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Tobacco growers might give up price support

(Wednesday, Aug. 20, 2003 -- CropChoice news) -- Carl Hulse, NY Times: WASHINGTON, Aug. 19 With foreign competition increasing and their income falling steadily, tobacco farmers along with the senators from tobacco country say they are prepared to do something that would have been unthinkable only a few years ago: give up the government crop limits and price supports they have enjoyed since the Depression.

In what could be a turning point for the government's role in tobacco production, many pivotal senators have joined with farmers to press for a buyout of tobacco quotas by the industry, ending the federal program that determines who can grow tobacco and how much they can sell. In return, the Food and Drug Administration would gain the authority to regulate tobacco products under a legislative plan that Congress will consider this fall. That would give the agency power it sought in 1996 only to have the Supreme Court rule that it had exceeded its authority.

The willingness of the senators and farmers to accept what they once abhorred reflects the adverse economics of a crop that was highly lucrative in its day but that society has turned against.

But it has frayed their ties with a significant segment of the cigarette industry, which would have to finance the buyout through a levy on its products.

"The handwriting is not only on the wall, it is in capital letters on the wall," said Senator Mitch McConnell of Kentucky, the No. 2 Republican in the Senate and a chief sponsor of the new legislation. "Our growers see their land value dropping and their income dropping and we want to try to help them and help them soon."

Joined by senators from Georgia, North Carolina, South Carolina, Tennessee and Virginia, Mr. McConnell and his fellow Kentuckian Jim Bunning in late July introduced a $13 billion proposal to retire the vestiges of the program created seven decades ago to fix the tobacco supply and guarantee a minimum price. The buyout money, to be paid over six years, would be tied to the prices paid for tobacco last year and come from an assessment on importers and domestic manufacturers of tobacco products.

An industry bailout of this magnitude is certain to be greeted skeptically by lawmakers from outside the tobacco belt, some of whom will view it as a reward to longtime producers of a product with substantial health consequences.

Its sponsors acknowledge that the only way the plan can pass is if it is tied to F.D.A. authority over the manufacture and distribution of tobacco, a longtime goal of public health advocates. Mr. McConnell, who describes the F.D.A. prospect as a "bitter pill" he is willing to swallow, said Senators Edward M. Kennedy, Democrat of Massachusetts, and Mike DeWine, Republican of Ohio, plan to advance a companion F.D.A. measure early in September.

Growers hope that the marriage of the buyout and F.D.A. regulation can attract enough votes in Congress to cause a breakthrough, since they say many are tottering financially. In Kentucky alone, more than 4,000 tobacco farmers have given up since 1998. Farmers have watched the amount of tobacco they are allowed to grow under the system decline steeply as the tobacco companies have begun buying more overseas a main issue in the rift between the growers and the industry. The intricate system of production limits, or quotas, involves calculations by the Agriculture Department using a formula that considers cigarette manufacturers' planned use, exports and tobacco held in inventory by price stabilization cooperatives.

Senator Elizabeth Dole, Republican of North Carolina, another chief sponsor of the measure, has estimated that the amount of tobacco allowed to be grown has been cut by 50 percent over the past six years.

"We've got a lot of farmers, if it doesn't happen this year, they will be bankrupt," said Brian L. Furnish, director of government relations for the Burley Tobacco Growers Cooperative Association in Lexington, Ky.

He estimated that under the buyout, tobacco growers in Kentucky would get an average of less than $7,500 a year compared with $10,000 annually that producers of other crops get under farm subsidies, though some large tobacco farmers and holders of tobacco quotas would receive substantially more.

A large segment of the tobacco industry says that if the proposed buyout does happen, the industry will face serious financial troubles.

An official at R.J. Reynolds Tobacco Company said his spreadsheet put the first-year cost for his company at a net $413 million more than 80 percent of its expected earnings of $470 million to $495 million for this year. Tommy J. Payne, the company's executive vice president for external relations, said he objected to the plan at a recent meeting with Mr. Dole.

"If this bill becomes law," he said, "you are going to replicate for tobacco manufacturing what has happened to textile manufacturing: low-cost competition and significant loss of high-paid manufacturing jobs in areas that are being hammered by job loss."

Lawmakers, growers and health advocates say the industry is exaggerating the impact of the plan and failing to take into account the lower cost of domestic tobacco in a free market after a buyout. They point to the strong financial performance of the companies after the much larger 1998 settlement with the states over health costs. Most say the companies can simply pass along the expense.

"These arguments that some are going to be bankrupt and everyone should feel sorry for them, people are not buying it," said Scott D. Ballin, a health policy consultant working with the growers.

But an executive at Lorillard Tobacco said companies were reaching the saturation point. "The tobacco industry is no longer in a position where it can pass along tax increases to the consumer and not experience a direct hit in our sales volume," said Steve Watson, a Lorillard spokesman. His company wants to negotiate a buyout privately between the industry and growers.

The industry, however, is not united. Philip Morris, the largest cigarette company, has endorsed the concept of F.D.A. regulation linked to a buyout, with its chairman, Mike Szymanczyk, telling the House Agriculture Committee late last month that the "convergence" puts a buyout within reach.

R.J. Reynolds and Lorillard, joined by Brown & Williamson, disagree. Mr. Watson of Lorillard and Mr. Payne of RJR said F.D.A. regulation would give Philip Morris a competitive advantage under new advertising restrictions since its leading Marlboro brand is so well-known.

Passing the legislation is far from assured. The House has more costly buyout plans. And Republican leaders there are likely to characterize the assessment as a tax.

Health advocates are following developments and want to make certain the F.D.A. rules will be strong enough. "Bad F.D.A. regulation is worse than none," said Wendy Selig, vice president of legislative affairs at the American Cancer Society.

The health groups favor providing the F.D.A. with broad new authority over tobacco, including the ability to regulate health claims made for "reduced-risk" products, the right to restrict marketing campaigns and the power to disclose the ingredients of tobacco products using rules now in force for food and drugs.

Mr. McConnell concedes he will have a tough job persuading his colleagues to impose the new industry assessment and then divert most of the money to a handful of states. "Everyone in the tobacco belt has signed up, and we are going to try to pass this bill," he said. "It is going to be heavy lifting legislatively."