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THE NECESSITY OF A TOBACCO QUOTA BUYOUT:

WHY IT IS CRUCIAL TO RURAL COMMUNITIES

AND THE U.S. TOBACCO INDUSTRY

HEARING

BEFORE THE

SUBCOMMITTEE ON PRODUCTION AND PRICE 

COMPETITIVENESS

OF THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

APRIL 13, 2004

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry

(

Available via the World Wide Web: http://www.agriculture.senate.gov 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

THAD COCHRAN, Mississippi, Chairman 

RICHARD G. LUGAR, Indiana 

MITCH MCCONNELL, Kentucky 

PAT ROBERTS, Kansas 

PETER G. FITZGERALD, Illinois 

SAXBY CHAMBLISS, Georgia 

NORM COLEMAN, Minnesota 

MICHEAL D. CRAPO, Idaho 

JAMES M. TALENT, Missouri 

ELIZABETH DOLE, North Carolina 

CHARLES E. GRASSLEY, Iowa 

TOM HARKIN, Iowa 

PATRICK J. LEAHY, Vermont 

KENT CONRAD, North Dakota 

THOMAS A. DASCHLE, South Dakota 

MAX BAUCUS, Montana 

BLANCHE L. LINCOLN, Arkansas 

ZELL MILLER, Georgia 

DEBBIE A. STABENOW, Michigan 

E. BENJAMIN NELSON, Nebraska 

MARK DAYTON, Minnesota

HUNT SHIPMAN, Majority Staff Director 

DAVID L. JOHNSON, Majority Chief Counsel 

LANCE KOTSCHWAR, Majority General Counsel 

ROBERT E. STURM, Chief Clerk 

MARK HALVERSON, Minority Staff Director 

(II) 

(III)

C O N T E N T S 

Page

HEARING(S):

The Necessity of a Tobacco Quota Buyout: Why it is Crucial to Rural

Communities and the U.S. Tobacco Industry .................................................... 01

Tuesday, April 13, 2004

STATEMENTS PRESENTED BY SENATORS 

Dole, Hon. Elizabeth, a U.S. Senator from North Carolina, Chairwoman, 

Subcommittee on Production and Price Competitiveness, Committee on

Agriculture, Nutrition, and Forestry .................................................................. 01

WITNESSES 

Panel I 

Burr, Hon. Richard, a Representative in Congress from North Carolina ........... 03

Etheridge, Hon. Bob, A Representative in Congress from North Carolina ........ 04

Panel II 

Crews, Sam, President, North Carolina Tobacco Growers Association, Oxford, 

North Carolina ..................................................................................................... 11

Flye, Bruce, President, Flue-Cured Tobacco Cooperative Stabilization, 

Battleboro, North Carolina .................................................................................. 10

Parrish, Keith, Executive Director, National Tobacco Growers Association, 

Benson, North Carolina ....................................................................................... 14

Wooten, Larry, President, North Carolina Farm Bureau, Raleigh, North

Carolina ................................................................................................................ 07

Panel III 

Bunn, Tommy, Executive Vice President, Leaf Tobacco Exporters Association, 

Raleigh, North Carolina ...................................................................................... 17

Haymore, Todd, Director, Universal leaf Tobacco Company, External Affairs, 

Richmond, Virginia .............................................................................................. 21

Panel IV 

Charville, Gene, President, East Carolina, Farm Credit, Raleigh, North

Carolina ................................................................................................................ 25

Herring, Wallace, Senior Vice President and Manager of Agribusiness, First 

Citizens Bank, Clinton, North Carolina ............................................................. 27

Taylor, Dallas, Senior Vice President, Wachovia Corporation, Raleigh, North 

Carolina ................................................................................................................ 29

Panel V 

Langdon, J.H. Chairman, Johnston County Board of Commissioners, Angier, 

North Carolina ..................................................................................................... 32

Scarborough, Allen, Manager, State Affair, Bayer Crop Science, Raleigh, 

North Carolina ..................................................................................................... 33

Page

IV

APPENDIX 

PREPARED STATEMENTS: 

Bunn, J.T. .......................................................................................................... 52

Charville, Gene ................................................................................................. 64

Crews, Sam ....................................................................................................... 49

Dole, Hon. Elizabeth ........................................................................................ 38

Flye, Bruce ........................................................................................................ 43

Haymore, Todd ................................................................................................. 58

Herring, Wallace ............................................................................................... 68

Langdon, James ................................................................................................ 73

Parrish, Keith ................................................................................................... 45

Scarborough, Allen ........................................................................................... 76

Taylor, Dallas .................................................................................................... 70

Wooten, Larry ................................................................................................... 41

DOCUMENT(S) SUBMITTED FOR THE RECORD: 

Alliance for Health Economic and Agriculture Development ....................... 80

Matthew Myers, President, National Center for Tobacco-Free Kids ........... 85

John R. Seffrin, Ph.D, Chief Executive Officer, American Cancer Society .. 107

Star Scientific, Inc. ........................................................................................... 98

Henry West, President, Burley Tobacco Growers Cooperative Association . 95

M. Cass Wheeler, Chief Executive Officer, American Heart Association .... 100

(1)

THE NECESSITY OF A TOBACCO QUOTA 

BUYOUT: WHY IT IS CRUCIAL TO RURAL 

COMMUNITIES AND THE U.S. TOBACCO

INDUSTRY 

TUESDAY, APRIL 13, 2004

U.S. SENATE, 

SUBCOMMITTEE ON PRODUCTION AND PRICE

COMPETITIVENESS, COMMITTEE ON AGRICULTURE, NUTRITION

AND FORESTRY, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 10:08 a.m., at the 

Central Tobacco Marketing Exchange, Smithfield, North Carolina, 

Hon. Elizabeth Dole, [Chairwoman of the Subcommittee], presiding. 

Present: Senator Dole. 

STATEMENT OF HON. ELIZABETH DOLE, A U.S. SENATOR 

FROM NORTH CAROLINA, CHAIRWOMAN, SUBCOMMITTEE 

ON PRODUCTION AND PRICE COMPETITIVENESS,

COMMITTEE ON AGRICULTURE, NUTRITION, AND

FORESTRY 

Senator DOLE. Good morning, ladies and gentlemen. As Chair of 

the Subcommittee on Production and Price Competitiveness on the 

Senate Agriculture, Nutrition and Forestry Committee, I am 

pleased to call this subcommittee hearing to order. 

When I was elected to the U.S. Senate, I chose to serve on the 

Agriculture Committee and to Chair this subcommittee because I 

wanted very much to help advance one of the chief issues from my 

campaign. That issue, of course, is tobacco quota buyout. 

This hearing is not intended to repeat what has been examined 

in previous hearings. The Senate Agriculture Committee held several hearings on the tobacco buyout when the issue first came to 

national attention in 1998. This past year, the House Agriculture 

Committee held a hearing focusing on the positions of the growers, 

the companies and the public health community. 

Their positions are important, obviously, and those who wish will 

have the opportunity to submit comments for this record any time 

before the end of this week. 

The real purpose for the hearing today is to examine this issue 

from a different vantage point, to look at it from the perspective 

of the long-term viability of the tobacco farm family and the rural 

community that depends on tobacco production. 

2

In the year 2003, farm receipts from tobacco sales were less than 

$600,000,000; a decline of over $500,000,000 as compared to 1997. 

That equates to a $1.1 billion hit on North Carolina’s economy at 

current quota levels. The decline in our tobacco industry will continue to cause a negative ripple effect across our state. 

Tobacco production is crucial not only to our farmers and our leaf 

dealers, it also affects our equipment dealers, chemical dealers and 

so many others. Under the status quo, we are simply exporting economic progress to Brazil and other developing countries when in 

fact we could be doing a better job here if only given the opportunity. 

I look forward to the testimony of two of North Carolina’s Congressmen, our farm leaders, the leaf dealers, financial institutions, 

one of the major players in crop protection and the Chairman of 

the Johnston County Board of Commissioners; all of whom will provide their valuable insight on the need for a tobacco quota buyout 

from their particular area of expertise. 

