base and you farm the land so you can grow the tobacco. So the tobacco is the backbone of all these operations.
Mr. COYLE. Mr. Chairman, there would be some in Kentucky that are strictly tobacco producers. Most of our farmers, however, would have more than one crop. In my area of the State, which is eastern Kentucky, we are probably more of those, because of the terrain, that are simply tobacco producers.
Mr. EWING. So tobacco, is that a rotated crop with
Mr. FLYE. Mr. Chairman, that is true, and I want to bring that point out. In order to grow good tobacco, it needs to be rotated. And I rotate my tobacco with wheat. I make very little on the wheat, but the net income off the tobacco more than justifies growing the wheat in rotation.
Mr. EWING. If there is a tobacco settlement and if tobacco growing declines or the demand for tobacco declines, is what you are saying to meand I think it comes in loud and clearthere is no other cash crop on the horizon that would or could replace the tobacco income in our farmers?
Page 50 PREV PAGE TOP OF DOC Mr. BOB JENKINS. No sir, Mr. Chairman, there is not another crop that would replace tobacco or livestock enterprise.
Mr. EWING. And what was the live part, Mr. Jenkins?
Mr. BOB JENKINS. Or a livestock enterprise. There is no agricultural enterprise that could replace tobacco.
Mr. EWING. That's pretty much in agreement?
And the tobaccothe high income level that we see from tobacco is the result of the tobacco program. Is that correct?
Mr. FLYE. Absolutely, the tobacco program that we get our income from.
Mr. EWING. Without a tobacco program, what would you anticipate the reduction in income might be? I don't know if you can give me by acre or
Mr. FLYE. With a lot of farmers it would be zero because they would have to get out of farming and it would probably end up into large corporations doing most of the farming.
Mr. KUEGEL. Mr. Chairman, I think that probably the prices that we are experiencing right now are somewhere in the $1.80 to $1.90 level. I think that without a programit is pretty much generally accepted 40 or 50 cents of that is due to the program. So you are looking at a 40 or 50 cent reduction in the price of the tobacco. That is the first direct wave that hits, but obviously our competition in South America and in Africaand there are not many of us that think that reduction would simply take place here and instantly inject us into the market. But when companies get those kind of sticks, as Larry referred to, then that would reverberate through those markets also, and you have a world-wide reduction of price and capitalization by the companies on that.
Page 51 PREV PAGE TOP OF DOC Mr. EWING. A point that I'd like to make more for the record than trying to educate anyone at the table because I think you all probably recognize it, but when we talk about the Freedom to Farm legislation, the FAIR Act that was passed in 1996, and it applies generally to the feed-grain programs, and there is a very big difference between the world market for feed grains and the world market for the specialty crops such as peanuts, sugar, and tobacco which are the jurisdiction of this subcommittee. And I think that the FAIR Act works well with those crops where we want to compete and have to compete for exports in this country. Where some of the crops that we are talking about, and tobacco being one of them, is subject to highly subsidized tobacco growth in other parts of the world which really makes us verywhich really hurts the competitiveness of the American tobacco farmer. I know that is something that all of you recognize, but I think it doesn't hurt to put it in the record.
Mr. Ashworth, we never use that word in referring to specialty crops. We're very fond of them. We want to do the best we can to see that they continue to be profitable.
My time is up. Mr. Baesler.
Mr. BAESLER. First of all, Mr. Chairman, the Freedom to Farm bill would not apply to tobacco for many reasons, and I think folks who suggested it are incorrect. First of all, in tobacco, as you well know, and everybody said here, that program is paid for by the producers and the manufacturers. In the Freedom to Farm, we replace payments made by the Government over a period of time plus marks and everything. So I hope nobody ever tries to justify doing away with their program based on the Freedom to Farm bill.
And second, since I didn't make a statementI didn't think people were going toI will stand behind the program forever. I think to do away with the program does away with tobacco, and I think the only way we will lose the program is for us ourselves to destroy it by indicating our willingness to do away with it for other ideas. And I hope that does not happen.
Page 52 PREV PAGE TOP OF DOC The questions I haveI know these, particularly in Kentucky, but I'm going to try to ask other placesin North Carolina how much tobacco, would you say, was not grown that could have been grown last year just because there wasn't anybody to grow it? I'm going to ask Mr. Flye. He might know it.
Mr. FLYE. Flue-Cured Tobacco, we produced about 100 percent of our
Mr. BAESLER. You don't have any
Mr. FLYE [continuing]. Base quotaand I'm notmaybe Mr. Jenkins could answer for burley. But flue-cured, we are geared up to produce more than we are allowed to produce.
Mr. BAESLER. The second question, having said the fact that I think the program is a No. 1 priority, and it is essential that we maintain itif somehow my view is overridden by other folks in CongressI would like to address the question on what you do ''if.'' We have a lot of discussion on producer and quota holders. The question that I have, under the proposal of everybody I have seen so farwe give $8 to the quota holder, $4 to the tenant and licensee. The question I have is what if I am a producer and a quota holder? That means my quota gets $8, but if Sanford has somebody raise his tobacco and gives quotas worth $12. Is there some question about the equity in that statementin that situation. Would you propose that the quota holder producer have different compensation than the quota holder himself? Anybody? Mr. Ashworth. I'll just pick on anybody.
Mr. ASHWORTH. Well, what I was advocating was the $8 per pound for quota and $2 for the producer. Of course the producer that has the allotment in this plan, there could be some alternation to it where you receive $10.
Mr. BAESLER. So that is exactly the point I was making. I didn't catch your $2, Mr. Ashworth. You answered my question exactly. Thank you.
Page 53 PREV PAGE TOP OF DOC Do you propose that if the quota holder produces himself he has more compensation than the quota holder who does not produce it himself?
Mr. ASHWORTH. The quota holder would receive $8 and if he did not grow that that is all he would get would be $8. The producer would get the transition payment of $2
Mr. BAESLER. And if the quota holder is the same, he gets $10?
Mr. ASHWORTH. That's right, $10.
Mr. BAESLER. That was the question.
Also, Mr. Ashworth, I didn't quite understand. Does the licensee, under your programif there was no programI understood from everybody their preference is to keep the program, but if it were to go away, here's some ideas.
Mr. ASHWORTH. I guess the statement that I made, the question isyou know you hear it around, I've heard it for several years''How long can we keep the present program that we have?'' There's nobody that really, in Virginia, that thinks that this hasn't been a good program, and if we keep it, it would continue to be a good program. And I guess that is the question that I posed here this morning, can we keep the program? Is it in jeopardy in 2 years, 3 years, 4 years down the road? Now is the opportune time to take advantage of the settlement if, in the opinion of Congress, that we cannot keep the program.
Mr. BAESLER. The question that I had, under your proposal, if we couldn't keep the program, would the licensee go with the farm or go with the producer?
Mr. ASHWORTH. It would go with the producer. It would not be with the farm.
Mr. BAESLER. It would not be an asset to the farm. It would be just a producer.
Mr. ASHWORTH. Right, and it would be no value to this quota that would be licensed to the individual.
Page 54 PREV PAGE TOP OF DOC Mr. BAESLER. In flue-cured, I think that Mr. Flye might be able to answer this, what is your estimate of the price if you were to get the flue-cured if, in fact, there was not a program?
Mr. FLYE. As I mentioned in my statement, based on what we were told by major manufacturer executivesthe question was asked if we didn't have any tobacco program and had to compete on the world market, what could we expect our average to be? And the person said to take $1 off of your average now. So I figure that is 70 or 80 cents.
Now, mind you, with this contract, it would be a different price, I don't know. But just to put it out there on that world market, 70 or 80 cents.
Mr. BAESLER. Mr. Flye, othersand I'm going to make sort of a statement rather than a question. I think that we all who are familiar with tobacco know that other than lease cost, if you have to lease some in, none of our costs are going to go down at the same time.
And one other statement that I would like to make, a lot of our adversaries in Congress keep thinking that there is a great profit in tobacco. There is not a great profit in tobacco. It is the most profitable thing that we have on the farm, but it is not a great profit as they talk about. Our expenses continue to rise, and our revenues continue to remain level. So, I think we want to make sure as we argue our case that we refute the ideas that there is overwhelming profit in tobacco. It is not.
Mr. FLYE. Flue-cured market average in 1984 was about $1.72. Flue-cured average this past year was about $1.72. So you look at your inflation on the inputs and you know what is getting squeezed.
Mr. BAESLER. Having been maybe the only one in this room who has got a whole lot of tobacco sitting on the floor, that won't sell, I wish I could get $1.72 right now. [Laughter.]
Page 55 PREV PAGE TOP OF DOC Thank you.
Mr. EWING. Thank you. What is the average production in flue-cured.
Mr. FLYE. The average in flue-cured is approximately 2,000. Now there are growers who make less than that and growers that make more. But approximately 2,000 to 2,200 pounds depending on the year.
Mr. EWING. And the price range is from $1.70
Mr. FLYE. This past year it was about $1.72, and due to the hurricanes last year, we had the highest average ever, about $1.82, but it was a crop that had two hurricanes to hit it, and the companies didn't know what they would be able to get out of it.
Mr. EWING. Mr. Lewis?
Mr. LEWIS. Thank you, Mr. Chairman.
I just want to welcome Mr. Coyle and Mr. Kuegel from Kentucky to being here with us today. I appreciate the testimony.
This is a general question, and anyone or everyone can answer. I'm in a dilemma, and I think all of us are basically in a dilemma, and the dilemma is this. Tobacco is in trouble. There is no question about it. We wouldn't be here in this hearing if it wasn't. It's gotten progressively worse just over the last couple of years. And the dilemma is this, there's possibly going to be $368 billion on the table. And tobacco farmers, back in the second district of Kentucky, they look at that $368 billion, and they realize that this may be their opportunity to get some compensation for the loss of the program.
Now, they are very realistic. They've looked at the votes for the last few years. Every time there is an agriculture appropriations bill, there is an attack on the program. We only won the vote year before last by 2 votes. We won this past year by 7 votes. The program is in peril. Now, I would love toI mean the program has served us well. I would fight to the last breath for the program. But my dilemma is this, do we continue to fight and allow our farmers to miss and opportunity to get something out of that $368 billion that will compensate or do weand I have been to everyevery opportunity that I couldto meet with the farmers in the second district of Kentucky at the warehouses, on the farms, in their kitchens, at my office. And I've asked them, ''What do you want?'' And the rank-and-file farmer has told me that they want a buyout. They are afraid they are going to lose the program and they will miss their opportunity for maybe $20 billion to allow them some compensation.
Page 56 PREV PAGE TOP OF DOC So, do weand I'm asking youshould your representatives continue to fight for the program at all costs and miss that opportunity, if there is an opportunitythere may not even be that opportunity. But what will the farmers say to me? ''Mr. Lewis, you missed our opportunity. And 2 years from nowyou know, we've lost the program, and we've not gotten anything out of this.''
The rank-and-file farmers are saying to me that they want some protection. They want some compensation. But the organizationthe leaders in the organizations, farmer organizations in Kentucky, are saying, ''Fight to the death for the program.''
Tell me, what do I do?
Mr. COYLE. Congressman Lewis, I understand what you are saying. At the Kentucky Farming Convention we had a tobacco conference as usual, but it was the largest in attendance that we'd ever had. There were about 700 people in that conference, and probably because of the guest that we had which was Judge Carlton and Attorney General Mike Moore. But our position has been, in Burley, the four points that I went over, and that was to maintain the program, the compensation for lost income as result of a negotiated settlement. And one of the very key elements of those is the third point, and that is the safety net. If the program is eliminated or phased out that growers are compensated. And to me that covers it.
Mr. LEWIS. And that would be fine, but I'm afraid that, you know, you have a window of opportunity, and if that passes by, there will not be an opportunity for compensation in the future. Soand I've found here in Washington that you do not get something for nothing. You have toand I don't see getting $20 or $28 billion or whatever the amount and keeping the program. I wish we could do that. That would be a win-win situation, and I'm all for that. But there are realities that we have to look at here, and I think, in order to be very, very realistic in our approach, we have to realize that we don't get everything that we want. I wish we did. I'd fight for it, but I'm afraid then we'd lose the whole bag.
Page 57 PREV PAGE TOP OF DOC Mr. COYLE. Well, I understand what you are saying, and if we had everything that we wanted we wouldn't have to be up here today because we'd already be taken care of.
Mr. LEWIS. Absolutely.
Mr. KUEGEL. Congressman, I'd like to point out two or three things.
First of all, all the fights over tobacco have been over in appropriations, and whether or not the settlement happens. And I hope the gentlemen sitting here would agree with me that if it does not happen, it is time for tobacco to step up and pay all costs associated with the program. That is going to be expensive for us as producers. We have to do that. We can't allow those fights to continue to take place in appropriations. We have to be willing to cover those and take that criticism and remove it.
I don't know of a fight that has been very close as far as a vote on the program. And it's very difficultI spend more time than I should, I thinkespecially my father will tell you that when it concerns our farming operationof trying to study and understand the different plans up here and what's going on. And I'll assure you that the farmer, that his only inclination of knowing what's going on is what he reads in his paper and talking to him in his kitchen, has yet to understand, as I have yet to understand, all the implications of what goes on up here. But I'll assure you, without exception, every farmer that I've had an opportunity to explain what's going on, and explain that that $8 a pound is not a check when you go to the ASCS office and sign the bottom line that they receive and take home with them. I have yet to have a farmer that doesn't end up supporting the program with a safety net as Marshall was referring to.
Mr. LEWIS. Thank you. My time is up.
Mr. EWING. Thank you, Mr. Lewis.
Page 58 PREV PAGE TOP OF DOC Mr. Goode.
Mr. GOODE. Thank you, Mr. Chairman.
I would like to ask Mr. Ashworthand in asking this question, I would like to point out that while his office is in Richmond, as president of the Virginia Farm Bureau, his farm is in southside Virginia, in the heart of tobacco country in Pittsylvania Countyto followup on some of the previous questions. Would you say that this is a fair characterization of the Virginia Farm Bureau and the other concern friends, VAGAN, Virginia Tobacco Growers Association, that they want a buyout with a privatized system for growers that have a history of growing to continue growing tobacco?
Mr. ASHWORTH. Yes, we've met with the various tobacco groups, and this has been the consensus of the various tobacco groups. I guess we're concerned about the competitiveness of the tobacco with the value of the quota. If we could privatize this program and do away with that value and then we could market, continue to market. Given the opportunity for, especially young people and smaller farmers to continue to grow tobaccoand I think that's what we have to look at in this privatization is if we continue with this value of this quota, then I think we'll continue to decline with what they proposedyou know it's a continual decline, I think, in effort in some of the proposals. A decline in the production of tobaccoprivatization can, we hope, at least stabilize with the opportunity because of the overseas market, as well as with the competition with imports coming into this countrywe have a better opportunity to privatize. Now's the time to take this opportunity. We may not have it next year.
Mr. GOODE. Mr. Chairman, to follow up. Would it be also fair to say, ifand I believe Senator Lugar has a plan where you buy out the farmers or you buy out the quota holders at $8 a pound. But there is no system, nothing after that. You are opposed to that.
Page 59 PREV PAGE TOP OF DOC Mr. ASHWORTH. Yes, we are opposed to that because it leaves no opportunity.
Mr. GOODE. It would kill it in our area.
Mr. ASHWORTH. It would kill the program. And look at the devastation in communities. That is what we look at as much as the individuals. The communities, these churches, these banks, whatever has been built with tobacco money, taxes, tax base, and how will this affect the community as well as the tobacco producers.
Mr. GOODE. Can I ask the gentleman on the end a question about what buyout do the warehousemen in your State propose? I've heard that some say flue-cured say 3 percent of what the farmers get that goes to their warehouse, and burley, 5 percent. Have you all come up with a formula or something that you
Mr. PERKINS. At this point the burley average is, I believe, 5 percent, and to my knowledge that is what they are proposing. And our average is 3 percent, and that is what we are proposing.
Whether we come up with a common figure in between, we're not to that point, yet.
Mr. GOODE. What aboutand I'll ask you as a warehouse personwhat about the graders and the checkers and the inspectors that are currently Federal employees. Do you think there should be any transition payment for them? What's your thought on that? Auctioneers and those people.
Mr. PERKINS. Well, I can give you thoughts on auctioneers. You are asking something that is, I think, out of my bailiwick when you start asking me about grader compensation, but as far as warehousemen are concerned, we have the large investments in the buildings and the equipment and we have to pay the bank notes and the interest. The auctioneers come and work for us. Bookkeepers come and work for us. Computer operators come and work for us. Ticket markers come and work for us. They are completely independent contractors from us. If they receive compensationI think they should receive compensation. And what form and where it comes fromif it comes from your community grants or developments or something of that nature, I say fine. But as far as the warehousemen are concerned, we're seeking compensation for our losses out of the loss of the tobacco quota, and the auctioneers and the other people involved in this are going to have to look after themselves in some other grouping of the funds as it comes down the chain.
Page 60 PREV PAGE TOP OF DOC Mr. GOODE. Thank you, Mr. Chairman.
Mr. EWING. Thank you.
Mr. CHAMBLISS. Thank you, Mr. Chairman.
You know, one major problem that we've got as Members of Congress in trying to come up with any settlement, gentlemen, is the fact that everybody now has seen that $368 billion pot out there, and everybody is starting to stick a hand into that pot. And whether there is going to be any money left for the folks who helped create that pot is obviously a big question. As to what amount that ought to be is an even bigger question. I have obvious reference to the farmer, the producer as well as the quota holder and the warehousemen. And I'm not sure where that is going to take us, but you know, one example is the President's child-care program that he's going to fund, in large part, from the proceeds of this settlement.
Dane, how many employees have you got at your warehouse at the peak season?
Mr. PERKINS. At the peak season, we have about 30.
Mr. CHAMBLISS. If you've got 30 employees there, you are obviously concerned about child care and having their children looked after. But if we come up with a program that eliminates the warehousing system then those 30 employees don't care whether they've got child care free from the Federal Government or not because they don't have a job. And that's of serious concern to me as to where we are heading from that standpoint.
And I want to take a closer look, too, at this issue of privatization because when itexcept in the realm of national security where I think privatization can be harmful to us, I'm a big fan of privatization. I think that the Federal Government does a lousy job of administering a lot of things that the private sector can do better, and that privatization is a great idea. I'm going to tell you I have some real concerns about privatization in this area because of the fact that if we move to a total private system, it looks to me like you're asking for exactly what Mr. Clark has alluded to, and that is that the growersthe producers are going to be at the mercy of the company. I don't see any other way. Now, am I wrong? Does anybody disagree with that?
Page 61 PREV PAGE TOP OF DOC Now, admittedly, we're somewhat at the mercy of the companies right now because, obviously, they're the ones that buy the tobacco, but you all know that there can be certain pressures put upon companies to get them to participate in the active buying of tobacco on a daily basis with our current system. I have concerns about totally getting the Government totally out of a marketing system for your product. I have concerns because, No. 1well, let me back up a minuteI've got concerns about the Government staying in it because we're always going to have a fight over it, but I think we're kidding ourselves to think that we're going to wind up, when this is all over with, under the best scenario, with the same program we've got now, and Mr. Baesler and Mr. Lewis are right on target, we'll fight for it, but folks we're going to lose that somewhere, sometime. But if we don't have the Federal Government in it; if we don't have some controls put in and some leverage with the companies, I think we're going to be losing everything from a grower's standpoint in the long runnot in the short run, but in the long runand I'm concerned about your children out there wanting to grow a product that's been grown by your family for generations of not being able tomaybe being able to grow it but not being able to market the product out there.
So, my suggestion to you is that we think about a buyout, obviously, but that we think about where we ought to be 5 years, 10 years, 20 years from now. What do you want that end product to be. That, in my mind, is the No. 1 question that we've got to resolve through this settlement process.
I've heard numbers thrown out here, and we've all seen the numbers in the various proposals out there. Does anybody disagree that this range of $8 to $10 is unfair compensation? Should it be higher? Should it be lower? Does anybody have a comment on that? I want to know what the producer thinks about where we ought to be from a compensation standpoint.
Mr. DOLLAR. Are you including the taxable or is this a net figure, Congressman?
Page 62 PREV PAGE TOP OF DOC Mr. CHAMBLISS. Well, obviously, that's going to be another consideration down the road. My hope would be that whatever compensation the farmer receives is going to be tax free because otherwise we've got a windfall to the Federal Government from a tax standpoint. So, let's assume a net figure.
