[Congressional Record Volume 143, Number 151 (Monday, November 3, 1997)]
[Senate]
[Pages S11579-S11581]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         THE TOBACCO SETTLEMENT

  Mr. ROBB. Mr. President, farmers face a great deal of uncertainty. 
The uncontrollable forces of nature or a volatile market can destroy a 
farmer's livelihood without warning. When the crops are planted, 
growers worry about whether they'll be enough rain--or too much; 
whether supply will be too great or demand too small; whether prices 
will be too low, or production costs too high. For tobacco growers, 
these unavoidable concerns were compounded when the tobacco industry 
and the 40 states' attorneys general unveiled their global settlement 
of tobacco issues on June 20 of this year. The parties did not address 
how the settlement would affect America's tobacco growers and their 
communities.
  Much has happened since that time. Congressional hearings have been 
held, legislation has been drafted, and the President has reviewed the 
global settlement. A common theme runs through these separate actions, 
and that theme is that tobacco farmers and the families and communities 
that depend on them should not be punished by comprehensive tobacco 
legislation. I believe the President said it best when he remarked 
during his discussion of the tobacco settlement in September that:

       We have a responsibility to [tobacco growers]. They haven't 
     done anything wrong. They haven't done anything illegal. 
     They're good, hardworking, tax-paying citizens, and they have 
     not caused this problem. And we cannot let them, their 
     families, or their communities just be crippled and broken by 
     this. And, I don't think of the public health community wants 
     to do that * * * We're trying to change America and make 
     everybody whole. And they deserve a chance to have

[[Page S11580]]

     their lives, and be made whole, and to go on with the future 
     as well.

  My staff and I have been working for a number of months on a proposal 
I believe may offer a means of making tobacco growers whole and 
providing the resources necessary to expand economic opportunities in 
tobacco-dependent regions. While we have discussed these concepts with 
various people, I would like to describe it more fully now so I can get 
broader feedback from interested parties. In putting together this 
proposal, we have talked to tobacco growers, local government officials 
interested in economic development, agricultural economists and members 
of the public health community.
  To reduce youth smoking, health advocates seek an immediate and 
substantial increase in the price of tobacco products. If Congress 
adopts this strategy, it will have a substantial effect throughout the 
tobacco-growing regions, and I believe we have an obligation to provide 
a soft landing for the people who would be affected.
  The plan we developed contains several components. First, it would 
compensate quota owners for the value of their quota, which is likely 
to be eroded over time by this government action. Second, it would 
dismantle the existing Federal tobacco program, which has been under 
annual assault, and reinstitute a privatized supply-limiting program. 
Third, it would target economic development funds to tobacco-dependent 
communities, to be used to attract quality jobs and train individuals 
for them. The effect of these changes, which I will describe in more 
detail, would be to give quota holders the value of their asset, 
guarantee that producers retain a program stabilizing the supply and 
price of tobacco, reduce operating costs to the grower by eliminating 
the expenses associated with buying or leasing quota, make domestic 
tobacco more competitive, and provide long-term economic development.
  Buy-out of quota asset.--Tobacco quota refers to the amount of 
tobacco that can be produced domestically. Last year, there were 1.5 
billion pounds of tobacco quota. Today, quota owned by an individual, 
which represents the proportion of the total amount of domestic quota 
an owner has the right to produce, is an asset which can be bought or 
sold or leased. Its value has accrued over time, and for many in 
tobacco-producing regions it is the major asset used to pay for 
retirement. Farmers acquire quota throughout their lives so they can 
grow tobacco to sustain their families, and then in retirement sell or 
lease it to others for income. A substantial and immediate increase in 
the price of tobacco products will decrease demand and will reduce the 
amount of quota. This erodes the value accrued by quota-holders, as 
their proportionate share declines with demand. Since so many have 
invested in this asset, many of whom rely on it for retirement, it is 
appropriate to compensate for the decline in value caused by a radical 
change in government policy.
  I propose giving quota owners $8/pound for their quota. The funds 
would be paid out in five annual installments of $1.60/pound based on 
the 3-year average--1995-1997--of their basic quota. To avoid serious 
tax consequences, which would be the government giving with one hand 
and taking away with the other, the funds could be placed in a tax-
deferred 401(k)-type plan, or used tax-free to reduce debt associated 
with acquiring the quota. This program would convert existing quota 
into cash, it would terminate the existing tobacco quota system, and a 
new program would be instituted to give growers the right to grow 
tobacco through the issuance of licenses.
  New Tobacco Program.--It is crucial that we reconstitute some form of 
supply-limiting tobacco program. Without one, production shifts to 
large agribusinesses that are encouraged to grow as much tobacco as 
possible. The price for tobacco would plummet, and many communities 
where tobacco is now grown would be immediately devastated. A supply-
limiting program stabilizes the price of tobacco, so that wild swings 
don't put small growers out of business, and limits production. While 
many agricultural commodity programs have moved away from the supply-
limiting approach, I believe it is still appropriate in the unique case 
of tobacco. There is no other farm product where the ultimate goal is 
to increase the cost to consumers, not decrease it. In addition, the 
free market isn't so free in the tobacco industry, because there are 
essentially only four buyers who have unparalleled control over the 
market. To require farmers to contract individually with the few large 
buyers is to put the farmers at a gross competitive disadvantage.
  The new tobacco program should be privatized to the extent possible. 
No one enjoys the annual uncertainty that follows from constant 
attempts to end the tobacco program. Growers, who benefit from the 
program, should be willing to take on the obligation of running it. 
Once all the quota has been bought out, the new system would grant 
licenses to actual tobacco producers. These licenses would go to all 
producers, whether they were quota holders, tenant farmers or quota 
leasees. There would be no significant cost associated with acquiring 
the licenses. These licenses would give the farmer the right to 
continue growing tobacco, but unlike the previous system that right 
could not be bought or sold or leased. In other words, that license, 
unlike quota, would not be a liquid asset. If the grower decided to 
stop exercising the right to produce granted by the license, the 
license would be surrendered to the issuing authority, which could then 
reissue the license to another grower. By wringing the value out of 
quota through the buy-out, producers will no longer face the expense of 
leasing or buying quota. Once that cost of operation is eliminated--
which represents about 40 cents of the price of a pound of flue-cured 
tobacco--the producer can be more competitive, both here and overseas. 
And by being more competitive, the decline in quota will not be as 
steep, and growers will not suffer the severe dislocation that a sudden 
drop in quota would create, whether that drop is caused by decreased 
demand or increased costs of production.