Before we move to the panels, let me give a brief overview of 

where the buyout stands in the U.S. Senate. As all of you know, 

this past year, the tobacco state members of the Senate for the very 

first time were able to come together on a consensus bill that was 

placed on the Senate calendar and we were very proud of the fact 

that we were together on that legislation. 

Given the current make-up and interest of the members of the 

Senate, and perhaps most importantly given the rules of the U.S. 

Senate, the object was to attach the buyout to FDA regulation after 

that piece of legislation was marked up in the HELP Committee, 

which is the Health, Education, Labor, and Pensions Committee in 

the Senate. 

Because a deal could not be reached with the public health community, an FDA bill was never reported from the Committee, ending our hopes of passing a tobacco buyout coupled with FDA regulation on the Senate floor before the end of the first session. 

Considering the quota cut that was looming at the time and the 

necessity of getting this buyout achieved, we led an effort to try 

and get a buyout attached as part of the end of the year consolidated spending bill called the Omnibus Bill. 

Because a bill had not passed on the floor of either chamber—

the House or the Senate—in the final analysis there just was not 

enough support to get it included in the Omnibus Bill. 

That effort did raise the profile of this issue significantly, and we 

remain committed to leaving no stone unturned as we move forward this year. 

Now, it is my goal that our hearing today will help keep this 

issue on the front-burner and provide those skeptics in non-tobacco 

states an opportunity to see a different side to this issue than perhaps what they’ve been witness to so far. 

At this point, I would like to introduce the Subcommittee’s first 

panel, my colleagues on the House side, Congressman Richard 

Burr, who represent many of the smaller tobacco farmers in this 

state from the fifth district, and Congressman Bobby Etheridge, a 

tobacco farmer himself whose district we are in today. 

3

They will present their views on the tobacco buyout and any 

other comments they’d like to make regarding the status of this important issue in the House of Representatives. 

[The prepared statement of Senator Dole can be found in the appendix on page 38.] 

Congressman Burr, welcome. 

STATEMENT OF HON. RICHARD BURR, A REPRESENTATIVE IN 

CONGRESS FROM NORTH CAROLINA 

Mr. BURR. Thank you very much, Senator Dole, and more importantly, thank you for holding this important hearing and for inviting Representative Etheridge and I to testify before you on the status of buyout legislation in the House of Representatives. 

If I could also, let me thank the audience. It is wonderful to see 

that you understand the importance of this issue to this state—to 

every community, to the families that make up those communities 

and at some point in this process, we will rely on you to really be 

the push that hopefully helps us push this legislation over the goal 

line. 

As you and many others know, Senator Dole, several months 

worth of effort—starting in January with a core group of tobacco 

state members—recently culminated in the introduction of H.R. 

4033, the Fair and Equitable Tobacco Reform Act of 2004. 

The lead authors of the legislation, which was introduced with 

thirty-five original co-sponsors, are Representative Bill Jenkins of 

Tennessee and North Carolina’s Mike McIntyre. It’s now at 38 cosponsors, including seven North Carolinians, and we expect to pass 

the Fletcher co-sponsorship total of 42 when we return to session. 

The teaming up of Representative Jenkins and Representative 

McIntyre is significant. They are the Chair and the ranking members, respectively, of the Specialty Crops Subcommittee of the 

House Agriculture Committee, which has jurisdiction over the tobacco issues, including quota buyout proposals. 

H.R. 4033 is the first quota buyout bill Representative Jenkins 

has sponsored or co-sponsored. H.R. 4033 proposes to pay quota 

holders $7 a pound and active producers of tobacco $3 a pound over 

a 5-year period. 

It would do so by diverting revenues from the Treasury up to a 

ceiling that is determined by the total revenue received by the government through the tobacco taxes. The payments would be based 

on 2002 quota. Estimates place the total buyout payments under 

the Bill at approximately $9.6 billion; unlike previous quota buyout 

bills, though; however, H.R. 4033 would not result in the termination of phase II, meaning that approximately $3 billion in phase 

II checks would continue to be mailed. 

Finally, the bill would limit tobacco production post-buyout to 

traditional tobacco counties plus contiguous counties, similar to the 

Georgia model in the McConnell Buyout Bill. 

The impact of H.R. 4033 on North Carolina’s economy, particularly in tobacco communities, would be tremendous. Estimates by 

agricultural economists put the total economic impact of the Bill for 

North Carolina at $6.1 billion over 5 years as farmers and quota 

holders pay off debt, diversify crops, obtain training and education, 

or simply spend more on goods and services for their families. 

4

It is believed that this new economic activity would support more 

than 11,000 jobs—many of them in areas where employment opportunities surely are lacking. As a 9-year representative of tobacco 

country in the House, I am fully aware of the dire situation facing 

our state’s tobacco families and communities. 

Introduction of H.R. 4033 represents one step in our effort to alleviate some of the problems facing tobacco production in our state 

and a great deal of work still needs to be done. To be fair, that 

work has been and will remain an uphill effort. If it were easy, we 

would have finished the process months, if not years, ago. 

We are working on a number of fronts to get this proposal moving through the Agriculture Committee and to the floor of the 

House for consideration. We are pursuing opportunities for the Bill 

to be considered as a stand-alone measure, but we are also working 

to identify possible vehicles for the buyout to be attached to. Our 

efforts in the house have been focused more around what we can’t 

do than what we can do. 

Our leadership has indicated that they will not move any buyout 

that is perceived to increase taxes, so we had to eliminate user 

fees, assessments, increase in the Federal excise tax and other options. Taking care of this particular issue gives us the bonus side 

effect of allowing Phase II to stay intact. 

They also indicated to us that FDA was a non-starter in the 

House of Representatives, so we had to remove that from consideration. They told us last year’s efforts were too expensive, so we had 

to come down on the payment level. We have worked to overcome 

those hurdles, and I believe that H.R. 4033 presents us with an excellent alternative to tries that we have had before. 

Is H.R. 4033, at $9.6 billion, a smaller buyout than what we 

would like? Absolutely. Would we prefer to be able to offer quota 

holders and farmers $8 and $4? Certainly. 

Unfortunately, the political and economic realties we face prevent either from having a chance. Politics is the art of the possible 

and I, for one, would rather get the buyout done than spend time 

lamenting the fact that the buyout couldn’t be bigger. The situation 

on the ground in tobacco communities is too desperate for fantasy, 

and we simply can’t afford to let the perfect become the enemy of 

the good. 

Our effort here is to jumpstart the legislative process. It has been 

stalled for far too long. We have identified some technical and definitional corrections that need to be made in H.R. 4033, but we 

firmly believe those issues and potentially some of the others mentioned above can be resolved in a conference with the U.S. Senate. 

We need to get to conference first. 

Senator Dole, thank you for the opportunity to be here. I would 

be happy to answer questions that you might have. Thank you, 

very much. 

Senator DOLE. Congressman Etheridge. 

STATEMENT OF HON. BOB ETHERIDGE, A REPRESENTATIVE 

IN CONGRESS FROM NORTH CAROLINA 

Mr. ETHERIDGE. Thank you, Madame Chair, and Senator Dole, 

let me thank you for holding this Subcommittee hearing and 

issuing the invitation for myself and Representative Burr to join 

5

me today. As a Johnstonian who grew up just down the road on 

a tobacco farm, welcome you to my hometown here, and having 

driven over this morning from Harnett, where Faye and I own 

some property and have a tobacco farm, we really appreciate this 

opportunity to talk about an issue that’s important to the people 

in this audience today and a lot of others who aren’t here today. 

As you mentioned, last July, the House Agricultural Committee 

held a hearing and testimony from tobacco growers, from companies and from the health community on the possibility of a tobacco 

buyout. The focus of that hearing, as you know, was to hear about 

the issue at that time and starting to move a piece of legislation. 

The focus of this hearing today is why a buyout is critically important to rural communities, and I commend you for that. It’s important. I do want, though, to applaud you for having the hearing 

and looking at the broader scope of this issue. 