Mr. DOLLAR. Those figures have been mentioned in Georgia and when you talk with the rank and file tobacco farmerand you've expressed that some in your comments and others toothere's frustration; there's uncertainties, and they feel like this may be an opportunity to do something that they haven't had an opportunity before, and a buyout is popular in Georgia, but at the same time, they're talking about some sort of a control for production and some way to protect the integrity of the program. You alluded to the fact, and we feel the same wayyou feel like you've really got to have some Government control for production and also for protection in integrity of the program, yet, on the other hand you'd like to see them out of the program. And it's not like a cake and eating it too, but I'd say to you and to others that there's been a lot of talk in Georgia about a buyout, and a lot of the tobacco producers are feeling frustrations, uncertainty, and talk about, ''Well, I lost 17 percent this year; am I going to lose some more next year? So, maybe I should get something while I've got something to get something out of.''
Mr. CHAMBLISS. Again, is that $8 to $10, anybody disagree with those numbers?
Mr. SAMPSON. I think $8 to $10 per quota is good, but I think $4 transition money for the grower that may not own quota that has got his investment equipment must be considered also.
Mr. FLYE. Mr. Chambliss, if that is met with no liability or income tax that's one thing, but quota values vary among farmers, and if you look at the earning power on that quota for the length of that settlement, 25 years, you can easily justify on some quotas $14 a pound with the earning power and the equipment invested. So, if you're going to whack 40 percent of that off, you would end up around the $8 range if you didn't have a tax liability.
Page 63 PREV PAGE TOP OF DOC Mr. CHAMBLISS. If I could have one more question, Mr. Chairman, and that is most of the proposals that are on the table right now spread these payments out over anywhere from a lump sum payment now up to 5 years. Does anybody have a problem with these payments being spread over up to 5 years? Is that generally acceptable in the communities?
Mr. DOLLAR. That's long enough.
Mr. PERKINS. I'd like to make this comment, and this appliesI grow tobacco too, but I'm here representing the warehousemen5 years is the longest it should be? It really should be 1, 2, or 3 years. It really should be no longer than 3 years, because the most severe economic impact is going to occur to the quota holders and the warehousemen up front. It's not going to be 20 years down the road that we suffer from it. We should be compensated in a short period of time as possible. Then after we're compensated the money would be spend, I assume, on whatever other programs are designated, and they would have 20if you compensated the grower and warehouseman within a 3-year periodyou'd have 22 more years for this money to be applied to these other programs. But the most severe economic impact is going to occur on the grower and the warehouse level, up front, out of this settlement, so it appears to me.
Mr. CHAMBLISS. Thank you, Mr. Chairman.
Mr. EWING. Mr. Etheridge.
Mr. ETHERIDGE. Thank you, Mr. Chairman. I'll address this to Mr. Jenkins or anyone else. We've had a lot of ''what ifs'' so, let me put another one. Let's say no settlements are reached. What do you foresee for the market this fall in a very unsettled situation, not only for our producers and farmers, but a whole range of things should we not reach one?
Mr. BOB JENKINS. I feel if some type of agreement is not reached, you're going to see a very volatile market this fallprobably, another price drop like we had last year; possibility of another quota cut as we resulted from last year, and I think you're really going to see a chaotic condition if some type of agreement isn't reached, and that's one reason in my statement I said farmers are going to need some transition money and some compensation to make up for the damage that they've already received due to the uncertainty in the market and the uncertainty of what our buyers are looking forward to.
Page 64 PREV PAGE TOP OF DOC Mr. ETHERIDGE. Anyone else want to comment?
Let me address this one, if I may, to Mr. Flye. If you remember in 1994, the stocks and the co-ops and the other quota stocks were built up to about 350 to 400 million pounds, roughly, and the companies agreed to buy it out?
Mr. FLYE. The stocks built up 298 million not counting that year's crop of 1994 which we took about 100.
Mr. ETHERIDGE. All right. So, it was about 300
Mr. FLYE. It was 298 on the table to try to get rid of.
Mr. ETHERIDGE. Okay, when they went in and agree to buy it out.
Mr. FLYE. Absolutely.
Mr. ETHERIDGE. My question is now we're looking at roughly2 years laterat a stock of roughly 200 million pounds.
Mr. FLYE. Absolutely, 200, and as Mr. Jenkins mentioned that if there is no agreement with all the uncertainty, then I think this could be another 200; it's possible.
Mr. ETHERIDGE. Now, let me follow that up, because I think this is something we ought to be concerned about. That being the case and we look at the amount of imports that came in last year which was a pretty good chunk of what we wound up with in stabilization. If you feel comfortable, I'd like to have a comment on that. I think that's something this committee ought to hear about as we start dealing with these old issues, because I think that is an area of some concern.
Mr. FLYE. Well, the last 2 years, the importsthe all-time record for the 2 years exceeds over 200 million pounds each year, and with the reduction in manufactured cigarettes there's not enough room in that tube for our tobacco as it has been, and the imports, the composition of the brand, has gone in one year from 24 percent of foreign tobacco to 28 percent foreign, and we look for that trend to continue up, and we're going to be squeezed out.
Page 65 PREV PAGE TOP OF DOC Mr. ETHERIDGE. Let me chase that rabbit a little bit farther, if I may, because you've opened an area I want to get to, and I think it's being instructive for this committee and others here. You said in the last few years, but the amount of foreign tobacco in domestic blend has gone up substantially over the last 10 years. Since the 1984 agreement, it has more thanwhat is ittripled?
Mr. FLYE. Probably. I don't have those figures, but it has gone up substantially.
Mr. ETHERIDGE. And I raise that question for comment from you, if you will, because if we're talking about a program and adjusting the program then we better look back at where we've been to where we want to go, because if there is no support under a program that we might have, my question to you is where will be if it has grown that much with a program?
Mr. FLYE. That's real hard to answer, but your price would plunge, and we were told yesterday by NC State that in the absence of a tobacco program and competing on the world market, it would only take 2,500 growers to grow what was needed, so you can see the displacement of farmers by this. It would go to your large growers, corporations, and they would grow it. We were told in 1982, if we'd freeze the price for the 3 years the imports would be cut out. We were told in 1985, if we'd make a price reduction, that the imports would be cut out and we'd be competitive, and so it's been like a dog chasing its tail; we really haven't reaped the rewards of that.
Mr. ETHERIDGE. Mr. Chairman, I'm almost out of time, and this final one has been touched on, and anyone may comment on this as well. But I think one of the concerns that almost each member of this panel and many of you have and certainly it should be a concern for all of us if we are to continue to have a legal product. The real concern as we address the small farmerbecause even in the foothills of North Carolina we've maintained a base of small farmers and tobacco has been that base. My question for the last few minutes of this to anyone who will comment is where do you see this small farmer being in this whole mix as we adjust this program? Because I think this is critical, not only to our State but for the Nation.
Page 66 PREV PAGE TOP OF DOC Mr. FLYE. Are you addressing that to me?
Mr. ETHERIDGE. Or anyone else who would like to comment on it.
Mr. FLYE. Well, as I mentioned in my statement that unless there's something done, that the small farmers, the medium size farmers, will be eradicated, and what farmers need now is an infusion, as we mention, in some compensation for quota, and I'd like to say compensation for quota rather than buyout, because buyout denotes no program, and we would hope it keeps some type of quota program, but if we can get some infusion for these farmers, particularly beleaguered minority farmers and pay some indebtedness offwe don't want that money dribbling in over a period of years, because it will get away from us paying the bills, but if we can get some lump sum payments, these farmers can pay off their indebtedness and decide whether to modernize their equipment or whether to get out of farming.
Mr. ASHWORTH. If I mightexcuse me.
Mr. BOB JENKINS. Mr. Chairman, I was just going to say under that type of scenario that you pointed out, there would be no small farmers; they'd be gone.
Mr. ASHWORTH. If I might respond. Sir, we're talking about small farmers, and this is what I addressed, I think, in my remarks, a privatized program; a licensing program that you would allow through a Federal charter would help protect the small grower. It's based on whothe history of production.
And another point that I would like to make that was questioned over here about would we be in the hands of the large tobacco companies if we privatized? In my remarks, I also said that this corporation, private corporation, would act similar to the present program that we have now, and the price support would be set by this privatized corporation similar to the way the Secretary of Agriculture sets that now.
Mr. EWING. The next two members are Mr. Bishop and then Mrs. Clayton. Sanford?
Page 67 PREV PAGE TOP OF DOC Mr. BISHOP. Thank you very much, Mr. Chairman, and let me thank all of the panel for your comments. I think they've been extremely helpful.
I've got a couple of questions, and first, a comment. I want to express my appreciation to you, especially to the representatives of the industry that are not generally known by the public, who are not intimately involved in tobacco, particularly Judge Perkins. I think you bring to the table a representation that has not been brought to this whole dialogue before. Certainly, the growers, clearly, made their presencetheir absence, I should say, at the table known early on in the discussions, but the warehouses who play such a vital role need to be included, and I appreciate the fact that you're here and that we've been able to hear from you.
Mr. Dollar, let me just ask you if you can succinctly say that there has been a consensus reached, particularly from the Georgia growers and producers, ownersquota owners and producers that the buyout is the way to go or is there a wide disparity among the growers and the quota holders as to whether or not that is the way to go?
Mr. DOLLAR. The way you have asked the question, the answer would be that the Georgia producer is favoring a buyout.
Mr. BISHOP. Thank you for that, and I appreciate that. Second, in terms of the producer meetings and the quota owner meetings that you held, was there a consensus as to which of the Senate proposals on the table was preferred? If so, I'd like to hear that. If not, were there suggestions for modifications of either one or the other or of some different proposal?
Mr. DOLLAR. None of the plans in total was accepted. We were attempting to develop our own, so to speak. There were some 300 to 350 growers in attendance, and then since then we have met with our advisory committee and the Georgia Tobacco Commodity Commission, and they're still signed off on no particular plans. They see good and bad in each and every plan, and someone has referred to ''the devil is in the details.'' So, at this point in time, the Georgia tobacco producer has not signed off on any plan; has not totally completed a plan of their own, but I'll just make the statement again, and the way the conversation's going now, they do favor a buyout.
Page 68 PREV PAGE TOP OF DOC Mr. BISHOP. Could I just ask if you are continuing to work on that plan, and, if so, I'm sure that Congressman Chambliss and I would appreciate hearing from you just as quickly as you can get us some guidance?
Mr. DOLLAR. We appreciate that, and you will hear from us.
Mr. BISHOP. On another subject, I'd like toalong the buyout lines of discussionone of the things that I heardnot very often during my grower meetingsbut one or two of my growers and quota holders mentioned the issue of what the tax consequences or how the tax matters would be handled with regard to any payout. Would the payouts, the buyouts, be tax-free? Would it be treated as a capital gain? Could there be special tax provisions that would not take away from the ultimate benefit that thesethat our quota holders and our producers would have, ultimately, from the payout that was paid and which is going to be some terminal payments; they will end.
In your hearings, did you have any discussion about the tax consequences, and, if so, I'd certainly like to hear that, and I ask that question so that this subcommittee will be in a position to make a recommendation to the full committee that perhaps some joint hearings be held with the Ways and Means Committee which is the committee with jurisdiction over taxes that whenever we get to the bottom line of this settlement, that, certainly, when it comes to growers and producers and quota holders that these buyout payments be certainly put in the context of tax consequences.
Mr. DOLLAR. The payments that have been mentioned should be tax-free, and we want a consideration not only for quota but equipment, and they thought the payments should beand this is our discussion at the meetingsno more than 2 years, preferably 1, but 2 years would be a long time because of the immediate effect of the loss of income.
Mr. BISHOP. Thank you very much. I appreciate that. Anybody else care to comment on those? I'd be happy to hear from them. My time is almost expired. Nobody has any favorite plans for the buyout or is there a consensus among your States that a buyout is the way to go?
Page 69 PREV PAGE TOP OF DOC Mr. KUEGEL. Congressman, the burley groups have not endorsed a buyout. We have endorsed the Leaf Act and forest proposal; all the burley groups.
Mr. COYLE. And that's Kentucky and Tennessee; the burley groups that have made and had these discussions, and we have not endorsed a buyout.
Mr. BISHOP. Are you opposed to a buyout?
Mr. COYLE. From Kentucky's standpoint, yes, sir. We want to hold the program because of what was outlined this morning.
Mr. KUEGEL. Congressman, we've taken the position that compensation takes place at such time as you have injury, and that's how the Leaf Act addresses the problem. If at such time I get a 20 percent reduction in my opportunity to participate in production, then compensation takes place at that point.
Mr. EWING. Sanford, I thought there would be somebody that would want to make it taxable, but no one spoke up. [Laughter.]
Mr. BISHOP. Mr. Chairman, my concern was that I didn't want the issue not to be discussed.
Mr. EWING. I understand. I was just trying to put a little levity in the situation. [Laughter.]
Mr. CHAMBLISS. Mr. Chairman, I bet you we could get an agreement that about $25 a pound they'd pay taxes on it. [Laughter.]
Mrs. CLAYTON. Thank you, Mr. Chairman. I think Mr. Bishop making the assumption that it may be taxed, and he wanted to make sure that people understood that. I also make the assumption that it may be taxed, and I think you ought to raise that issue early on.
A couple of questionsI think you might have answered, and I want to apologize to the panel, because I'm between two committees: one, the Budget Committee, and by the way, the Budget Committee assumes that the agreement is going to go and in the President's budget is $65 billion to be used from that; total $368 billion over a 5-year rather than over the total of 25, so just consider all that in all this, so what you ever think is going to be there that there are different groups and present included. Now, he did have a provision in the budget that had some things for small farmers, but the proposal for the whole buyout certainly wasn't there, but there are other acts in there.
Page 70 PREV PAGE TOP OF DOC It appears that there is, indeed, a consistency that all of you feel that some assistance should be for farmers. It may be that in North Carolina we may hear more about the buyout than we hear in Tennessee and Kentucky and Georgia. I can tell you I have people who come to me and ask me, ''Where do I go for my buyout?'' That's what they ask me, and I have said to them, ''Don't be so quick. You ought to stabilize the program first.'' And I gather what I would want to raise with any of you is assuming a buyout will be an option in the program, how do we address stabilizing the program first to make sure those who want to stay in the production of tobacco have the opportunity to do that, and how do we protect that; the right to farm; those who want to stay in whether they own a quota or not; whether they're renting or whether they are a tenant. If they want to stay into the production of tobacco, and assuming it's a legal commodityI'm making all those assumptionswhat would you suggest we look at in stabilizing the program? Is it price support? Yes, Mr. Jenkins.
Mr. BOB JENKINS. Mrs. Clayton, I think one thing we've got to do is get some more answers. The reason I wanted to speak before my friend from Virginia spoke is I've heard wonderful things about this privatizing plan, but we've tried for 2 weeks now to get a copy of the bill and can't get a copy of the bill.
Mrs. CLAYTON. There is no bill for privatizing; that's a proposal.
Mr. BOB JENKINS. It's supposed to be a part of a bill, we understood. I don't know.
Mrs. CLAYTON. It's not yet.
Mr. BOB JENKINS. I have difficulty endorsing anything until I see it in writing, andI'm not through yet. [Laughter.]
When you talk about saving the small farmer, I raised that question in some meetings one night: ''How many of you expect to have more allotment under a privatized plan than you have now?'' And everybody expected more, which if you reduce the consumption of cigarettes, we've got to face a reduction in the amount of tobacco grown, and things aren't meshing yet, and that's causing a lot of the frustration. Everybody would take $8 tomorrow if it was non-taxable and then worry about what to do after that.
Page 71 PREV PAGE TOP OF DOC Mrs. CLAYTON. Well, I was also concerned aboutas I've expressed to a few of you in my remarksin addition to the farmers having transitional funds it would seem to me those rural communities where you all live need some assistance, because when you devalue the land the tax revenue that comes from that, the schools that are supportive; the hospitals, and all of the things that support it; someone has to pick that up. So, that means either the individuals living in those communities are going to have to assume greater tax responsibility, and it seems to me as the Government pushes in thatand I think the demand issue is inevitable. I don't think you can assume that there will be more; I think there will be less demand. So, if that's the case would you also push us in the Government to consider what it would do to your communities in terms of pulling this commodity out, and what would you have us consider?
Mr. COYLE. As I addressed in my remarks, I think those are very important issues that need to be dealt with because my loss of income and the other farmers in my county is certainlythat is going to affect those businesses that operate and depend on my dollars to come there when I don't have that many dollars to spend. I think we've got to look at the economic development part for our rural communities.
Mrs. CLAYTON. And my last question, and I don't want to press my timewhat would you suggest that the industry could do to take away the volatility of the foreign market? How could they stabilize; give you a sense of assurance if you wanted to stay in thesay you were growing for the world market, what would you have the industry say to you that would help you stabilize your income, that you know as you went from year to year there would be a market? How do we form a partnership with the industry as they now grow from everyone, assuming you're in a world market?
Mr. FLYE. Mrs. Clayton
Mrs. CLAYTON. By the way, Mr. Flye is my constituent; I wanted everyone to know. Best growing tobacco person in my district.
Page 72 PREV PAGE TOP OF DOC Mr. FLYE. I mentioned in my statement that what the flue-cured position of stabilization is we'd like a 600 million pound purchase intentions, and we'd want that enforceable and that would allow us to have a quota approximately of what we've geared up for in 1997.
Mrs. CLAYTON. So you would want that as an agreement between the company and the
Mr. FLYE. It would have to be a private agreement between the industry, as we have done in the past. We've had an agreement in 1994 on 475 million pounds and the penalty was the discount that we'd receive if they didn't honor that commitment. We would need more teeth in whatever we get this time. It would have to be the same type teeth that they give up their First Amendment right to advertise and then we want them to give us a contract for the length of that agreement, and with the 600 million pounds we'd probably have a billion pound quotas. That is the preference of how stabilization's buoyed. But we do worry about the longevity of the tobacco program, and if we lost the program and the 600 million pounds went out the window and the price, we wouldn't have anything, so our second sentence is if the longevity of the tobacco program cannot be sustainedthat means if you people think this is going out in the next 3 or 4 or 5 years then we want compensation for the quota holders and the tenants, and this will infuse some cash money into the hands of our farmers that are greatly in debt and allow them to decide whether to continue to farm. We don't think it's in the benefit of the consumers nor the public to have a tobacco program that tobacco's grown in Texas, California, and Hawaii, and no telling what type of pesticides are put on it. Right now, we have a farm-friendly program toward the health of the consumer, and we have taken initiatives on our own to check the pesticides in the fields; we check it on the auction floor; we check it in storage, and our young people are going to smoke, and I think our farmers are delivering the best possible product to the market. So, we do need some type of product control program if this happens.
Page 73 PREV PAGE TOP OF DOC Mrs. CLAYTON. You know that it would have to be voluntary, because we are all operating on what we call a GATT agreement. Mr. Etheridge has referred to the fact
Mr. FLYE. It would have to be a side agreement.
Mrs. CLAYTON. And that's something maybe we could encourage to happen but we can't determine it seems unless we modify the GATT agreement as what the domestic and the foreign amount of tobacco, but I think the market is a critical piece of all of this. If those farmers who want to stay in the process they have to have some assurance that there would be an opportunity to grow and to get income that is reasonable, and reasonable means comparable to what they are now getting, not reduce it to the lowest price of tobacco worldwide. So, I think that those issues are very, very important if you're going to have a future. Thank you, Mr. Chairman.
Mr. EWING. Thank you, Mrs. Clayton. Because of the demand, we're going to have another abbreviated round of questions, because we don't get the opportunity to have this kind of a panel here everyday.
And I'm going to start off by asking you, Mr. Perkins, just what would you think an adequate buyout for people in the warehousing business?
Mr. PERKINS. Well, what I alluded to earlier in my comments was that we believe we should be entitled to receive our commissions off of the quota tobacco that is bought out. That's it in a nutshell.
Mr. EWING. What is that commission? How's that constituted, and what is it normally?
Mr. PERKINS. Well, it's under State law for the flue-cured States; burley, principally in Kentucky and Tennessee, are unregulated as far as State law goes, but their average is about 5 percent, I understand, and our average in Georgia is 3.5 percent. I think South Carolina is 3 percent; North Carolina is a little less than that, but we were trying to reach an average of 3 percent.
Page 74 PREV PAGE TOP OF DOC Mr. EWING. Are there other parts of the industry that you would anticipate we might hear from besides the tenants, the quota holders, and the regular growers of tobacco who own their own quota?
Mr. PERKINS. Yes, sir. I think you're going to hear from the agribusiness that I mentioned a while ago. As I said, they have other avenues to sell these products, but the primary market they sell to in our area, still, is tobacco growers and not other crops, and I think you'll hear from agribusiness segments throughout the tobacco belts.
Mr. EWING. To any of you on the panel, how devastating would it be if we were to lose the vote on providing the Federal Crop Insurance Program for tobacco growers?