  I would like to see the creation of a privatized authority that would 
govern the production, marketing, importation, exportation, and 
consumer quality assurance of U.S. farm produced tobacco. This 
authority, which I'll call the Tobacco Production Control Corporation, 
could have a varied membership, and one option would be to have an 
authority with 21 members. The members would include the Secretary of 
Agriculture, the Secretary of Health and Human Services, the 
Administrator of EPA, the U.S. Trade Representative, nine 
representatives of Tobacco Loan Associations, four rotating 
representatives of the public health community, one representative from 
domestic cigarette manufacturers, one representative form the domestic 
export leaf dealers, one representative from tobacco marketing 
facilities, one representative from the Tobacco Marketing and Quality 
Assurance Corporation, and one representative from the agriculture 
department of a tobacco state university.
  The Tobacco Loan Associations would be comprised of all licensees of 
each respective type of tobacco. Initially, licenses would be issued to 
all tobacco growers based on the 3-year average--1995-1997--of tobacco 
they produced. The Tobacco Loan Associations would issue licenses to 
control the quantity of tobacco production, and would assure compliance 
by levying fines. Additionally, they would arrange for financing and 
administration of price supports, including the right to receive, 
process, store, and sell any U.S. produced tobacco received as 
collateral for private price support loans.
  The Tobacco Marketing and Quality Assurance Corporation would be 
created to determine and describe the physical characteristics of U.S. 
farm-produced tobacco and unmanufactured imported tobacco, operate a 
crop insurance program, and assure the physical and chemical integrity 
of U.S. produced and imported unmanufactured tobacco. This would insure 
that the tobacco being used in domestically manufactured tobacco 
products is of the highest quality and is free from prohibited physical 
and chemical agents. The Quality Assurance Corporation would consist of 
a CEO hired by the Tobacco Production Control Corporation and a staff 
experience in the sampling and analysis of unmanufactured tobacco and 
capable of collecting data and monitoring tobacco production and 
consumption information.

