[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
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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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