A buyout—or even more importantly, the failure to pass a 

buyout—would impact banks, agri-business, rural towns and communities and even county government. The entire economy and the 

infrastructure of rural North Carolina could be transformed by the 

billions of dollars that would be made available from the investment of a buyout payment. 

This hearing and the testimony that you will hear later today 

will broaden and talk about those benefits. I commend you for holding the hearing and thank you for it. 

I also want to talk briefly about the buyout efforts in the House 

during this Congress. Five tobacco buyout bills have been introduced in the House of Representatives. These bills differ widely in 

how much each farmer would be paid, or quota holders, whether 

there would be any kind of safety net for farmers in a post-buyout 

world. 

Unfortunately, none of these, as you have already heard from 

Congressman Burr, have anywhere. Everyone here wants to know. 

Why can’t we pass a buyout? That is really why you are here today. 

You want to know how Congress can pass a bill that will give relief 

to the farmers in North Carolina. 

There are people in this audience and some have already mentioned it to me, why in the world can we pass a bill to send billions 

of dollars to Iraq that help put that country back together and we 

can’t have just a little bit of money to help our farmers here in 

North Carolina and across the southeast who are hurting or are in 

deep trouble. 

I believe, and I would think you and Congressman Burr would 

agree, that the single biggest obstacle to passing buyout legislation 

is really the lack of political leadership at the highest level. We can 

plan and fuss and work all we want to, but it’s going to take leadership at the highest level—a leadership, for one reason or another, 

that cannot help members from tobacco producing states answer 

our most difficult question and that is how to pay for a buyout. 

The bottom line—and Congressman Burr talked about it, we all 

want to talk about it—that is really, the ultimate issue. 

The Senate buyout plan introduced by Senate Majority leader, 

Whip Mitch McConnell and yourself last year, and I commend you 

for it, answered this question and what it wanted was an assessment to be paid by the tobacco companies. That was enacted. 

6

This is similar to the same user fee in the approach of a piece 

of legislation introduced by then-Congressman Ernie Fletcher and 

myself. Unfortunately, that bill was characterized as a tax increase 

and did not get going, and I believe those attacks against you and 

your approach were unfounded and absolutely irresponsible. As 

your office so succinctly put it, ‘‘assessments against the cigarettemakers are not a tax’’—and I happen to agree. With our country facing a $521 billion deficit, finding a budgetneutral way to pay for a buyout, I believe, strengthens our argument for the passage of a piece of legislation this fiscal year. 

The Jenkins buyout bill mentioned by Congressman Burr would 

pay for a buyout by using five cents of the current excise tax. However, this approach has faced heavy criticism from the Speaker already in, and Riley and Locall in Washington, and he has said that 

‘‘we are not going to add to the deficit.’’ ‘‘Well, if we aren’t going 

to use that, and we aren’t going to use an assessment,’’ my question is how do we get there? 

Some authors of the Jenkins buyout legislation publicly acknowl- edged that the leadership has told them that the $7 and $3 bill 

that would provide funds for farmers in Georgia is too generous— to the tobacco farmers and quota holders. Everybody in this room 

would absolutely disagree with that statement. Well, we started 

out much higher and now we keep getting chiseled down and 

squeezed again. 

If we can’t raise excise taxes and if user fees and assessments 

are unacceptable, and if the leadership opposes using current excise taxes, what else is left for us? The situation of tobacco farmers 

has deteriorated so badly and for so long, that they desperately 

need the relief that the buyout offers, regardless of the source of 

the funding. We have to have some relief. 

In my view, a viable buyout must have two components. First, 

it must fairly compensate the farm families and quota holders 

whose lives have been uprooted by the economic catastrophe that 

we have faced now for the last several years. 

Second, we must be able—and this is the critical piece—we have 

to be able to get the votes in the House and the Senate to pass this 

legislation and then we have to get the signature of the President 

of the United States if we hope to get relief for the people on the 

farm in our communities. 

If a buyout meets these criteria, I have said from day one I will 

support it regardless of who introduced it; regardless of what part 

of the country they come from; regardless of what their party affiliation is—and you would agree with that. It doesn’t matter. The fact 

is, we need to get the job done. 

Anything else that we talk about or anything else is shown is 

nothing more than window dressing. Our focus should be and 

should remain on helping North Carolina’s farm families and making sure that they aren’t forgotten one more time and we just do 

a lot of talking. The tobacco companies have plenty of friends to 

protect their interests in Washington. My focus is on the farmer 

and I know, Madame Chair, that is what your focus is, and I thank 

you this morning. 

North Carolina is fortunate to have you engaged in this issue. 

Our state also is lucky enough to have farm leaders, who are fightVerDate 0ct 09 2002 07:21 Jul 12, 2004 Jkt 093359 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\93559.TXT SAG1 PsN: TOSH
7

ing every day for a buyout this year. Let me take just a moment, 

if I may, to commend several of them. I don’t know if they are here 

today or not. 

Keith Parrish, who is a past president of the Tobacco Growers 

Association, has walked the halls in Washington many, many days 

and he continues to do it. 

Larry Wooten and the Farm Bureau folks—they have been in 

Washington almost every week to bring the attention to the Members of Congress and to the National Association and Bruce Flye 

and his Stabilization Team have been working to broaden support 

for a buyout among the health groups in this country whose support we are going to have to have if we are going to get any legislation passed in Congress. 

Finally, Sam Crews, the current North Carolina Tobacco Growers 

Association President has kept the faith of his members who, after 

facing year after year of disappointment, have almost given up 

hope—but not quite. They are still there fighting. 

I look forward to reviewing all the testimony that comes in today 

and thank you again for holding this hearing. 

Tobacco farmers and quota holders are just barely hanging on 

the edge of a cliff by their fingertips. This December, when the tobacco community faces a possible thirty-three percent cut in 

quotas—that just might be the last straw—and who’s going to be 

there to catch them? We can do it if we make this buyout a top 

priority and we get the leadership focused and this becomes part 

of their commitment when they need our vote for something very 

important in the halls of Congress in Washington, DC. 

Thank you, Madame Chair. I look forward to any questions you 

might have. 

Senator DOLE. Thank you very much. I will apply the usual professional courtesy for my colleagues. There is no question that to 

achieve a tobacco buyout, we must have strong bipartisan support. 

There are many obstacles to overcome. Everyone has a constituency 

they must report to. Our problems have not arisen overnight, as we 

all know. It goes back for a decade. 

I want to thank both of you for your testimony this morning. It 

is imperative that we accomplish a tobacco quota buyout this year 

and I look forward to our continued work together to reach this 

goal. Thank you very much for being with us this morning. 

Senator DOLE. Now I would like to call forth the second panel; 

Larry Wooten, President of the North Carolina Farm Bureau; 

Bruce Flye, President of the Flue-Cured Tobacco Cooperative Stabilization Corporation; Sam Crews, President of the North Carolina 

Tobacco Growers Association and Keith Parrish, President of the 

National Tobacco Growers Association. 

Mr. Wooten, will you start, please, and we will proceed one by 

one down the panel. Welcome. 

STATEMENT OF LARRY WOOTEN, PRESIDENT, NORTH 

CAROLINA FARM BUREAU, RALEIGH, NORTH CAROLINA 

Mr. WOOTEN. Thank you very much, Senator Dole. North Carolina Farm Bureau is pleased to testify today on this critical issue 

of a buyout of the tobacco price support and quota system. Senator 

Dole, I want to thank you for putting your shoulder to the wheel 

8

on behalf of North Carolina’s farmers and quota owners in pushing 

for a reasonable buyout of this badly broken system. 

We recognize that this is not an easy issue to tackle. You have 

made it your top priority and have worked tirelessly in a bipartisan 

manner to move this issue toward a successful conclusion. For this, 

all of us thank you. 

The tobacco price support and quota system has been good to 

farmers. I cannot say enough good things about the economic, social and environmental benefits that this sound program has 

brought to thousands of North Carolina communities since its inception in the forties. Today, the program is not working for farmers and the tobacco industry for the following reasons: 

No. 1, the tobacco price support program was never designed for 

the current intense world competition that our farmers face today. 

No. 2, the price support program was never designed for the 

massive, large-scale farming operations that many of us have today 

in this state. 

