[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



       HEARING TO REVIEW TOBACCO PRODUCTION IN THE UNITED STATES

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON SPECIALTY CROPS, RURAL
                  DEVELOPMENT, AND FOREIGN AGRICULTURE

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 26, 2009

                               __________

                            Serial No. 111-4


          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov




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                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

TIM HOLDEN, Pennsylvania,            FRANK D. LUCAS, Oklahoma, Ranking 
    Vice Chairman                    Minority Member
MIKE McINTYRE, North Carolina        BOB GOODLATTE, Virginia
LEONARD L. BOSWELL, Iowa             JERRY MORAN, Kansas
JOE BACA, California                 TIMOTHY V. JOHNSON, Illinois
DENNIS A. CARDOZA, California        SAM GRAVES, Missouri
DAVID SCOTT, Georgia                 MIKE ROGERS, Alabama
JIM MARSHALL, Georgia                STEVE KING, Iowa
STEPHANIE HERSETH SANDLIN, South     RANDY NEUGEBAUER, Texas
Dakota                               K. MICHAEL CONAWAY, Texas
HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
JIM COSTA, California                JEAN SCHMIDT, Ohio
BRAD ELLSWORTH, Indiana              ADRIAN SMITH, Nebraska
TIMOTHY J. WALZ, Minnesota           ROBERT E. LATTA, Ohio
STEVE KAGEN, Wisconsin               DAVID P. ROE, Tennessee
KURT SCHRADER, Oregon                BLAINE LUETKEMEYER, Missouri
DEBORAH L. HALVORSON, Illinois       GLENN THOMPSON, Pennsylvania
KATHLEEN A. DAHLKEMPER,              BILL CASSIDY, Louisiana
Pennsylvania                         CYNTHIA M. LUMMIS, Wyoming
ERIC J.J. MASSA, New York
BOBBY BRIGHT, Alabama
BETSY MARKEY, Colorado
FRANK KRATOVIL, Jr., Maryland
MARK H. SCHAUER, Michigan
LARRY KISSELL, North Carolina
JOHN A. BOCCIERI, Ohio
EARL POMEROY, North Dakota
TRAVIS W. CHILDERS, Mississippi
WALT MINNICK, Idaho

                                 ______

                           Professional Staff
                    Robert L. Larew, Chief of Staff
                     Andrew W. Baker, Chief Counsel
                 April Slayton, Communications Director
                 Nicole Scott, Minority Staff Director

                                 ______

Subcommittee on Rural Development, Biotechnology, Specialty Crops, and 
                          Foreign Agriculture

                MIKE McINTYRE, North Carolina, Chairman

BOBBY BRIGHT, Alabama                K. MICHAEL CONAWAY, Texas, Ranking 
JIM MARSHALL, Georgia                Minority Member
HENRY CUELLAR, Texas                 DAVID P. ROE, Tennessee
LARRY KISSELL, North Carolina        GLENN THOMPSON, Pennsylvania
WALT MINNICK, Idaho                  BILL CASSIDY, Louisiana

                Aleta Botts, Subcommittee Staff Director

                                  (ii)












                             C O N T E N T S

                              ----------                              
                                                                   Page
Conaway, Hon. K. Michael, a Representative in Congress from 
  Texas, opening statement.......................................     5
McIntyre, Hon. Mike, a Representative in Congress from North 
  Carolina, opening statement....................................     1
    Prepared statement...........................................     3
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, prepared statement..................................     5

                               Witnesses

Boyd, Graham, Executive Director, North Carolina Association of 
  Tobacco Growers, Raleigh, NC; on behalf of Hon. Steven W. 
  Troxler, Commissioner, North Carolina Department of Agriculture 
  and Consumer Services, Raleigh, NC.............................     6
    Prepared statement...........................................     8
    Supplemental material supplied by Mr. Troxler................    33
Brown, Ph.D., A. Blake, Agricultural and Resource Economics and 
  Hugh C. Kiger Professor, North Carolina State University, 
  Raleigh, NC....................................................     9
    Prepared statement...........................................    10
Snell, Ph.D., William M., Extension Professor, Department of 
  Agricultural Economics, University of Kentucky, Lexington, KY..    11
    Prepared statement...........................................    13
Bunn, Jessie Thomas, President, U.S. Tobacco Cooperative Inc., 
  Raleigh, NC....................................................    15
    Prepared statement...........................................    17
    Supplemental material........................................    33
Quarles, Roger, President, Burley Tobacco Growers Cooperative 
  Association; President, International Tobacco Growers 
  Association, Georgetown, KY....................................    18
    Prepared statement...........................................    20

 
       HEARING TO REVIEW TOBACCO PRODUCTION IN THE UNITED STATES

                              ----------                              


                        THURSDAY, MARCH 26, 2009

                  House of Representatives,
 Subcommittee on Rural Development, Biotechnology, 
          Specialty Crops, and Foreign Agriculture,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 1302 of the Longworth House Office Building, Hon. Mike 
McIntyre [Chairman of the Subcommittee] presiding.
    Members present: Representatives McIntyre, Bright, Cuellar, 
Kissell, Minnick, Conaway, Roe, and Thompson.
    Staff present: Aleta Botts, Claiborn Crain, Sharon Rusnak, 
Debbie Smith, Kristin Sosanie, Mike Dunlap, Tamara Hinton, and 
Pelham Straughn.

 OPENING STATEMENT OF HON. MIKE McINTYRE, A REPRESENTATIVE IN 
                  CONGRESS FROM NORTH CAROLINA

    The Chairman. Good morning, ladies and gentlemen, and 
welcome to today's hearing to review the state of tobacco 
production in the United States.
    I want to thank all of you for taking the time to come here 
to help us as we examine this important topic. I want to 
especially thank our witnesses who will be testifying before 
us, and others who have traveled despite some weather 
conditions that weren't quite conducive for some. I would also 
especially like to recognize a long-time friend who came to 
support those in testimony today who also is Chairman of the 
7th Congressional District Advisory Committee on Agriculture, 
Mr. Jimmy Pate. Jimmy, thank you for traveling up here to be 
with us today, and for your work on behalf of agriculture in 
southeastern North Carolina and across North Carolina.
    My name is Mike McIntyre. I know many of the witnesses. We 
will be having others coming in. I am pleased to be joined by 
our new Ranking Member, Mr. Conaway, who will be speaking in 
just a moment. This is the first formal hearing of this 
Subcommittee. We did have an economic roundtable discussion the 
day after our swearing-in in early January to discuss some of 
the ramifications of a possible economic stimulus package, how 
it was critical to rural America. I was very pleased with the 
results of that in terms of the inclusion of rural needs in 
what became the American Recovery and Reinvestment Act.
    Today's formal hearing will be an opportunity, now, for us 
to look at ways in which tobacco production is being affected 
in the United States. We know that each of us represent 
agricultural producers and rural communities for whom we care 
deeply. I hope that this Committee will be able to evaluate 
issues within our jurisdiction that are important to those 
producers and communities, and I look forward to working with 
Mr. Conaway and others on our Subcommittee in that effort.
    Tobacco has been cultivated in North Carolina since 
colonial times, well before it became a state. But, it found 
its calling as an economic engine in the late 1800s. Since that 
time North Carolina has become the nation's largest tobacco-
producing state, producing almost 50 percent of the total 
tonnage in the year 2007. The tobacco industry contributes over 
$36 billion to the U.S. economy each year, employing over 
19,000 individuals nationwide. In my home State of North 
Carolina, over 8,600 people are employed by the industry with a 
statewide economic impact of nearly $24 billion, so right at 
about $23.9 billion, to be more exact.
    Those numbers only tell part of the story, however. For 
thousands of North Carolina farm families, the annual tobacco 
crop has meant the difference in terms of the farm's cash flow, 
oftentimes being the support mechanism for all of the other 
crops that are grown, especially for smaller farmers, it is 
what keeps the family economically surviving. The annual 
tobacco crop has meant a difference in terms of the farm's cash 
flow, the family's livelihood, and the ability to keep a farm 
going through otherwise very difficult times. Raising tobacco 
is not easy work by any stretch of the imagination, but farmers 
in North Carolina have risen to that challenge year after year 
down through the centuries.
    Of course, North Carolina is not the only state in which 
tobacco production is important. In 2007, 356,000 acres of 
tobacco were harvested across the United States, producing 
around 389,000 tons. This industry as we know it is going 
through a time of transition. During the 108th Congress, I 
worked with many of my colleagues in the tobacco-producing 
states, Republican and Democrat, to end the last Depression-era 
quota system and pass a bill that included over $10 billion in 
total compensation for tobacco farmers across the country. This 
bill, commonly known as the Buyout Bill, passed without any 
additional regulation from the Food and Drug Administration of 
tobacco products. An issue that had been discussed many times 
is whether the FDA should be allowed to come on the farm, and 
continually what we heard everywhere from farmers and 
agribusiness and the rural communities was, do not put FDA on 
the farm. The tobacco buyout was extremely successful. People 
had said, how will you ever get that done, and I was thrilled 
because it really was a win-win. It got the government out of 
the tobacco business, which many people were concerned about. 
It also made sure that the Federal control, the quotas and what 
that did in terms of a person's personal property were no 
longer controlled by the Federal Government. It bought out the 
Federal interest in the control over personal property and real 
property. So we were very pleased that the buyout has been 
quite a success, and now farmers and free enterprise can decide 
whether or not to contract. Some farmers got out of the tobacco 
business and have transitioned to other agricultural 
commodities, or into retirement, or have gone into other types 
of business. For those who stayed in, it obviously has had a 
dramatic effect in tobacco production.
    Now legislation to allow FDA to regulate tobacco products 
is again under consideration. I am deeply concerned about how 
this legislation will affect tobacco production in North 
Carolina, and nationwide, that is already under pressure from 
difficult economic times, the higher U.S. dollar pushing down 
exports and increased competition from overseas producers who 
do not have to meet our more stringent labor and environmental 
regulations.
    Because of the importance of tobacco in North Carolina, I 
am pleased to welcome three distinguished individuals from our 
home state to our witness list today. I know that our State 
Commissioner of Agriculture, Steve Troxler, was to be here and 
got fogged in at the Raleigh-Durham Airport this morning. But, 
I am pleased to have the Executive Director of the North 
Carolina Association of Tobacco Growers, Graham Boyd, who will 
be speaking in his behalf, and Graham, I know your knowledge is 
quite extensive and we welcome you to come here. Dr. Blake 
Brown is a Professor in the Department of Agriculture and 
Resource Economics at N.C. State, very well known, very well 
respected in terms of understanding the economics of 
agriculture in general, but especially tobacco in particular. 
He is specialized in research on policy and farm management for 
tobacco, cotton and peanuts, all of which greatly concern us in 
agriculture, but in particular tobacco and peanuts being two of 
the specialty crops that this Committee has direct jurisdiction 
over. Mr. Tommy Bunn is President of the U.S. Tobacco 
Cooperative. The Cooperative is grower owned and grower 
governed and markets leaf tobacco and tobacco products in the 
domestic and international markets. Tommy has raised tobacco 
himself, worked for both the USDA Agricultural Marketing 
Service and the North Carolina Department of Agriculture on 
tobacco issues. So I want to particularly welcome you 
gentlemen. We also will have the opportunity to speak to our 
other witnesses as they testify. I just wanted to call 
attention, in particular, to our North Carolina friends today.
    I want to remind witnesses also after Mr. Conaway speaks 
and we begin testimony that we have 5 minutes provided for your 
statement. If you can read your statement in 5 minutes, that is 
fine. If you can't, please now start marking where you want to 
highlight so that you can honor the 5 minute rule. Also in 
terms of questions, I will just remind the Subcommittee that we 
too are going to be subject to the 5 minute rule and would ask 
Members to honor that so that all have a chance to hear the 
testimony and to have others answer questions. But have no 
fear. Your entire statement no matter how long it is will be 
allowed to be entered into the record.
    [The prepared statement of Mr. McIntyre follows:]