Mr. FLYE. I think it would be real devastating to the small farmers, particularly, and including the minority farmers, because this is the only safety net that they have and with the indebtedness already that they have, it would be awfully hard to try to do without it. So, it would hit the smallest the hardest in my opinion.
Mr. COYLE. And to back up that point, Bruce, many institutions now are requiring crop insurance before they'll loan that farmer that money, so I think it would really put the hurt on a lot of farmers.
Mr. EWING. On that issue, I hope that each of you who represent farmers and citizens back in your respective districts and in States will take home how hard the members of this committee and others who aren't on this committee who represent you work to preserve the Federal Crop Insurance Program. We work very hard. They pull together; that's not an easy vote, and we only had a 7-vote margin last year. I'm sure all the members here and others will be out there working again this year if we have to fight the same types of amendments.
When I think about the whole tobacco settlement and just where are the promoters of the tobacco agreement really headed, and I guess the thing that keeps coming up in mind is do you see in the year 2010 we will by these Government policies have run the tobacco industry out of America and offshore, and then we'll still have the privilege of having tobacco imported for sale in America? Do any of you fear that Government action might lead to that?
Page 75 PREV PAGE TOP OF DOC Mr. COYLE. Mr. Chairman, I think it's conceivable that that can happen.
Mr. EWING. You do not?
Mr. COYLE. I do think it is. I think it's very conceivable that that could happen, and those products could be made a shipped back to this country and smuggled or whatever form, but I think it could be that the climate could, at some point in time, be so difficult that they would leave this country.
Mr. PERKINS. Mr. Chairman, I think it's already happening. Some information that I had this past year in 1997 from the Brown and Williamson plant in Maconwhich is supposed to be the most modern cigarette producing plant in the worldthat they're moving part of their production already to Mexico and taking it away from Macon and the community there, now, not in the future.
Mr. EWING. Well, if the industry moves offshore, they're not very likely to be under any constraints to buy American tobacco or very little. Would you anticipate that?
Mr. BOB JENKINS. Mr. Chairman, that raises an interesting question. Even if we had an agreement and the agreement was put together, if they moved offshore, would there be any constraint on their part to meet of their end of the agreement?
Mr. EWING. That's certainly a good question that ought to be asked. With as many attorneys as we had involved in this agreement, I'm sure they may have tried to tie that down.
Mr. BOB JENKINS. Sir, I'm wondering if the attorneys weren't more interested in their fees than they were what they were putting in the agreement?
Mr. EWING. I couldn't comment on that. [Laughter.]
I have to have a little loyalty to the profession, right. And now for another attorney to be heard from, Mr. Baesler.
Page 76 PREV PAGE TOP OF DOC Mr. BAESLER. Mr. Dollar, you indicated that your folks wanted $8, and that's basically how they'reat least a buyoutand that's how they're leaning? And I think I understood Mr. Bishop to ask ifbut they would have thought that if it was tax-free, is that correct?
Mr. DOLLAR. Yes.
Mr. BAESLER. Thank you, Mr. Dollar. The problem I have with the $8 is fairly clear is that most of our farmers in Kentucky liked that idea when they thought it was going to be tax-free and when they thought that maybe we were going to keep the program too. So, I've taken that $8 and analyzed it, because if it's not tax-free that takes it off to $1.60. You've already got a value in Kentucky of about $2.50 if you base today, so you can't count that; you already have that. So, my farmers get down to about $4 and $4.50, and I think right now that's what's concerning me, because a lot of them think that $8 is their money, and it's not going to be their money, and they're going to wake up disappointed, and that's why I strongly oppose trying to make that our first approach.
Mr. Ashworth, you indicated that the privatization under Senator Robb's plan would be authorized or chartered by the Federal Government, right?
Mr. ASHWORTH. Yes.
Mr. BAESLER. And you indicatedand I suppose then is the suggestion that the license then would be chartered and authorized by the Federal Government?
Mr. ASHWORTH. It would give this privatizationthis charter would give it, this corporation, private corporation, the power of responsibility to license individuals that have a record of producing tobacco. So, that would keep the ones that are producing tobacco production; protect the smaller farmer.
Mr. BAESLER. But you also said they would probably be just performing duties the USDA does right now for us.
Page 77 PREV PAGE TOP OF DOC Mr. ASHWORTH. It would be similar to that, yes, and it would be the will of Congress to allow that from what I understand.
Mr. BAESLER. This question is not a question; it's a statement. I then wonder why we need it if it's going to do the same thing USDA's doing.
Mr. ASHWORTH. Once you allow the private corporation you would not be in the continued discussions. The Government would be out of the control program.
Mr. BAESLER. So, basically, we would have less people making the decisions rather than more.
Mr. ASHWORTH. I guess so.
Mr. BAESLER. The board would be making the decisions; not Congress.
Mr. ASHWORTH. It would be the privatized corporation that would have the responsibility. Now, you would have a Federal oversight board in the proposal that's been presented; a makeup of growers and a number of health people and so forth.
Mr. BAESLER. One last question I haveI think you all in flue-cured got a 17 percent cut, and we're going to get a 9 percent cut in burley country, I think, and I've often had this theory about howis there some program or some suggestion or some idea possible that there be a way to sap up that excess each year?
In other words, let's say you had a 10 percent. Is there some thoughthave you all given some thought to a program that would sort of zap up the excess like a sponge? In other words, let's say all of us together had a 100,000 pounds and we were going to have to cut out 10 percent. Is there a thought to, say, having a program that would provide funding to zap up that excess and those who wanted to sell it could, and those who didn't want to sell it could at a less figure than $8, though? Have you given any thought to that at all?
Page 78 PREV PAGE TOP OF DOC Eight dollars is the figure for buyout. It would almost have to be a less figure than $8, if you're just going to have an option each year to zap up the 17 percent. You understand what I'm talking about? The buydown theory is about what it is. Has anybody been throwing around any numbers on a buydown theory, other than $8?
Mr. FLYE. That sounds pretty good when you first say it, but you would still be taking out, say, 20 percent of your crop.
Mr. BAESLER. Oh, I understand that.
Mr. FLYE. And it would probably
Mr. BAESLER. But if you redistributed it, you wouldn't.
Mr. FLYE. Well, if I follow you, if you had a 20 percent cut in quotas, that you would volunteer to pay those people to sap up that 20 percent. Is that what you're saying?
Mr. BAESLER. Here's where I wasn't clear, and I apologize. What I'm sayinglet's assume we had a fund established that, say, that people, if they were going to have that, they could sell so much a year, and let's say I bought from youyou sold 10,000 pounds, or whatever, 100,000 pounds. And then what I would suggest, that we redistribute that in your country in which it was sold for producers to grow. Do you understand what I'm saying now?
Mr. FLYE. Well, if it went back to the same producer
Mr. BAESLER. No, not the samethe same county.
Mr. FLYE. Well, it stays in the same county, but doesn't go back to the same producer, then it would displace farmers, because if I lost that 20 percent to another grower
Mr. BAESLER. It'd be going to another grower, right.
Page 79 PREV PAGE TOP OF DOC Mr. FLYE [continuing]. And I'm farming, it would still be a disparity there.
Mr. BAESLER. Right. Thank you. That's what I wanted to know.
Mr. DOLLAR. Would you allow that to cross county lines or just in the same county?
Mr. FLYE. Well, I'm just thinking, but I'd almost say in the same county or else you get a problem with the economic development of the county. You take it all out of a poor county going to a rich county. I'm just trying to figure out an idea here some way in the middle here, because I don't like the buyout. I'd like to find another way.
Mr. CHAMBLISS [presiding]. Thank you, Mr. Baesler. To further address that, we could have it remain in the same county, but if you rented it, it could go across county lines, which is one problem we've got in flue-cured. I don't know whether you have that in burley, but it's a big problem in flue-cured that we need to correct somehow in this.
Mr. LEWIS. Thank you.
This is kind of an obvious question, but I want to ask it and get your opinion. How much trouble do you think the tobacco program is in at this time?
Mr. FLYE. Nobody wants to go. I think if we look at what's happened, the new faces that come in Congress every year, and we look at some of our statesmen like Senator Ford leaving, that our political strength is diminishing. And we look at tobacco being one of only three commodities left that is a Federal program.
Our political strength is going down. Look at our crop insurance votes. Look at another thing that is really threatening us, is the imports coming in. This is threatening the tobacco program. But being only one of three commodities left, you wonder how long, with our elder statesmen like Ford. And Senator Helms may outlive me, but he's not a young person. Yes, our farmers worry about the longevity of this tobacco program.
Page 80 PREV PAGE TOP OF DOC Mr. LEWIS. Could I have just each personare we in trouble or are we not? Just yes or a no.
Mr. KUEGEL. I think just the major thing we're in trouble with is the perception that our program is costing taxpayer dollars. I think we have to alleviate that problem. We are trying to, as tobacco producers, form new alliances to strengthen the program itself. In fact, we've had meetings in the past weeks with the health organizations and tentatively have a promise to consider the support of the tobacco program by the health organizations in light that it does control the production and limits the acreage and makes prices higher. So there's some logic for them to be interested in that.
I think we're developing some new alliances. Of course, what Bruce alluded to, with new people coming in every day, all of those are challenges. But tobacco has never been easy.
Mr. LEWIS. Right.
Mr. KUEGEL. Tobacco has always been a fight. And I don't ever expect it to be any easier. I don't expect the tobacco settlement to pass and it become a panacea and never attack our program or never attack anything about the tobacco program again. But I think we have to be relentless with it. It's the No. 1 most important thing to the rural economy in the State of Kentucky. And we just have to be willing to take up that fight and stick to it.
Mr. LEWIS. Yes.
Mr. CLARK. Congressman, I've been with the Association for 19 years, and some of you may be able to correct me on this, but I believe shortly after 1979 it was Senator Kennedy who introduced a bill to do away with the tobacco program, and it only was defeated by a very small number of votes.
I think we in the tobacco industry are used to fighting for the program. It's nothing new to us. We have learned to live with controversy for longer than 20 years, and I think our back is against the wall here and we're wanting to stand for that program in my district. And we want you all to, too.
Page 81 PREV PAGE TOP OF DOC Mr. LEWIS. Yes.
Mr. PERKINS. Can I comment on this, too?
Mr. LEWIS. Sure.
Mr. PERKINS. I've had serious reservations about doing away with the program. You take the program and analyze it and see how it's made up; you've got a number of interdependent agencies compose and operate the program. And that within itself has made it independent and kept any one monopoly, any one group from having a monopoly on the program, which, to me, has made the program good for so long.
And, in particular, you've got the grading service that makes up a part of the program, the cooperative who makes up part of the program. You've got the growers; you've got the warehousemen; you've got the companies. You've got the FSA office; it used to be ASCS office. That makes up a part of the program. And even our Representatives, you who are here in Washington from the political standpoint, affect the program.
And to take something of this nature that has worked so good, so long for so many people, and arbitrarily cast it aside, I have real serious reservations about that. I think the mood of people that I come in contact with is the program has been so good so long, and worked so good. And we've had to change it; it's been modified over the years. But the basis for it's the same. It's not permitted for any one group to have a monopoly, and as a result, deteriorate the program.
And it's worked that good so long until the people that I come in contact with are afraid that the atmosphere here in Washington now is to do away with the program. As a result of that, they come in with the buyout aspect. If they're going to lose the program, of course, we've got to have a buyout. But, in my opinion, I think the majority of the growers really in our area would prefer to keep what we got, if we can keep what we got.
Mr. LEWIS. Absolutely.
Page 82 PREV PAGE TOP OF DOC Mr. PERKINS. And the problem that everybody has with losing the program and keeping something afterwards is that a lot of people are making the assumption that what comes afterwards may be like we have now, because we can't perceivewe haven't experienced it and we can't perceive maybe how it will be in the future.
I have serious reservations about that. I believe that what comes after is probably going to be a step down from what we have now. You're going to see the farms that are able to produce X number of dollars of income per acre in the future under some revised privatization or revamping of this program, are going to produce X number of dollars per acre less than what they produce now.
The earning power is going to be decreased on the farm and it's going to be felt, as we said a while ago, throughout the communities, through the schools, through the churches, through the banks, through agribusinesses. And you're going to see an entire standard of living decrease that has been on a certain level now for generations.
And from that standpoint, and just arbitrarily throwing out a program that's really not costing the taxpayer any money, and it's worked so good for so many for so long a time, I've just got reservations about. But that's me now.
Mr. LEWIS. Thank you.
Mr. EWING [presiding]. Thank you. Mr. Goode.
Mr. GOODE. I'd like to ask Mr. Coyle from Kentucky a question or two. Under Senator Ford's plan, there's no buyout feature at all, is that right?
Mr. COYLE. That is correct.
Mr. GOODE. And you visualize just keeping the program exactly like it is and then having a net as quotas get reduced, is that it?
Mr. COYLE. That is correct. To provide that safety net for that loss of income as a result of the tobacco settlement. It also provides a safety net so that if the quota falls below 50 percent for 3 years of the base level, the farmereverybody in the picture, the quota holder, the lessee, and the tenant farmeris compensated with the remainder of his maximum lifetime, as well as if the program is ended at any point in time through there.
Page 83 PREV PAGE TOP OF DOC Mr. GOODE. Let me ask you if you have any concern about a scenario like this: Say settlement legislation is adopted, maybe with regard to FDA, other companies' limited liability. It doesn't address the grower situation, just leaves everything like it is. And you have a vote 2 years down the road, and they say we're just going to wipe out the program; the quota's been drastically reduced, and they do away with it.
Mr. COYLE. Well, that absolutely is a concern of everybody in the tobacco business in the farm sector because I think that's a scenario of what could happen. You know better than I what might happen to this settlement. Just from what I read in the paper, I think the settlement has got big troubles.
But it would appear some of those issues may be picked out and dealt with separately. And at that point in time, farmers, I think, will have to relook at what their options might be, if there is no settlement money, that we could participate in.
Mr. GOODE. That's all I've got, Mr. Chairman.
Mr. EWING. Mr. Etheridge?
Mr. ETHERIDGE. Mr. Chairman, very briefly, I started to pass, and then I thought that anyone can answer this that would care to, because we've talked about a number of things. And since we've got such a distinguished panel, I'd at least like for them to think this one through, because it came up, Mr. Chairman, as I held my meetings over the last 3 weeks with a large number of farmers.
Let's assume for the sake of the dialog this morning we did have a buyout, and for whatever reason, and how we structure it afterwardswhat does that do for the political base? Because I think you have to consider that, as to where we are. Numbers do make a difference. And depending on the county we go to, in North Carolina, from county to county it's probably seven allotment holders to a producer, depending on where it is.
First, what happens to our political base? And second, assuming we had that and we go to some other arrangement, whatever that may be, what would that do; third, to the integration where you'd wind up pretty much with vertical integration similar to what we now have in poultry, pork and others, where does that putobviously, the independence of the farmer that now has some independence, where does that individual wind up at the end of that stick?
Page 84 PREV PAGE TOP OF DOC Mr. COYLE. I think from our perspective, Congressman, I think anything that takes somebody out of this tobacco picture reduces our political strength, and which is bound to reduce our political effectiveness. I think that if without the program, I think you would see tobacco farming so entirely different, where it would be basically either an integrated positionif not, it's going to be contract from the standpoint of they are going to tell you exactly what variety you're going to raise, what chemicals you're going to use on it, what kind of fertilizer, where you're going to set it, and when you're going to house it, the whole 9 yards.
Mr. ETHERIDGE. Does everyone agree or does someone have a different comment?
Mr. FLYE. Mr. Etheridge, we talk about this program has been very good to us, and it has, and the political base we have had is the reason we have been able to keep this program. But another side of this thing we need to look at very seriously is that we had a billion pound quota in 1997. Now we're at 800 million.
Now with this agreement, it could very well go to 600 million. And this is going to really shackle our tobacco farmers. It's going to be very hard to live with that. And you know, all these years we've had 700, 800, 900 billion pounds of quota. Now we're look at 600 million, maybe. But the restraints on the imports allowing 300 million to come in here just for our use, because you can bring 500 and ship out 200 and you're still within the trade agreement.
So we have some real problems in flue-cured and our quota continuing to shrink when we, like a 10-room rooming house, and you put your debt on renting out 10 rooms, and all of a sudden we only can rent out 6. And we're going to lose the house and we're going to lose the farm.
So we have some real problems that we have never had before, and that's this quota shrinking. And we get down to 600 or 500 million pound quotas; the program is going to self-destruct with or without a political base.
Page 85 PREV PAGE TOP OF DOC Mr. SAMPSON. Mr. Chairman, Bob, not only is the amount of quota we grow, and I think we've kind of lost focus as towhich we know, quota, the amount of quota is the more quota, cheaper rent, because even in North Carolina especially, we rent about 60 percent of the quota we grow.
But we are at the point in flue-cured right now where we can't make profit. Our input costs have grown and grown and grown over the years, so if we don't address price along with losing quota, we're dead anyway.
I mean, the program's nice and it's brought us thus far. But our price support system is not keeping up with the input cost that we're having to put in to produce a crop of tobacco. So if that's not addressed in the process, we're dead anyway.
Mr. BOB JENKINS. Congressman Etheridge, I was going to say basically what Mr. Sampson just said, that we've got to have a price support figure that keeps farmers in business. And we talked about the cost of leasing. There are a lot of farmers that are leasing quota and getting land with the quota.
Under any other type of system, they're still going to have to get some land in order to grow tobacco, and that land hassomebody has still got to pay the taxes on that land and somebody's got to pay the ownership costs and all of those factors in.
One quick comment, sir. When the Congressman here was asking about the program and what we thought was going to happen, I think first we've got to realize the companies are in trouble, and as a result of their being in trouble, the program is in trouble. And my fear is that if the companies get out of trouble, the farmers are gone. We are supposed to be in this boat together and we've got to get back in it together if we want to save the program.
Mr. ETHERIDGE. OK.
Mr. EWING. Saxby, excuse me for going out of order, but you're next.
Page 86 PREV PAGE TOP OF DOC Mr. CHAMBLISS. You're excused, Mr. Chairman. I want to say something that Mr. Lewis and Mr. Goode have alluded to that I'm not sure is getting through. They said it in a little more indirect way than I'm going to say it. And that is, folks, your industry and your livelihood is in serious jeopardy in Washington. I mean, big time serious jeopardy.
These close votes that we have, they may have started back in 1979, but you look at your individual States and see how many of your legislators came from truly rural areas in 1979 and how many come from truly rural areas today. I guarantee you there is a vast difference. And when this tobacco program was put into effect, there were many, many more legislators in Washington that came from truly rural areas. And that's a constant battle that we have up here with every farm program.
You're looking at three States here now, represented right here. If we got every vote in every one of these States to support the program, California or New York has more votes than all three of us combined. That's the kind of battle that we're constantly facing, and I'm going to tell you, this situation from a continuation of the program standpoint, is in very serious jeopardy.
And I don't want any of you all to leave here with any illusion that it's going to be a battle that we're going to be able to win every year, even though we've won it since 1979. It has been tough up here, folks, in the 3 years that I've been here. And it's going to get tougher every single year.
I want to go back one more time to this issue on privatization and government involvement. You're right when you talk about the subsidy issue, that it has been a battle. And for that reason alone, we'd be well advised to get the Federal Government out of the program completely.
But I go back to what we were talking about earlier with regard to Mr. Clark's statement, which I think is right, you're more at the mercy of the companies if we do that totally.
Page 87 PREV PAGE TOP OF DOC But is there anybody who feels like that we need to eliminate, for example, the grading of tobacco, even in a privatization system? Has tobacco got to continue to be graded? Is that a general consensus? Is it your opinion that tobacco would have to continue to be marketed through a warehouse system, as opposed to individual contracting with companies? Anybody disagree with that?
Has anybody had any contact with the companies regarding what their opinion on that would be? Because, very honestly, this committee has not heard anything from the companies with respect to the marketing in the future. Does anybody have a comment on that, with what you know of the companies' position is or their feeling is?
Mr. DOLLAR. They're interested in the baling process that's taking place, the 500-pound bale. And they're also interested in some collection point. They alluded to the fact, even yesterday, that it ought to be collected or assembled someplace. And it was my impression, listening to that conversation, that they were thinking there would still be a need for a warehouse or something very similar.
Mr. CHAMBLISS. Even with a collection point?
Mr. DOLLAR. Well, they were referring to that, I think, Congressman, as a collection point. It started out with a bale concept, what do you think of that, and went from that to if we stay in business and we're going to do business with you, we've got to have someplace to pick up the tobacco. We can't go here, here, here. So it was not totally clear, but they did make reference a time or two to a continuing warehouse option system; weren't particularly happy with it, but they did allude to that fact.