No. 3, the tobacco price support program was never designed to 

operate under the current marketing conditions, especially contracting. 

Last, the Federal tobacco price support program was never designed to withstand the consequences of the Master Settlement 

Agreement. 

North Carolina’s rural economy has taken many hits as traditional industries, including tobacco, resize, restructure and adjust 

to world economic realities. According to Dr. Blake Brown, Extension Economist at North Carolina State, and Senator Dole alluded 

to these numbers in her opening statement. North Carolina farmers have seen a $500 million drop in annual farm gate income from 

tobacco since 1997. 

Barring a weather disaster, economists are forecasting potential 

for another $200 million loss next year because of an unprecedented forecast of another huge quota cut of around thirty percent. 

These combined figures represent a $700 million loss of equity that 

is used to finance farming operations. Anyone who operates a business understands what happens when the balance sheet reflects 

such a loss of assets. 

I am sure that the panel of Ag lenders who will be up next will 

address the impact of the loss of collateral on credit worthiness and 

the ability to repay loans. 

If—and I say if—the projected quota cut for 2005 would come to 

pass, the Flue-Cured Tobacco Stabilization Coop will again be 

under tremendous pressure to mitigate the impact. I am sure that 

the Coop chairman who will speak next will explain the difficulty 

and the consequences on that board of further intervention. 

In addition, quota cuts of additional sizes signal the end of the 

United States being a reliable supplier of flue-cured tobacco to the 

world market. We have steadily lost foreign buyers due to high 

prices and low leaf selectivity. 

Further loss of quota, ladies and gentlemen, I fear will seal our 

fate. Our foreign customers are watching this buyout issue very 

closely and they are being forced to make business decisions on 

whether to remain customers of American leaf. Once we have lost 

9

these markets for leaf tobacco, it will be extremely difficult to get 

them back. 

Additional quota cuts will cause the already high rent for quota 

to further escalate—neighbor bidding against neighbor; friend 

against friend for whatever quota there is left to rent. We will see 

farmers forced to exit tobacco farming without an option for orderly 

transition or have a safety net. 

As we will have to consider massive restructuring of the current 

program to salvage some stability for tobacco producers, the question is who will win that political tug-of-war—the east, the piedmont, the quota owners or the producers? 

Tobacco quota impacts farmland values. The check-off funded export promotion program run by Tobacco Associates is currently 

running out of necessary funding. The check-off funded Tobacco Research Commission that is so important to the future of this industry is also hurting. 

As assessments spiral out of control, the whole no-net-cost infrastructure has become a house of cards and is on the verge of collapse. All of you know that political realities make Federal funding 

of these programs impractical. Where do we go and what do we do? 

The impending collapse of the tobacco price support system, ladies and gentlemen, will be a harsh and financially devastating occurrence for farmers and rural North Carolina. We have plowed 

this row, Senator Dole, to the cliff and we can go no farther. 

Farmers were not at the table when the Master Settlement 

Agreement was negotiated in 1998. The public health community 

hoped that the Master Settlement Agreement would begin the demise of tobacco and cigarette manufacturing. Senator Dole, just the 

opposite happened. 

Today, we have startup cigarette companies that are not only 

growing but they are thriving and prospering using cheap, imported tobacco and making minimal contributions to the Master 

Settlement Agreement funds. Because of the impact that the Master Settlement Agreement has had on the quota system, our farmers all across tobacco regions in the southeast United States are 

swallowing the economic consequences while state governments 

and city governments balance their budgets with the proceeds of 

the settlement. 

Senator Dole, for there to be a future for North Carolina tobacco 

farmers, our producers must be unfettered from a program that I 

said earlier has been extremely beneficial to this industry but has 

regrettably run its course. Farmers must be allowed to compete 

and meet their customers’ needs, and this can only be obtained 

when we have a complete, adequately funded, total buyout of the 

current tobacco quota system. 

Adequate compensation for their investment in this program will 

allow many farmers to exit the industry with dignity. However, 

there must be a stable future for those farmers who wish to invest 

in growing and continue selling tobacco. 

Senator Dole, in conclusion, North Carolina Farm Bureau is at 

your disposal any time, any where, any place to continue to work 

in a serious way with any group—the cigarette manufacturers, the 

leaf dealers and the public health community and other farm orgaVerDate 0ct 09 2002 07:21 Jul 12, 2004 Jkt 093359 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 C:\DOCS\93559.TXT SAG1 PsN: TOSH
10

nizations to make certain that farmers have a future. Thank you 

for giving me this opportunity. 

Senator DOLE. Thank you. Mr. Flye. 

[The prepared statement of Mr. Wooten can be found in the appendix on page 41.] 

STATEMENT OF BRUCE FLYE, PRESIDENT, FLUE-CURED

TOBACCO COOPERATIVE STABILIZATION, BATTLEBORO, 

NORTH CAROLINA 

Mr. FLYE. Thank you, Senator Dole. On behalf of the membership of Flue-Cured Tobacco Coop Stabilization, I appreciate the opportunity to submit testimony regarding the economic plight of tobacco farmers and the future of tobacco production in the United 

States. 

In 1998, the Master Settlement Agreement attempted to address 

the plight of our tobacco farm communities. Unfortunately, neither 

tobacco farmers nor community leaders were allowed to participate 

in these discussions. Tobacco companies raised the prices of tobacco 

products to pay for the Master Settlement Agreement and to protect their profits. 

The very foundation of their prosperity—tobacco farmers and 

their communities—were left out. A user fee to pay for the tobacco 

quota buyout would help rectify this mistake. 

Since then tobacco quota reductions of almost fifty percent, skyrocketing quota rent and thousands of tobacco farmers and their 

families are being pushed to verge of bankruptcy. While the tobacco 

farmers’ plight is serious, the lack of action is killing our rural 

communities. 

Our state and county governments are struggling with declining 

revenues; our schools, churches and small businesses are reeling 

and worst of all, our young people, our future farmers, are leaving 

the farm in droves because they see no opportunity. 

For every tobacco farmer at risk of being forced out of business, 

there are ten other people in the farm community who are part of 

the farm economy, who are in danger of suffering the same fate. 

Banks, grocery stores, fertilizer and farm equipment dealers and 

automobile dealerships all depend on the cash-flow from the tobacco economy. Tobacco farmers’ problems don’t stop at the farm. 

They affect the entire community. 

How do we justify a tobacco quota buyout? All the major row crop 

commodities—corn, cotton, soybeans and peanuts. Peanuts even 

have a quota buyout, a lower buyout, but we still have a safety net 

for peanuts. They are all subsidized. 

Tobacco is not subsidized and it is not part of the Agricultural 

budget. Tobacco farmers pay for their program and have paid a no 

net cost assessment to the government since 1982. Tobacco farmers 

pay for USDA inspection and they pay for the losses on CCC loans. 

The combination of a tobacco quota buyout and reasonable FDA 

regulation of tobacco products which includes a listing of the ingredients of cigarettes on the packaging so that our young people will 

know what the risk is of what they would be ingesting into their 

bodies—this will be good for the health of our young people and 

good for our tobacco-producing communities. 

11

Only the U.S. Congress has the authority and the power to set 

things right. The flue-cured tobacco production section can no 

longer afford to wait until next year. We are possibly faced with 

another huge quota decrease and increased no net cost assessment 

in 2005. 

If this happens before Congress can act, the economic toll and 

human suffering will be catastrophic. Without immediate action, 

Congress will bear full responsibility for the devastation and ruin 

of an important sector of our economy and the dashed hopes and 

dreams of thousands of farm families and their communities. 

We are pleading for our very survival, for the survival of our 

communities. Only the U.S. Congress can intervene. Again, I thank 

you for the opportunity to give this testimony. 

Senator DOLE. Thank you. 

[The prepared statement of Mr. Flye can be found in the appendix on page 43.] 

Mr. Crews. 