Prepared Statement of Hon. Mike McIntyre, a Representative in Congress 
                          from North Carolina
    Good morning, and welcome to today's hearing to review the state of 
tobacco production in the United States. I want to thank all of you for 
being here as we examine this important topic, and I want to especially 
thank our witnesses who will be testifying before us today.
    This is the first hearing of the Subcommittee for the 111th 
Congress, and I would like to take this opportunity to welcome my new 
Ranking Member, Mr. Mike Conaway of Texas, and indicate to him and my 
colleagues my sincere desire to conduct the work of the Subcommittee in 
a strong, bipartisan manner. Each of us represents agricultural 
producers and rural communities for whom and for which we care deeply. 
I hope that we are able to use this Subcommittee to evaluate issues 
within our jurisdiction important to those producers and communities, 
and I look forward to working with Mr. Conaway and others on that 
effort.
    Tobacco has been cultivated in North Carolina since well before it 
became a state, but it found its calling as an economic engine in the 
late 1800s. Since that time, North Carolina has become the nation's 
largest tobacco producing state, producing almost 50 percent of the 
total tonnage in 2007.
    Those numbers only tell part of the story. For thousands of North 
Carolina farm families, the annual tobacco crop has meant the 
difference in terms of the farm's cash flow, the families' livelihoods, 
and the ability to keep a farm going during difficult times. Raising 
tobacco is not easy work by any stretch of the imagination, but farmers 
in North Carolina rise to the challenge year after year.
    Of course, North Carolina is not the only state in which tobacco 
production is important. In 2007, 356,000 acres of tobacco were 
harvested across the United States, producing around 389,000 tons.
    This industry is going through a time of transition. During the 
108th Congress, I worked with many of my colleagues in tobacco 
producing states to end the last Depression-era quota system and pass a 
bill that included over $10 billion in total compensation for tobacco 
farmers across the country. The bill passed without any additional 
regulation from the Food and Drug Administration (FDA) of tobacco 
products, an issue that had been discussed many times in the past.
    Now legislation to allow FDA to regulate tobacco products is again 
under consideration. I am deeply concerned about how this legislation 
will affect tobacco producers in North Carolina and nationwide, already 
under pressure from difficult economic times, the higher U.S. dollar 
pushing down exports, and increased competition from overseas producers 
who do not have to meet our more stringent labor and environmental 
regulations.
    Because of the importance of tobacco to North Carolina, I am 
pleased to welcome three distinguished individuals from North Carolina 
to our witness list today.
    North Carolina Agriculture Commissioner Steve Troxler was raised in 
the Guilford County community of Browns Summit, and has spent his 
entire career in agriculture as founder, owner and operator of Troxler 
Farms. His family was even named ``Tobacco Farm Family of the Year'' by 
the Tobacco Growers Association of North Carolina.
    Dr. Blake Brown is a Professor in the Department of Agricultural 
and Resource Economics at North Carolina State University. He has 
specialized in research on policy and farm management for tobacco, 
cotton and peanuts.
    Mr. Tommy Bunn is President of U.S. Tobacco Cooperative. The 
Cooperative is grower owned and grower governed and markets leaf 
tobacco and tobacco products in the domestic and international markets. 
Tommy has raised tobacco and worked for both the USDA Agricultural 
Marketing Service and the North Carolina Department of Agriculture on 
tobacco issues.
Conclusion
    I would encourage witnesses to use the 5 minutes provided for their 
statements to highlight the most important points in their testimony. 
Do not read your testimony unless you can complete it within the 
allotted 5 minutes or can read the highlights within the 5 minutes. 
Pursuant to Committee rules, testimony by witnesses along with 
questions and answers by Members of the witnesses will be stopped at 5 
minutes. Your complete written testimony will be submitted in its 
entirety in the record.
    At this time, I would like to recognize the Ranking Member of the 
Subcommittee, Rep. Mike Conaway, for any opening comments that he may 
have.

    The Chairman. At this time now I would like to recognize 
the Ranking Member of the Subcommittee, Representative Mike 
Conaway. I guess you would call it Mike and Mike here. And we 
welcome Mike to have you here as our new Ranking Member of this 
Subcommittee.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE 
                     IN CONGRESS FROM TEXAS

    Mr. Conaway. Well, thank you, Mr. Chairman, and I don't 
think you can have too many Mikes in Congress, so I look 
forward to joining the Mike caucus. This is our first hearing 
so I look forward to 2 long years, or short years, however you 
want to do it, of working together on issues that are keen on 
rural development and other areas of jurisdiction.
    This is my first exposure to tobacco issues. I represent a 
district that doesn't grow tobacco. I have a personal history 
with it that is not favorable to tobacco use. My father died of 
emphysema and my mother-in-law died of lung cancer, both heavy 
smokers. My father never once blamed anybody but himself for 
his use of tobacco that contributed to his demise. But by the 
same token, I am not vengeful. I don't have an ax to grind with 
tobacco growers. There will be regulations. Those regulations 
ought to make sense. They ought to accomplish the limited goal 
in the least intrusive way possible. I am not convinced that 
FDA is the right agency to provide whatever new regulations 
might be there. They have their plate full, I would argue, with 
drugs and food safety, and other areas that they have not done 
a particularly spectacular job on, so I am not convinced that 
that should be the agency that does this.
    I want to spend more time this morning listening and trying 
to understand and learn what impacts these potential changes 
and the circumstances may have on rural North Carolina, rural 
Tennessee, rural Georgia and those parts of the country that do 
depend on tobacco as a cash crop. Your testimony will help me 
understand how best that whatever we intend or however we 
intend to regulate it that it gets done in a fair manner which 
the industry can cope with it in the least intrusive, least 
expensive manner possible. So thank you, gentlemen, and I look 
forward to visiting with you today about your issue.
    The Chairman. Thank you so much, Mr. Conaway, and we 
welcome additional Members of the Subcommittee who have now 
arrived. The Chairman requests that other Members submit their 
opening statements for the record.
    [The prepared statement of Mr. Peterson follows:]

  Prepared Statement of Hon. Collin C. Peterson, a Representative in 
                        Congress from Minnesota
    Thank you, Chairman McIntyre.
    Today the Subcommittee will look at tobacco production in the 
United States. Given the challenges that tobacco farmers face--be it 
decreasing exports, increasing competition, or the current state of the 
economy, this is an important topic and I thank the Chairman for 
calling today's hearing.
    Tobacco production makes up a significant part of the southern farm 
economy--especially in North Carolina and Kentucky, as is reflected by 
the makeup of the distinguished panel of witnesses here today.
    Five years ago, Congress eliminated Federal farm price support for 
tobacco, and helped farmers transition into a free market system. 
Farmers are no longer restricted as to who can produce tobacco, where 
they can grow it, or how much can be marketed. But there is also no 
limit on how low the price can go.
    During the buyout debate, regulation of tobacco products by the 
Food and Drug Administration (FDA) was a hot topic of discussion, and 
there have been many proposals since then. The most recent legislation 
being considered would impose additional FDA regulations on tobacco 
products and has the potential to negatively affect farmers, who are 
already facing tough economic times.
    I appreciate the Subcommittee's work on this issue and look forward 
to hearing the witnesses' testimony.

    The Chairman. As I stated a moment ago, the witnesses will 
have 5 minutes to share their testimony and then the chair 
would like to remind Members that they will be recognized for 
questioning in order of seniority for Members who were here at 
the start of the hearing. After that, the Members who arrived 
will be recognized and I will ask the clerks to help me since 
you all virtually got here at almost the same time. But for 
Members who came after we started the hearing, you will be 
recognized in order of your arrival. So we appreciate the 
Members' understanding in that regard.
    I mentioned earlier the witnesses from North Carolina. I 
would also like to welcome to this panel Dr. Will Snell, 
Professor, Department of Agricultural Economics from the 
University of Kentucky, another great basketball team like 
North Carolina. We enjoy the rivalry. And also Mr. Roger 
Quarles, producer and President of the Burley Tobacco Growers 
Cooperative Association from Georgetown, Kentucky. So welcome 
to you as well, gentlemen. We know the great tradition and 
history Kentucky has in tobacco production also.
    Now we would like to go ahead and start our panel so that 
we can continue to move promptly today and honor everyone's 
time with other commitments as well. And in lieu of the State 
Agriculture Commissioner, Steve Troxler, as we stated earlier, 
who is delayed because of weather conditions, Mr. Graham Boyd 
will first testify. Mr. Boyd, you may proceed.

 STATEMENT OF GRAHAM BOYD, EXECUTIVE DIRECTOR, NORTH CAROLINA 
ASSOCIATION OF TOBACCO GROWERS, RALEIGH, NC; ON BEHALF OF HON. 
                       STEVEN W. TROXLER,
           COMMISSIONER, NORTH CAROLINA DEPARTMENT OF
         AGRICULTURE AND CONSUMER SERVICES, RALEIGH, NC

    Mr. Boyd. Good morning. Members of the Committee, thank you 
for allowing me to fill in for our Commissioner of Agriculture, 
who regrettably could not be with you. I will deliver his 
testimony as it was presented for the record.
    Our Commissioner grew up on a tobacco farm in Guilford 
County, North Carolina. For more than 30 years he was involved 
in the production of this crop. He understands very well the 
issues of challenge with weather, the steady decline of quotas, 
the Federal price support program, the buyout, et cetera. As 
North Carolina's Commissioner of Agriculture, he has seen the 
tobacco production bottom out following the end of the Federal 
price support program and then in recent years make a slight 
rebound. North Carolina produced nearly 385 million pounds of 
flue-cured tobacco on 171,000 acres last year. We are still the 
nation's leading producer of flue-cured tobacco despite the 
fact that we now have seen attrition bring us to less than 
3,000 tobacco growers. That might seem like a lot, but in 2002 
we had over 8,000 tobacco growers.
    When it comes to tobacco, our Commissioner has seen a lot 
and understands the situation that is facing North Carolina's 
tobacco farmers firsthand. Tobacco farmers are under siege. 
That is the opinion that is felt. First, Congress this past 
year has raised the excise tax on cigarettes by 62 cents per 
pack and now many states are lining up to do the same. In North 
Carolina, Governor Perdue has recommended in her budget raising 
the taxes on the product by $1 per pack.
    The consequences for our farmers will be severe. The 
increase in the Federal excise tax hasn't yet taken effect but 
the impact is already being felt by North Carolina farmers. 
Cigarette companies have already begun to reduce their 
contracts for volume in 2009, some by as much as 50 percent. If 
the state excise tax goes up too, our growers will be hurt even 
more and this increase could also lead to many job losses in 
the manufacturing sector.
    Tobacco manufacturing employs more than 10,000 North 
Carolinians and pays an average wage of over $86,000 per year, 
and that is more than twice the private industry average of 
$39,000 in our state. The last thing our state or any other 
needs right now are more lost jobs.
    In addition to higher taxes, Congress is considering 
regulating tobacco, the purpose of your hearing today, which we 
appreciate the opportunity to testify before. Congressman 
Waxman's bill would put tobacco under FDA oversight. This is 
ill advised. FDA's focus right now should be, and needs to be, 
on food safety. Expanding FDA's mission would dilute its 
effectiveness in protecting our nation's food supply.
    Congressman McIntyre and Indiana Congressman Buyer have 
introduced a bill that would create a new agency within the 
Department of Health and Human Services to oversee tobacco 
products. One of the things that Commissioner Troxler likes 
about this bill is that it would not subject farmers to 
additional regulations in the way tobacco will be grown, and 
that is good.
    North Carolina growers increasingly rely on export markets. 
In fact, tobacco is our most valuable agricultural export, 
valued at more than $1 billion. Additional regulation would put 
our growers at a competitive disadvantage in international 
markets.
    Agriculture is by far North Carolina's largest industry 
with a $70.8 billion economic impact. Tobacco manufacturing 
represents $24 billion in added value for North Carolina's 
economy. On average, a single tobacco plant is worth 71 cents 
in revenue for a U.S. farmer. That same plant will yield an 
average of $15.74 in state and Federal excise taxes on tobacco 
products. This money supports a variety of economic and health 
programs. A decrease in tobacco revenues will ultimately hurt 
states' ability to carry out programs that benefit many 
citizens.
    In closing, Commissioner Troxler wanted to say that farmers 
must endure many hardships. They have to deal with weather and 
manage their input costs and fluctuating commodity prices. As 
he has said many times though, the single greatest factor in a 
farmer's ability to make a living isn't the weather but 
government policy. Commissioner Troxler urges you as a 
Committee to make wise policy decisions concerning the future 
of our nation's tobacco farmers. Your decisions will ripple 
throughout the states, communities both large and small. If you 
regulate and tax U.S. tobacco farmers out of business, America 
will become reliant on foreign tobacco that is not subject to 
the same high standards. The situation will be no different 
from the many problems with imported food that our nation has 
experienced in recent years. Please choose wisely.
    Thank you, and we would appreciate the opportunity to 
present some additional information for the record, Mr. 
Chairman.
    [The prepared statement of Mr. Troxler follows:]