Mr. CHAMBLISS. That's all I have, Mr. Chairman.
Mr. EWING. Mrs. Clayton.
Mrs. CLAYTON. I think I'll pass. I did have another question, but in the interest of time, I'll pass.
Page 88 PREV PAGE TOP OF DOC Mr. EWING. Thank you very much.
Gentlemen, you have been most patient. Most of us here on the committee have taken one short break. You have all sat there very stoically, almost all of you, and I truly, truly appreciate you being here. I know the members do, and we want to keep the dialog going between the different States and the different organizations as we move through the process in the coming months. Thank you very much and the panel is dismissed.
We're going to have one more panel come forward and you may have to bring an additional chair to the table. I want to ask Mr. Donnie Smith, Willacoochee, GA; Mr. Keith Parrish, Benson, NC; Mr. Larry Barbour, Clayton, NC; Mr. Ed Bissette, Spring Hope, NC; Mr. Don Anderson, South Boston, VA Mr. Norbert Skees, Hodgenville, KY; Mr. Harmon H. Barlow, III, Cave City, KY; Mr. Talmadge Layton, Durham, NC; Mr. Pender Sharp, Sims, NC; and Mr. Jerome Vick, Wilson, NC. If I missed anybody, please come on to the table anyway.
If those names that I have called off would take their seat at the tablenow that the experts have left, we're going to hear from the real experts. This is what we call an open panel. The members or the participants here today have not submitted written testimony, though they are very free to do so.
But we would like you to take just a few minutes each and tell us what your thoughts are about the subject matter, the program, the tobacco industry, the buyout, the different issues that you've heard discussed here today. And then the members here will ask a few questions about your comments.
So we can have a little order. We'll start with you, Mr. Smith.
STATEMENT OF DONNIE SMITH, WILLACOOCHEE, GA
Mr. DONNIE SMITH. Mr. Chairman, I'm Donnie Smith. I'm a farmer from Willacoochee, GA.
Page 89 PREV PAGE TOP OF DOC Let me tell you a little bit about myself. I normally talk slow, I realize, but I'll try to talk a little faster today. But I am a full-time farmer. We have a diversified farm there in Willacoochee. Me and my wife are the primarythe ones that manage this farm along with some hired help, and yes, my wife also drives a John Deere tractor at times. The nearest traffic light to my farm is 20 miles. We have two children.
We're very active in the community, the State, local, and national affairs. As a matter of fact, I'm chairman of the Georgia Farm Bureau Tobacco Advisory Committee. I serve on the board of Georgia Agri-Leaders, a leadership program. I'm a deacon in the local church.
But today I'm wearing the hat of just a producer. I grow tobacco. As a matter of fact, I also volunteered 3 weeks over in Eastern Europe in Slovakia helping some farmers over there after they came out from under the Communist Party. But on our farm we grow tobacco, cotton, peanuts, cattle, pine trees. But tobacco generates about 75 percent of my farm income.
I am a fourth-generation tobacco farmer. I'll tell you this quick little story. As a boy growing up, we lived in a big white frame house with a hall down the center. On each side of that hall was bedrooms. But we moved the furniture out of those bedrooms in order to store tobacco, because tobacco was the crop that paid the bills there on the farm.
It's no different from that today, gentlemen and ladies. Tobacco still pays the bills. It's our heritage, it's our life, it's our livelihood. It builds churches, schools. It feeds and clothes our children. It sends our children to college.
I used to think that life began and ended at the county line signs. But folks, I've come to decide that decisions that are made here in Washington or either in my State capital are more important than the everyday decisions I made on the farmI make on the farm. So that's the reason, gentlemen, I'm here today to tell you about tobacco and what it means.
First of all, let me say I don't smoke. I really don't advocate smoking. I certainly don't want youth to smoke. But, folks, I grow tobacco, and I'm here to tell you that we want fair treatment for the farmers in this proposed agreement.
Page 90 PREV PAGE TOP OF DOC Everything was kind of going great on the farm until we heard about this proposed agreement. We didn't know what to expect. It sounded fine, but there was only one thing missing, and I think all of you have heard that today. The farmer was mentioned nowhere, and I mean nowhere was he mentioned.
Sometimes I get confused. I'm anxious, I'm nervous, I wake up in the middle of night, I have sweaty palms. I don't know what my future is going to be, gentlemen. I'm concerned about my farm, my family, and my future. I'm concerned about these things.
But everyone from the White House to right on to these Members of Congress say that we are going to be looked after. And if you please, if you pleasenow, this is kind of a southern expression, but if you please, do consider the farmer, please. I want you to reevaluate how the $368.5 billion dollars is going to be spent. I want you to include farmers because I think we're the first that are going to be hurt and hurt hardest.
I'll have to admit I don't have all the answers. But something disturbs me and the other 124,000 tobacco farmers. How can lawyers plan to get $40 to $60 billion from the settlement and farmers get only about $20 billion if we are compensated fairly? That doesn't seem fair, and I'd like, you know, possibly an answer to that. I want to ask you all to consider, let's get a fair price out of this negotiation.
Personally, as a tobacco farmer, I'm kind of tired of fighting. Personally, I want to grow tobacco, but I'd like to seeI favor a buyout, me, personally; then with some type of licensing. I'd like the payments to be in 3 years. Go ahead and get it back to us farmers, so that we can reinvest this money in the communities that we grow economic development and spread it out.
I'd like another point is no taxes. Let's don't give with one hand and take away from the other. I'd like no caps on the payments. I think that needs to be addressed also, because there's some quota holders that they have invested a lot buying those quotas. It's going to come up with a sizeable amount of money, but they need that.
Page 91 PREV PAGE TOP OF DOC In conclusion, I'd like to say tobacco is a legal crop. It's been grown for years. We're just concerned how this proposed agreement will affect us. I want to say, gentlemen, my future, my family, and my farm is in your hands. I'd fight for my faith, my family, and now I feel like I'm up here fighting for my farm.
I want you to consider what I've said. I thank you for this opportunity to address this distinguished panel. If I can ever work with you ever again, feel free to call and come visit us in south Georgia. Thank you and God bless.
Mr. EWING. Thank you, Mr. Smith. Mr. Keith Parrish from Benson, NC.
STATEMENT OF KEITH PARRISH, BENSON, NC
Mr. PARRISH. Yes, sir. I'm Keith Parrish. I'm a Harnett County tobacco farmer. I actually live in Coats, even though I have a Benson address. Farming, to meI grew 63 acres this year, last year about 76, so that's an impact that the percentage of cut we had did to me, among other things.
Tobacco has been a way of life for our family for generations. I've raised two sons myself. I've got one who's out of college and out of the nest, and the other is 17 and plans to go to N.C. State. Tobacco sent these kids through college, and is going to send my other one to college, I hope.
I'm going to diverse from what I had written that I was going to state. This morning I didn't hear anyoneI heard a lot of discussion about why it's different, or saw a lot of difference between burley and flue-cured, and no one actually stated why there is a difference between the two.
When I heard what burley had to say about the way their program is and the way things are going on, it reminded me of Jerry Clowers and the joke that he once said about his wife who didn't want anybody from the ladies' lib folks bothering her and she didn't want anybody bothering her either; she had plenty of TVs in every room, had nice cars to drive, et cetera. And the burley folks are similar, if you want to put an analogy to it. She didn't want anybody to mess with her good thing, and I don't believe they do, either. And I can see why.
Page 92 PREV PAGE TOP OF DOC The burley folks' rent is a lot less than ours. They have a product that is not as competitive in the world market as what ours is. They kind of got a niche. And also, the price, their price runs around $1.90, just as they stated; ours runs about $1.70.
But the rent factor plays a big part of this. They have rents in the range of around 20 cents, I think, average. They may correct me. Ours is running average for probably 45 cent this year, and up to 65. At paying rents of 65 cent, selling at $1.70, there's not any money there for us.
We're on a schedule that is doomed to fail. There is no way the flue-cured growers can continue to absorb this rent factor in what we have in North Carolina. That's one of the basic differences between burley and why they continue to want to keep their program.
We like the program too, don't get me wrong. And I'm not advocating killing this program until there's something else that we can do that'll ensure we're going to be able to survive this deal. But the program itselfif something is not done to get the rent out of this factor, out of the quota system itself that we're now operating under flue-cured, we're doomed to fail.
And it's lucky that the vote was taken this year instead of years into the future because if nothing is done and we continue to absorb these cuts, rents continue to go up, price support remains stagnant, we're out of business. A third of our growers will go out this coming year if there's another big cut. That's just my prediction. You can check it out with people like Blake Brown.
But after that, another third will be gone. And then what do you got left? You're worried about if we have a buyout that it'd be a lot smaller number of farmers. There are definitely going to be smaller numbers of farmers if you keep it the way it is now.
I don't think that's just my opinion. It's the opinion of a lot of folks in the flue-cured area. We're afraid also of what may happen, with the uncertainty of what's going on here, in the future. It's not just the grower himself who's afraid, it's the quota holder also. That's why when you go and you ask folks from any area what they want, they'll say give me the money.
Page 93 PREV PAGE TOP OF DOC That's my opinion. And I'm a tobacco grower and intend to try to be a tobacco grower for as long as I live, and hope my kids will come back and do the same. I appreciate you listening to me today, and if I can ever be of help and assistance, thank you.
Mr. EWING. Thank you, Mr. Parrish.
STATEMENT OF LARRY BARBOUR, CLAYTON, NC
Mr. BARBOUR. Mr. Chairman, thank you very much for the opportunity to testify on the current tobacco issue. My name is Larry Barbour. I'm a farmer in rural Johnson County, NC, retired volunteer fireman, have served as president of the Johnson County Farm Bureau, serve on the State farm bureau committee, and am currently serving my 26th year as FSA, Johnson County FSA Committee. I have farmed for 40 years in Johnson County, a county where tobacco production is the second largest in the nation. I and my two sons farm approximately 150 acres of tobacco, 300 acres of wheat and 400 acres of soybeans.
I'm here today to say the tobacco program has worked for us since 1939. It's contributed to the stabilization of the rural communities. It may need some minor changes, but does not need a complete overhaul. It has been the salvation of the family farm.
My daddy died when I was 17 years old, leaving the farming up to me. I graduated high school in 1958, had my first crop of tobacco, an acre and six-tenths. I rented this tobacco from a cousin. Over the years, I built up my farming operation by renting other farms from those in the community who had retired. Tobacco rent money meantto these retirees has supplemented their Social Security income.
Through these rents and my own allotment I increased my operation from 1 6/10 acres to 140 acres in 1997. Income from tobacco sales has enabled me to buy farmland and more tobacco quota. I bought my first farm in 1965. I currently own 700 acres. It enabled me to send my two sons to college. Upon completion of college, they have returned home, entered the community to help in the farming operation. It is my hope to retire from the farm and pass the farming operation on to my sons.
Page 94 PREV PAGE TOP OF DOC While tobacco money has been profitable to me, it has also been the reason for a loss of income. For example, the national quota cut in tobacco allotments has reduced my quota by 55,258 pounds. This equates to over $100,000. I expended income for 35,000 pounds of quota in 1996. I will lose money on this 35,000 and 20,000 more pounds because of this cut. I feel the farmer needs compensation from these reductions in quota.
Furthermore, I feel the program needs stability so that we don't have to face these drastic cuts in the future. We do not need to abolish the present program in order to start a new one. I will admit there may be some minor changes in the tobacco program. If there are changes made, a farmer-elected committee and FSA county office staff can implement these changes effectively and efficiently, as they have always in the past when changes in a new program was given to administer them.
The county committee system is a responsible and responsive way to administer the tobacco program and other Federal programs. Again, I urge you to help us keep the tobacco program that has worked well for us for 40 plus years.
Thank you, sir.
Mr. EWING. Thank you, Mr. Barbour. Mr. Ed Bissette, Spring Hope, NC. Did I say that right, Ed?
STATEMENT OF ED BISSETTE, SPRING HOPE, NC
Mr. BISSETTE. Close.
Mr. EWING. OK.
Mr. BISSETTE. Thank you, Mr. Chairman. My name is Ed Bissette. I'm from Spring Hope, NC. I've been growing flue-cured tobacco for 37 years. I live on a farm that has been growing flue-cured tobacco for four generations.
The way I see it, the tobacco program in the future is on a course for self-destruction. The attack on tobacco from across the country, the heavy quota cuts in 1998 of 17 percent are driving the price of quota pounds out of sight. Farms that I have been renting for 20 years are pricing me out of being able to continue to rent these farms and make a profit. The companies are predicting a 10 percent cut for next year. This will drive rental prices even higher.
Page 95 PREV PAGE TOP OF DOC First, I would like to see a buyout of the tobacco quota, making sure that all growers are treated fairly and all quota owners are treated fairly. Most quota owners are getting at least 40 cents a pound for their tobacco. It would take $8 a pound for the same quota owner to get the same 40 cents income from his farm.
The grower should be getting at least $4 a pound for his quota to reimburse him for his barns, tractors, labor and other expenses. This will make a total buyout of $12 per pound in some cases. If this happens, the growers must be permitted to grow tobacco after the settlement so the buyout can be paid for. The details of this would have to be worked out between the growers and the companies and we would need a mediator from the USDA to maintain some stability in the overall planning of tobacco.
I can see U.S. tobacco being competitive with other countries. I can also see that we can increase our acres through this competition. Our future strength lies in exports, as our domestic use would drop severely.
We need tougher laws to keep minors from smoking. I do not smoke. I have never smoked. But tobacco has allowed me to educate my children and to support a rural economy. There is no other crop that comes near the profit that tobacco makes. Tobacco has put a lot of money in Nash County in North Carolina. I employ up to 100 people each year in the production of tobacco. The banks, the equipment dealers, fertilizer companies and many others have flourished because of tobacco. These businesses employ a lot of people.
In closing, if we do not get a buyout for tobacco, it's going to price itself out of the world market. The anti-tobacco people, plus quota cuts, will leave us with nothing to look out for our investments. We do not have the big blue chip stock and if we do not get paid for what we have invested all our lives, we have nothing.
Mr. EWING. Thank you, Mr. Bissette.
Page 96 PREV PAGE TOP OF DOC Mr. Don L. Anderson, South Boston, VA.
STATEMENT OF DON ANDERSON, SOUTH BOSTON, VA
Mr. ANDERSON. Thank you, Mr. Chairman and distinguished members of the committee. Thank you for the opportunity to be here today. My name is Don Anderson, and I am a tobacco farmer from Halifax County, VA. I am also president of the Virginia Tobacco Growers Association, and a good portion of our membership comes from a 10-county area which is in the fifth district of Virginia, which we are happy to say is represented by Congressman Goode. There is also in our district another group which actively works on tobacco issues, Concerned Friends of Tobacco, whose chairman, Clarence Bryant of Pittsylvania County, could not be here today.
The membership and leadership of these two groups overlap in many areas, consequently, I have been asked to speak on behalf of both organizations. Also, leaders in our groups are also members of the Virginia Farm Bureau Flue-Cured Advisory Committee. We feel very fortunate in Virginia to have the work in harmony among the flue-cured groups within our State.
My testimony will reflect the interest of flue-cured growers in our State. Our No. 1 concern is the preservation of our family farms. We realize that the agreement between cigarette manufacturers and the State attorneys general will change our farms and our communities forever. We realize we need to resolve this conflict that has existed between the manufacturers and the health community for decades. We recognize that the tobacco industry cannot move forward with the cloud of litigation that has been hanging over it for some time. Comprehensive national tobacco legislation with civil liability limitations and grower protection and provisions is necessary for the future of the industry and the tobacco grower.
We also know that for small farms like we have in Virginia, there are no alternatives to tobacco. Vegetables and other crops have been tried and they don't come up to tobacco. The fact remains that the infrastructure and the knowledge base is in place for tobacco just as it is in these other areas.
Page 97 PREV PAGE TOP OF DOC The 60-year success of the tobacco program has been the common denominator that has allowed rural communities such as ours to survive and prosper and provide our children with the educational and moral background to become productive citizens of our society. I say this to you today because our position is very clear: With or without comprehensive national tobacco settlement legislation, we must have a tobacco program and we must have this for our survival.
The question remains, though, how do we survive with any national settlement legislation that will lead to a dramatic drop in consumption of tobacco products in the United States. Our key priorities in Virginia are the protection of the equity that growers have acquired in their land, quota, and machinery; protection of our rural communities, and improving the competitive position of our tobacco in the world market.
Quota or allotments are a right that was granted at the inception of our tobacco program and quota is property. Quota is the basis for most flue-cured growers' retirement and a basis for operating loans and other economic activities associated with tobacco farming.
As you've heard, for 1998, we have a 17 percent cut in quota. This cut in quota has reduced the overall value of our assets; our lease costs are escalating, and hurting our profitability. We feel this is just the beginning of a downward spiral. Any national tobacco settlement legislation will lead to a dramatic loss of asset value for our quotas. A combination of reduced asset values and increasing lease costs will lead to a tremendous cost squeeze for those growers who can survive. We feel compensation for quota asset value is a necessity within any comprehensive national tobacco legislation.
Also, a program of transition payments to soften the blow for producers is necessary. Money has been borrowed to buy tractors, barns, and other equipment to work quota that is leased and rented from others. The value of these assets also will erode quickly as quota drops.
Page 98 PREV PAGE TOP OF DOC Also, some growers would transition to other business ventures. If their debt was lessened and they did not have to service these debts with tobacco production, some growers could then become somewhat less dependent upon tobacco.
Legislation to provide community development monies would further soften the blow to our communities. Monies that could be used for industrial development, improved educational facilities, and improved agricultural infrastructure are important. Such improvements would diversify our communities and help to carry them forward and reduce their dependence upon the tobacco economy.
Finally, on the issue of competitiveness of our leaf in the world market, we support the concept of a program that would allow the opportunity for tobacco to be grown in those communities in which it has historically been grown in. If the quota asset value has been compensated, then we should be able to sell tobacco at a lesser price. As the manufacturer's sales decline, they will be forced to look to ways to save money in their operations to maintain their stockholder equity. Higher prices offered by our present tobacco program may not be affordable by the manufacturers in the future. They will be forced to look to cheaper, imported tobacco.
We need to ensure that they will buy our tobacco to maintain economic stability in our communities, tobacco production, ever how limited, should stay in those areas. A program, whether Federal or privatized, to allow this is a necessity for the future of our family farms. Our communities which have few other options cannot afford to lose farm income. Simply dismantling our present program and allowing production to move to larger, less costly areas is not the answer. We think the answer is to compensate quota holders for their equity and allow a more competitive program to operate in those communities it has historically operated in.
The answers to our concerns are found in Senator Robb's Tobacco Market Transition Act. This proposal was crafted in response to growers' needs in Virginia. We realize that there are other views as to how to address our problems, however, the tobacco growers of Virginia support the concepts contained in the Tobacco Market Transition Act, and we ask that you consider our thoughts and concerns as you deal with grower provisions with any national tobacco settlement legislation. Thank you again for allowing me to address you and thank Congressman Good for his invitation to be here.
Page 99 PREV PAGE TOP OF DOC Mr. EWING. Thank you, Mr. Anderson.
STATEMENT OF NORBERT SKEES, HODGENVILLE, KY
Mr. SKEES. Thank you, Mr. Chairman. I'm a 47-year-old tobacco farmer from Hodgenville, KY. I noticed you had a little problem with that pronunciation a while agothat is the birthplace of Abraham Lincoln, so I'll pass that bit of information on to you.
I have worked in tobacco it seems for my entire life. My father was a tobacco farmer; my grandfather was a tobacco farmer as well as his ancestors before him. And tobacco, to me, has a been a way of life. It has helped teach my daughters a great work ethic as well to help send my oldest daughter, now a senior at the University of Kentucky, and I have a second daughter who is a freshman at the Elizabethtown Community College. So, with the continual assault on tobacco, I feel my future livelihood is being threatened.
It is time for us to read the handwriting on the wall. The media is anti-tobacco; the White House attacks it at every opportunity; the Food and Drug Administration wants to regulate it, and some Members of Congress want to continue increasing taxes on it. The Federal Government is almost hypocritical and that is it discourages smoking but supports a program for the production of tobacco. I think most people in Washington want out of the tobacco business. We, the tobacco farmer, must accept the reality that the Government supported tobacco program as we know it will in time be dismantled. Where does that leave the farmer? Hopefully, not out in the cold.