[[Page S11581]]

  These are the elements that could constitute a new tobacco program. 
Under this proposed program, once the quota holder has received the 
value of the asset, a new system of regulating the production of 
tobacco would be created. This approach honors the value of quota, 
retains the price stabilizing benefits of the tobacco program but 
eliminates the current costs associated with acquiring quota, making 
domestic tobacco more competitive in the future. I'd like to 
acknowledge the insightful contribution of Henry Maxey, a tobacco 
grower from Pittsylvania County, who first presented this idea to a 
member of my staff in a meeting a few months ago in the Halifax office 
of Delegate Ted Bennett. While I've gotten input from an number of 
people since then, Mr. Maxey should be credited with getting the ball 
rolling.
  Economic Development.--I would like to devote $250 million annually 
for economic diversification in tobacco-dependent communities. 
Unfortunately, the biggest export in many of the tobacco-growing 
regions is the children. They leave the area because there aren't 
enough high quality jobs in the community. Tobacco legislation provides 
us a unique opportunity to address this situation. The economic 
development funds should be used for two purposes: attracting quality 
jobs and training people to fill them.
  I believe that economic development activities are best generated 
from those most familiar with a community's needs. Generally speaking, 
I believe that economic development funds should go to counties to 
carry out those activities that best suit their needs. I would envision 
that the funds would be distributed to localities based on their 
proportionate share of the amount of tobacco produced annually, which 
is a rough approximation of how dependent each community is on tobacco 
income. In order to foster long-range thinking and coordination in the 
region, the communities should develop and submit economic development 
plans. In the case where an independent city is surrounded by a 
tobacco-dependent county, but doesn't itself produce tobacco, 
representatives from the city should have a voice in the development of 
the county's economic development plan, due to the economic 
interdependence of the two independent governments.
  In some circumstances, counties have banded together to form regional 
economic development commissions, like the A.L. Philpott Southside 
Economic Development Commission in Virginia. In that case, the 
commission should be given the authority to coordinate the economic 
development funds, allowing the various counties to benefit from a 
regional approach. Such an approach would avoid duplicative efforts to 
provide the same services or attract the same industries as a neighbor 
in the region, making the funds more effective. When coordinating the 
economic development investments, the commission will be required to 
target a certain percentage of the funds to the most tobacco-dependent 
counties as determined by their proportionate share of the amount of 
tobacco produced annually. This approach combines regional planning 
with local investment.
  The funds can only be used for specific purposes, such as improving 
the quality of all levels of education in the region, promoting tourism 
through natural resource protection, constructing advanced 
manufacturing centers, industrial parks, water and sewer facilities and 
transportation improvements, establishing small business incubators, 
and installing high technology infrastructure improvements. We will 
need to insure, however, that these funds are not used to reduce the 
amount of funding that would otherwise be provided by the local, State 
or Federal governments.
  Whenever there is a major shift in a program like the one this 
proposal contemplates, we need to be concerned about providing a smooth 
transition. In fact, the uncertainty created by the mere possibility of 
major tobacco legislation will undoubtedly affect tobacco growers next 
year, who expect a serious decline in quota because these issues remain 
unresolved. To make sure that current producers can survive until this 
new system is implemented over the 5-year buy-out period, we should 
consider giving a minimum of income protection during this period. One 
option would be to add protections in the event tobacco quota falls by 
more than 10 percent from 1997 levels. If that occurs, tobacco 
producers would be eligible for a $1/pound payment for lost quota from 
their 1997 level. This is especially important to farmers operating 
without much margin, as we make the transition to a more competitive 
marketplace.
  I hope that these ideas generate some discussion and ultimately I 
intend to introduce legislation incorporating these ideas. My purpose 
is to find a mechanism that recognizes the changes facing the tobacco 
industry, and provides some degree of certainty to tobacco growers and 
their communities so they are not faced with cataclysmic upheaval as a 
result of those changes.
  I look forward to working toward this particular goal with colleagues 
who are interested in this particular challenge.

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