Prepared Statement Hon. Steven W. Troxler, Commissioner, North Carolina 
      Department of Agriculture and Consumer Services, Raleigh, NC
    Good morning, Mr. Chairman and Members of the Committee. Thank you 
for inviting me here today to talk about a topic I know very well.
    I grew tobacco in Guilford County, North Carolina, for more than 30 
years. I dealt with dry weather, wet weather, the steady decline of 
quotas, and the end of the Federal price-support system.
    As North Carolina's Commissioner of Agriculture, I have seen 
tobacco production bottom out following the end of Federal price 
supports. And I have seen it rebound.
    North Carolina produced nearly 385 million pounds of flue-cured 
tobacco on 171,000 acres last year. We are still the nation's leading 
producer of flue-cured tobacco, despite the fact that we now have less 
than 3,000 tobacco farmers. That might seem like a lot, but in 2002, we 
had 8,000 tobacco farmers.
    When it comes to tobacco, I have seen a lot. But I have never seen 
the situation facing North Carolina's tobacco farmers today.
    Tobacco farmers are under siege. First, Congress raised the excise 
tax on cigarettes by 62 cents a pack. Now many states are lining up to 
do the same. In North Carolina, Governor Perdue has recommended raising 
the tax on cigarettes by $1 per pack.
    The consequences for our farmers will be severe. The increase in 
the Federal excise tax hasn't even taken effect yet, but it has already 
impacted North Carolina farmers. Cigarette companies have reduced 2009 
contracts with our farmers by as much as 50 percent.
    If the state excise tax goes up, too, our growers will be hurt even 
more. And, this increase could also lead to job losses in the 
manufacturing sector.
    Tobacco manufacturing employs more than 10,000 North Carolinians 
and pays average wages of more than $86,000 a year. That's more than 
twice the state's private industry average of $39,000. The last thing 
North Carolina--or any state--needs right now is more lost jobs.
    In addition to higher taxes, Congress is considering regulating 
tobacco. Congressman Waxman's bill would put tobacco under FDA 
oversight. This is ill-advised. FDA's focus right now should be, and 
needs to be, on food safety. Expanding FDA's mission would dilute its 
effectiveness in protecting our nation's food supply.
    Chairman McIntyre and Indiana Congressman Buyer have introduced a 
bill that would create a new agency within the Department of Health and 
Human Services to oversee tobacco products. One of the things I like 
about this bill is that it would not subject farmers to additional 
regulations on the way they grow tobacco. That's good.
    North Carolina growers increasingly rely on export markets. In 
fact, tobacco is our most valuable agricultural export, valued at more 
than $1 billion. Additional regulation would put our growers at a 
competitive disadvantage in international markets.
    Agriculture is by far North Carolina's largest industry, with a 
$70.8 billion economic impact. Tobacco manufacturing represents almost 
$24 billion in added value for North Carolina's economy.
    On average, a single tobacco plant is worth 71 cents in revenue for 
a U.S. farmer. That same plant will yield an average of $15.74 in state 
and Federal taxes on tobacco products. This money supports a variety of 
economic and health programs. A decrease in tobacco revenues will 
ultimately hurt states' ability to carry out programs that benefit many 
citizens.
    In closing, I want to say that farmers must endure many hardships. 
They have to deal with the weather and manage their input costs amid 
fluctuating commodity prices. As I've said many times though, the 
single greatest factor in a farmer's ability to make a living isn't the 
weather, but government policy.
    I urge you to make wise policy decisions concerning the future of 
our nation's tobacco farmers. Your decisions will ripple throughout the 
states, in communities both large and small. If you regulate and tax 
U.S. tobacco farmers out of business, America will become reliant on 
foreign tobacco that is not subject to the same high standards. The 
situation will be no different from the many problems with imported 
foods that our nation has experienced in recent years.
    Please choose wisely. Thank you.

    The Chairman. Without objection, you certainly may, and 
thank you. You actually finished just under your time so we 
appreciate your promptness and your getting right to the heart 
of the matter.
    We now welcome Dr. Blake Brown. You may proceed.

 STATEMENT OF A. BLAKE BROWN, Ph.D., AGRICULTURAL AND RESOURCE 
  ECONOMICS AND HUGH C. KIGER PROFESSOR, NORTH CAROLINA STATE 
                    UNIVERSITY, RALEIGH, NC

    Dr. Brown. I would like to thank Chairman McIntyre and the 
Members of this Subcommittee for the opportunity to participate 
in this hearing. As noted, I am an agricultural economist 
specializing in tobacco policy, but I also lead a team at the 
new research campus in North Carolina which focuses on 
alternative agriculture for North Carolina farmers.
    As noted, in North Carolina, tobacco remains the number one 
cash crop in terms of farm production. In 2008, North Carolina 
farmers had cash receipts from tobacco of $686 million. Since 
the end of the Federal tobacco program, tobacco farmers have 
made many transitions. Some have retired or exited farming for 
other occupations. Some have successfully transitioned to other 
farm enterprises. Most farmers are already diversified. Some 
farms have increased their production of tobacco with the 
result being that North Carolina produces more flue-cured 
tobacco now than was produced in 2004.
    While North Carolina produces almost 50 percent of U.S. 
tobacco, tobacco is an economically important crop in other 
states. In South Carolina in 2007, the value of tobacco 
production was $69 million. In Virginia, the value was also $69 
million and in Georgia it was $59 million.
    Tobacco farmers have faced numerous challenges since the 
end of the tobacco program. They had to decide whether or not 
they could profitably produce tobacco in the deregulated 
environment of lower prices and greater uncertainty. Farms 
often had to be restructured with major decisions being made 
about the purchase of specialized equipment. Input prices 
increased over 30 percent due mainly to increases in curing 
fuel and fertilizer prices. Fortunately, tobacco prices 
recovered some, which helped cover some of the increased 
production costs.
    Increases in Federal and state excise taxes on cigarettes 
have impacted demand for tobacco. The recent 61 cents-per-pack 
increase in excise tax associated with SCHIP is expected to 
cause U.S. cigarette consumption to decline approximately six 
percent, which will lead to a two to three percent reduction in 
demand at the farm level. Current proposals by a number of 
states to increase state excise taxes will further decrease 
demand. As noted, tobacco companies already seem to be 
factoring in these impacts by lowering amounts of tobacco 
contracted for with farmers.
    Lower U.S. tobacco prices since the end of the program have 
improved our competitiveness with foreign production. Since 
2005, Brazil, the largest exporter of flue-cured tobacco, has 
lowered flue-cured production by almost the same amount that 
U.S. flue-cured has increased. While world demand for tobacco 
is stagnant, lower U.S. demand means that U.S. tobacco farmers 
are increasingly dependent on their ability to compete with 
foreign tobacco producers. In 2007, exports of flue-cured 
tobacco accounted for over 47 percent of total use of U.S. 
flue-cured. U.S. tobacco producers' ability to increase global 
market share depends on price and quality. The global market 
effects of incorporating harm-reduction attributes into U.S. 
tobacco are unknown at this point.
    FDA regulation of tobacco products and the accompanying 
emphasis on harm reduction will significantly impact burley and 
flue-cured tobacco producers. Demand for burley and flue-cured 
tobacco will decline primarily due to three factors. First, 
U.S. cigarette consumption is expected to decline due to 
increased regulation and increased cigarette prices due to the 
cost of regulation. Second, harm-reduction technologies will 
likely reduce the amount of tobacco in each cigarette, 
therefore reducing demand. Third, the emphasis on harm 
reduction is shifting demand towards smokeless tobacco 
products, which use little burley or flue-cured tobacco. 
Alternatively, if higher standards are set for tobacco used in 
U.S. cigarettes, imported tobacco could become less competitive 
with U.S. tobacco, partially offsetting some of the adverse 
effects of regulation.
    Finally, given the increased interest in tobacco and its 
regulation, one area of need is data. USDA's Economic Research 
Service no longer provides analysis of the tobacco sector. The 
Foreign Agricultural Service only provides raw export and 
import data so that international tobacco production will soon 
be extremely difficult to track. Adequate data for tracking and 
analysis would seem to be an issue from which all sides 
involved would benefit.
    In summary, the primary determinants of the fate of U.S. 
tobacco farmers may well be FDA regulation of tobacco products 
and the ability of U.S. tobacco growers to compete against 
foreign tobacco producers.
    Again, thank you very much for allowing me to participate 
in today's hearing.
    [The prepared statement of Dr. Brown follows:]

Prepared Statement of A. Blake Brown, Ph.D., Agricultural and Resource 
Economics and Hugh C. Kiger Professor, North Carolina State University, 
                              Raleigh, NC
    I would like to thank Chairman McIntyre and the Members of this 
Subcommittee for the opportunity to participate in this hearing. My 
name is Blake Brown. I am an agricultural economist at North Carolina 
State University where I provide economic analysis and educational 
programming for tobacco and peanut producers. I also lead a Cooperative 
Extension team based at the new NC Research Campus in Kannapolis. This 
team focuses on educational programs in value-added and alternative 
agriculture and fresh produce safety.
    In North Carolina tobacco remains the number one crop in terms of 
the value of farm production. In 2008 North Carolina farmers had cash 
receipts from tobacco of $686 million. This was surpassed only by hogs, 
poultry and the aggregated receipts from all greenhouse and nursery 
crops. Tobacco accounted for about seven percent of the value of all 
North Carolina farm production. Since the end of the Federal tobacco 
program tobacco farmers have made many transitions. Some have retired 
or exited farming for other occupations. Some have successfully 
transitioned to other farm enterprises. Most farms were already 
diversified. Some farms have increased their production of tobacco with 
the result being that North Carolina produces more flue-cured tobacco 
now than was produced in 2004 at the end of the program.
    While North Carolina produces almost 50 percent of U.S. tobacco, 
tobacco is an economically important crop in other states. In South 
Carolina in 2007 the value of tobacco production was over $69 million. 
In Virginia the value was also $69 million and in Georgia the value was 
$59 million.
    Tobacco farmers have faced numerous challenges since the end of the 
tobacco program. They had to decide whether or not they could 
profitably produce tobacco in the deregulated environment of lower 
prices and greater uncertainty. Farms often had to be restructured with 
major decisions being made about the purchase of specialized equipment. 
Input prices increased over 30 percent due mainly to increases in 
curing fuel and fertilizer prices. Fortunately, tobacco prices 
recovered some which helped cover the increased production costs.
    Increases in Federal and state excise taxes on cigarettes have 
impacted demand for tobacco. The recent $0.61 per pack increase in the 
Federal excise tax associated with SCHIP is expected to cause U.S. 
cigarette consumption to decline approximately six percent which will 
cause a 2-3 percent reduction in demand at the farm level. Current 
proposals by a number of states to increase state excise taxes will 
further decrease demand. Tobacco companies already seem to be factoring 
these impacts into cigarette prices and lowering amounts of tobacco 
contracted for from farmers.
    Lower U.S. tobacco prices since the end of the program have 
improved competiveness with foreign production. Brazil, the largest 
exporter of flue-cured tobacco, has lowered flue-cured production from 
over 1.5 billion pounds in 2005 to about 1.4 billion pounds in 2008. 
This reduction of 130 million pounds in Brazilian production 
corresponds to the increase of about 120 million pounds in flue-cured 
production in the U.S. While world demand for tobacco is stagnate, 
lower U.S. demand means that U.S. tobacco farmers are increasingly 
dependent on their ability to compete with foreign tobacco producers. 
In 2007 exports of flue-cured tobacco accounted for over 47 percent of 
total use of U.S. flue-cured. In a global tobacco market that is not 
increasing in size, the ability of U.S. tobacco producers to increase 
global market share depends on price and quality. Price will be 
impacted by the cost of production, including regulation, in the U.S. 
and external factors such as exchange rates. The effects on quality, as 
defined by the global market, of incorporating harm reduction 
attributes into U.S. tobacco are unknown.
    FDA regulation of tobacco products and the accompanying emphasis on 
harm reduction will significantly impact burley and flue-cured tobacco 
producers. Demand for burley and flue-cured tobacco will decline 
primarily due to three factors. First, U.S. cigarette consumption is 
expected to decline due to increased regulation and increased cigarette 
prices due to the cost of regulation. Second, harm reduction 
technologies will likely reduce the amount of tobacco in each 
cigarette. Third, the emphasis on harm reduction is shifting demand 
toward smokeless tobacco products which use little burley or flue-cured 
tobacco. If higher standards are set for tobacco used in U.S. 
cigarettes, imported tobacco could become less competitive with U.S. 
tobacco partially offsetting some of the adverse effects of regulation.
    Finally, given the increased interest in tobacco and its 
regulation, one area that is lacking to track and analyze this industry 
is data. USDA's Economic Research Service no longer provides data or 
analysis of tobacco. The Foreign Agricultural Service only provides raw 
export and import data so that international tobacco production will 
soon be extremely difficult to track. USDA's Agricultural Marketing 
Service no longer reports tobacco prices. Adequate data for tracking 
and analysis would seem to be an issue from which all sides involved 
would benefit. Again, thank you for allowing me to participate in this 
hearing.

    The Chairman. Thank you, Dr. Brown.
    Dr. Snell.