Now we ask, what can be done? There may be many answers, but as of now there have been two proposals mostly discussed that of Senator Richard Lugar's buyout plan and Senator Wendell Ford's transition plan, but even yesterday, I learned we have a Robb proposal, a Hatch proposal, a Kennedy proposal, and Etheridge proposal, and interesting enough, they all seem to support some form of a buyout. These buyout proposals go along with much of what I hear from tobacco farmers each time I talk with different ones at the tobacco warehouses. I personally support a buyout over Mr. Ford's transition plan.
Page 100 PREV PAGE TOP OF DOC Mr. Ford has been a true friend, while in Washington, to the tobacco farmer, but this time his bill will not likely receive congressional approval. He wants to pay the farmer and still keep the tobacco support program in place. You just can't have your cake and eat it too.
On Sunday night, my daughter showed me how to use the Internet to find information on tobacco. I was overwhelmed by the 539 websites on the Internet about tobacco. The majority of topics basically dealt with the many cases of litigation involving the tobacco industry and its companies as well as the many anti-smoking documentaries.
Just yesterday, the official burley quota for 1998 was announce with a decrease of 9 percent. It is obvious there is an increasing world supply of burley tobacco and an anticipated decline in U.S. consumption. Burley prices, since Christmas, have continued their downward spiral. I was at the Horsecave Kentucky Market yesterday, and there was only one tobacco company buying tobacco while a large portion was going into the Government pool. We must accept the fact that tobacco is on its way out.
In December, I wrote a letter to Congressman Ron Lewis and sent copies to Senators Ford, McConnell and Lugar outlining what I felt to be a fair buyout for the parties affected. You basically have three parties to look at. First, you have the quota owner and grower; second, you have the lessee or the tenant grower, and, third, you have the quota owner who leases his tobacco. My recommendation was a buyout at $10 per pound for the owner, grower; $4 per pound for the lessee, tenant grower, and $6 a pound for the quota owner who leases his tobacco. I also suggested breaks in taxation that should be considered and use numbers representing profits and returns before a buyout and after a buyout. I would be happy to discuss these numbers with you if you would wish.
In closing, tobacco has been a way of life for many farm families for many years, and it is being threatened like never before. I believe that the end is in sight. If the tobacco program ends without your help, many farms will be lost; children will be unable to go to college, and local economies will suffer. Tobacco companies have made large profits and accumulated large retained earnings. The farmer has made a living but has not accumulated wealth as the companies. With a proper buyout arrangement the farmer could stay viable and funds for growth and capitalization and diversification projects would be available. Farmers will put this money back into the economy. I say here is an opportunity for you, as elected officials, to use not taxpayers' money but tobacco company profits to benefit many hardworking farm families. I thank you for this opportunity to appear before your committee.
Page 101 PREV PAGE TOP OF DOC Mr. EWING. Thank you. Thank you for the history lesson also. Abraham Lincoln was one of my predecessors in Congress, not my immediate predecessor and I think, probably, he got out of Kentucky because he couldn't pronounce the name either, and he came up to Illinois. [Laughter.]
Mr. Barlow, from Cave City, KY. Is that near Hodgenville?
Mr. BARLOW. Not too far, sir.
Mr. EWING. Not too far, all right.
STATEMENT OF HARMON H. BARLOW, III, CAVE CITY, KY
Mr. BARLOW. Mr. Chairman, members of the subcommittee, it is a pleasure for me to be here today. I am H.H. Barlow, III, from Barron County, KY. I am 47 years old and a fourth generation burley tobacco farmer. My wife and I own and operate a 193-acre dairy and tobacco farm where we have raised our four children. I have lived on this farm all my life except when I attended and graduated from the University of Kentucky in 1972. My home, Barron County, located approximately 100 miles south of Louisville, is the largest tobacco producing county in Kentucky with more than 2,200 tobacco farmers. Tobacco is essential to our economy.
My purpose in coming here today is to provide a tobacco farmer's perspective on the proposed $368 billion global tobacco settlement. I feel the best way to testify is to tell you how important tobacco is to me and my neighbors.
I'm an average size producer with 18,000 pounds of quota, and I lease an additional 18,000 pounds. Gross receipts from that quota now total approximately $68,000. I have a full-time tenant who I share the proceeds with on a 50/50 basis. He furnishes the labor and machinery, and I cover all other expenses. We each net approximately $13,000 a year.
No other crop available to the Kentucky farmer nets the same income potential per acre as tobacco. Most Kentucky farms are small and tobacco is the major source of crop income. All my life the key thing about tobacco farming has been market stability and the assurance that I would be paid a decent price if I got our tobacco to our market. With all the risk in farming, tobacco was the one crop we could count on to make our mortgage payments and provide a decent income.
Page 102 PREV PAGE TOP OF DOC This stability and confidence was only possible because of the very successful quota and price support program, however, in today's climate tobacco is under vicious attack. This attack is one of hypocrisy. Tobacco has been vilified as the killer of millions of Americans, and that only happened after years and years of abusive use of this product. Abuse of any substance whether it be alcohol, drugs, or even food cause health problems and even death, yet, only tobacco has been singled out as public enemy No. 1.
With attacks on all aspects of the tobacco industry, some form of national settlement is imperative. We need a settlement that not only satisfies health concerns but provides for the long-term viability of the tobacco industry. We, as farmers, realize the quota program as we know it will probably be changed. What we must have from Congress is assurance and concrete proposals that we will not be left out of any settlement.
My neighbors and I favor some sort of quota buyout during a transition period if we are to lose our present quota and price support program. A transition program similar to the Freedom to Farm Act for grain farmers is my choice; a $10 to $12 per pound buyout option with 70 percent going to the quota owner and 30 percent going to the tenant grower with the payments spread over a period of 5 to 7 years. These buyout dollars should be tax-free if used for debt reduction, agriculture development, or, in the case of farmers over 62, for retirement savings. The pounds of quota buyout should be established by using a farm's 3-year quota average from 1995 to 1997.
Transition payments will provide specific help to the tobacco farmer. First, they will create some type of retirement fund for the older farmer who has spend a lifetime raising tobacco and would no longer have the quota program to guarantee tobacco income. Second, this form of buyout will prevent nonfarm owners of quota from receiving Government price supports when they are not dependent upon farming for their livelihood. This would occur because the buyout would eliminate tobacco leasing. Third, after a buyout, tobacco farmers will have the opportunity to grow tobacco on a contractual basis with a set price and set amount of pounds.
Page 103 PREV PAGE TOP OF DOC Some proposals include the use of farm buyout money for community economic assistance. We, as farmers, in my community totally oppose giving money to help farmers to some bureaucratic agency for economic development. If the money goes directly to myself and the farmers around me, they will spend it locally and create economic assistance to the community instead of the money getting lost due to some local politician's whims.
In summary, tobacco is essential to my economic livelihood as a farmer. The quota price support program has been great for growers' stability. Most farmers want Government out of farming. If a national settlement takes place, I urge you to adopt a buyout program similar to what I have outlined in order to give tobacco farmers a transition period to become independent without causing us undue financial stress. I thank you again for this opportunity to testify.
Mr. EWING. Thank you, Mr. Barlow, and now, Talmage Layton from Durham, NC.
STATEMENT OF TALMAGE LAYTON, DURHAM, NC
Mr. LAYTON. Thank you, Mr. Chairman. I'm Talmage Layton, and I live in Durham County, NC. And to put some of you in the perspective of where that is, if you heard of the research triangle, we're right in the heart of it.
Our county is very urbanized. I grow about 50 acres of tobacco in Durham County. We've grown tobacco there every year for the last 30 years. I was not raised on a tobacco farm. My grandfather had a tobacco farm, and I took it up from him. My father was a tobacco buyer. He went on the tobacco market and I was raised partially in the tobacco warehouse; been around tobacco all my life. I started raising tobacco the year I was senior in high school. It put me through college; it's put my two daughters through college, and it's been good to my family.
I own about half of the allotment I tend. The rest I lease from neighbors, especially widows. I've had a number of widowed ladies call me to say, ''My husband died; I'm not going to be able to farm tobacco anymore. Will you please tend my lot, and let me have enough money to pay my taxes?'' At one point, my wife told me, ''If another widow calls here and asks, I'm going to hang up on her.'' [Laughter.]
Page 104 PREV PAGE TOP OF DOC But at the present time, I've had a couple of them come to me and say, ''It's time for me to go to a rest home. Will you please buy my farm and allow me to have the income off this farm to pay for a rest home?'' And I have been forced to buy those two farms and allow those two ladies to go to rest homes, and believe me, it was a lot cheaper to rent farms than it was to try to buy them and pay payments on them.
We tend tobacco on about seven different farms, and it's spread out from home base approximately 5 to 6 miles apart. The largest field we tend is probably 6 acres, 5 acres; the smallest is a half, a quarter acre. It's quite difficult to tend farms spread out that way. It adds a lot to the cost of production.
We employ all local help. We don't have any foreign help at all. Last year we paid $33,000 in labor to local, unemployable people to go downtown, Durham and to the slums and ghettos and pick up labor and use them to help us in producing our tobacco. Our farms, last year, returned about $140,000 to the community. I heard somebody say that they averaged about $1.72 last year. I only averaged about $1.52, because I learned the other day we have a difficult time with the tight land we have to tend raising a good quality crop. If it hadn't been for support, probably, last year, I'd have been in trouble big time as bad enough as it was.
We have maybe 100 farmers in Durham County are also returning hundreds of thousands of dollars back to the economy of Durham County, and if the tobacco program disintegrates quite a bit of those farmers will have to leave, because most of them are in the same situation I'm in: they're tending small farms at a scattered rate.
Farmers in my area are having a very difficult time; profits hard to make. The only thing we're interested in is farming with profitability. The thought of doing away with a program where we have a base of stabilization to support a price on tobacco is very difficult to me to understand. I mean, I understand the program, but it's very difficult for me to see the future beyond that.
Page 105 PREV PAGE TOP OF DOC Privatizing tobacco scares me to death. I can see me contracted to a company; loading two barns of tobacco on the trailer; carry to a collection point; company looks at one barn and says, ''That's fine, I'll take that one; I'll give you the agreed price on it. The other barn, we don't want that one, the quality's not well. We'll give you half for that. If you don't want it, take it home.'' I don't have any roadside stands at home that I can sell that tobacco in. The neighbors just don't know how to handle it when we sell it directly to them, and I don't trust the tobacco companies. They've promised us a lot of things in the past they haven't come up to follow through on some of the things they promised us, and it scares me to trust the tobacco companies to my livelihood.
Our county's very urban. I've worked closely with committee from the county commissioners in our county to form open spaces and preservation of farmland. Frankly, gentlemen, if in my county, in my area, if they do away with the tobacco program, the open spaces are gone. If we don't have enough money to make a profit on the tobacco farm, we're going to let houses start growing up on it, and it's a very real possibility now.
We raise tobacco; we treat it kind of like a family member. In growing tobacco, we don't just plant the seed; thrown down some chemicals, and wait for harvest. We treat each plant like a member of the family. We feed it when it's hungry; we water it when it's thirsty; we keep its roads clean; we set it up when it falls down; we top it to delay reproduction, and we send it away from home when it matures. Each plant's kind of like a member of the family. We look after them as though we would our children.
Being a poor farmer here, I don't know the answer to the program; that's the reason I'll let smart people into Congress so they can come up here and decide what's the best interest of my particular position. I try to let them know what it is. I would like to farm with a profit. I would like to continue the program, and in my particular situation I think it would benefit me to have some stability; know what kind of price I could expect to receive from it at the market.
Page 106 PREV PAGE TOP OF DOC One thing that hasn't been brought out here today that the price of tobacco in a pack of cigarettes is only 8 cents. If you add 5 cents to the pound for price that they pay us for tobacco of 20, you're only talking about a quarter of a cent in a pack of cigarettes. The companies have the capability of helping us farmers stay in business, and I would like to see this thing tied to the company somehow where they are responsible for maintaining a base quota where they would be allowed to have a support price base and approval to reduce allotment if need be. I'm like everybody else; I've got about 100,000 pounds of tobacco. If I could get $8 a pound for it, no taxes, I'd take about $800,000. I'd probably make it the rest of my life. My grandchildren probably wouldn't be able to farm. I'd like to give them opportunity if they would, but it's difficult for me to come up with any kind of solution to a problem that smarter people than I am can't figure out how to do it. I'd like to put my trust in the people I've elected to come up with a plan that will help me on my farm. Thank you.
Mr. EWING. Thank you very much. Mr. Pender Sharp from Sims, NC.
STATEMENT OF PENDER SHARP, SIMS, NC
Mr. SHARP. That's in Wilson County, Mr. Chairman, and in Wilson, NC we sell 10 percent of all the flue-cured tobacco that is grown in the United States. So, I live in the heart of tobacco country. Let me thank you for the opportunity to be here today and thank Congressman Etheridge for inviting me to be here.
I was very impressed not knowing what to expect when I came in today and heard the comments of each of the congressmen and then the questions more recently that you were asking, and it's obvious to me that each one of you has our best interest at heart. We have some disagreement among ourselves and you're probably chasing different angles, but I was very impressed that each of you want to help us. And the thought came to my mind: rarely, do you see this many farmers together that have had a shower and a necktie on. You need to send us to a committee where they're against us, and let us work on them awhile. [Laughter.]
Page 107 PREV PAGE TOP OF DOC I spend most of my weekend writing the best speech I've ever written, and I would like to leave a copy of that for the record, then I'd love to spend my few minutes answering some questions as I see them that were asked at the end of the structured hearing.
First, and foremost, I think, where we need to focus on is a point that Mr. Lewis raised: What is the health of the industry? What is the health of the program? And where are we with the program? Well, I think I can sum that up in just a few quick ideas. Our industry is dead; it just hasn't been buried yet. Now, if you look at the national focus; the attitude in Congress to punish tobacco companies for past wrongdoings, there are a number of congressmen that have been quoted in the press lately that have taken a stand that are not going to give companies immunity. There are a number of congressmen and Senators that have said they will not vote for a settlement.
Well, let me tell you where we are without immunity and without a settlement. If you'll research the combined net worth of all domestic tobacco companies and consider it a flat fact that I think there was a settlement in Florida; there was a $15.3 billion settlement in Texas a few weeks ago; Minnesota's on line. Minnesota will complete the total net worth of all tobacco companies in the United States and there's 37 more States to go. We don't have a program. We don't have a future. I will not grow tobacco in 1999, and neither will these people if tobacco companies are not allowed to exist in this country. I understand there's a hell of a market in Zimbabwe. That's a long ways from my house to carry tobacco that I grow. [Laughter.]
So that's where I think we are with our tobacco program today.
Our program reminds me of a deep freezer that my grandmother and granddaddy bought years ago that was an old Frigidaire. Now, this sucker was made out of steel; it weighed a ton; it had 12-inch thick insulated walls; it would keep anything you put in there. But after about 40 or 50 years, it broke down, and they couldn't get any parts. Now, they had to go buy some cheap, overpriced, plastic-made freezer from Lowes or Sears or wherever that really wasn't as good, and it was in no way as good as the one they had. The only problem with the one they had was everything they put in it rotted.
Page 108 PREV PAGE TOP OF DOC Our program was the best thing that has ever happened. I have lived and survived and my family, for five generations, has survived on a tobacco program. I would love for my children to have that opportunity. I'm telling you today they will not have that opportunity. We do not have a program that will exist in today's situation.
A phase-out of a program will not work. That's worse than instant death. Now, let me tell you a couple of reasons why. During a buydown of a program that has been proposed through some situationssomebody cut that light off over there; I ain't through yet. [Laughter.]
I grow 2,000 acres of tobacco. I rent that 200 acres from 50 to 60 different individual people that own anywhere from a half acre to an acre and a half or whatever. I depend on that 200 acres to make a living. Those people I rent from, those 50 or 60 people depend on that rental income to survive. If they're given an option do they want to buyout? Want to buy out and get out of the program and maybe I don't, those 50 or 60 people are gone. They are not going to want to participate in growing anymore. They want to sell their quota and not lease it to me, and naturally they would. Then I'm left with a million dollars worth of debt on equipment I bought to tend their quota and they opted to get out. A buydown over a period of time, a safety net, is just going to be a slow death.
A number of other reasons. Up until now, companies had the financial strength to survive. From now on they will not because of lawsuits. The financial demand for our American grown tobacco was great. They were willing to pay more than what it was worth because our program priced it at more than what it was worth in the world market. They will no longer be able to do that. Rent was reasonable in the past. The rent that I will have to pay as our quota comes from 1 billion pounds to 800 million pounds, 600 million pounds, rentcompetition between me and my fellow farmers chasing fewer pounds will take all the profit out of tobacco. So, a buydown over time I don't think is an option.
Page 109 PREV PAGE TOP OF DOC What is an option is an $8 buyout for quota holders; a $4 compensation for damages done to tenant farmers; first and foremost immunity to tobacco companies and farmersfarmers need the same immunity tobacco companies have. We've got to have a settlement; we've got to buyout the quota; we've got to compensate tenant farmers, and we've got to have legislation in line for a privatized program. We've got to be competitive. We have set a course in this country that we will have less domestic consumption; we will grow less tobacco to fill this market. There is a world market that can be profitable to me as a grower if I am allowed to participate competitively in that world market. Don't worry about community grants for my community. You give me an opportunity to grow tobacco, my community will be okay. They will fare just as good as they've ever fared. Give me a buyout; give me an opportunity to grow tobacco, and forget about it; don't worry about anything else; it will take care of itself. I appreciate your time a lot.
Mr. EWING. Thank you, Mr. Sharp and Mr. Jerome Vick from Wilson, NC.
STATEMENT OF JEROME VICK, WILSON, NC
Mr. VICK. Thank you very much, Mr. Chairman. Congressmen, ladies and gentlemen, again, my name is Jerome Vick. My address is Wilson, NC, but I live in Nash County. Our entire family, including my wife, my son, my daughter, my son-in-law are all involved in a family tobacco farm. Although we have somewhat of a diverse operation growing sweet potatoes, wheat, cotton, and soy beans, tobacco is our No. 1 cash crop contributing some 70 percent of our net farm income.
My family has grown tobacco in this country since my seventh generation grandfather, Joseph Vick, came here in 1682. Tobacco has played a vital role in the survival of not only my family but in this country. Remember 1619 in Jamestown and saving the colony. Interestingly enough, King James in 1620 denounced tobacco as being bad for the lungs, but he said Sir Walter Raleigh had so popularized tobacco it would be a tough habit to break.
Page 110 PREV PAGE TOP OF DOC But enough history, let's talk about the future. We're looking at the most perilous times that we've ever seen as tobacco producers and manufacturers in this country. Although cigarette makers have put warning labels on their products since 1962, slick lawyers, liberal juries, public perception, and misunderstanding of the facts have begun to threaten the very existence of this industry. I think that the intent to harm this industry is aimed at the so-called giants and no real harm intended for growers, however, there are a lot of us that are directly in the line of fire. Whatever happens here seems to be a very real possibility that we as producers will be asked to grow less tobacco for U.S. consumption brought about by an effort to curb smoking in this country either by higher excise taxes or by this overall $368.5 billion settlement. Either way, we producers lose because we've invested in specialized equipment to produce tobacco and purchase of quota that will be shrinking.
At the risk of seeming to over simplify a very complex situation, let me outline a few essential elements of a survival plan that I think can save our industry.
No. 1, domestic cigarette manufacturers must be continued to be a viable industry through some type of liability limitations. People have been adequately warned about the dangers of smoking. Since 1962, they've been putting a warning label on their packages, and I don't mean to damage anyone's ego here today, but there are probably more people who understand the dangers of smoking than know who their Representative is. [Laughter.]
Persecution of this industry threatens for them to leave the United States because of that loss of thousands of jobs either in tobacco, tobacco workers in factories, and especially my other friends who are tobacco growers would be threatened. People are going to continue to smoke, and they'll be smoking smuggled, non-taxed cigarettes, and at the end of the day, what have you accomplished.
No. 2, quota compensation. There are a lot of people today who own quota who don't grow tobacco. Most of them are retired farmers who bought land in quotas and widows who inherited it from their husbands who died. In my case, the average size allotment is slightly under 6 acres. This rent subsidizes her Social Security income. The average age of my landowner is 66 years. Continued erosion of their quota because of lower demand without compensation would be a grave injustice or a possibility of dismantling the entire program by an unfriendly Congress.
Page 111 PREV PAGE TOP OF DOC I'm ready to sell my quota, and all of my quota owners are ready to sell theirs. They know that if they take this $8 and put it in the bank, unless someone digs up Jesse James, it's very safe. It's not very safe where it is today inside this beltway.