STATEMENT OF SAM CREWS, PRESIDENT, NORTH CAROLINA 

TOBACCO GROWERS ASSOCIATION, OXFORD, NORTH

CAROLINA 

Mr. CREWS. Thank you, Senator Dole. Thank you for holding this 

vitally important hearing. I am Sam Crews, a tobacco grower from 

Granville County and president of the Tobacco Growers Association 

of North Carolina. Additionally, my family owns and operates a 

Stabilization Marketing Center, formerly an independent warehouse, and also a farm supply business. My remarks today will address all of these perspectives. 

Many opponents have questioned the price of passing a tobacco 

buyout. Should we not in fairness argue the price of our failure to 

pass one? Every tobacco farm in North Carolina is a small family 

business. 

In my community of Oxford, the average size farm will grow be- tween 50 and 100 acres. These growers will modestly spend $2,500 

to $3,500 per acre in Granville County buying fuel, fertilizer, crop 

protection inputs, labor, supplies, equipment, etcetera. 

On our farm, my brother Jimmy and I operate as a partnership. 

Beyond our business operating expenditures, we each spend tobacco income at a local grocery store, pay our local utility bills, buy 

clothes and other necessities for our wives and our school-age children. I have two children and my brother has four. 

We use tobacco revenues to trade vehicles with the local auto 

dealer, secure various loans from the local bank. We also give tobacco profits in the church offering plate as well as donations to 

other important charitable causes. 

All of these activities stimulate the local, rural economy in Granville County. All of these have been negatively impacted as our 

quota has evaporated. My point is that the tobacco buyout or lack 

of one reaches far beyond the farm. The merits for achieving a 

buyout are that it would be the single largest contributor to saving 

the dismal economy of rural North Carolina. 

Nearly a decade ago the Tobacco Growers Association advocated 

for a tobacco quota buyout realizing that in the future increasing 

world production occurring while our domestic costs of production 

12

were increasing would someday place us at a competitive disadvantage. The future is now. 

The 1997 U.S. flue-cure crop approached one billion pounds. Twothirds of that crop was produced in North Carolina. In 2004, we 

will grow the smallest crop in the history of the tobacco program. 

In fact the entire U.S. production this year will be nearly 200 million pounds less than we grew as a state just 7 years ago. 

In 1997, my brother and I grew 206 acres of tobacco. Our independent warehouse sold five and a half million pounds at auction 

with nearly one hundred percent being purchased by traditional 

customers. The future for growing and marketing tobacco seemed 

consistently dependable and optimistic. 

This year we are reduced to 145 acres which if not for purchasing 

quota or renting of neighbors’ pounds who were going completely 

out of farming, we would have been less than 100 acres. As for our 

warehouse, if it were not for serving as a Stabilization Marketing 

Center, we would be completely out of that business. 

This year we may sell around 3 million pounds at the marketing 

center in a building that we built to potentially accommodate three 

times that volume. 

How did we arrive at this seemingly irreversible situation? In 

1998, a congressional effort to pass a buyout was overloaded—

largely due to FDA regulatory efforts and a massive price tag. The 

1998 effort, which we refer to as the McCain bill, was never passed. 

What occurred next none of us could have imagined would ever 

happen. 

In 1999, the major cigarette manufacturers entered into the Master Settlement Agreement in order to avoid future individual state 

litigation. The price of the MSA was over $250 billion. Obviously 

it was funded on the backs of cigarette smokers who chose to endure an undisclosed per pack increase. 

The option for smokers has been to stop using tobacco, but in 

more instances use a cheaper made, lower retail cost product. 

Often that product contains little to no U.S. grown leaf, which of 

course adversely affects our farms. 

The option for cigarette makers was to find ways to lower the 

costs of making a pack of cigarettes. Reports indicate corporate 

downsizing and mergers as one management practice. Many if not 

all of them have sought cheaper, offshore tobacco resulting in a 

sharp and unprecedented decline in the U.S. quota. 

All across rural North Carolina, the absolute costs of the settlement has been thousands of displaced tobacco farm families. Indeed thousands of growers have witnessed business foreclosures 

and today are struggling to make ends meet. 

Additionally the once thriving auction warehouse business like 

the one my family entered into, has been reduced to little more 

than a dozen operators in the nations largest tobacco producing 

state. 

Our growers have scrambled to invent new ways to economize 

their operations. The margins simply do not exist. For nearly every 

grower, the 2004 crop will be the smallest ever produced. Yet, the 

2004 crop will be the most expensive I have ever grown on my farm 

in Oxford. 

13

Consider the recent spike in various input costs. Fuel is at a 

record high. Adverse wage rates for guest workers are now over $8 

an hour. Many growers find themselves in an escalating rental situation for leased tobacco pounds paying nearly twice the rental 

rates of 1997. Finally, the marketing assessment fee is double what 

it was just last year at 10 cents. 

If the aforementioned erosion of my chance for profitability isn’t 

enough to test my optimism then last week’s newspaper report 

quoting Dr. Blake Brown did. Dr. Brown predicts we could witness 

as much as a thirty percent reduction in quota for 2005 if we maintain the status quo. 

Senator I, nor any of my neighbors can endure such a catastrophe. 

Everything that I have described has occurred in just 7 years. 

The tragedy is that growers did not create this current plight because of poor business decisions or bad management practices. Unless sweeping changes are implemented, many more will unnecessarily succumb to the unprecedented and unpredictable increased 

pressures of simply trying to stay in business. 

Our challenge is not to simply rectify flawed policy. Ours is a 

complex arrangement of situations bound together by the Federal 

tobacco program. The program has served us well since the 1930’s 

but in today’s global marketing economy, it is now a deterrent to 

buying U.S. grown leaf. It is widely considered a relic whose previous merit is obvious and appreciated, but whose current incarnation is crushing us in the world market. 

We have been greatly diminished as the world’s supplier of premium grown tobaccos. Customers say that our leaf is too expensive 

relative to the world market. As a producer of that leaf, I am confident that it is worth its price and I am proud to deliver that 

value. However, as a businessman, I must pay close attention to 

the characteristics my customer values. We are dangerously approaching the reality of becoming a niche leaf producer for one 

major manufacturer. 

I become increasingly disturbed by the number of proud, yet 

broke tobacco farmers that I personally know. For the past 2 years 

many of them hung on hoping for a buyout. A buyout that would 

afford the opportunity to address debt and either remain profitable 

or transition away from growing tobacco. Sadly, they remain indebted and completely out of the tobacco farming business. 

Absent the achievement of an $8 and $4 tobacco buyout this 

spring, I, too, may join the ranks of unemployed former tobacco 

farmers. For too many of us, time has already run out. Please do 

all that you can to advance and achieve the buyout in the next several months. 

On behalf of all NC growers, I thank you for your leadership and 

attention on this matter. 

Senator DOLE. Thank you. Mr. Parrish. 

[The prepared statement of Mr. Crews can be found in the appendix on page 49.] 

14

STATEMENT OF KEITH PARRISH, EXECUTIVE DIRECTOR,

NATIONAL TOBACCO GROWERS ASSOCIATION, BENSON,

NORTH CAROLINA 

Mr. PARRISH. I feel like I am sitting on the bench over here. My 

name is Keith Parrish. I represent the National Tobacco Growers 

Association as its Executive Director and also am a lead plaintiff 

in the grower lawsuit for North Carolina. I am most of all a tobacco 

farmer and quota holder from Benson, North Carolina, and I thank 

you very much for holding this field hearing on legislation that is 

critical to the future of all tobacco growers, quota holders, consumers and manufacturers in the American tobacco industry. 

Tobacco growers and quota holders have lived under the nation’s 

quota—tobacco quota and price support system since the 1930’s. As 

everyone else has said today, the system that was invented for a 

different time worked well for many years, but it is now clearly 

broken. It is imperative that we work together to create a landmark national initiative on tobacco. 

American tobacco farmers support a buyout of historic tobacco 

farm quotas and reasonable FDA regulation of tobacco consumer 

products. The goal is a healthy future and the path is fairness. 

Although it is a product at the economic core of many communities, today tobacco farmers are planting the smallest crop in history. All predictions for the next year are even more grim at a cut 

of thirty percent or more with a huge assessment—some say close 

to 20 cents. 