        STATEMENT OF WILLIAM M. SNELL, Ph.D., EXTENSION
PROFESSOR, DEPARTMENT OF AGRICULTURAL ECONOMICS, UNIVERSITY OF 
                    KENTUCKY, LEXINGTON, KY

    Dr. Snell. Chairman McIntyre, Members of the Subcommittee, 
thank you for the opportunity to participate in this hearing. 
My name is Will Snell. I am an agricultural economist at the 
University of Kentucky. I work with farm organizations and 
growers on economic and policy issues related to both burley 
and dark tobaccos.
    The last time I had the privilege to testify before this 
Committee was just prior to the passage of the tobacco buyout, 
which I eventually labeled as the most significant policy event 
affecting Kentucky agriculture since the adoption of the 
Federal tobacco program back in the 1930s. The majority of our 
farmers supported the buyout and would say today it was our 
best alternative, but we knew ultimately it would come at a 
cost.
    As expected, the early post-buyout era resulted in a major 
change in the number and location of tobacco farmers. Census 
data reveals that we are down to around 8,000 farms still 
growing tobacco in Kentucky, which is a 72 percent reduction 
since the pre-buyout days. But, it still represents about one 
out of every 11 Kentucky farms and about half of all the farms 
growing tobacco in the United States. While it was apparent 
that the buyout would create challenges, I was confident it 
would also create opportunities for some of our growers. It 
certainly did occur during the early part of the post-buyout 
era as more competitive prices, declining value of the U.S. 
dollar and tight world supplies led to calls for U.S. burley 
growers to expand production. For the first 4 years after the 
buyout, U.S. burley use exceeded production and dark tobacco 
production nearly doubled in response to the growing demand for 
smokeless tobacco products.
    But the tobacco economy has changed dramatically in recent 
months. U.S. burley exports are being reduced by a higher value 
dollar, global recession and increasing foreign supplies. 
Domestically, a multitude of factors including tax increases, 
smoking restrictions, imports, shift to smokeless tobacco 
products, movement of cigarette production overseas, and 
possibly anticipated FDA regulations is reducing the domestic 
needs for U.S. burley. Consequently, we have quickly moved from 
a period of excess demand for U.S. burley to more balanced 
supply and demand or possibly an oversupply situation for 
burley. Alternatively, the downturn in dark tobacco contract 
volume expected in 2009 is more of an overproduction problem 
from last year than a demand issue.
    In response to these changing market conditions, U.S. 
tobacco purchasers have been reassessing their buying 
strategies for 2009, and it is going to result in many growers 
experiencing cuts in contract volume this year or total 
elimination of the contracts in 2009.
    What I am very concerned about are those farmers who, for a 
wide variety of reasons, are contemplating either expanding 
their production beyond their contract volume for this year; or 
in a growing number of cases many farmers are beginning to 
think about getting back in the tobacco production business at 
a time period when they don't have a sound marketing plan. 
While most farmers without a marketing plan have been able to 
find a profitable home for their tobacco during the excess 
demand period, I am not very confident this marketing strategy 
will work in 2009.
    Unlike other crops that have safety net measures, tobacco 
farmers have no way, currently, to manage price risk other than 
through contractual agreements. At this time there is limited 
communication within the industry. There is no price reporting, 
no Federal grading and minimal public data analysis for not 
only tobacco growers, but also for manufacturers and the health 
community. Personally, I find it very disturbing that USDA 
collects data and provides analysis on hundreds of commodities 
but the data and analysis for tobacco, which is our 9th highest 
value crop in the United States, has been virtually abandoned 
by USDA. As my colleague, Blake Brown, pointed out, the 
Economic Research Service decided not to replace their tobacco 
analysts. FAS no longer tracks tobacco trade and foreign 
production, and AMS eliminated their collection and reporting 
of tobacco prices.
    So at a time when tobacco farmers will be making some of 
their most important, critical, and most expensive investment 
decisions about their future, the data needed to perform these 
informed decisions is extremely limited and being controlled 
primarily by the buying sector. And if any type of regulation 
does come about, Federal agencies along with possibly health 
groups and tobacco buyers will need access to data analysis 
related to tobacco production.
    In conclusion, we all know that tobacco growers face a lot 
of challenges in a very uncertain future but I still remain 
optimistic that low-cost, quality tobacco producers can survive 
given emerging opportunities.
    I applaud Chairman McIntyre for setting up this hearing. 
Some claim that after the buyout the government got out of the 
tobacco-growing business, but this is so far from the truth. 
You all continue to debate issues such as tobacco taxes, labor 
policy, trade agreements, export promotion, policies that 
impact interest rates and exchange rates, crop insurance, 
tobacco regulation, and tobacco data collection, all issues 
that will have an important impact on the future of our 
nation's tobacco farmers.
    Thank you, Chairman.
    [The prepared statement of Dr. Snell follows:]

  Prepared Statement of William M. Snell, Ph.D., Extension Professor,
     Department of Agricultural Economics, University of Kentucky,
                             Lexington, KY
    Chairman McIntyre and Members of the Committee, thank you for this 
opportunity to participate in this hearing. My name is Will Snell. I'm 
an agricultural economist from the University of Kentucky where I work 
with farm organizations and growers in Kentucky and surrounding states 
on economic and policy issues related to burley and dark tobaccos.
    The last time that I had the privilege to testify before this 
Committee was just prior to the buyout which I labeled as the most 
significant policy event affecting Kentucky agriculture since the 
passage of the New Deal farm programs back in the 1930s. Historically, 
tobacco has been the backbone of our state's agricultural economy. In 
1997 the value of tobacco production in Kentucky established a record 
high of $947 million, accounting for 25 percent of our total 
agricultural sales. Following the buyout, the value of Kentucky's 
tobacco crop fell to around $300 million, but have since rebounded to 
nearly $400 million in 2008. However, tobacco now accounts for less 
than ten percent of our cash receipts amidst lower tobacco production 
and prices levels (compared to the pre-buyout period) and successful 
diversification efforts. The majority of our farmers supported the 
buyout, and would say today that it was our best alternative at the 
time, but we knew ultimately it would come at a cost for some of those 
who attempted to stay in the industry.
    As expected, the early post buyout era resulted in a major change 
in the number and location of tobacco farms. The Census data reveals 
that we are down to around 8,000 farms left growing tobacco in 
Kentucky--a 72 percent reduction since the pre-buyout days, but this 
still represents one out of every eleven Kentucky farms and accounts 
for \1/2\ of all farms growing tobacco in the United States. Some 
exited due to age, others do to better alternatives, but others just 
simply could not survive in this new economic environment.
    While we knew the buyout would create challenges, I was confident 
it would also create opportunities for some of our better growers--and 
this certainly did occur during the early post-buyout era as more 
competitive grower prices, a declining U.S., dollar, and tight world 
supplies of quality burley lead to calls for the remaining burley 
farmers to expand production. For the first 4 years after the buyout 
U.S. burley use (approximately 300 million pounds) exceeded the amount 
supplied by U.S. burley growers (approximately 200 million pounds) as 
production was constrained due to labor challenges, a lack of 
infrastructure, weather-related problems, and continued long-term 
uncertainty of producing a crop that had a very unpredictable future. 
Alternatively our dark tobacco production has nearly doubled in 
response to growing demand for smokeless tobacco products.
    While favorable conditions occurred during the early post-buyout 
era, the tobacco economy has changed dramatically in recent months. 
Global needs for U.S. burley tobacco are being adversely impacted by an 
increasing value of the U.S. dollar, a global economic downturn, and 
increasing foreign supplies of lower quality tobacco. Domestically, tax 
increases, smoking restrictions, health issues, shifts to smokeless 
tobacco products, increasing availability of imports, movement of 
cigarette production overseas, and possibly anticipated FDA regulation 
are reducing domestic needs for U.S. burley.
    Consequently, my analysis indicates that we have quickly moved from 
a period of excess demand for U.S. burley to a more balanced supply/
demand scenario or possibly an oversupply situation given these 
deteriorating demand conditions for burley. Alternatively, the downturn 
in dark tobacco contract volume expected in 2009 is more of an 
oversupply issue than a demand issue following a massive excessive 
expansion in 2008. So the decline in dark acres this year will enable 
the industry to get back in a more favorable supply to use scenario to 
take advantage of anticipated growing product demand.
    In response to these changing market conditions, U.S. tobacco 
buyers have been reassessing their buying strategies during the past 
few weeks. Some of the better growers may actually see production 
opportunities expand, but most will see their levels reduced, while 
others may not be given an opportunity to renew their contracts in 
2009.
    What I am very concerned about are for those farmers who based upon 
a wide variety of factors such as losing their off-farm job, observing 
depressed prices for other commodities, or have already spent all their 
buyout dollars are contemplating expanding their tobacco production 
beyond their contract volume or many others who exited after the buyout 
are thinking about getting back into the tobacco production business 
tobacco acres without a sound marketing plan. While some farmers 
without a marketing plan have been able to find a home (i.e., auctions 
or cooperatives) for their tobacco during the recent excess demand 
situation, I am not confident that these other marketing outlets can 
absorb a significant boost in production in 2009 without some major 
price adjustments, especially on lower quality tobacco.
    Unlike other crops that might have access to safety net measures of 
the farm bill or futures markets, tobacco farmers have no way to manage 
price risk other than through contractual agreements, primarily with 
powerful multinational tobacco companies. At this time there is limited 
communication within the industry, no market news to report prices 
received, no Federal grading, and minimal public data and analysis for 
not only growers, but also for manufacturers, and the health community.
    I find it disturbing that USDA collects data and provides analysis 
on hundreds of commodities ranging from lentils to chickpeas, but the 
data and analysis for tobacco--the ninth highest valued field crop in 
the U.S. has almost been totally eliminated by USDA. The Economic 
Research Service (ERS) of USDA decided not to replace their tobacco 
analyst. USDA's Foreign Agricultural Service (FAS) no longer tracks 
tobacco trade and foreign production and USDA's Agricultural Marketing 
Service (AMS) eliminated recording tobacco prices and providing market 
news.
    Unfortunately in a time when tobacco farmers will be making some of 
their most critical and expensive investments decisions about their 
future, data needed to make informed decisions are extremely limited 
and being controlled primarily by multinational tobacco company and 
dealers. And if any type of regulation comes about, Federal agencies, 
along with possibly health groups and tobacco buyers will need access 
to data and analysis on tobacco production.
    So in conclusion, U.S. tobacco growers undoubtedly face a lot of 
challenges and a very uncertain future. But I do think low cost quality 
burley and dark tobacco producers can not only survive, but do well in 
an economic environment that will provide them with opportunities. I 
applaud Chairman McIntyre for setting up this hearing. Some claim that 
after the buyout, the government got out the tobacco farming business. 
But that is so far from the truth. You all continue to have influence 
over tobacco taxes, labor policy, trade agreements, export promotion, 
tobacco regulations, and USDA's role in collecting and analyzing data--
all issues that have an important impact on the future of our nation's 
tobacco farmers.

    The Chairman. Thank you, Dr. Snell.
    Mr. Bunn.

   STATEMENT OF JESSIE THOMAS BUNN, PRESIDENT, U.S. TOBACCO 
                 COOPERATIVE INC., RALEIGH, NC

    Mr. Bunn. Chairman McIntyre, I thank you for the 
opportunity to address this U.S. House Subcommittee. I am 
Jessie Thomas Bunn, President of U.S. Tobacco Cooperative 
Incorporated.
    Mr. Chairman, I commend you and other cosponsors of H.R. 
1261, the Youth Prevention and Tobacco Harm Reduction Act. This 
bill will authorize Health and Human Services to realistically 
address tobacco harm reduction with scientific-based programs 
instead of bureaucratic mandates.
    U.S. Tobacco Cooperative has production contracts with 
approximately 1,000 member growers for the 2009 flue-cured 
crop. Our members are located in five states: Florida, Georgia, 
South Carolina, North Carolina, and Virginia. The Cooperative 
provides numerous services to the growers including supplying 
materials for marketing preparation, operating marketing 
centers for purchasing tobacco in all member areas, warehousing 
new crop tobacco for processing, processing tobacco for 
customers, long-term inventory storage of processed tobacco, 
and selling tobacco to international customers and domestic 
customers. In 2004, the Cooperative purchased a small 
processing facility and a small manufacturing facility in 
Timberlake, North Carolina. The manufacturing facility 
currently produces cigarettes, small cigars and roll-your-own 
product. As you can tell from this digest of services that U.S. 
Tobacco Cooperative extends to our member growers, we are an 
integral part of approximately 1,000 grower operations. The 
size of our members' contracts range from 5,000 pounds, 
approximately 2\1/2\ acres, to 500,000 pounds, which would be 
250 acres.
    Many of our members are father-and-son operations. We are 
working to expand our customer base, both foreign and domestic, 
which would allow us to offer contracts to more growers. Some 
growers were lured away from tobacco production in 2008 by 
unusual record-high prices of other commodities. These same 
growers were back requesting tobacco contracts in 2009 because 
profit margins are so thin on other commodities for 2009. Most 
tobacco growers do not have access to enough cropland to create 
economies of scale for the production of food, feed and fiber 
crops. Many tobacco growers farm less than 100 acres. Tobacco 
growers want to, and are dependent on, continuing to grow 
tobacco. Growers have little or no alternative use for tobacco 
production equipment and facilities.
    This year the growers' concerns are directed to pending FDA 
legislation that could saddle the industry with financial and 
operating constraints that would be impossible to meet. This 
Cooperative supports H.R. 1261 because of the bill's rational 
approach of tobacco harm reduction. Growers realize and 
understand that tobacco production will be regulated by the 
government in the future and that tobacco harm reduction will 
be pursued. On the other hand, growers realize that H.R. 1256 
will provide the authorization for FDA to dictate regulations 
for all aspects of the tobacco industry from seed to sale. H.R. 
1256 will dictate standards and specifications on the 
manufacturer that cannot be met by the U.S. growers that supply 
leaf tobacco for manufacturing. The growers are aware that the 
scope of H.R. 1256 is broad and will allow onerous regulations 
that can be impossible for U.S. growers to meet. Tobacco 
production already requires high investments. Extensive 
production standards and record-keeping would only harm U.S. 
tobacco growers' competitive position in the world market.
    H.R. 1256 can require manipulation of nicotine in products 
to the extent that growers will have to use Genetically 
Modified Organism varieties to meet standards. Commercial 
production of GMO varieties in the United States will kill much 
of our export market. Many of our tobacco customers will not 
use GMO tobacco or buy tobacco from areas where GMO tobacco is 
grown, period.
    If H.R. 1256 becomes law, growers expect continuing 
escalation of add-on regulations from FDA, especially since the 
FDA will be funded by user fees. Since current FDA programs are 
under-funded, tobacco user fees will provide a windfall of 
resources to expand the bureaucracy of FDA. The mandate of H.R. 
1256 can damage our growers' ability to service the export 
market by imposing standards on production that differ from the 
needs of export customers. U.S. grower production that is 
destined for an export market should accommodate the needs of 
export customers instead of FDA.
    Another element of H.R. 1256 that could cause serious 
damage to this Cooperative is the classification of 
manufacturing. Large or small manufacturer definitions will 
classify our small cooperative facility as a large manufacturer 
because the definition will include all employees of the 
Cooperative as manufacturing employees regardless of their 
duties. This concept is irrational. Several manufacturers that 
have much larger production volumes than the Cooperative's 
Timberlake factory will be considered a small manufacturer. The 
FDA manufacturing compliance schedule could close our factory 
doors, which will be to the competitive benefit of other 
competing small manufacturers. This Cooperative is an integral 
grower service organization and should not be punished for 
doing more than just manufacturing. The manufacturing segment 
should be classified as a separate function from grower 
services.
    U.S. Tobacco Cooperative takes the position that H.R. 1261 
will provide a more productive way of addressing tobacco harm 
without jeopardizing the livelihoods of growers. In contrast, 
as already stated in this testimony, H.R. 1256 offers 
unpredictable authority to control the tobacco industry from 
seed to sale while creating unreasonable costs with the 
approximate 1,000 grower families that depend on U.S. Tobacco 
Cooperative to keep them in business.
    There are many stipulations in H.R. 1256 that cannot be 
selectively implemented. We will not understand all aspects 
until the regulations are published. This is another of many 
reasons why our grower Cooperative opposes H.R. 1256.
    Mr. Chairman, thank you for the opportunity to provide 
testimony to this Subcommittee and for the other Members that 
helped sponsor H.R. 1261, and those that will vote in favor of 
1261. Thank you very much.
    [The prepared statement of Mr. Bunn follows:]