Growers. Farmers who are active in the production of tobacco today are currently renting quota and have invested heavily in specialized equipment that has little value except in the production of tobacco. Today, with the 17 percent quota cuts you can't sell a tobacco barn for more than $8,000 that was $16,000 last year. So, the so-called settlement has already had an affect and it happened at the farm level first. Barn prices are half priced equipment; values are down, and not only that was the 17 percent loss in quota affected right at the farm. This can cause a serious financial hardship for growers, and we feel like that $4 a pound is modest compensation for an investment he's put in tobacco barns and specialized equipment.
Also, it will help defray some of this hardship during the transition period to what we call world market prices. I would like to clarify one thing that I heard here today as one of those scare tactics about tobacco prices dropping $1 a pound. It's my understanding that that is in processed leaf, and so on the greenwhat we call the green weight valuewould be probably around 50 cents, but for good quality tobacco it would probablyI hear arguments of 25 cents. But I do believe that with the kind of infrastructure we have can compete in the world market forin the production of tobacco with a man who's planting tobacco with a pig or Brazil or Zimbabwe, I think we can be competitive in the United States if we can remove the value of quota from the price of our tobacco we'll be back in the tobacco business, and we'll be growing a billion, 200 million or we'll be growing a lot more than we are today.
The cost of these forgoing suggestions should be a part of this settlement as quota owners and tobacco farmers have invested their lives in this industry and mortgaged their children's future; a great deal more than the trial lawyers who started last June with a pair of gold cufflinks and a cellular telephone. Together with your wisdom and leadership, tobacco can continue to play a vital role in our lives and the continued survival of this very small colony that we call the United States of America. Thank you very much.
Page 112 PREV PAGE TOP OF DOC Mr. EWING. Thank you. Thank you all for your comments. I don't know if I have a question. I think your comments have been very direct and to the point, and there appears to be a great deal of sentiment for a buyout. I guess, though, I think, probably, I hope that it appears to methis is just my assessment of what the Congress might dothat if there is a payment or a buyout, there probably won't be a program. Do most of you understand that? I mean, if the Government does buy out, there won't be the same type of program that you have today.
Mr. SHARP. I can foresee through a privatized system much like has been proposed from the State of Virginia. It's not so much of a programand I hate to even call it thatbut it would be a means by which we could continue to grow tobacco in the localities we grow it at today and have some sort of controls overmaintain a supply and demand but do it not being married to the Federal Government. The Federal Government for the first time ever would be completely out of the tobacco business, and it would be a privatized plan. This is what I think me and people are talking about. Give us the opportunity to do something similar to what we're doing now but just not in the same manner.
Mr. ANDERSON. Mr. Chairman?
Mr. EWING. Yes.
Mr. ANDERSON. I think Pender's point is well taken, and the point in my presentation was that tobacco is more than a product that simply supports my family. It supports those communities; it supports those communities that all of us live in here, and the privatization of the program, or private program, we see it as being a mechanism to limit supply and yet, perhaps, afford some price support, but the key thing is that those licenses would be based on historical production; the production that the individual had a baseline of 1995, 1996, and 1997. So, therefore, each individual would have a set amount that they could grow at the start of the program.
Page 113 PREV PAGE TOP OF DOC Mr. EWING. I come down from Illinois and I want to get in on this good tobacco business under the privatization plan, I can't grow tobacco then. Is that what you're saying?
Mr. ANDERSON. Well, we've talked about that. We met extensively all through the fall and early winter to work with the Senator on this plan, and we envision a baseline of production, that 1995 through 1997 period, and I think we've all said here today that probably once this settlement has passed, if it's passed, there's going to be an immediate reaction, and part of that reaction is going to be a reduction in the amount of tobacco that we can grow. So, if you look at it in a chart scenario, we feel like the amount of those licenses, if you would, are going to go down initially. However, I think once the competitive factor of the private program comes into play I foresee the amount that we could grow perhaps to increase, and if it were to increase above that baseline then I think that's when you look at new growers or additions coming into the program.
Mr. EWING. You visualize that the right to produce tobacco under the privatization program would be auctioned off like spectrums?
Mr. ANDERSON. No, it would have no value. Under the program that we've talked about in Virginia is that it could not be leased, sold, or transferred in any manner other than lineage and descendancy. In other words, my son could get my license, but my nephew that lived across the county
Mr. EWING. But it would have a value. If it allowed you to continue the program under a privatized program, it wouldn't have a value?
Mr. ANDERSON. Well, you're right. In basic economic terms, anything that limits supply accrues a rent and a value, but the concept within the program is that there wouldn't be any structure for it to be leased or transferred or sold.
Mr. EWING. I guess my time is about up, but we had some address the issue of the community, and while I'm not an advocate of a lot of community grants, I do wonder what happens to others in the community, maybe those who don't own tobacco quota, if there's a buyout. Is there going to be a lot of people leave the land, a lot of farms be turned into some other less-productive use?
Page 114 PREV PAGE TOP OF DOC Mr. DONNIE SMITH. Mr. Chairman?
Mr. EWING. Yes.
Mr. DONNIE SMITH. I'd like to address that, please. I feel like that if we get the money back in the hands of the farmer, that we will reinvest this money in our rural communities. We will create jobs. We will generate more jobs, and therefore, I don't see any hurt particularly in the community, because we're going to reinvest that money in that community.
And one other point, Mr. Chairman: I don't think you want to grow tobacco. Tobacco is a very intensive crop. I think you'd better keep your job where you're at. [Laughter.]
Mr. EWING. Well, I have to keep my job just to grow the corn that I do, but, I mean, when I hear about what you're getting for tobacco, I think maybe it's better than corn.
Mr. GOODE. Mr. Chairman, I may have figured this wrong, but I listened carefully to what each said, and you all correct me if I'm wrong, but Smith, Parrish, Bissette, Anderson, Skees, Barlow, Sharp, and Vick favored a buyout at $8 a pound for quota, $4 transitional payment, and then have a license system after that with priority being given to those that have a history and that are already producing tobacco in this country.
Then Layton and Barbour no buyout. Do you all agree with that? Mr. PARRISH. I think so. But I think there is also a feeling that if this program could somehow be magically corrected and fixed for flue-cured, where we don't have the problem with the quota that's so high, the rent's so high, and a promise or a guaranteeI don't want a promise; I want a guaranteethat we've got a future with that programwith damages for what we've incurred. I think you would have a different vote. But right now nobody sees that as a reality, and that's why that count is like that.
Page 115 PREV PAGE TOP OF DOC Mr. DONNIE SMITH. I'd like to also say I agree with that. I feel like that there was a big demand for buggywhips years ago. There's no demand for it now. I see the program; it's served its usefulness. It's been good, and if it could continue onbut I just think we're in real trouble. So I think we need to look at the buyout alternative.
Mr. GOODE. Do you seeand I think I sense most of you at least saying, if you keep the program like it is, and maybe even the chairman saying, you're not going to get any buyout.
Mr. ANDERSON. Well, I think that's a fear that we keep the program that we have now, Virgil, and then we'd lose it, and we don't have any funding for a buyout or any other thing. What's been said here today is that this is an opportunity. The pool of money that will be created by the national settlement can finance the future of our communities and our farms or it can help do that, but I'd like to reiterate what's been said on this end of the table: that the tobacco program is a model of success. I think anyone in your position or anyone up here would say that. From a farmer perspective, I truly appreciate the ability to grow tobacco and the opportunity I've had to grow tobacco over the years because of the program. As Keith said, if we could magically become competitive within the structure of the program that we have now, or in some manner be assured of long-term stability through that program, then that's fine; let's look at that. But the sources and the people that can guarantee that are getting fewer in number. We're having a hard time
Mr. GOODE. In other words, you agree, I believe, maybe with Mr. Lewis or Mr. Chambliss. Both I think indicated that in maybe this Congress or future Congresses you're very concerned about, if you have a vote on a program, it's staying?
Mr. ANDERSON. That's correct, yes, sir.
Mr. GOODE. Thank you, Mr. Chairman.
Mr. EWING. Mr. Lewis.
Page 116 PREV PAGE TOP OF DOC Mr. LEWIS. Thank you, Mr. Chairman.
Your opinions today about a buyout, that you feel like this is something that would serve you well, do you think that would be the pervasive view in your farm community, that you represent the rank-and-file farmer in your farming reach?
Mr. PARRISH. I think if you give it a referendum vote, you'd find an overwhelming amount who would be willing to do that, and it's based on what we said today, and that's driven by fear, in my opinion.
Mr. LAYTON. Congressman, I disagree. In my area I think people would likeyou see a pie in the sky if you have $8 a pound. Realistically, I don't see the money. If we don't have the money up here and we're talking about a buyout, what have we got? Nothing. If I'm able to continue tobacco, it will not be without assistance. I cannot compete with the size of the area that I tend tobacco. A lot of farmers from my area west in North Carolina are in the same situation, and we tend to be a lot smaller growers and we'd have a difficult time competing on the market as a privatized system, as an integrated sales system. I expect that if the program is done away with, you will see quite a few growers my size and smaller cease to exist.
I don't know the answer. I told you that before. Like what Mr. Flye said this morning, if you could tie it to an outside agreement with the companies, where they were obligated to maintain a billion pounds crop with some floor on price, it probably would keep a lot of farmers still growing tobacco that are going to have to go out on the buyout situation.
Now, like I said, I'd love to have $8 a pound. I'll take my $800,000 and I probably could make it the rest of my life, if I don't have to come back to Congress too much; it's expensive to come up here. [Laughter.]
Mr. BISSETTE. I think about 80 percent of my community would be willing for the buyout. The pressure on leasing quota in my neighborhood is unbelievable. They're paying twice the prices of some of these people. It is really unreal. It's going to just self-destruct if there's not anything done. They're going to be bust. They're going to be out either way.
Page 117 PREV PAGE TOP OF DOC Mr. LEWIS. What do you think about the second district?
Mr. BARLOW. You know, I'm from Kentucky, and I'm sure if you were in here this morning, you heard a lot of comments about the fact that we ought to support the program at all costs, and I totally agree with all those gentleman this morning. The program in the past, even this past year, has been a great thing for every Kentucky tobacco producer. But, you know, when I talk to my neighbors, and I do a little feed business on the side. I deal with about 100 of them on a monthly basis that I see personally, and every one of them grows tobacco. I would have to agree with the gentleman down here; it would be 80 to 90 percent for a buyout.
We have a tremendous number of people who just say, well, if I could get anything, I would quit tomorrow. I think the national settlement, one of their purposes is to cut back on tobacco production, to cut back. I think we're going to have a voluntary cutback on production if we get a buyout program.
I think about people that have spent their life working on the farm. If we let this tobacco program die because we don't have the votes in Congress to do it, they really get nothing. But if we could put a buyout program into effect, those people who spent their life actually may have some retirement, and if they'll invest it wisely, it could guarantee their future much more than if we just try to hang onto something that I really don't think is going to be a viable option to hang onto.
Mr. LEWIS. Thank you.
Mr. EWING. Mr. Etheridge.
Mr. ETHERIDGE. Mr. Chairman, I just have one question. I started to pass because a large number of these are my constituents, but a question comes, and I think we have to deal with it. Assuming there's a buyout and you go to a licensure situation, how does your children or my children, anyone else who wants to get in the program, ever get in? Because what you're talking about is a buying-down and buying-out, and once you get that license, how does a person ever step up and become a part of the process?
Page 118 PREV PAGE TOP OF DOC Mr. BISSETTE. I don't know how to address that, but the proposal
Mr. ETHERIDGE. We have to have some idea, if we're going to make the decision.
Mr. BISSETTE. The proposal that I have looked at is a council, and you would set aside 10 percent to be adjusted for new growers orbeing your case that you were referring to? But there is a plan and I have seen it, and if you would like me to share it with you, I will certainly be glad to.
Mr. ETHERIDGE. Well, at some point I'm sure, as the committee starts to deal with this, assuming it gets there, those are the kinds of things, assuming it's out there. Thank you.
Mr. SHARP. If I might add to that question, not in disagreement with the guys from Virginia, but I visualize this thing as headed down a road of increased production. Part of the reason for licensing, Talmadge, is to protect a small grower, because he's going to get a license similar to, depending on what demand is, similar to what he's been using in the past. So we're going to start out with these things adjusted similar to what people's history is being, and then by the price of our tobacco becoming so much more competitive in the world market, I think we'd be headed down a trend of growing more tobacco for the export market. Naturally, we're going to grow much less for the domestic market.
Disagreeing with the guys from Virginia, I think these things ought to be able to be bought and sold to give opportunities for people to expand, people to quit, young people to come in.
Mr. EWING. Mr. Chambliss.
Mr. CHAMBLISS. Thank you, Mr. Chairman.
Mr. Chairman, I didn't have a chance to really introduce by good friend, Donnie Smith, before he testified, and I just wanted to make a couple of comments about him. He's a pretty unique individual. In 1996, he received the Liberty Award for the national spokesman for the tobacco farmers, of which I'm very proud of for him, and also he was the Georgia Farmer of the Year in 1996. Most importantly, he's a member of my ag advisory committee, and Donnie is a very valued member of our farming community in general, particularly, the tobacco industry.
Page 119 PREV PAGE TOP OF DOC Donnie, I know how our tax system in Georgia is structured. It's basically supported by an ad valorem tax system that, from a local level, funds our municipalities and funds our county government, funds our school systems. Those ad valorem taxes are based upon the land valuations, which include the value of tobacco quotas, in addition to other assets that are attributed to that land. If we eliminate tobacco quotasI don't care whether it's a buyout or whateverwhat's going to happen to the land values in Atkinson County, where you're from?
Mr. DONNIE SMITH. Land values are going to be drastically reduced because this crop does carry a lot weight in our community. I just can't seewe need some compensation if these allotments are done away with, because it's going to drastically hurt the small rural communities.
Mr. CHAMBLISS. Let me make a couple of comments, based on some things that you all have said. I think Mr. Sharp alluded to it very specifically with respect to the comments Mr. Layton made. I think whether there's a buyout or whether the program is directly or indirectly''eliminated'' is not the right word, but downsizedMr. Layton, it's going to be very difficult for small farmers to be able to deal with tobacco companies. I just can't see that happening, and I'm really concerned about that because I don't know what the average size tobacco farm in Georgia is, but my guess is that it's 30 acres or less, and I know burley is even significantly smaller than that. I think that's going to create a real problem for those small farmers, if they have to deal directly with tobacco companies as opposed to the current system we've got.
Mr. Sharp, you alluded to the fact that these tobacco companies can't afford to pay those judgments, and they put us in a very difficult position, because we didn't tell them to settle those suits. They settled them on their own. And they agreed to pay that money. Now I'm assuming they did that based upon their belief that there was going to be some global agreement automatically approved by Congress, but they never consulted Members of Congress before they entered into these agreements or entered into the global agreement. I think that was a false assumption on their part, that it was going to be an easy thing to do to get a global agreement passed through Congress.
Page 120 PREV PAGE TOP OF DOC One thing that I have told my farmers, and it's been re-emphasized to me today, and I want to state it to you, gentlemen, and that is that, unless our farmers get together behind one plan and one concept, if we go divided in there, we're going to lose. If we go together in there, we're going to win. But right now I'm hearing different things from different farmers and from different belts as well as from different sections of the country within the same belt. The answer is that we've got to come together with some common plan that you don't come out with everything you want, because you're not going to get that. But if we can come up with one common plan for all tobacco farmers, I think we can get a reasonable compromise within the terms of any ultimate global agreement. But if we don't have commonality among our farmers and our warehousemen and other folks in the industry, then we're going to lose.
So I would urge you to go back home and talk to your farmers. I know, Donnie, we're going to be meeting again and talking about this in the eighth district of Georgia, and I'd encourage you all to do the same and try to come together with some plan that is satisfactory to you, even though it's not everything you want, that will allow your children and your grandchildren to be farming tobacco down the road.
Thank you. I thank all of you for coming, too. This was great to hear from you.
Mr. EWING. Several people have mentioned being competitive. Are you talking about competitive in the world market, and is that without a program, without protection at the border?
Mr. VICK. I think what we're talking about is taking the value of quota out of the price of U.S. tobacco. It has an inherent quota now because most of us are renters; we're so-called tenant farmers, and we don't own all of these quotas. So we have to rent those quotas. If there's some way we could reduce, take that rent value out of U.S. tobacco, then that leaves us very competitive on the world market.
Page 121 PREV PAGE TOP OF DOC Mr. EWING. Would there be those who want to produce tobacco without the value of quota in there? I mean, isn't that what makes it so profitable? You might be competitive in the world market. How would the bottom line be on your farm?
Mr. PARRISH. If you take the rent factor out, that automatically would drop your price. I'm on the Tobacco Growers Board also in North Carolina, and we met with all the major manufacturers, and those folks told us, when we were asking the question of, what do you think your price would drop to if there was no quota involved, if there was an open market for us, and they were a little reluctant to state to start with, but they said whatever the market would demand. But if you pin these folks down, they give you an answer of somewhere between 20 cents and 40 cents. We're not really asking them what it will take to take over the entire world market. We're asking them what it would take to be competitive. They state that the overseas folks, Brazil's and others are at the bare bottom now, that they can't cut any more of what they're doing to be competitive. We've got them and their economy is also so screwed up, if you'll pardon my French, but they like the stability they get here from our crops. So I think we could be competitive 25 cents less than what we're taking right now, but we can't take that now because the rent factor's there.
Mr. EWING. One other question. Are any of you concerned about the involvement of the FDA on your farm? I mean, I think part of the agreement, that may be FDA would be inspecting or checking our tobacco farms. Is that a problem?
Mr. ANDERSON. Well, actually, I think within the settlement, I think it says that FDA will not come to the farm, I think, but you're right, I think that would be a problem to most people.
Mr. EWING. If it is in there, it would be a problem then? Is there pretty much agreement to that?
Mr. SHARP. Yes, we've got serious concerns with that because we think they wouldn't know what they were looking at when they got there. [Laughter.]
Page 122 PREV PAGE TOP OF DOC But, however, if you take a look at some of the proposals for a board that would govern a privatized plan, there's been mention to have FDA representation on that board, and part of that is not out of a great desire on our behalf to have anything like that, but it's part of an education process. We feel like that many times you're more comfortable with your enemy if you're side by side, and I think they could learn a lot by being a part of that.
Mr. LAYTON. Mr. Chairman?
Mr. EWING. Yes?
Mr. LAYTON. To go along with a couple of statements that have been made, it bothers me a lot, because of my size and my situation, to allow, as has been said earlier today, the companies to have both sides of the stick. I think we're not as far apart on this panel as growers as we would lead you to believe. I think everybody's in this for profit, and profitability is what we're after. If privatizing it makes the tobacco farm profitable, I think you'll find all of them willing to settle for that. If it's a revamped program that makes the farmers profitable, I think they'll all be happy with that.
I think they see a one-time opportunity to get some compensation during a window of settlement here with the tobacco companies. We feel like we deserve part of the money coming from the settlement to ensure our livelihoods. If we can come up with some kind of plan where all of us will be profitable, we'll all jump on that bandwagon and we'd be ready to go.
I'm not smart enough to do it, but these gentlemen probably are. If they can come up with something that will keep me from having to deal directly with the companies in privatization, where I've got some kind of safefalls, where if I have a bad crop and my neighbor over here had a little more water than I did, and he's got a good crop, that the companies can't come say, well, we don't need your crop this year. What am I going to do with it? It's sort of difficult for me to envision growing a crop, not knowing whether I'll be able to sell it and pay off my bills or not.
Page 123 PREV PAGE TOP OF DOC Anything you all decide, please keep that in mind, and don't let the companies get the upper hand to where we don't have any leeway whatsoever as to what we're supported under.
Mr. EWING. Sanford, do you have a question?
Mr. BISHOP. I just want to make a brief comment, Mr. Chairman. I just want to thank them for coming, and thank you for the input that you shared, but I want to underscore what my colleague from Georgia, Mr. Chambliss, has said, and that is that we have got to find some kind of consensus, so that the people in the industry, the growers, and the warehousers particularly, are speaking from the same sheet of music, singing from the same sheet of music. If we don't have a unified voice, we're going to have a heck of a row to hoe trying to win this battle.
We had a similar situation with the peanut program going into the farm bill. All of the growers got together, the different grower groups. Everybody couldn't agree on everything, but we came out with pretty much of a consensus, and we were able to, in the end, come out with a program that everybody could live with. We've got to do that with tobacco. Tobacco is even hotter. It's a hotter issue; it's a more controversial issue, and in much graver danger of attack by the critics than any of our other commodities have been. I think that it's imperative that we who want to defend your right to your livelihood, that you help us to come up with some principles around which we can all agree and move forward as our strategy and as our objective. If we don't do that, it's going to be really, really difficult for us to protect you.
Mr. EWING. Mr. Etheridge, do you have final thought?