Due to the decline in tobacco production and the rising costs associated with production, tobacco growers have farmed our equity 

away. Today, entire farms are now growing houses where they 

used to grow field crops. Our bankers are no longer willing to gamble on the promise of a buyout. Thousands are going out of business and the health of our communities are going with them. 

Two aspects of the buyout are important to help address this 

point. First, we need the buyout to occur and occur now without 

delay. Second, we need to phase in the impact of the buyout on 

farmers who may be the smallest, the oldest, or the ones who were 

unfortunate in the last growing season allowing them to receive 

their money and their compensation in the quickest possible time 

period. The most basic of rights—the Federal marketing orders, inspections, FSA oversight—all of these must be maintained. Our 

commodity should have the same rights as all other crops. 

The buyout compensation needs to be handled by putting the 

money into the hands of the growers and quota holders. It is the 

farmers and their families who largely populate most agricultural 

towns and counties. They support retail businesses, services, 

schools and church activities. 

If you want an engine to generate a recovery and stabilize these 

communities as we go forward from the buyout, the compensation 

needs to be paid to the people who make their living there, who 

raise their kids there, who farm there and shop there. 

The real issue, also, is a health issue, and it faces all the communities in every state. Tobacco is legal commodity. The demand for 

tobacco leaf is not going to disappear. Increasingly, manufacturers 

are turning to imports. We can choose to regulate tobacco and 

make it a safe product and have it be produced here in the United 

15

States or we can have it produced uncertified and imported in from 

Zimbabwe, Brazil, China or Mexico. 

One major manufacturer has been a main stumbling block in 

preventing a buyout, and I find it very ironic that they purchase 

most of their tobacco offshore and have a smaller percentage of 

their tobacco in our cigarettes that are consumed in America today. 

This is one of the reasons that we have had so many cuts and been 

subjected to so much hardship in the past. 

We are embarking on a new set of national tobacco policies and 

we need cooperation from all parties. Tobacco production is unique 

and the policy covering it needs to reflect its uniqueness, while simultaneously addressing the health concerns. Reasonable FDA regulation of tobacco consumer products is a non-grower issue. 

U.S. tobacco growers are willing to accept any form of safety or 

health check. Tobacco growers understand the Farm Service Agency’s system for tracking tobacco which is now in place, is one that 

they are very familiar with in the past and have used every day. 

The point today is that the purpose of tracking will not disappear—it’ll change. Instead of tracking for quota, a new health 

policy on tobacco products will require tracking for health. We 

make a living growing tobacco, and as a business person, we would 

welcome the checks and balances that would enable us to grow a 

premier crop. 

We are very proud of what we grow. We would like for all of our 

consumers to know where our tobacco was produced and where 

their cigarette manufacturers used the tobacco—where it came 

from—it came from us. Because a governing organization already 

exists, any new legislation would not require the need to invent a 

new entity to register our crops and oversee their certification. 

With hundreds of thousands of class members, never in history 

has there been such a large group of farmers and growers and 

quota holders that have had the capability to speak as one voice. 

Tobacco growers were not invited to the table for the MSA, but now 

there is a unity of positions which has never happened before. The 

path of fairness allows us to reach our goal for a healthy future of 

tobacco production. 

Our state stands to receive over $6 million. Just imagine the economic impact for our rural counties. I would invite our elected officials to think about this the only way it possibly can work. It is 

a rare moment for you to accomplish a difficult task—putting together a bipartisan coalition, including health organizations, in a 

singular direction without political risks. 

You can get it done. We need your help. We need your clear leadership to come to our aid. We are looking to you to help us. You 

are our champion. You are our Senator, and we thank you for all 

that you have done. We appreciate the focus of your attention on 

these very important issues that threaten the future of America’s 

growers and I appreciate this opportunity to testify and deliver our 

views. 

[The prepared statement of Mr. Parrish can be found in the appendix on page 45.] 

Senator DOLE. Thank you very much. Now, as alluded to in the 

testimony this morning, Blake Brown, our great agricultural economist at N.C. State, just recently released his quota forecast for the 

16

2005 crop year based on fairly conservative numbers and it is an 

eye opener, for sure. A thirty plus percent cut. I would like your 

perspective on what a cut of that magnitude would mean for your 

communities back home. 

Let me start with Mr. Wooten. You are a native of Pender County. What kind of impact is it going to have there? 

Mr. WOOTEN. Senator Dole, this tobacco buyout—it’s more than 

an agricultural issue. It’s an economic development issue for all of 

North Carolina. As Mr. Parrish said a while ago, when you take 

five to six billion dollars and spread it across the state of North 

Carolina primarily in our rural communities for over a period of 5 

to 6 years—and tobacco money traditionally turns over four times 

in the economy—you can see what type of tremendous economic 

impact this will have not only for agriculture, but for the rural 

communities, grocery stores, the school boards and on and on and 

on. 

I did a—I was just looking in six southeastern North Carolina 

counties, the six southeastern counties of Bladen, Columbus, 

Duplin, Pender, Sampson and Wayne, in 1997, total tobacco income 

for those six counties was about $214 million. 

In 2002, that income was roughly $147.3 million, a decrease of 

thirty-one percent just in those six counties, so without this tobacco 

buyout, more than the farm economy is going to hurt, Senator 

Dole, in these primarily rural counties. 

Senator DOLE. Thank you. Mr. Flye, how is it going to affect your 

home community of Battleboro? 

Mr. FLYE. Senator Dole, more farmers will go out of business. It 

will affect the financing of the farmers, I believe, and as I mentioned in my remarks, when we lose one farmer, eventually a chain 

reaction is ten more people losing their livelihood. 

We’ll see a smaller tax base, but higher taxes on farm land. We’ll 

see schools rejuggled and there will be less students there; there 

will be more empty pews in our country church. It will have a far 

reaching effect on our communities, not just the farmers. 

Senator DOLE. Mr. Crews, you really answered this question in 

your testimony. I am going to come back to you in just a moment, 

but let me ask Mr. Parrish first—you are next door in Harnett 

County, what is your take on the economic impact of a cut of that 

magnitude? 

Mr. PARRISH. Well, if we don’t get it, I wouldn’t want to be a politician that had to face election in November—I had that in my 

speech—and I honestly mean no disrespect by that, I honestly do 

not. It’s a reality that farmers in Harnett County and every county, 

I believe, in this state and all the other states here and represented 

and there’s people here from Kentucky, there’s people here from 

South Carolina, Virginia—I’ve seen them here already. That’s how 

much this thing means to people. 

In my community, I know that it is something that is going to 

affect everyone in their heart. It’s going to affect their way of life; 

it’s going to affect their churches, their ag businesses—they’re already so negatively impacted, they’re teetering on the edge of disaster, and I don’t think they can withstand what is going to happen 

here if we do not get a buyout. 

17

A buyout is a saving thing that farmers are looking for and quota 

holders—everyone is hanging on for that one thing to occur. We 

desperately need it. 

Senator DOLE. Mr. Crews, as President of the North Carolina Tobacco Growers Association, your organization represents communities all over the state. Now many in Washington, DC wonder why 

tobacco farmers can’t just transfer their equipment and their land 

to the production of another crop. 

Would you like to comment on that for the record, please? 

Mr. CREWS. Yes, Senator, thank you. Tobacco—a lot of tobacco 

equipment is tobacco-specific—tobacco barns, I don’t know of any 

other use you could make of a tobacco barn. Also, grain crops, vegetable crops—it doesn’t seem to be any crop at all right now in 

North Carolina that’s very profitable, and that’s the major reason 

why we can’t transition to another crop without a buyout. 

Senator DOLE. Thank you, gentlemen, very much for your testimony today. I appreciate it. Thank you. 

Senator DOLE. Now if the third panel will report to the table, 

please. We will receive testimony from Mr. Tommy Bunn, Executive Vice President of the Leaf Tobacco Exporter’s Association and 

Todd Haymore, Director of External Affairs for Universal Leaf. 

Mr. Bunn, thank you very much for being here. 