   Prepared Statement of Jessie Thomas Bunn, President, U.S. Tobacco 
                     Cooperative Inc., Raleigh, NC
    Chairman McIntyre--Thank you for the opportunity to address the 
U.S. House Agriculture Subcommittee on Rural Development, 
Biotechnology, Specialty Crops, and Foreign Agriculture.
    I am Jessie Thomas Bunn, President of U.S. Tobacco Cooperative Inc. 
This Cooperative's former name for 62 years was Flue-Cured Tobacco 
Cooperative Stabilization Corporation. The name change was made to 
reflect the Cooperative's new mission since the 2004 Tobacco Quota 
Buyout.
    Mr. Chairman, I commend you and other cosponsors of H.R. 1261--The 
Youth Prevention and Tobacco Harm Reduction Act. This bill will 
authorize Health and Human Services to realistically address tobacco 
harm reduction with scientific based programs instead of bureaucratic 
mandates.
    U.S. Tobacco Cooperative is a grower owned and grower governed 
Cooperative. The Board is composed of ten seats elected by growers and 
one seat appointed by the Governor of NC.
    U.S. Tobacco Cooperative has production contracts with 
approximately 1,000 member growers for the 2009 flue-cured crop. Our 
members are located in five states; Florida, Georgia, South Carolina, 
North Carolina and Virginia. The Cooperative provides numerous services 
to the growers including supplying materials for market preparation, 
operating marketing centers for purchasing tobacco in all member areas; 
warehousing new crop tobacco for processing; processing tobacco for 
customers; long term inventory storage of processed tobacco and selling 
tobacco to international customers and domestic customers. In 2004 the 
Cooperative purchased a small processing facility and a small 
manufacturing facility in Timberlake, NC. The manufacturing facility 
currently produces cigarettes, small cigars and roll-your-own products.
    As you can tell from this digest of services that U.S. Tobacco 
Cooperative extends to our member growers we are an integral part of 
approximately 1,000 grower operations. The size of our members' 
contracts range from 5,000 pound (approx. 2.5 acres) to 500,000 pound 
(approx. 250 acres). Many of our members are father and son operations. 
We are working to expand our customer base, both foreign and domestic 
which could allow us to offer contracts to more growers.
    The Cooperative members have made the transition from producing 
under a quota system to producing for a market responsive industry. 
Most all of today's production is contract based. Some growers were 
lured away from tobacco production in 2008 by unusual record high 
prices of other commodities. These same growers were back requesting 
tobacco contracts for 2009 because profit margins are so thin on other 
commodities for 2009. Most tobacco growers do not have access to enough 
crop land to create economics of scale for the production of food, feed 
and fiber crops. Many tobacco growers farm less than 100 acres. Tobacco 
is still the only legal crop that can sustain farm income for thousands 
of growers in the tobacco producing area. Tobacco growers want to and 
are dependant on continuing to grow tobacco. Growers have little or no 
alternative use for tobacco production equipment and facilities.
    During the spring tobacco growers are usually concerned with the 
challenges of weather, disease and labor issues for the coming season. 
This year, the growers' concerns are directed to pending FDA 
legislation that could saddle the industry with financial and operating 
constraints that would be impossible to meet.
    This Cooperative supports H.R. 1261 because of the bill's rational 
pursuit of tobacco harm reduction. Growers realize and understand that 
tobacco products will be regulated by the U.S. Government in the future 
and that tobacco harm reduction will be pursued. On the other hand, 
growers realize that H.R. 1256 will provide the authorization for FDA 
to dictate regulations for all aspects of the tobacco industry from 
seed to sale. H.R. 1256 can dictate standards and specifications on the 
manufacturer that can not be met by the U.S. growers that supply leaf 
tobacco for manufacturing. The growers are aware that the scope of H.R. 
1256 is broad and will allow onerous regulations that can be impossible 
for U.S. growers to meet. Tobacco production already requires high 
investments. Extensive production standards and record keeping will 
harm the U.S. grower's competitive position in the market place.
    H.R. 1256 can require manipulation of nicotine in products to the 
extent that growers will have to use Genetically Modified Organism 
(GMO) varieties to meet standards. Commercial production of GMO 
varieties in the U.S. will kill much of our export market. Many of our 
tobacco customers will not use GMO tobacco or buy tobacco from areas 
where GMO tobacco is grown--period.
    H.R. 1256 can burden growers with unnecessary pesticide standards 
and record keeping that will again raise the cost of U.S. production 
beyond the competitive value of U.S. grower's tobacco. The intent may 
not be in H.R. 1256 to regulate growers but this bill will regulate the 
crop that U.S. growers supply. We all know that the standards will be 
mandated by the manufacturers on the tobacco purchased from U.S. 
growers. If H.R. 1256 becomes law, growers expect a continuing 
escalation of add on regulations from FDA especially since the FDA will 
be funded by user fee. Since current FDA programs are under funded, 
tobacco user fee will provide a windfall of resources to expand the 
bureaucracy of FDA.
    The mandate of H.R. 1256 can damage our grower's ability to service 
the export market by imposing standards on production that differ from 
the needs of export customers. U.S. growers production that is destined 
for an export customer should accommodate the needs of the export 
customer instead of FDA.
    Another element of H.R. 1256 that could cause serious damage to 
this Cooperative is the classification of manufacturing. The large and 
small manufacturer category definitions will classify our small 
cooperative facility as a large manufacturer because the definition 
will include all employees of the Cooperative as manufacturing 
employees regardless of their duties. This concept is irrational.
    Several manufacturers that have much larger production volume than 
the Cooperative's Timberlake factory will be considered small 
manufactures. The FDA large manufacturer compliance schedule could 
close our factory doors which will be to the competitive benefit of 
other competing small manufacturers. This Cooperative is an integrated 
grower service organization and should not be punished for doing more 
than just manufacturing. The manufacturing segment should be classified 
as a separate function from grower services.
    U.S. Tobacco Cooperative takes the position that H.R. 1261 will 
provide a more productive way of addressing tobacco harm without 
jeopardizing the livelihood of growers. In contrast, as already stated 
in this testimony, H.R. 1256 offers unpredictable authority to control 
the tobacco industry from seed to sale while creating unreasonable cost 
for the approximate 1,000 grower families that depend on U.S. Tobacco 
Cooperative to keep them in business.
    There are many stipulations in H.R. 1256 that can be selectively 
implemented. We will not understand all of the impacts until the 
regulations are published. This is another of many reasons why our 
grower Cooperative opposes H.R. 1256.
    Mr. Chairman, thank you for the opportunity to provide testimony to 
this Subcommittee.

    The Chairman. Thank you, Mr. Bunn.
    Mr. Quarles.

         STATEMENT OF ROGER QUARLES, PRESIDENT, BURLEY
            TOBACCO GROWERS COOPERATIVE ASSOCIATION;
            PRESIDENT, INTERNATIONAL TOBACCO GROWERS
                  ASSOCIATION, GEORGETOWN, KY

    Mr. Quarles. Good morning. I am Roger Quarles, a lifelong 
tobacco grower in Scott County, Kentucky. I am the President of 
the Burley Tobacco Growers Cooperative Association as well as 
President of the International Tobacco Growers Association. The 
burley co-op represents all growers in five states while ITGA 
has 22 member countries representing 85 percent of the world's 
tobacco production.
    I want to thank this Committee for the opportunity for 
burley growers to address today's issues, and allow comments on 
our evolving industry as changes occur resulting from Federal 
and state cigarette tax increases along with the looming 
Federal regulations towards our manufacturer buyers.
    Our burley sales opportunities have shrunk from 300 million 
pounds in 2004 to approximately 200 million pounds in 2008. 
There appears an additional ten to 15 percent reduction in 
sales opportunities for 2009 based on notifications to the 
growers recently. Our number of growers has adjusted since 2004 
to the most efficient producers, or those that had very few 
income alternatives either on or off the farm. Burley tobacco 
remains the cash crop of choice for the majority of Kentucky 
farms.
    There are indications that 10 to 25 million pounds of 
burley may be produced off contract in 2009. It is certainly 
unclear whether all these pounds can be sold at a profit to our 
growers either through the auction, dealers, pin hookers or our 
co-op associations.
    Domestic use of our burley continues to shrink from cheaper 
imported leaf, successful smoking cessation programs, and, 
particularly, increased taxes on the state and Federal level. 
You will recall Congress will allow a 200 percent increase in 
the Federal excise tax April 1.
    I am pleased to report our burley co-op is now transforming 
very quickly from its former role as USDA agent to a marketing 
cooperative. We purchased approximately four percent of the 
2008 crop. We have concentrated on selling this leaf, 
particularly in the Asian region and particularly in China. 
Other countries in Southeast Asia have numerous independent 
manufacturers that need an American blend product to compete 
with the dominant international manufacturers. We are also 
approaching manufacturers in Europe. Their burley production is 
quickly eroding and will probably cease to exist due to 
reductions in E.U. subsides for tobacco farmers.
    The viability of American manufacturers that use U.S. 
burley is vitally important to our farmers. Our co-op and other 
leaf dealers cannot replace their purchases at this time, and 
it is unlikely to do so entirely. It is clear burley farmers' 
future will rely on export opportunities to global 
manufacturers. We, as growers, are concerned with any imposed 
manufacturer regulations that may affect our crop yields or 
consumer acceptance of manufactured products containing burley.
    We are particularly concerned about any regulations that 
may affect our export leaf markets. It would be unwieldy to 
produce leaf crops that would be dictated to measures that are 
different between foreign manufacturers as opposed to domestic 
manufacturers. We must immediately recognize that often U.S. 
regulations are also exported to our global buyers through 
treaties and international groups such as the World Health 
Organization or the World Bank. The Framework Convention of 
Tobacco Control has already been ratified by 160 countries. 
Thankfully, the United States has not ratified this Draconian 
treaty as it appears to violate First Amendment rights. Tobacco 
growers throughout the world would be affected by any 
regulations imposed on our growers and products consumed in 
America. It is imperative that all imported leaf and consumer 
products be treated equally to domestic products.
    Our support has always been conditioned on the acceptance 
of pure science to determine changes in consumer products, and, 
especially, the allowed introduction of proven safer products 
that differ from existing brands.
    The Waxman bill has a number of areas that we think can be 
improved with constructive improvements. These include, but are 
not limited to, ensuring that tobacco producers as well as 
manufacturers are encouraged and given incentives for 
developing leaf and products that are lower in risk, ensuring 
that products that are scientifically established to be lower 
in risk are made available to consumers of tobacco and nicotine 
products are labeled, marked and regulated based on the 
relative risk.
    We fully expect grower involvement and a seat at any board 
that has authority to impose regulations changing any aspect of 
our markets, including the entire spectrum of leaf production 
through the end consumer. These Federal regulations were never 
anticipated to be the pathway to elimination of tobacco 
consumption, but rather a legitimate effort to mitigate its 
known harmful effects. Further hearings or perhaps a summit 
should be held allowing all stakeholders to be heard. This 
would fill President Obama's promise to America of an open and 
transparent process in government. Burley Co-op would certainly 
be willing to participate in such a plan.
    Thank you for your time.
    [The prepared statement of Mr. Quarles follows:]