Mr. ETHERIDGE. Mr. Chairman, just for a brief one, if I may, to underscore what both have said, because, as I indicated in my opening remarks, I heard from over 1,200 farmers over about 3 weeks and about 8 different meetings. One of the things I said as we closed, if many of you remember, we had to be together.
Page 124 PREV PAGE TOP OF DOC I will repeat it again. After what my colleagues have said, it is imperative, because here you're talking to people who are supportive. Everybody who's in this room on the Agriculture Committee is going to be supportive of what we can pull together, but you've got to remember there are 435 people in the House and 100 in the Senate, and this thing is going to travel through a whole bunch of committees. We've got to be together, be careful what you ask for. You've got to make sure we're on solid ground. We don't want to step out there and think it's ground and it's quicksand. It is a tremendous challenge, and we're going to have to be together on this to make it work. A lot is at stake in what we're getting ready to do when we step off, and so we have to work hard together.
I want to thank all of those of you who came up from North Carolina to participate and from the other States. It has been very helpful today.
Thank you, Mr. Chairman.
Mr. EWING. Yes. Mr. Lewis.
Mr. LEWIS. I just wanted to add my ditto to those comments, and also thank the panel for coming, especially two gentlemen, Mr. Skees and Mr. Barlow, from the second district of Kentucky. We really appreciate all of you for your efforts, and we certainly do appreciate your input, and hopefully, we can represent you well in this upcoming debate. Thank you so much.
Mr. DONNIE SMITH. Mr. Chairman? May I make one statement, please?
Mr. EWING. Yes.
Mr. DONNIE SMITH. Again, we appreciate this opportunity. I don't thinkI mean, I've been married 28 years. The art of negotiation is not anything new to me. [Laughter.]
I realize we're going to have to negotiate, but the two things that we have talked about today from a grower's perspective, personally I can live with either one of them. If the program is overhauled, I can live with it. But just please look after the farmer. Either direction I don't think is that drastically far apart. What we're all asking for is similarly the same thing: Look after the grower. Thank you.
Page 125 PREV PAGE TOP OF DOC Mr. EWING. Thank you.
Ladies and gentlemen, the purpose of today's hearing was to hear from people in the tobacco industry, and I think you have delivered a message very well to this committee of your concerns, and I think the first panel did an excellent job. Your panel did an excellent job.
I hope that there have been some messages sent back to the industry, and I hope that you were listening, and I believe you have been. I really believe that it's been a good hearing, and that we have made some progress, and that we'll be prepared to work very hard and very diligently on your problem and on the tobacco settlement in the months ahead.
This committee takes its responsibility for specialty crops, tobacco being one of the main ones, very, very seriously, and though all of us don't come from areas that grow tobacco, we are concerned, and we will, indeed, be working to do our very best for you.
If there are no other comments, this meeting is adjourned. The record will stay open for 10 days, if anybody wants to submit a written statement.
The committee is adjourned. Thank you very much.
[Whereupon, at 2:00 p.m., the subcommittee adjourned subject to the call of the Chair.]
[Material submitted for inclusion in the record follows:]
Statement of W.B. Jenkins
Good morning. My name is Bob Jenkins, President of the North Carolina Farm Bureau. Thank you for the invitation to share the Farm Bureau's thoughts on the Tobacco Legislation. I will be brief and to the point.
North Carolina has systematically over the past 30 years been diversifying its agricultural economy. North Carolina has evolved from being wholly dependent on this single crop to being the third most diversified agriculture state in the nation. Tobacco income fueled this transition. It is a one billion-dollar annual crop for our farm families. The no-net cost tobacco program and its positive impact in the marketplacenot government handoutshave funded our diversification efforts.
Page 126 PREV PAGE TOP OF DOC North Carolina growers will receive $72 million in government payments through the Production Flexibility Contract Payments program. States such as Indiana will receive $295-million, Kansas $423 million, and Iowa a whopping $686 million! Tobacco provides our money in the marketplace.
Our farmers are the most progressive, up-to-date, technologically advanced farmers in the world and have already embraced any commodity that makes an adequate profit. We still have a long way to go. There are no agricultural alternatives to replace tobacco's income.
By your actions on this program, you will be determining the economic future and well-being of rural North Carolina. North Carolina grows two-thirds of the flue-cured tobacco grown in this country. Tobacco will be consumed in the world for the foreseeable future and will be grown somewhere, so why not in North Carolina?
The tobacco allotment system allows county governments to generate significant revenues enabling them to provide a host of programs and services for the economically disadvantaged. For many rural counties, it provides the bulk of the property tax base. It helps fund schools, hospitals, social services, police and fire protection. The program has resulted in income stability for County Government.
Aside from Federal intervention, nothing will replace this tax revenue in the short term. The proposed settlement and resulting uncertainty are already affecting the tobacco community resulting in quota loss and excessive inventory buildup. Farmers need to be compensated for their equity loss and loss of farm income. Farmers that lease tobacco allotments should also receive transitional payments for their capital investments.
Uncertainty over a stable future is causing a lot of farmers to fearfully embrace hearsay and rumors. On one extreme you can find farmers who are calling for a complete buy out to the other extreme of preserving the program at all cost. The settlement is designed to lower the U.S. demand for tobacco which will hurt the small, medium size and minority farmers. The North Carolina Farm Bureau's position is that all growers' losses of equity and income be compensated from a reliable source of funds. We would like to see a supply limiting program remain because it provides income stability for our tobacco farmers and our rural counties.
Page 127 PREV PAGE TOP OF DOC The settlement negotiations before Congress, have had a most destabilizing effect in the tobacco community. The farmer made and continues to make good faith investments in expensive equipment, barns and land. In the changing environment, this investment should be protected and the farmer compensated first. The end of a tobacco program without appropriate compensation will spell economic ruin for thousands in rural North Carolina. A consensus needs to be reached between the House and Senate Leadership and the White House for a reliable source of funds to compensate farmers for loss of tobacco quota and income and equity in land, buildings and equipment. We are asking for and need the same stability, immunity and profitability the manufacturers seek. Future uncertainty is affecting the 1998 growing season and our farmers are feeling it now. Even the bankers are concerned. A framework for compensation needs to be established even if the settlement agreement does not pass the 105th Congress.
In conclusion, 63,630 tobacco allotment holders and 42,070 tobacco producers in North Carolina are awaiting the outcome of your actions. The widow, the young farmer, the elderly, the children of rural North Carolina are at your mercy.
Statement of Marshall Coyle
Good morning and thank you for this opportunity to appear before this distinguished body to explain our position with regard to the inclusion of protective language for tobacco farmers within the pending tobacco settlement. My name is Marshall Coyle, and I am a tobacco farmer from Owingsville, Kentucky.
Two years ago Congress debated the role of public policy in agriculture. The result of that debate was the passage of the 1996 Federal Agriculture Improvement and Reform Act, or FAIR. This sweeping reform legislation both lowers payments to producers and removes government controls on farm production, allowing producers to meet market demands and reap the benefits of an expanding export market. Tobacco growers believe some in Congress would like to apply the same concepts of the FAIR Act to the remaining program crops, including tobacco. In discussing all potential aspects of this negotiated settlement, burley tobacco interests have considered the possibility of eliminating the growers program and offering transition payments to growers. We have found very little enthusiasm for the idea of giving a farmer one payment to quit growing a crop. You see, for the overwhelming majority of these small family farms, tobacco production represents the past, present and future viability of the farm. Buying these hard-working families out of the tobacco business would, in effect, be tantamount to buying them off their farm. A similar road Congress has been down before, during the late 1980's dairy herd buyout. This would be, yet another preventable mistake in American public policy in agriculture.
Page 128 PREV PAGE TOP OF DOC The 1996 FAIR Act only applies to row crops. Tobacco and other program crops are addressed in permanent legislation in the 1938 Agriculture Adjustment Act, 7 U.S.C. 1311-1316 and U.S.C. 1445, which establishes marketing quotas and price supports. Throughout history, program crops, including tobacco, have not been items discussed in Farm Bill debates. They have remained separate issues, as they continue to be today.
However, since some want to apply this legislative concept to remaining program crops, we will be very interested to review the impacts of this legislation which, under section 184 of the FAIR Act, is due to be released in a report to the President, members of this committee, and the Committee on Agriculture, Nutrition and Forestry of the U.S. Senate not later than June 1 of this year.
Of specific interest, will be the initial assessment of farmland values and economic risks to farms delineated by size of farms and regions of production. First, farmland values are a critical component of the financial well-being of the entire agriculture sector. Consider many economists use the present value model to assess farmland values. The present value model recognizes that the purchase of farmland is a decision to buy an asset today with the expectation of producing income in the future.
Under this model, the future value of tobacco state's farmland will be significantly reduced, since consumption, and therefore quota levels, are expected to fall as a result of the tobacco settlement.
From a historical perspective, in the 1970's, increases in farm income ignited a dramatic rise in farmland values. This was, in large part, due to future expected growth in farm markets. However, the increases in farm income did not last long. American farmers were subjected to foreign grain embargoes, increased U.S. financial interests in foreign markets and sharp increases in production. This led to declines in commodity prices.
With respect to farm income, should some tobacco settlement pass Congress to eliminate the tobacco program, farm income on the majority of small to mid-size tobacco farms, will significantly decline. And, if tobacco farm income does not project future growth potential, what will happen to land values in the rural tobacco communities across the tobacco producing regions of this country?
Page 129 PREV PAGE TOP OF DOC In Kentucky, our rural communities will be subject to unparalleled economic catastrophe far beyond that faced by those in the early 1970's. With both farm income and land values spiraling downward in 119 of 120 counties, the economic trickle down effect will come to a grinding halt. What will Congress provide to rural communities suffering from lack of funding for local schools and infrastructure?
Furthermore, consider that out of 120 Kentucky counties, 54 are considered ''persistent poverty counties.'' The definition of persistent poverty counties according to the Economic Research Service, USDA, are those in which 20 percent or more of the population were below the poverty level in each of the years 1960, 1970, 1980 and 1990.
In these 54 Kentucky counties, nearly $139 million in net tobacco farm income is generated from a large number of small family farms. Small family farms dominate rural Kentucky and other tobacco producing states. In fact, according to the 18th Annual Family Farm Report to Congress in 1993, USDA reported the Appalachian Region, including Kentucky, North Carolina, Tennessee, Virginia and West Virginia, with 299,000 farms, second only to the Corn Belt region. Of course the average acres, average gross income and average gross sales were significantly smaller in comparison.
Also, the National Commission on Small Farms highlighted 1992 Census of Agriculture data in their January 1998 report, indicating tobacco states containing large numbers of small farms. Between 55 and 88 percent of farms in states like Kentucky (73 percent), Indiana (55 percent), North Carolina (63 percent), Tennessee (82 percent) and Virginia (74 percent) are considered small operations.
Today, as we speak, producers from these states on small family farms are marketing this year's crop, which is valued at nearly $3 billion dollars. Already, tobacco farmers have suffered through floods, drought, labor shortages, disease and now they must face a very uncertain future with regards to this negotiated settlement. In places like Owingsville, Kentucky, where tobacco accounts for over 52 percent of all farm cash receipts, it is estimated that for every dollar earned by farmers from growing tobacco, up to $4 is re-introduced into local economic activity.
Page 130 PREV PAGE TOP OF DOC In Kentucky, tobacco is unequivocally, the economic driving force in many communities. In fact, tobacco accounts for over 50 percent of all farm cash receipts in 32 Kentucky counties, with the remaining counties generating over 25 percent. Kentucky has 17 of the nation's top 20 tobacco dependent counties. Clearly, no other crop can generate such income levels.
Today we appear before you in support of maintaining the existing tobacco grower's program. That's right, its our producer's program; not the government's. For the last 15 years, after implementing reforms in 1982, our producers have paid for this program through a no net cost assessment upon growers like myself. Each year I, along with the purchaser of my crop, pay toward the effective implementation of the producer's program. Furthermore, over the last 4 years, the Federal Government has received over $100 million dollars (FY 199497) from growers and manufacturers who have contributed to the budget deficit assessment.
Over the course of the past several months tobacco State farm bureaus, various burley tobacco organizations and other interested parties have held a series of discussions to determine how this settlement could preserve the thousands of small, family farms that depend on tobacco production. A consensus has been reached on four key elements:
(1) Continuation of a tobacco growers program. (2) Compensation to growers in the event that the negotiated settlement results in a reduction of production quotas. (3) Compensation to growers in the event that the tobacco growers program is eliminated or phased out. (4) Economic and Educational assistance for tobacco communities.
As the future of the settlement grows murkier, tobacco farmers must put our trust in the basics of current tobacco policy--the proven benefits of the tobacco program. Those benefits are clear, and they are constant.
While there may be many details that are subject to debate, I can state with confidence that the most vital issue on the minds of Kentucky's tobacco producers is to preserve the tobacco growers program. And the reason is quite simple: This program brings economic stability to the farm families and their communities.
Page 131 PREV PAGE TOP OF DOC In fact, I cannot overstate this program's importance to rural Kentucky. For many years, the tobacco growers program has maintained profitable market prices by keeping supply in line with demand. This has absolutely been the lifeblood of thousands of small family farms that do not have the land nor resources to sustain themselves with any other farm enterprise. These are farms that cannot survive with row crops, livestock or produce.
When corn is marketed, there are dozens or hundreds of potential buyers and end users for that commodity. It may wind up in human food products, animal feeds, sweeteners, fuel ethanol or starch fillers, depending on which buyer prevails during the marketing process.
Tobacco, on the other hand, enjoys no such market diversity. Four companies buy the bulk of tobacco that is purchased domestically, with one of those four firms making well over 50 per cent of the purchases. Such exclusivity on the buying side leaves no marketing clout in the hands of producers. The tobacco program allows farmers a reasonable margin for their labor, all the while knowing that if prices get too far out of line internationally, their market share will suffer.
What possible benefit, Mr. Chairman, could come of ending the tobacco program. Will the Federal budget be brought into balance more quickly? No. Will cigarette prices move upward as a result, forcing younger buyers out of the market? No. Will a competitive marketplace evolve in tobacco marketing? No. Will Kentucky farmers find another crop to replace their lost income? No. Will Kentucky communities suffer massive economic dislocations? Yes.
Furthermore, if the last penny of Federal tobacco budget costs is eliminated, any decision Congress may make relative to eliminating the tobacco program will not be an economic decision. It will be a social one. I can't believe that Congress wants to chase 30,000 Kentucky families off their farms. I can't believe that Congress wants to inflict a major deflation in Kentucky farm values. And I can't believe Congress wants to see entire communities lose their vital economic underpinning.
Page 132 PREV PAGE TOP OF DOC These consequences will surely flow from any action that would result in the loss of the tobacco program. Economic devastation, cheaper cigarettes and a King-indentured servant relationship between producer and buyer of tobacco. And, if the settlement falls apart, as it seems more and more likely to do, there would not even be the short-term attractiveness of compensation to right these wrongs. In short, Kentucky's farm economy would be whipsawed unmercifully to the benefit of tobacco manufacturers who would see their input costs decline. I would have to ask, why Congress would see such a combination of outcomes as progress?
We feel it's also important to note that the continuation of the tobacco growers program falls in line with some of the settlement's objectives. Within the settlement, we agree that higher prices may lead to tobacco products becoming more unaffordable to our youth. Without the grower's program, we no doubt would see the manufacturers turn to a flood of cheaper, foreign-grown tobacco that would allow them to maintain lower prices for their products, and/or higher profits. Even tobacco's most vocal critics have acknowledged that the growers program impacts the cost of tobacco products.
Finally, under the old farm programs, which the FAIR Act repeals, the goal was to balance domestic demand and supply, and reduce high U.S. production and surpluses of the early 1980's. This is similar to the goals of the current tobacco program and, in essence, the implied goal of the tobacco settlement, leading to reductions in youth access. Why then, would you want to repeal a program that controls tobacco production?
Our growers want to continue to produce the world's finest tobaccos. Demand for U.S. tobacco will continue to be strong in the future as we enjoy a leading position in world exports, positively impacting our nation's balance of trade in excess of $5 billion annually. No matter your views on smoking, tobacco products remain legal. Our Nation has been down the road of prohibition of a product considered ''a human vice'' and it did not work. Nor will it work today. Since it will not work, we want to remain, under the current grower's program, as a world leader in quality tobacco production.
Page 133 PREV PAGE TOP OF DOC If this is indeed the route Congress wants to take; reducing Federal dependency in agriculture, then I ask how far will you go? The consequences of success in agriculture, increased productivity through advanced technologies, crop science, and management lead to less dependency on people to produce increasing amounts of farm goods. Also, it is certainly no secret that rural society is giving way to increased urbanization. Therefore, will there be a continued need for this committee, the Senate Agriculture Committee, their staff, the United States Department of Agriculture, a cabinet secretary and thousands of Federal employees? If this is the direction Congress intends to lead us, then due to our current circumstance regarding the tobacco settlement, we may end up as the first program crop to go. And, to the last program crop left standing, as you go out of the Agriculture Committee room, please be sure to turn out the lights!
Statement of Bruce L. Flye
Mr. Chairman and committee members, I am Bruce Flye, an active tobacco farmer, in partnership with my son, Randall Flye. We have both farmed all of our lives.
I am a board member and president of Flue-Cured Tobacco Cooperative Stabilization Corporation. Our Board of Directors is made up of tobacco farmers from the five flue-cured producing states; Virginia, North Carolina, South Carolina, Georgia and Florida.
Stabilization's primary function is to administer the price support provided by the Federal Tobacco Program to flue-cured tobacco farmers. If a farmer's tobacco does not bring above the minimum support price on the auction warehouse floor, the farmer then receives the support price from Stabilization the same day of sale. Stabilization then ships, processes and stores the tobacco until it can be sold at a later date. The Tobacco Program provides this service to tobacco farmers at no-net cost to the tax payer. Tobacco farmers and purchasers pay an assessment to cover any potential losses to USDA's Commodity Credit Corporation.
Page 134 PREV PAGE TOP OF DOC The negotiations this summer between cigarette manufacturers and State Attorneys General excluded any participation from tobacco farmers. The final tobacco agreement omitted any consideration of tobacco farmers' and their communities' welfare. It is our opinion that once this agreement is consummated, the political support of the tobacco farmers will no longer be needed by the cigarette manufacturers and the $368.5 billion agreement will be brokered on the backs of tobacco farmers. This is happening as I speak. Imports of cheaper foreign produced tobacco are increasing to all time high levels, threatening the very existence of the Tobacco Program and the livelihood of tobacco farmers.
If the Tobacco Program should crumble under the weight of this settlement and tobacco farmers are forced to compete at world market prices, we have been told by executives of a major cigarette manufacture that we could expect prices to drop from an average of $1.70 per pound to as low as 70 cents or 80 cents per pound. The cigarette manufacturers would reap a huge windfall. This drop in US tobacco prices could save the cigarette manufacturers an estimated $2 billion annually. Since world tobacco prices are dependent on US prices, the ripple effect world-wide would increase this windfall substantially.
Flue-cured tobacco farmers are geared up to produce a billion pound crop of tobacco, encouraged in part by the cigarette manufacturers with their 1997 purchase intentions. Tobacco farmers invested in new equipment; transplanters, harvesters, curing barns, etc. This equipment can be used for only one purpose, the production of tobacco. Unfortunately there was a 20 percent reduction in effective quota for 1998. This reduction combined with additional quota cuts that will arise from this settlement will force many tobacco farmers out of farming. They will be unable to pay off their huge investments. Medium and small sized farmers, including beleaguered minority tobacco farmers, will be eliminated leaving mostly large corporate size farms to survive. Many of the family farm tobacco operations will be left with no alternative for their livelihood.
Page 135 PREV PAGE TOP OF DOC To avoid the coming calamity for tobacco farmers, there must be included in any National Tobacco Settlement the following:
A guarantee that the Federal Tobacco Program will be protected for the length of any national agreement.
Six-hundred million pounds of net flue-cured purchase intentions by the domestic cigarette manufacturers for the length of any national agreement.
If the longevity of the Federal Tobacco Program cannot be guaranteed or sustained, we strongly favor compensation for tobacco quota owners, lessees and tenants and a privatized program with authority to regulate price and production enforced by the US Secretary of Agriculture.
Mr. Chairman, we need to keep the Tobacco Program and we need a 1 billion pound quota as in 1997. Farmers need to be protected by being included in national tobacco settlement legislation, or if there is no settlement, with whatever means are available to give us a future, in order make us whole.
Statement of Rod Kuegel
I am Rod Kuegel from Owensboro, KY and I am here today to represent farmers, those that grow burley tobacco in Kentucky and surrounding states. I am a tobacco grower, I produce two different kinds of tobacco but I want to talk today, not from necessarily my own viewpoint or situation, but those of four of my neighbors. Those neighbors are at home today with their families harvesting tobacco.