STATEMENT OF TOMMY BUNN, EXECUTIVE VICE PRESIDENT, 

LEAF TOBACCO EXPORTERS ASSOCIATION, RALEIGH, 

NORTH CAROLINA 

Mr. BUNN. Thank you, Chairwoman Dole and other Members of 

Congress for being here today and for the opportunity to participate in this important hearing. I would like to say that I am going 

to bring some good news, but unfortunately this is not possible. As 

you have heard, this may be the toughest times the U.S. tobacco 

industry has ever known. 

This morning I want to talk about the Leaf Tobacco Exporters 

Association’s views on the state of our industry and tell you what 

we think must be done to salvage our tobacco industry in this country. 

For decades, LTEA members and their companies have worked 

hard to support the U.S. market, its growers, workers and communities by making major investments in leaf processing facilities 

within the tobacco-growing region. Today, we find ourselves at a 

point where there is very little left to support. 

U.S. production of flue-cured and burley tobacco is currently less 

than half the level it was just a few years ago. The decline in production continues as the domestic market for cigarettes fall. High 

support prices and the restrictive provisions of the Federal tobacco 

program make it impossible for U.S. growers to compete in the 

world market. During this same period, other countries have progressively expanded production. 

This is not news to any of us that many of the problems in the 

U.S. market have been brought about by numerous legislative and 

legal battles during the last decade. Yet the greatest impediment 

to recovery in the U.S. market remains inviolate and unchanged—

and that is the Federal tobacco program with the artificial costs it 

forces on domestic leaf prices. 

18

Simply put, the program has become so antiquated and inflexible 

it is destroying the entire tobacco domestic and export trade. 

Changes must occur. They must occur now if we are to salvage 

U.S. flue-cured and burley production. 

The unnecessary costs that result from the ‘‘cost of quota’’ and 

the inherent rigidity in the program have dramatically reduced the 

competitiveness of U.S. leaf in the world market. Besides contributing to the large production cuts of the last 6 years, this situation 

also has reduced the amount of U.S. leaf exported into the world 

market. The number of export customers has been dropping for 

more than a decade and this list is rapidly getting shorter. 

Most recently, we lost two important and long-time export customers who decided not to purchase any U.S. flue-cured tobacco, 

due primarily to the high costs of our leaf. It doesn’t stop there. 

While we continue to promise and promise and promise these customers that U.S. price reform is just around the corner, we now 

have been informed by the remaining few export customers that 

they also are seeking less costly alternatives to U.S. leaf. 

Further declines in export sales will devastate the already crippled domestic market by reducing our economies of scale for producers and processors. 

Leaf Tobacco Exporters Association endures the principles of a 

buyout and we endorse the principles of a buyout because we believe that a buyout can make U.S. tobacco more competitive in the 

world market. However, we do have serious concerns about some 

aspects of the various legislation proposals that have been drafted 

for deliberation in previous legislative sessions. 

We are most concerned about legislative language that would retain the market distorting features of the current Federal tobacco 

program that restricts production and inflates leaf prices to uneconomic and non-competitive levels. 

We believe that any buyout proposal has to be written with the 

long-term interests of the grower in mind if the legislation is to be 

economically viable. By growers we mean those producers who intend to continue producing tobacco post-buyout. All of us are feeling the constraints of our shrinking market, but it is the growers 

who have been hurt the most by the current program’s free fall and 

unresponsiveness to market conditions. 

In the long run, growers will not be well served if some of the 

worst features of that program are permitted to continue hampering farm efficiency and compromising competitiveness. 

I want to define LTEA’s position on specific features of legislation regarding a tobacco quota buyout and the Federal tobacco program. 

First and foremost, LTEA strongly supports any and all efforts 

to make U.S. leaf tobacco more competitive in the world market. 

We believe a buyout of the program is an essential step in that direction. The cost of leasing quotas probably adds fifty cents a 

pound on the average cost of U.S. leaf. The current law places the 

U.S. growers at a severe competitive disadvantage. There is no 

other tobacco-producing country in the world that requires growers 

to pay for the privilege of growing tobacco. 

Too often, we make excuses for our high prices saying other 

countries can pay low wages, they have government subsidies, the 

19

currency exchange rates are against us. These so-called justifications miss the point altogether. These are advantages of our customers and our competitors—they are not reasons we should fail to 

address the role of competitiveness in our market. 

Second, the interests of non-producing quota holders who outnumber the active producers by more than ten to one, are diametrically different from the interests of the growers. Quota holders 

wish to maximize their income from quota rentals and may be unconcerned if production is reduced as long as their income stream 

is protected. 

Quota owners have exercised a strong influence over the Federal 

tobacco program for years and have often resisted changes that 

they believed would reduce quota income. 

As a result, needed legislative changes in the program have not 

been made, and flue-cured and burley quota levels have been reduced by more than half since 1998. Quota rent levels have increased significantly and while good growers have been forced to 

operate at production levels far below their optimum efficiency. 

This has contributed to the dramatic increase in quota lease 

rates, as growers have bid against each other in an effort to maintain an efficient scale of production. The resulting non-value-added 

costs have also made it difficult for U.S. growers to accept the 

lower prices that would be necessary to compete in the world market. 

Third, we believe that the only solution to the problem today is 

dramatic policy change. We believe any legislation that seeks to replace the market distorting features of the existing program with 

new provisions that continue to limit production and maintain support prices at unrealistically high levels would guarantee a continued decline in the U.S. tobacco production. 

More important, it would represent the loss of a historic opportunity to restore the competitive position of U.S. leaf in the world 

market and provide U.S. growers a chance to stay in business. This 

can only be done by freeing up efficient growers to do the best job 

they can, unfettered by restrictions on production and arbitrary 

floors on price. 

Fourth, although Leaf Tobacco Exporter’s Association is not taking a formal position on legislative proposals regarding the amount 

of buyout payments to quota holders and growers, we do have 

strong concerns about the high cost of a buyout and the financing 

of these payments through assessments, or user fees, on manufacturers of tobacco products. 

Certainly, any assessments placed on the manufacturers would 

likely be passed along to the consumer, thus forcing the price of 

U.S. tobacco products to rise and the demand for tobacco products 

to continue to decline. The unintended consequences of this financing mechanism would likely create even more hardship on the U.S. 

growers by reducing the need for domestic leaf. 

Fifth, we also question the basis in some of these legislative proposals for providing buyout funds to growers who choose to continue producing tobacco because such payments would be contrary 

to the World Trade Organization provisions on agriculture. 

Sixth, we fail to understand the rationale for allowing quota owners and the growers to double-dip by receiving payments for both 

20

their quota and their production and still remain eligible to 

produce tobacco. We believe this concept has no place in any 

buyout legislation; it doesn’t make sense because it simply costs too 

much. 

Seventh, we believe that a post-buyout marketplace should be 

characterized by free market supply and demand. We believe U.S. 

growers should be free to produce tobacco according to the domestic 

and international market demands. Allowing the cost of U.S. tobacco to become competitive in the world market could minimize 

the need for imported large volumes of foreign leaf. 

In line with this, we also believe that buyout legislation should 

not place restrictions on post-buyout tobacco production areas. 

Growers who choose to continue producing tobacco and any new 

growers who decide to enter the market should have the flexibility 

to grow tobacco wherever the natural resources and climate conditions would allow. We see no need for a Federal oversight committee to place restrictions to protect a few growers to the detriment of the industry as a whole. 

However, Leaf Tobacco Exporter’s Association believes that if 

buyout legislation establishes a national tobacco board, it must include provisions for leaf export dealer representation. Some previous legislative drafts failed to recognize the difference between 

product exporters and leaf exporters. There is indeed a significant 

difference that must be addressed. 

Finally, while FDA regulations of tobacco products is an issue 

that primarily concerns the manufacturing sector, we are strongly 

opposed to any type of FDA regulations that would impose direct 

oversight on farms and leaf processing operations. Costly and unnecessary government regulations will further burden the tobacco 

growers and increase the cost of U.S. leaf to our remaining foreign 

customers. 

We also think it is impractical to try to regulate at the farm and 

processing level. If manufacturers are required to comply with FDA 

regulations, then it is the manufacturers who should be responsible 

for issuing specifications to processors and producers and monitoring their compliance. 