Prepared Statement of Roger Quarles, President, Burley Tobacco Growers 
   Cooperative Association; President, International Tobacco Growers
                      Association, Georgetown, KY
    Good morning.
    I am Roger Quarles a lifelong tobacco grower in Scott Co. Kentucky. 
I am the President of the Burley Tobacco Growers Cooperative 
Association as well as President of the International Tobacco Growers 
Assn. The Burley Co-op represents all growers in 5states with the 
majority in Kentucky. ITGA has 22 member countries representing 85% of 
the world tobacco production.
    I want to thank this Committee for the opportunity for Burley 
Growers to address today's issues and allow comments on our evolving 
industry as changes occur resulting from Federal and state cigarette 
tax increases along with looming Federal Regulations towards our 
manufacturer buyers.
    Our Burley sales opportunities have shrunk from 300 million pounds 
in 2004 to approximately 200 million pounds in 2008. There appears 
additional 10-15% reduction in sales opportunities for 2009 based on 
notifications from buying interests to growers recently. The number of 
growers has adjusted since 2004 to the most efficient producers or 
those that have very few income alternatives--either on or off the 
farm. Burley Tobacco remains the cash crop of choice for the majority 
of Kentucky Farms.
    There are indications that 10-25 million pounds of Burley will be 
produced without a prior sales agreement in 2009. It is certainly 
unclear whether all these pounds can be sold on the open market--
through auctions, dealers, pin hookers or our Co-op Assn. at a profit 
to those growers.
    Domestic use of our Burley continues to shrink from cheaper 
imported leaf, successful smoking cessation programs and particularly 
increased taxes as states and now the Federal Government try to solve 
their economic crises from consumers of tobacco products. You will 
recall Congress will allow a 200% increase in the Federal Excise tax on 
April 1st.
    Our Economic experts such as Dr. Will Snell tell us over 80% of 
U.S. Burley is now exported with Switzerland and Netherlands the 
largest importers. It is obvious Phillip Morris International is the 
recipient in Switzerland while the Netherlands is the port of further 
distribution to other countries. I am pleased to report our Burley Co-
op is quickly transforming from our former role as a USDA agent to a 
marketing Co-op. We purchased approximately 45% of the 2008 crop.
    We have concentrated selling this leaf in the Asian region--
particularly China. Other countries in South East Asia have numerous 
Independent manufacturers that need an American blend product to 
compete with the dominant international manufacturers. We are 
approaching manufacturers in Europe--particularly Eastern Europe to 
sell Burley as its own Burley production is disappearing due to 
reductions from European Union agriculture subsidies for tobacco 
farmers.
    The viability of American manufactures that use U.S. Burley is 
vitally important to our farmers. Our Co-op and other leaf dealers 
cannot replace their sales opportunities at this time and it is 
unlikely to ever do so entirely.
    It is clear our future will rely on export opportunities to global 
manufacturers. We as growers are concerned with any imposed 
manufacturers regulations that may affect our crop yields or consumer 
acceptance of manufactured products containing Burley.
    One issue effecting current Tobacco policy in the U.S. is the 
availability of data since the tobacco buyout of 2004. No data is being 
collected by government about where tobacco is being produced and how 
much. It is also important to find out which tobacco is being placed 
into which grades for future insurance needs. We recommend this 
Committee explore the possibility of some new Tobacco Data Collection 
that could be useful to our industry.
    We are particularly concerned about any regulations that may affect 
our Export Leaf Markets. It would be unwieldy to produce leaf crops 
that would be dictated to measures that are different between foreign 
manufacturers as opposed to domestic manufacturers. We must immediately 
recognize that often U.S. Regulations are also often exported to our 
Global buyers through treaties and or international Group's such as the 
World Health Organization, or World Bank. The Framework Convention of 
Tobacco Control has already been ratified by 160 countries. Thankfully 
the U.S. has not ratified this Draconian treaty as it appears to 
violate 1st amendment rights. Tobacco growers through out the world 
will be affected by any regulations imposed on our growers and products 
consumed in America. It is imperative all imported leaf and consumer 
products be treated equally to domestic products.
    The Burley Co-op agreed over 10 years ago with the Core Principles 
agreements achieved by AHEAD. We agreed to support Regulations that may 
improve or protect the health of consumers. We have never wavered in 
our support of the AHEAD coalition even after the tobacco buyout 
legislation was passed.
    Our support has always been conditioned on the acceptance of pure 
science to determine changes in consumer products and especially the 
allowed introduction of proven ``safer'' products, if you will, that 
allow products that differ from existing brands.
    The Waxman bill has a number of areas where we think there can be 
constructive improvements. These include but are not limited to:

   Ensuring that tobacco producers (as well as manufacturers of 
        both tobacco and other nicotine products) are encouraged and 
        given incentives for developing leaf and products that are 
        lower in risk.

   Ensuring that products that are scientifically established 
        to be lower in risk are made available to consumers of tobacco 
        and nicotine products and that all tobacco and nicotine 
        products are labeled, marketed and regulated based on the risks 
        and relative risks of those products.

   Ensuring that the any FDA Scientific Advisory Committee (in 
        the Waxman legislation) has voting representation of someone 
        who is knowledgeable in tobacco production as well in the 
        science of plant technology.

   Ensuring that any FDA Scientific Advisory Committee has 
        voting representation of someone who understands issues 
        pertaining to labeling and marketing (including First Amendment 
        protections).

   Ensuring that there is better integration between FDA (or 
        whatever agency is created) the USDA, EPA, FTC, CDC, DHS, ATF 
        and other agencies that results in a more coordinated and 
        unified effort.

    We also fully expect grower involvement and a seat at any Board 
that has authority to impose Regulations changing any aspect of our 
markets including the entire spectrum of leaf production through the 
end consumer. These Federal Regulations were never anticipated to be 
the pathway to elimination of tobacco consumption but rather a 
legitimate effort to mitigate its known harmful effects.
    Further hearings or perhaps a ``Summit'' should be held allowing 
all stakeholders to be heard. This would fulfill President Obama's 
promise to America of an open and transparent process in government. 
The Burley Co-op would certainly be willing to participate is such a 
plan.
    Thank you for your time.