First, let me tell you about Carl and Nancy Lewis. Carl and Nancy didn't ask to be born into a family of tobacco farmers, but they were. Neither Carl or Nancy work off the farm. Their entire life has been spent on the farm raising crops, cattle, and to some extent children. They're not large operators, as tobacco growers go they are about average in size. Carl and Nancy will grow approximately 4,000 pounds of their own tobacco and they go onto neighboring farms and grow an additional 25,000 pounds. Along with growing tobacco, they milk a few cows, raise a few calves, grow an acre of peppers and seem to be making a decent living. During their some thirty years of marriage, they have educated a daughter who is now a cooperative extension agent, they have educated a son who has taught school and wants to farm along with Carl and Nancy. Sometimes we are asked how important is tobacco, when you look at Carl and Nancy's situation it's 80 percent of their income and even more importantly, it's 100 percent of their life. They were born to tobacco growing families.
Page 136 PREV PAGE TOP OF DOC Another neighbor that I want to talk about is Arthur McKinney. He could not be here todayand would not, even given the opportunitybecause all this would be much too intimidating for him and his family. Arthur has been a farmer all of his life, was fortunate enough to be able to work for the railroad a good number of years, had seven children born to him and his wife of 60-some years and grew tobacco. Now, tobacco was not every thing that fed them. The railroad money was good during the hard years of the war and so forth. But what made it especially important for them was that one-half acre of tobacco that came in at the end of the yearat Christmas time and at mortgage payment time. What was the most important thing to Mr. McKinney growing tobacco, the program that allowed him to do so. It was being able to depend on it year after year after year. While a lot of farmers like Mr. McKinney could not sit down and quote a lot of facts about the tobacco program and how it works or what the Farm Service Agency actually does for him, what he does know is what the program overall has done for him and what stability has done for him, because through train wrecks, through foul weather, through war and all other adversities he knew that the tobacco check would be there. That kept him going, that kept him looking forward to growing another crop and depending upon the stability that the program has offered him. Oh, he would try other things along the line, but he was completely at the mercy of those buying a little grain or hams or eggs or milk. And it always came to the fact that he depended on tobacco.
Congressman Ewing, the third family and neighbor that I want to talk about today is Rusty and Martha Thompson. Now, Mrs. Thompson works off the farm for the University of Kentucky. Rusty works on the farm day in and day out. They depend on agriculture income for a living. Tobacco is a major part of his operation. Just recently, Rusty told me how he had just purchased an additional farm and a lot of sleepless nights were spentnot whether he wanted the farm or not, not whether he could afford it or notbut all in the context of would we still have a tobacco program so he could buy and pay for this farm.
Page 137 PREV PAGE TOP OF DOC The tobacco program is everything to the tobacco farmer. Now, Rusty operates on a fairly large scale as average burley growers go. Rusty will grow upwards of 75,000 or so pounds this year. His is a family operation though his wife works off the farm. And being in the 40-year-old bracket and married, he still works hand in hand and day in and day out with his parents who are tobacco farmers. The Thompsons own some very prime land and are somewhat surrounded by horse country, but they are not horse farmers. The lack of capital to get into other projects is prohibitive, the lack of number of large level acres prevents expansion into other commodities and though Rusty owns very desirable, rich, fertile land, with larger fields than the average burley farmer, tobacco is the best commodity to help him and his family pay for their home and pay for their farm. Not too many of us would go out and buy a farm hoping that kumquats or rhubarb would maintain a profit level that we could pay off a $300,000 debt, but with the tobacco program and with the history of tobacco our farmers are willing to do that.
All four of my neighbors that I have mentioned today have some things in common, they are hard workers, they like to grow tobacco, but the one thing that brings them closer than anything is the program that is a shield in front of them, a shield that protects them from a market that is shared only by a few buyers compared to many for most commodities, a shield that protects them against weather, against all the forces that a farmer has to deal with in any commodity. When all is said and done, we have to have rain, we have to have sunshine, we have to have a willingness to work, but the program is what has kept all these people going.
Now, permit me to switch just a little bit and talk about a tenant farmer. In order to protect his privacy I don't want to give his name today, let's just call him Paul, a neighbor who grew up as the son of a tenant farmer, whose family did not possess very many worldly goods. Paul was one of several children who worked out in the community for other farmers doing farm labor each season. After a good number of years, Paul had saved up enough to buy some farm equipment. Later he had inspired some landowners enough that they trusted him to rent tobacco to him and now he is a tenant farmer. Paul has a family well on its way and because of tobacco Paul has been able to shelter, feed and educate several children. Paul does not own much land other than a few acres around his house. Paul does not own a lot of equipment: a tractor, transplanter, a disc harrow, and a sprayer. But Paul has the opportunity, because as a tenant farmer he can produce as many pounds as he feels he can justly handle effectively. Paul has an arrangement with neighbors so that he can use their land, their barns, their tobacco sticks, and in some cases use their credit and in that manner he is able to make a profitable living for his family. In order to be a tenant farmer one must have some equipment, must have some operating capital, and all of those things are hard to come by as a tenant farmer it is very difficult to go to a banker to borrow funds but Paul has been able to do that. Why? Because that banker just happened to be familiar with the tobacco program and more importantly, that banker knew its stabilityOh, he knew Paul and he knew Paul well enough to know that Paul was going to work and that Paul would do everything in his power to make it a successful cropbut given all the threats against tobacco, weather related or not, it takes a little more for that banker to extend credit. In Paul's case it is because of the stability of the program and that puts him on a level playing field with a lot of other folks, he has the opportunity then to compete in the market.
Page 138 PREV PAGE TOP OF DOC All of the people I have talked about today are home harvesting tobacco. They are doing that because of a program that has protected them, a program that has made it possible for them to compete regardless of size
Mr. Chairman, we want to keep our tobacco program. We want to grow tobacco. That is the business we are in. I was born to a tobacco farmer. I do not like being condemned because I was not born to a rice farmer or a wheat grower. I am a tobacco farmerlike my father and my grandfather, who were both tenant farmers. I want to continue operating under the program that we have, with its ability to protect and perserve my chance of profitability. I don't think this distinguished committee or any other committee in Washington wants to put me in a position of having to compete against labor across the world of five dollars for ten hours of work. Is that what we want to drag our farmers down to. I doubt that and yet when we talk about level playing fields or free trade and fair markets, what it boils down tohow are we going to then level the playing field as far as me paying $8 an hour labor and competing with someone that practices slave labor? Quite often we try to fix something, and in the end we tear up more than we fixed. I hope this will be considered when we look at a program that has worked, a no net cost program, that is the model for what all agricultural programs should be. It stands for stabilitystability for those that cannot stand alone. I encourage you and others in your position to make sure the tobacco program continues.
Statement of Will Clark
My name is Will Clark. I am manager of the Western Dark Fired Tobacco Growers' Association which represents about five thousand members. On behalf of the board of directors and the members of the Western Dark Fired Tobacco Growers' Association, we thank this subcommittee for its willingness to listen to tobacco growers' concerns regarding the proposed tobacco settlement.
Page 139 PREV PAGE TOP OF DOC I have been manager of this association for more than 18 years and have worked on all the major issues which have faced tobacco over this period of time. Never in the 18 years of my employment have growers been so concerned. They believe lawmakers and ''concerned citizens,'' who know nothing about tobacco and the people who grow it, are trying to destroy their ability to make an honest living.
I realize our association is small and dark tobacco makes up a very small part of the tobacco industry. I also want you to understand our bases are small, (average base less than 10 acres) but many of the family farms have a lot invested in tobacco production. The cost of a curing barn is about $6,000 per acre. Growers also must own tractors, cultivation equipment, spray rigs, scaffold wagons, and many have greenhouses and irrigation equipment. One would expect it necessary to grow tobacco for a period of five to 10 years to pay off these capital expenses.
My association represents growers of two types of tobacco, being dark air-cured and dark fire-cured. These are unique crops and require an enormous amount of labor to produce. The major difference between our dark fire-cured tobacco and other types of tobacco is the way it is cured. Dark fire-cured tobacco, after it is cut and put in the barn, is fired with an open fire under the tobacco for about six weeks. Growers have been doing this for generations and the art of growing and curing dark tobacco has been passed down through the years. There are not many books written on this because it is an art and not a science. There are many families who have grown dark tobacco since the early 1900's and now the young people are just as involved in its production. The big difference is they have much more invested and lack the skills to do other work which would provide a living for their families.
As an example, about 18 months ago a farm was auctioned off and the 4 acre base which was on it was auctioned off separately. A young man who was about 35 years old bought that base for $44,000.00. He also purchased the farm. His intention was to pay for the farm and the base by growing tobacco. This young man raises some corn and soybeans, and has a dairy. But if the tobacco program is eliminated the quota he paid $44,000 for will have no value and the income needed to pay for his farm will be lost. He would need a minimum of seven to 10 years to pay for this quota. We should not change the rules in the middle of the game by destroying a program that has worked better than any farm program ever created.
Page 140 PREV PAGE TOP OF DOC I would also like to answer the question about alternative crops right now. There are no alternative crops. If there were, my growers would already be growing them. Bankers at home will tell you many mortgages will not be paid without tobacco and the tobacco program. I must tell you, growers at home believe the tobacco program must be maintained if there is to be a stable tobacco market.
The United States only produces about 10 percent of the world's tobacco. Anyone with knowledge of the tobacco industry knows if that tobacco is not produced in the United States it will be produced somewhere else in the world. I cannot believe an elected official or bureaucrat would want to pass rules and regulations which would deny American tobacco growers the opportunity to grow this 10 percent and give it to some other country. Do we want to support foreign tobacco farmers over American growers? Do we want tobacco imported or smuggled into this country when we have no knowledge of the growing practices used which includes chemicals and fertilizers? My growers work hard and produce the best tobacco in the world and use growing practices which are approved by the USDA. Why would we want to bankrupt the young farmer I mentioned earlier and destroy his community to the benefit of some farmer in another country? I don't believe that is what you want and I don't believe you will let that happen.
Dark tobacco is used in smokeless tobacco products. The smokeless industry is very small when compared to the cigarette industry. We don't have any PM's or RJR's. We don't have any three and four hundred thousand pound producers. We have eight small tobacco companies that maintain the domestic market. Each company is competing for a declining adult consumer base with no foreign export potential. If you destroy these companies, you have destroyed my growers and the communities they live in.
At present, we believe Senator Ford's bill best represents the growers of dark tobacco because it maintains the tobacco price support program. This bill also grants immunity to tobacco farmers, grower associations, and warehouse employees, if manufacturers, distributors or retailers fail to comply with the terms of the tobacco settlement. We would also hope this legislation could extend to the FDA regulations and keep the FDA off the farm. FDA regulatory actions against small farmers would bankrupt them immediately.
Page 141 PREV PAGE TOP OF DOC The association I represent works hard to keep growers informed as the government has passed budget cutbacks for all farmers, not just tobacco farmers. We are trying to fill the gap left by the government in the way of information and education. Growers must be made aware of environmental regulations, cultural practices, and marketing conditions if they are to survive the anti tobacco climate. You should understand this is at no net cost to the government. In 1982, the No-Net-Cost Program was enacted and now for every pound of dark tobacco a grower sells he pays a no-net-cost fee of 1.1885 cents per pound which pays for any program losses. And yes, he pays for the administrative cost of the program by paying a Tobacco Marketing Assessment on dark tobacco which is 0.8115 cent per pound (this is nothing but a tax), and some 30 million dollars in Tobacco Marketing Assessments were collected last year on all tobacco. The tobacco farmer pays for his program. We don't ask to be treated special, just equal.
It would be very unfortunate if the demise of the tobacco industry came about because of frivolous lawsuits, an uncaring legal profession, an uninformed political system, and a group of zealots who think they should make the rules for the rest of society to live by.
We hope you will keep these views in mind as you work to enact legislation for the protection of growers throughout the tobacco belt. We greatly appreciate the opportunity to communicate our views to this committee. We would enjoy discussing any other questions you might have.
Statment of Wayne Ashworth
Chairman Ewing and members of the committee. I am Wayne Ashworth, a tobacco farmer and president of the Virginia Farm Bureau Federation. With me today are two tobacco producers Don Anderson of Halifax County, president of the Virginia Tobacco Growers Association and Donnie Moore from Pittsylvania County.
We are here today to represent the interests of our tobacco producing families in the burley belt of southwest Virginia, the flue-cured belt in southside Virginia and the dark-fired and sun-cured areas of the Central Piedmont.
Page 142 PREV PAGE TOP OF DOC In this regard, we will convey to you their shared observations, concerns and recommendations to address the tobacco grower provisions should the tobacco settlement be passed by Congress.
First I would say that the tobacco program has been one of the most successful of the commodity programs authorized by Congress since 1933. It has served the interest of all the industry quite well over the years. The success of the program can be attributed to a willingness of growers to make changes in the program to provide stability and safe-guards when problems develop.
Tobacco farmers in Virginia have appreciated the stability provided and want to maintain a tobacco production and price support program.
We also know that growers cannot produce and successfully market tobacco in a totally free market environment.
A review of history of the tobacco industry since the period of the Jamestown Colony substantiates the undesirable shifts in market prices of a tobacco industry free of some disciplines.
So today I would like to share with you our thoughts on the present and future well being of tobacco farmers regarding the proposed tobacco settlement and the current political realities that beset the tobacco program.
First, the Tobacco Settlement:
When the tobacco manufacturers and the Attorneys General announced their global settlement of tobacco issues on June 20 of last year, it sent a shock-wave of concern and alarm throughout the tobacco growing community. Simply stated, the settlement will drastically reduce consumption of tobacco products through substantial increases in the price of these products.
Thus the tobacco growing community will be faced with drastically reduced production opportunity or quotas. This will represent a significant loss in quota equity, loss of income to growers, and carries with it a huge multiplier effect throughout the tobacco community.
Page 143 PREV PAGE TOP OF DOC Second, the Tobacco Program:
To someone who made a living, raised and educated a family as a tobacco farmer, this program is a personal issue for me. It has been very good to the whole industry. It has protected the producer against severe price declines and provided a stable income. It has afforded the industry an adequate supply of tobacco at a quality level that is world class. In order to accomplish this, it has been modified numerous times and has worked to the advantage of the entire industry for seven decades.
However, we have to be realists. When the Freedom to Farm farm bill was passed by Congress it effectively eliminated all farm programs except dairy which operates under marketing orders, and three programswhich I am told are affectionately known on the Hill, as those southern bastard cropspeanuts, sugar and tobacco.
This leads to the question that with close floor votes on recent ag-appropriation bills and the current attitudes towards tobacco and the tobacco program. Is the current tobacco program sustainable and if so for how long?
With this scenario, I do not think that we can afford to stick our heads in the sand. I would rather deal with a policy issue before it becomes a full blown unmanageable crisis.
We support the current program. However, we as farmers, while mindful of our past and alert to our present, must be visionary to our future.
Therefore, since June 20, the grower leadership in Virginia has worked on determining the consequences of the settlement and whether or not the current tobacco program is sustainable for the future...and secondly to reach a consensus for a comprehensive grower proposal to deal with the settlement and tobacco program issues.
This comprehensive grower developed plan has been introduced by Senator Robb in the form of Senate bill 1582 the Tobacco Market Transition Act.
Page 144 PREV PAGE TOP OF DOC With this future before us, our producers are willing to make significant changes in order to address these concerns and ensure a workable price-support production adjustment tobacco system.
Today an owned quota is an asset which can be produced on, leased, shared, bought or sold. Its equity value has increased over time and is a major asset when a farmer retires. Likewise, producers who own, lease, or sharecrop have a substantial capital investment in equipment, etcetera that is needed to produce tobacco. This radical change in government policy will drastically reduce quota equity, production opportunity for active producers, and result in economic hardship in tobacco growing communities. Therefore, we recommend and support the following concepts as outlined in Senate Bill 1582:
That quota holders receive 8 dollars per pound based on the average farm quota established for the 1995 through 1997 marketing years for the farm owned by the quota holder on January 1, 1997. These would be paid in five equal annual installments beginning in 1999.
Active tobacco producers who grew tobacco in 1997 would be eligible to receive a 40 cent per pound transition payment for 5 years based on the average amount of quota of pounds he actually grew for the 1995 through 1997 marketing years.
Compensation to quota holders and transition payments to tobacco producers will not be taxed if placed in a qualified retirement account or used to retire debt directly associated with tobacco production incurred prior to January 1, 1998.
Economic Development Grants will be awarded to tobacco dependent communities. These would be in the amount of $250 million each year for 5 years, after which time grant amounts would be set by the oversight body.
If it is determined that the current supply management price support tobacco program is not sustainable, it is critical that we reconstitute some form of supply management tobacco program. Without one, history has shown us that there will be a massive production shift to large agribusiness*s who will grow as much tobacco as possible at the cheapest price. This could mean the end of the family farm and the many communities where tobacco is grown today would be devastated.
Page 145 PREV PAGE TOP OF DOC While many commodities have moved away from the supply limiting approach, I believe it is still appropriate for tobacco. There is no other farm product where the ultimate goal of the government is to increase the cost to the consumer, not decrease it. The free market is not so free to tobacco farmers when essentially only a few buyers control the market. Tobacco farmers cannot take advantage of price-risk management afforded other commodities by the Chicago Board of Trade and the Chicago Mercantile Exchange. To require individual tobacco growers to contract with multi national conglomerates can only lead to economic servitude.
In this regard, we would recommend the formation of a corporation known as the Tobacco Production Control Corporation which would be a federally chartered instrument of the United States. This corporation would undertake many of the duties previously performed by the Federal Government.
However, the present quota system would be replaced by a licensing system to limit the production of tobacco. The license, unlike quota, would not be a liquid asset.
These licenses would go to all qualified producers based on their production history established by qualifying for transition payments.
By eliminating the value of quota through the buyout, producers will not face the expense of leasing or buying quotas.
This is very important in that it will allow us to be more price competitive both here and overseas. And by being more competitive the decline in quota associated with the settlement would no be as drastic
The corporation would enter into agreements with the current loan associations. The associations would continue to function as they do today.
For the 1999 crop year, price support would be the average price received for the preceding 5 years less the average return for quota for the 1994 through 1998 crops. in subsequent years, price support would be determined by the corporation
Page 146 PREV PAGE TOP OF DOC In summary, we believe the foregoing recommendations will provide answers to the questions addressing the adverse economic impact of the settlement and the future sustainability of the tobacco program. Regardless of the extent to which you agree with these recommendations, we believe that there is agreement that the producer should be made whole by the settlement and that a tobacco program is vital to the economic stability of producers, their communities and the states where tobacco is produced.
Perhaps we can all profit from Alfred Whitehead's view that ''The Art of Progress is to preserve order amid change and to preserve change amid order.''
Statment of Wayne Dollar
Mr. Chairman, members of the committee, I am Wayne Dollar, president of the Georgia Farm Bureau Federation. Georgia Farm Bureau represents the majority of tobacco farmers in 48 tobacco counties across our tobacco belt and our growers produce some of the best tobacco in the world. Thank you for the opportunity to give our views on the proposed tobacco buyout and settlement.
Tobacco has been good to South Georgia and without a tobacco program our growers would be hurt severely. The income from tobacco has helped to stabilize local economies and has provided a profitable crop for farmers in most years. It is vital that any settlement by tobacco companies include tobacco farmers. Tobacco quota has been paid for by farmers with a lot of sweat and hard work.
It is essential that compensation for loss of future tobacco income and the value of quota be paid to farmers. This compensation should be at a fair and equitable level, with consideration given to quota holders and producers or tenants. Growers who want to continue to produce tobacco should be allowed to do so. Young tobacco farmers rights to grow tobacco should be protected. Also older farmers who may want to retire should be allowed to do so with adequate compensation for the value of quota they have worked all their lives to acquire.
Page 147 PREV PAGE TOP OF DOC Tobacco is the only crop in our area that allows for the opportunity for a profit every year. Our small towns and communities in South Georgia depend heavily on monies generated by tobacco. It is the economic backbone in many areas in our State.
It is also very important to maintain some type of a supply management program. A tobacco program provides stability to tobacco farmers and their communities. Government controls are needed to enforce limits on production and maintain the integrity of program.
In summary, Georgia tobacco farmers want fair compensation for loss of quota and equipment. For those that want to continue to produce tobacco, provisions should be made to allow them to do so.
Mr. Chairman, I want to commend you and the committee for your interest and willingness to help our tobacco farmers. Thank you for the opportunity to be here.
"The Official Committee record contains additional material here."