    The Chairman. Thank you very much and thanks to all of our 
members of the panel today, and thanks for your timely 
testimony.
    Mr. Boyd, you mentioned the risk of additional regulations 
from government agencies affecting the way farmers raise 
tobacco. I know you were sharing Mr. Troxler's testimony, but 
to the extent of your experience in working with farmers 
statewide in North Carolina, could you elaborate on the risks 
and what it would mean to individual producers when you talk 
about additional regulations being a concern under the Waxman 
bill?
    Mr. Boyd. Mr. Chairman, tobacco, not unlike every other 
cultivar under practice now, regardless of your commodities, is 
pretty extensively regulated with regards--the Commissioner 
could give you an exact accounting for what the Department 
jurisdiction is. But, between the United States Department of 
Agriculture and the states departments of agriculture--I am 
referencing issues such as pesticide application and 
environmental rules and so forth--the number of agencies that 
are already present on the farm are extensive with regard to 
compliance. The concern is that giving FDA broad and full 
authority, sweeping authority that would empower its 
jurisdictive authority over the farm would bring inspectors in 
to an environment where they might not be acclimated or trained 
with regard to understanding agricultural farm practices the 
way that a staff member from one of the Department of 
Agriculture agencies would. We know with any regulation comes 
price or cost, both in terms of enforcement and punitive 
measures. So those would be certainly some areas that we have 
expressed concern towards, and that is our reason for 
applauding your cosponsorship effort on making sure that it is 
done through an agency whose purpose would not be, let us say, 
to eliminate tobacco production in this country. Because as we 
view it, it is in direct conflict with the mission of charge of 
the FDA and we have experience there which is the references 
that the Commissioner has made with regards in our state, for 
example, jalapeno peppers, tomatoes, peanut butter, as you are 
well aware, broccoli. There are a number of these, and this 
distinguished panel represents these many states that produce 
these commodities. You understand what the impact has been to 
your farmers when hysteria or a scare has resulted. Those are 
the kind of burdensome regulatory impacts that either farmers 
couldn't comply, or could not afford to meet certain standards. 
At the end of the day, in the Waxman language, FDA still can't 
say tobacco is a safe product.
    The Chairman. Because of the limited time, let me pick up 
on that. You mentioned pesticide. I know this Subcommittee does 
have direct jurisdiction over the pesticide issue.
    Mr. Bunn, I believe in your testimony at page four at the 
bottom you say, ``H.R. 1256 can burden growers with unnecessary 
pesticide standards.'' Can you expound upon exactly what you 
mean in regards to the pesticide problem?
    Mr. Bunn. Any kind of elaborate, extensive reporting 
requirements that causes a farmer to be unable to meet those, 
such as record-keeping that he is unable to do, unless he goes 
and hires an additional person just to keep records, we feel 
that this will be damaging. If there are standards placed out 
there that are different than what our export customer wants, 
then that should be taken into consideration, because an export 
customer may have a standard that is different than what the 
FDA has, and if that tobacco is destined for that company, we 
need to be able to satisfy that particular purchaser.
    The Chairman. And, also in your testimony on page five, you 
refer to the classification of the Cooperative in regards to 
manufacturing and state that you are concerned that, ``The 
large and small manufacturer category definitions will classify 
our small cooperative facility as a large manufacturer because 
the definition will include all employees of the Cooperative as 
manufacturing employees regardless of their duties,'' and then 
you say the concept is irrational. You conclude that particular 
segment of your testimony by saying at the top of page six, 
``The manufacturing segment should be classified as a separate 
function from grower services.'' Tell us about how many 
employees you have in the manufacturing segment?
    Mr. Bunn. We have less than 100 employees in the 
manufacturing segment. We have well over 500 employees during 
the season that furnish services to the grower. So it is our 
interpretation of the way that H.R. 1256 is written they could 
very well say that our manufacturing numbers are over 500.
    The Chairman. All right, when in fact grower services are--
--
    Mr. Bunn. Are the predominant----
    The Chairman.--the 500 figure?
    Mr. Bunn. That is right.
    The Chairman. And less than 100 is the manufacturing?
    Mr. Bunn. Right, and as far as the size of manufacturing, 
we have less than \1/2\ of a percent of the marketplace, and 
the 6th largest manufacturing facility in this country would be 
classified as a small manufacturer.
    The Chairman. Thank you, sir.
    Mr. Conaway.
    Mr. Conaway. Thank you, Mr. Chairman. I don't have any 
particularly in-depth questions other than, you look at--your 
testimony was about how increased taxes reduces tobacco demand 
and usage. We are going to continue to apparently fund SCHIP 
with increased tobacco taxes. I think you mentioned, Mr. Boyd, 
that North Carolina is proposing additional taxes. Even the 
title of the Chairman's bill talks about the reduction of harm 
or whatever, and I would assume that would be less tobacco 
usage. Where are the economics and are there alternative crops 
that these growers have an option of using to replace the 
revenue stream from tobacco growing and selling? In other 
words, is there someplace else for them to go that they can 
make as much money in that as they do with tobacco, Dr. Brown 
or Dr. Snell?
    Dr. Brown. Sure. Our farmers are already extremely 
diversified in North Carolina. In fact, we are the third most 
diversified state in the country in terms of agriculture. So 
all of these farmers have other commodities that they are 
raising. As I mentioned, one of the programs I work with is a 
program in value-added and alternative agriculture at our new 
research campus. It is very, very, very difficult to find crops 
that are as stable and have the same profit margins as tobacco, 
and most of these farmers are working with other things. We 
focus on fresh produce, for example, at our new research 
campus. But with most of our newer commodities and newer 
alternatives, there are much higher levels of risk, and of 
course, there is a steep learning curve. Our tobacco has 
concentrated in the I-95 corridor in the eastern part of the 
state and we have a low-cost production area there, and even 
though that is a very, very agriculturally intense area, in 
fact, it was rated as one of the most profitable areas to farm 
in the United States back in 2005, tobacco still continues to 
be the most profitable commodity for those farmers and the cash 
crop of choice for those farmers in that area.
    Mr. Conaway. I have some familiarity with cotton farming 
and there is a crossover point, a number of acres you can grow 
cotton on and really make money at. I don't have a sense of 
where that is. A tobacco-only farm, where is the break-even in 
acres planted where you can feed a family and make a living on 
a tobacco-only farm?
    Dr. Brown. Well, we don't have very many tobacco-only 
farms. Most of our farms grow a wide range of crops, as I 
mentioned.
    Mr. Conaway. But is it 10 acres----
    Dr. Brown. No, it would be more like at least 100 acres in 
flue-cured tobacco. When you look at the mechanization that has 
taken place in flue-cured tobacco, the breaking-even points--as 
in cotton, the breaking-even point is around 1,000 acres. You 
need one cotton harvester to harvest 1,000 acres so you kind of 
look at it in 1,000 acre units. In tobacco, it is closer to 100 
acre units because that is essentially what you need for the 
very specialized equipment that you have to use to harvest. And 
of course, with the labor issues that we are seeing now, there 
are numerous economies of scale in terms of trying to bring 
labor into the farm, which has also increased the scale of the 
farm that is required in order to make it economical. So it is 
really not a small farm enterprise in flue-cured tobacco 
anymore. It is a middle-sized farm. It still sustains a lot of 
mid-sized farms, which is really a disappearing segment in U.S. 
agriculture.
    Mr. Conaway. Dr. Snell, is there anything you want to----
    Dr. Snell. Yes, I will make some comments on behalf of 
burley. Our farmers tend to be a lot smaller than flue-cured 
farmers. We are also seeing a lot of diversification in 
Kentucky. We have been very fortunate that half of our tobacco 
settlement dollars have gone towards agricultural economic 
diversification. But at the same time, as I mentioned in my 
testimony, we have lost 72 percent of our tobacco farms since 
the buyout. There are still more farms growing tobacco than 
producing any other crop in the Commonwealth of Kentucky. Our 
farmers tend to be diversified into cattle production. Some 
have experimented successfully with some vegetables and fruit 
production. But predominantly our best diversification within 
tobacco is an off-farm job, and that is the concern we have 
right now with the loss of jobs in rural communities that a lot 
of our farmers that grew a few acres of tobacco but depend more 
upon an off-farm job. Either the spouse or the farmer 
themselves are being laid off and that is the reason why, as 
Mr. Quarles pointed out, that a lot of our farmers are trying 
to get back into the tobacco production business, but 
unfortunately it is not at the right time.
    Mr. Conaway. Thank you, Mr. Chairman. I yield back.
    The Chairman. Thank you very much, Mr. Conaway.
    Mr. Kissell.
    Mr. Kissell. Thank you, Mr. Chairman.
    I am especially happy to welcome the guests here today but 
especially the gentleman from North Carolina, and being from 
North Carolina myself, this is a pleasure to be able to have 
fellow North Carolinians here, and especially Dr. Brown. I am 
going to put in a plug for the North Carolina research campus. 
The work that you guys do there can benefit agriculture for 
this nation, for the world. Seven universities coming together 
to advance nutrition and other causes of agriculture, what a 
wonderful idea, what a wonderful facility and how wonderful it 
is to be in my district.
    Mr. Bunn, you talked about that with the harm reduction and 
taxation, the change in product mix to smokeless tobacco and 
then with more farmers wanting to get back into tobacco this 
year, do you think we are looking at a situation of vastly 
overproducing this year?
    Mr. Bunn. No, I don't think so because most of the tobacco 
production is done so under contract, and there may be a few 
farmers that decide to go out and grow tobacco speculatively, 
but that is a great risk and most of the farmers have some 
sense of where they are going to sell tobacco. There may be 
some out there, but that is for people that have the personal 
financing to do so.
    Mr. Kissell. And Mr. Boyd, it was mentioned in Mr. 
Troxler's remarks that the number of farmer families in North 
Carolina dropped from 8,000 to 3,000 in the past few years even 
though the productivity has stayed high and the production is 
good. Do you see that reduction continuing? I know there are a 
lot of unknowns out there but what rate of decline is taking 
place there?
    Mr. Boyd. Congressman, some of that attrition was by 
design. It was the purpose, as the Chairman made reference to, 
in the design and the need for the tobacco buyout was so that 
people could in fact exit the business. So that is not 
necessarily, well, is it not an exciting number. It was a trend 
that was predicted to occur and, in fact, was a function and 
need for the buyout. As it has occurred, the farmers that 
remain, the fewer that are there now are larger in scope of 
operation, and that is in reference to Dr. Brown's commentary 
that it now takes more and more acres in order to see a 
diminished margin of return in order to be successful with the 
amount of volume of tobacco-specific assets. And it really is 
driven by demand, and the concern you have now is what about 
the next generation of young farmers, and that is the real 
challenge. So, if economically this segment of the agricultural 
industry is enticing, then it will invite those young people to 
enter into that vocation, but it is very capital intensive on a 
per-acre basis commodity to produce. And then a lot of them are 
feeling some of the societal pressure with regards to the 
eroding view towards tobacco. Largely, we have been insulated 
from that on the farm because we don't get into a health 
debate. That is a manufacturers' battlefront, if you will. But, 
I think there is complexity there even in a state such as North 
Carolina.
    Mr. Kissell. Thank you. One last question, and I really 
don't direct this to anyone so anybody who wants to jump in, 
imports. How much of a threat are they to our market right now? 
I read in the testimonies that it seems to be the quality is 
not there so it is not too threatening. I am just curious about 
how much of a threat it might be.
    Dr. Snell. I will make a comment on behalf of burley. We 
used to have about 500 million pounds of total burley use in 
the United States between imported and foreign tobacco, and 
about 400 million, that used to be domestic. Now, we are down 
to about 50 million pounds being domestic burley, and probably 
imported tobacco is still over \2/3\ of total burley use by the 
manufacturers, so it is a serious problem, and some of the 
issues related to regulation sparked the curiosity of tobacco 
farmers perhaps. If you talk about regulation, our farmers just 
want to make sure that everybody is playing on the same level 
field. That may create some opportunities, as Dr. Brown 
mentioned in his testimony, to maybe constrain the level of 
imported tobacco coming into this nation.
    Mr. Bunn. Congressman Kissell, if I might comment at this 
point, importation often follows the value of the dollar and 
the value of the dollar is very low. That makes offshore 
tobacco much more attractive and competitive, but as the dollar 
value increases--well, let me say, as far as exporting tobacco, 
it is reversed. As long as the value of the dollar is low, we 
can compete very well. When it turns back around, the import 
tobacco can certainly be a major problem, but at this point in 
time the quality of our tobacco still reigns as far as being 
some of the best in the world.
    Mr. Boyd. Congressman, one other aspect to that. It would 
be in regard to black market and illegitimate product. That is 
an important consideration for this Committee to give thought 
to. When we over-regulate and overprice with regard to the cost 
of the procurement side of the tobacco, at the end of the day 
if adults who are going to choose to use a legal product still 
choose to do so. In the wake of this burdensome impact, what is 
left behind are going to be the tobacco farmer, the tobacco 
farm economy that evaporates with no chance for recourse. With 
regard to health concerns, that is still going to be there 
because people are going to smoke something, and so will they 
be smoking something that is less safe, and even maybe to your 
concern circumvents the tax collection value that our systems 
of government at every level have become so dependent on.
    The Chairman. Thank you. Thank you, Mr. Boyd. Thank you, 
Mr. Kissell.
    Mr. Thompson.
    Mr. Thompson. Thank you, Mr. Chairman. I thank the 
panelists for their testimony this morning.
    Dr. Snell, in your testimony you had mentioned about, you 
just referenced quickly about emerging opportunities. I was 
just curious if you can elaborate on that? What opportunities 
do you see out there as emerging into the future?
    Dr. Snell. In my testimony, I pointed out I work with both 
burley and dark tobacco producers, and the situation in dark 
tobacco is very much different than the cigarette-style 
tobaccos because smokeless tobacco consumption for a variety of 
reasons has been increasing about four or five percent annually 
for about 20 years. We are pulling back in dark tobacco 
production this year, but as I mentioned, it is mainly because 
we almost doubled production over the past 2 or 3 years. Demand 
is still increasing but we just oversupplied the market last 
year. There has been a lot of debate about the potential 
reduced health issues related to smokeless tobacco products, 
relative to cigarette production. So, that market is still very 
upbeat on the demand side and we have seen in Kentucky a 
growing percentage of our tobacco being produced is dark 
tobacco rather than burley. In fact, in the State of Tennessee, 
the value of dark tobacco production now exceeds the value of 
burley production. As far as burley, obviously this is an 
industry where the future is in the international markets, and 
Mr. Quarles addressed some of his trips to some international 
markets. There are a lot of markets overseas that have 
traditionally been a flue-cure-type tobacco product, but as 
they introduced burley tobacco, especially U.S. burley tobacco 
into their blends, we have seen some increases in the American 
blended cigarette in those markets. A lot of that depends upon 
income levels of those countries, and as incomes improve that 
they tend to buy up the value of their tobacco products that 
they consume. So again, the emerging opportunities for burley 
tobacco will be in the international marketplace and not the 
domestic market.
    Mr. Thompson. Thank you. I don't know if any of the other 
panelists have any insight or any other thoughts on emerging 
opportunities?
    Mr. Quarles. The only thing I would like to add to those 
comments is that as Dr. Snell has indicated and we have known 
for some time, that 80 percent of our burley is being exported. 
The primary importing countries are Switzerland, which is 
obviously Phillip Morris International, and the Netherlands, 
which is a port that distributes to other countries throughout 
the world. We have always felt, on the burley side, that there 
could be opportunities if the regulations are done properly, 
but our main concern is that all products should be treated 
equally. We want all imported tobacco to go back to some sort 
of inspection form. Typically some of these imported tobaccos 
are going to what they call value cigarettes, the cheap 
cigarettes, the cigarettes that sell for a very low price. They 
contain no American tobacco whatsoever. It is entirely imported 
Oriental and burley, and consequently, we as American tobacco 
growers, we really don't have much sympathy with those types of 
products. We would rather have every cigarette consumed in 
America to be American-grown tobacco, particularly because we 
follow all the regulations that the EPA imposes on us on 
pesticides and other chemicals that we use, and those same 
regulations are not imposed upon imported tobacco.
    Mr. Thompson. Thank you. Mr. Chairman, I yield back the 
rest of my time.
    The Chairman. Thank you, Mr. Thompson.
    Mr. Bright.
    Mr. Bright. Mr. Chairman, thank you very much for having 
this hearing today, and gentlemen, thank you for being here and 
your informative testimony. Just a couple of quick questions 
and I guess I will direct my first question, it is a two part 
question, to Dr. Brown.
    Dr. Brown, you mentioned in your testimony that if higher 
standards are set for U.S. tobacco products, imported tobacco 
may be less competitive. My number one concern would be, does 
this refer to the quality of the tobacco or quality standards 
in your testimony?
    Dr. Brown. I think it could refer to several things. It 
could refer, one, to pesticides, it could refer to quality. It 
depends on what standards are defined in any FDA regulation, 
what the requirements of companies are.
    Mr. Bright. And that is a real key and important question 
that we always have to ask and to understand. Could you go into 
more detail on what standards you might be referring to and why 
U.S. producers are able to meet those higher standards?
    Dr. Brown. I am not sure what those would be at the moment. 
I think that would be a matter that would just have to be 
examined, and would be one that could use some attention 
whenever they go to FDA, but I don't have any particular ones 
in mind.
    Mr. Bright. Dr. Snell, my second and last question is 
directed to you, and you mentioned labor challenges and a lack 
of infrastructure as being just a couple of constraints faced 
by producers immediately following the buyout and currently. 
Could you provide additional details on these labor and 
infrastructure constraints?
    Dr. Snell. Burley tobacco is very labor intensive like most 
tobaccos but it is even more so than flue-cured tobacco, and we 
cannot--even in this day and era of high unemployment rates, we 
cannot find local labor. They are not willing to work, and as a 
result, our farmers have become more and more dependent upon 
migrant laborers, and have a lot of interest in the H-2A 
program and some of the administrative changes that have taken 
place in recent times. Infrastructure, we have a lot of 
dilapidated infrastructure out there. Farmers are very 
reluctant to put a lot of large financial outlays for an 
industry that has a very uncertain future. And as Mr. Boyd 
pointed out, one of the biggest challenges we have is certainly 
getting young people that have an interest in growing tobacco. 
The average age of a tobacco farmer is approaching 60 years of 
age, so----
    Mr. Bright. Sixty?
    Dr. Snell. It is around 60, and that is certainly a 
challenge for the buying industry to keep interest in growing 
the crop, and again, the situation is, we are not replacing a 
lot of our infrastructure and that is certainly a long-term 
challenge for the industry.
    Mr. Bright. How concerned, Doctor, are you about the down 
economy pushing some producers in Kentucky back into the 
tobacco production crop industry?
    Dr. Snell. I am very concerned. I have an opportunity in my 
position to travel the state as well as Ohio and Tennessee, and 
again, the fact that a lot of our farmers after the buyout 
became more and more dependent upon off-farm income. As those 
jobs have been reduced or individuals have had layoffs in their 
family, they look out, they have some infrastructure still 
left. They see other commodity prices are coming down. They 
have already spent their buyout dollars. They have heard that 
even though people in the past have grown tobacco without a 
contract and been able to sell it that they think there may be 
a market for that tobacco in 2009. I think that tobacco will 
move, but it will move at a considerably lower price. I have a 
big concern that the economy is contributing to potential 
oversupply of burley tobacco.
    Mr. Bright. Thank you very much. I yield back my time, Mr. 
Chairman.
    The Chairman. Thank you, Mr. Bright.
    Mr. Roe.
    Mr. Roe. Thank you, Mr. Chairman. It is really a pleasure 
to be here and where everybody on the panel sounds like I do. 
It is nice to be here for that. I will tell you that, as Dr. 
Snell did, it was a burley tobacco patch that convinced me 
organic chemistry was not that hard, and I grew up on a farm 
that my cousin still raises 100,000 to 250,000 pounds a year in 
Stewart County, Tennessee. One of the things that you all 
brought up--and in Tennessee, as you well know, we just added a 
61 cents increase in the price of a pack of cigarettes, and 
then the Federal Government added another 60 cents here just 
recently. What the governor has done there is to try to 
encourage farmers to begin to look at switchgrass and 
hydroponics and other areas, and that is obviously something 
that our agricultural community is looking at. One of the 
things you said, and it applies to all manufacturing, and Mr. 
Boyd, you may have touched on this too, is a set of 
requirements put on our producers whether they are in the auto 
industry or other industry is that EPA and OSHA and all of that 
doesn't apply to foreign producers and it puts us at a definite 
disadvantage. If you all could comment on that, and then the 
other thing that our farmers don't want is somebody from the 
Federal Government tromping around all over their farm telling 
them what to do, another unfunded mandate. I was the Mayor of 
Johnson City before I got here, and it was difficult dealing 
with all the Federal unfunded mandates. Instead of looking at 
it from a health reason, but as a punitive reason, that it is 
just going to be another unfunded mandate for farmers. Could 
you all comment on that?
    Mr. Boyd. Congressman, I would certainly concur with your 
perspective on it, and that is our testimony here. I hope the 
Committee doesn't portray that we have a staunch anti-opinion 
here. But, the issue, as we understand it, is that there are 
two alternatives or there are two versions under consideration, 
one that your Chairman is a cosponsor of. One of your other 
colleagues from California has a bill and we all know, I mean, 
he has had an agenda to push for FDA well over a decade. And I 
read both bills numerous times, and one thing that surprises me 
in the Waxman bill is that it doesn't conclude exactly what the 
jurisdictive authority with any specificity will be, but it 
certainly knows exactly what it is going to cost. So, that is 
confusing a little bit out here. I am just giving you one 
citizen's viewpoint there, if I can take off the hat from the 
association and say, ``How do you know what it is going to cost 
but you are not sure exactly what it is you are going to do.'' 
The alternative version here doesn't speak to that detail. It 
speaks more in terms of what are our goals and what do we want 
to try to accomplish with regard to the information. The 
extended education and any protection that an agency might be 
able to afford those adults who choose to use the product; and 
at the same time being steadfast and not be punitive to those 
people who are involved in the commerce of tobacco. Congressman 
McIntyre's bill that he and Congressman Buyer are cosponsors 
of, and many other names on it as well, is explicit about that, 
that it protects traditional farm practices.
    So our concern is the actual production of agriculture, and 
as Dr. Brown pointed out, in North Carolina, not unlike 
Tennessee, our farms are very diversified and tobacco farmers 
farm a host of other commodities. We have about 82 that we 
produce. So our concern would be that you would find it either 
too burdensome to comply, or too expensive to comply, and 
beyond that, why is it necessary at the farm level and how 
would it be enforced. The FDA is in the news media on a 
regular, daily basis with criticism with regard to falling 
short of its purpose and charge right now. Even in North 
Carolina recent headline accounts of syringes being made in 
Angier, North Carolina, that the FDA knew about for 3 years and 
people were dying specifically as a result of that and nothing 
was done. So, these are our concerns and our confusion.
    Mr. Roe. Thank you all and thank you, Mr. Chairman. I yield 
back my time.
    The Chairman. Thank you very much. I believe that covers 
those who are present that were here. We had a couple other 
Members come in and had to step back out for various reasons. 
The panel has done an excellent job. Rather than going down the 
list again, if there are any follow-up questions that anybody 
would like to have? I know our witnesses have traveled a long 
way, I want to make sure nobody misses any additional 
opportunity. I would like to just ask a couple points of 
clarification.
    Dr. Brown, you mentioned in your testimony, at the very 
end, about data tracking and your concern about there being 
adequate data tracking and analysis, that it would seem to be 
an issue that all sides would benefit from. How is that data 
being tracked now, given the current circumstances and the lack 
of other formal data tracking that you mentioned? How is the 
data being kept as we speak?
    Dr. Brown. Well, as an economist who gets asked to do a lot 
of analysis, I can tell you it is kind of difficult. A lot of 
times we have to make more than just educated guesses because 
of the lack of data now. International data on foreign 
production, about the only place that we could find that prior 
to this year was at one of the international leaf dealer's 
websites where they issued a report. They have stopped issuing 
that report now. The Foreign Agricultural Service used to track 
that data and have attache reports where it came in and they 
would report the international production of tobacco in other 
countries. They no longer do that. Very, very few are the 
places where you can find that. The only thing that FAS 
provides now is just the raw import and export data, which you 
have to go in and dig up yourself. Economic Research Service 
used to provide excellent analysis of some of this data and 
pulled it together, which made our jobs much easier when we 
were asked to report to policymakers and farm groups. They no 
longer provide any analysis of that. About the only USDA agency 
that is really doing any significant reporting of data is the 
National Agricultural Statistics Service, which continues to 
record crop production and acreage harvested. Beyond that, we 
have hardly any data to rely on in terms of analysis, and so in 
terms of tracking this crop, very soon it will be very 
difficult to track it, particularly internationally.
    The Chairman. Do you have recommendations, specifically, 
that you would like to state or to submit regarding about what 
would be the best means that we could improve the data 
tracking? I realize that some of these agencies are not going 
to welcome the idea of being told to do it again but 
nevertheless, just from your professional opinion.
    Dr. Brown. No, I understand. Thank you. I think in terms of 
the Foreign Agricultural Service, they are collecting 
international data on other crops, so they are working with 
agricultural attache offices and agricultural embassies around 
the world. It doesn't seem to me like it would be too onerous 
to ask that they also get some data on tobacco as well, since 
that is an important crop. In particular, if FDA regulation 
goes forward, this data will be important to a lot more than 
just the tobacco community. It will be important to a lot of 
folks to know what is going on in other countries like Brazil 
or large agricultural regions.
    I would say on the other end of the spectrum here in 
Washington to have the Economic Research Service provide some 
of the same services in terms of tobacco that they do for 
cotton, peanuts, or other commodities that I work with would be 
very, very helpful to have as an analyst. Again to provide this 
data, and again, many of the things that Tom Capehart was 
providing before for us are things that are going to be asked 
not only by the tobacco community, but also in terms of the FDA 
regulation.
    The Chairman. Thank you, Dr. Brown.
    Dr. Brown. Thank you.
    The Chairman. Mr. Bunn, if you can just bullet point the 
types of regulations that you think would come out of FDA 
legislation that, as you have stated, would be impossible for 
growers to meet?
    Mr. Bunn. It is hard to understand all of it because we 
don't know what the regulations will say now but we can 
speculate. I would like to get back to you with a list of those 
for the record.
    The Chairman. I think that would be helpful, because as we 
talk about the concerns of FDA on the farm and another 
bureaucrat coming out and bringing bureaucracy to the farm, and 
the insult that is obviously to growers, their being the 
experts on farming rather than a bureaucrat coming out and 
trying to regulate. We know the concern that could cause, and 
it would helpful for this Subcommittee and also in our efforts 
to present that to the rest of Congress. So if you would submit 
that within the next 10 days?
    Mr. Bunn. Yes, I will.
    The Chairman. That would be very helpful.
    Does any other panel Member have any follow-up questions? I 
will open it up. I think everyone has gone in order of 
seniority so now we will open it up. Does anybody have a 
particular question? Yes, Mr. Roe.
    Mr. Roe. Thank you, Mr. Chairman, just a brief question for 
Mr. Quarles.
    I know when I grew up, you would go work on your place and 
then you would go help somebody else with theirs. Now, labor is 
a huge problem on the tobacco farm. Could you just comment on 
that and how the immigration, how that is going, because that 
is a huge issue, at least in Tennessee.
    Mr. Quarles. Yes, sir. Tobacco, as Dr. Snell indicated, as 
we all know, as you well know, is very labor intensive. Burley 
tobacco production has changed very little in the last 200 
years. We still use by and large the old tobacco knife and 
spear to spear it on the wooden sticks. We have not moved to 
mechanization not nearly as much as the flue-cured crop has. 
There are concerns with the current H-2A program. We have had 
some good progress in relaxing the requirements recently, but 
now we find out that the President is going to go back and 
strike some of that and raise the wage rate back to where it 
was previously. But there is adequate labor as long as you use 
the migrant labor, and that also extends to other agriculture 
crops throughout Kentucky or in any state, I suspect. Any type 
of vegetable production is obviously dominated by migrant 
labor. Our horse industry is dominated by migrant labor just as 
the construction trades, laying brick, putting roofs on houses, 
that is all dominated by migrant labor. You could just go on 
and on about the need for adequate migrant labor to come into 
each of our states. We appreciate any efforts that this 
Committee could have in keeping those regulations more near to 
the need of the farmers rather than to the needs of the people 
that don't have the interest of farmers at heart.
    Mr. Roe. Thank you, Mr. Quarles. Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Roe. Anyone else? If not, I 
understand we are going to have a series of votes that is going 
to be called momentarily. We have been blessed that we got you 
all done and you don't have to sit here and wait on us to go to 
vote. We wanted to honor your time. Thank you for the timely, 
important information. If anyone else has any additional 
comments they would like to submit to the record, please do so 
within the next 10 days. We thank everyone for their attendance 
and pray God's blessings upon your travel.
    Thank you very much. The meeting is now adjourned.
    [Whereupon, at 11:15 a.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
      Supplemental Material Submitted by Hon. Steven W. Troxler, 
  Commissioner, North Carolina Department of Agriculture and Consumer 
                                Services
    Overall All States' Average Cigarette tax: $1.21 per pack

    Including $1.00 per pack Federal excise tax beginning 4-1-2009 
(currently .39 per pack)

    The highest combined state-local tax rate is now $4.25 in New York 
City, with Chicago, IL second at $3.66 per pack. Other high state-local 
rates include Evanston, IL at $3.48 and Anchorage, AK at $3.324 per 
pack.
    This is not including any local or city tax rates.

    If you take the United States 2008 average flue-cured yield of 2239 
lbs. acre in 2008

    Gross farm gate revenue per acre in 2008 is 2,239 lbs.  $1.756 = 
$3,931.68 per acre to the farmer

    A pound of tobacco makes 500 cigarettes, so the Federal and average 
State cigarette tax combined per acre amount to (2,239 lbs.  70% yield 
after processing = 1,567 usable pounds per acre after processing) 1,567 
lbs  500 cigarette per pound of tobacco = 783,500 cigarettes per acre 
which if you divide by 20 cigarettes per pack = 39,175 packs per acre 
which would be taxed at $2.21 per pack beginning April 1, 2009 with the 
increase of the SCHIP tax increase = $86,576.75 per acre for the 
Federal and State Government at the average state tax rate.
    If you were in New York City it would be $4.25 State & City + 
Federal Tax of $1.00 per pack to total $5.25 combined tax 39,175 packs 
per acre  $5.25 = $205,668.75 per acre for Cigarette excise tax.

    Government per acre w/o Master Settlement Payments $86,576.75

    Farmer per acre $3,931.68

    The government gets 2,202% more per acre than the actual producer 
who goes out and takes risk to grow the tobacco crop.

    $3,931.68 per acre / Value per plant 5,500 = .71 cents per plant to 
the farmer

    $86,576.75 / 5,500 plants per = $15.74 to the government per plant
Supplemental Material Submitted by Jessie Thomas Bunn, President, U.S. 
                        Tobacco Cooperative Inc.
   Growers should not be forced to meet punitive and aberrant 
        FDA standards. Growers have developed good management and 
        cultural practices over time from experience and from research 
        based knowledge. Growers will not be able to meet unreasonable 
        and unfavorable standards on production because new standards 
        that require growers to change good cultural practices could 
        adversely affect yield and quality of the grower's production. 
        FDA required standards could leave growers without know-how, 
        proven cultural practices and existing research-based knowledge 
        for producing leaf tobacco.

   Testing for FDA standard compliance is impossible for 
        growers at the farm level. Growers are neither equipped to test 
        for FDA standards nor able to abandon non-compliant crops 
        because of the high production cost.

   FDA standards that require growers to change equipment used 
        in the production, curing or marketing of leaf tobacco would be 
        impossible to meet. Most growers do not have the economic 
        option to risk recapitalizing high cost equipment for mandated 
        changes in cultural practices.

   FDA pesticide standards that require changes in pesticide 
        use will dramatically affect leaf tobacco production. 
        Alternative pesticides may not be available because of the 
        limited number of pesticides with EPA approval for use on 
        tobacco. Developing new pesticides requires years of research 
        and time for EPA approval.

                                  
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