This would avoid the confusion and the high cost that would be 

inherent in trying to enforce multi-layers of compliance across 

multi-levels of the industry. It is, we believe, the only way such a 

regulatory environment can have any chance of working. 

For years now, we have been dismayed by the lack of progress 

in making any substantive changes in the tobacco program. Even 

with the failure of so many in our industry to recognize the need 

for change at all. Now we all are suffering the consequences of this 

inertia. 

Tobacco policy must be changed now. All of the market-distorting, non-competitive features must be laid to rest, relics of a bygone era. We need a marketplace shaped by supply and demand, 

one that will enable U.S. growers to produce tobacco competitively 

for the domestic and international markets. 

Thank you for the opportunity to testify. 

Senator DOLE. Thank you. 

[The prepared statement of Mr. Bunn can be found in the appendix on page 52.] 

21

Mr. Haymore, thank you for being with us today as well. 

STATEMENT OF TODD HAYMORE, DIRECTOR, UNIVERSAL 

LEAF TOBACCO COMPANY, EXTERNAL AFFAIRS, RICHMOND, 

VIRGINIA 

Mr. HAYMORE. Thank you, Senator Dole. I do appreciate the opportunity to appear before you and this group to give you Universal 

Leaf Tobacco Company’s position on a few issues. 

Before I begin my formal testimony, please allow me to give you 

a brief overview of Universal and the role that we play in an industry that is so important to the economic vitality of North Carolina 

and indeed the entire southeast. Universal is the world’s largest 

independent leaf tobacco dealer. 

Put more simply, we purchase leaf from the growers, process it 

and sell it to the manufacturers of tobacco products. Universal’s 

global headquarters is located in Richmond, Virginia, but our U.S. 

operational headquarters is located in Rocky Mount, North Carolina, and we now have the largest and most modern leaf tobacco 

processing facility located just outside of Nashville, North Carolina, 

just up the road here. 

The leaf dealer sector, as you know, is often overlooked, but we 

do contribute a great deal to the economy of North Carolina. During the last flue-cured and burley processing seasons, Universal 

processed in North Carolina about 120 million pounds of the fluecured crop and about 110 million pounds of the burley crop. 

That translates to about twenty-seven percent of total flue-cured 

crop sold last year and about forty percent of the total burley crop 

sold. Let me make a note that we probably would have processed 

more in our Nash County facility had we opened on a normal July 

opening day, but because of construction, we were forced to wait 

until mid- August, so those numbers would have been a little higher. 

Also, during the same time period, Universal employed more 

than a thousand people in North Carolina and paid out more than 

$20 million in payroll. 

With these facts in mind, I want to stress that Universal does 

play a key role in the U.S. tobacco industry and we are quite proud 

of our long-time support of the domestic industry, including our recent $130 million investments in the United States, a little more 

than $100 million was spent right here in North Carolina. 

Unfortunately, if drastic change doesn’t take place very soon in 

the domestic tobacco industry very soon, there will be little left for 

us to support and obviously, we do not want that. 

Senator today I am going talk a little bit about how the current 

state of the domestic tobacco industry is impacting our business 

and what we would like to see happen to change this situation. 

Unfortunately, I must tell you that the domestic tobacco industry 

is in serious decline, due primarily, we believe, to the Federal price 

support program that has worked to price U.S. leaf out of the world 

market and paralyzed good growers by increasing the cost of doing 

business in the United States. 

This, obviously, is having a detrimental impact on our business 

as well, and these issues have an effect on everybody in this indusVerDate 0ct 09 2002 07:21 Jul 12, 2004 Jkt 093359 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 C:\DOCS\93559.TXT SAG1 PsN: TOSH
22

try as you well know. Let’s look at some of the cruel and sobering 

facts that are out there. 

U.S. production of both flue-cured and burley crops is about half 

of what it was just a few years ago—and obviously it’s been stated 

several times here today that we know from internal and external 

data that we are facing a potentially devastating quota for the fluecured crop for 2005. 

Exports—the only growth engine left for the domestic market— are shrinking at a very alarming rate, and we believe that both of 

these issues are directly related to the Federal tobacco program. As 

a result of these problems, thousands of growers have been forced 

to scale back their operations, reduce work force, and take income 

cuts. 

I don’t need to say that; you are living it. You’ve made the capital investments and have the equipment to produce a crop twice 

the size you are today—yet many of you are making probably bad 

long-term economic decisions today just out of pure necessity to 

stay in business in the short run. 

Growers, you are not alone. We are experiencing pain, too. In the 

leaf processing and purchasing sector, consolidations fostered again 

out of basic survival because of exports shrinking, have made all 

three of the major independent leaf dealers in the United States 

shut down major processing operations and downsize work forces. 

Universal alone has gone from having six processing facilities in 

1998 to just two this year, and we have seen our U.S. employment 

level drop from approximately 8,000 workers in 1998 to about 2,500 

this year. 

Unfortunately, it is very likely this bad news will continue to 

occur in our sector and throughout the entire domestic industry unless the handcuffs of the tobacco program are removed and good 

growers are given the opportunity to compete effectively in the 

world market. 

Now, you may be asking yourself, if the state of the domestic to- bacco market is so bad, why did Universal invest $130 million in 

the United States? How could Universal make such a significant 

commitment to the United States when the future looks so bleak? 

Yes, we recently completed a major modernization effort in the 

United States by building a brand new, 1.2 million square foot, 

state-of-the-art leaf tobacco processing facility in Nash County and 

we expanded and renovated our Danville, Virginia facility so that 

it, too, would have the most modern, up-to-date leaf processing 

technology in the world. 

Yes, that $130 million outlay represents the single largest investment ever made by Universal in its processing facilities and yes, 

we are very proud to have made these investments in Virginia and 

right here in North Carolina. However, I am sorry to say that we 

made these investments with little or no confidence in the future 

of the U.S. market. 

Rather, we made these investments because we needed to increase efficiency in order to remain viable in the face of smaller 

U.S. crops and the ever growing quality demands of our customers. 

We recognize that we took a substantial risk as the fundamental 

problems facing our industry remain squarely in place and so far, 

no one has really shown any true inclination with wanting to deal 

23

with them. We felt like we had to make these the decisions and investments in order to maintain our position as the premier leaf 

dealer in the United States, even if the export market completely 

collapses and we are only left to service the shrinking domestic 

market. 

What must be done to ensure the future of the domestic tobacco 

industry? 

We believe without a doubt the greatest challenge facing the industry today is the need for substantial and immediate change. We 

believe that the time has come to eliminate the Federal tobacco 

price support program. Let me explain. 

As you all know, the program has been historically one of our 

greatest assets and one of the most effective and efficient farm programs in the United States. Now, however, it has become an albatross—clearly saddled with antiquated rules and non-competitive 

prices, and as Tommy mentioned, it’s become so inflexible that it 

cannot react and effectively respond to changes in the global or the 

domestic markets. 

Many in the industry, including Universal, believe the program 

has led to greatly inflated U.S. tobacco prices to the point where 

the U.S. is simply no longer competitive in the world market, and 

this is evidenced by the shrinking export figures we have all seen 

over the last few years. Regrettably, more and more foreign customers are turning away from U.S. leaf and seeking cheaper alternatives from places like Brazil, Malawi, and even China now. 

Because of these reasons and others, Universal strongly believes 

the only way for the U.S. leaf to be more price competitive in the 

world market is to allow the market to work without restrictions 

on prices or production. 

That’s why, in principle, we support a quota buyout and the 

elimination of quota. The right to grow tobacco must be placed 

squarely in the hands of growers if the domestic industry has any 

chance of long-term survival and good growers must have the ability to achieve economies of scale if they are to be able to compete 

profitably in the world market. 

The United States is the only country in the world in some cases 

where growers have to pay for the privilege of growing tobacco. 

This is wrong and it places the U.S. growers at a severe competitive disadvantage to growers elsewhere in the world. More importantly, we believe that the complete elimination of the Federal 

price support system is absolutely essential if the U.S. grower is 

going to be able to compete effectively in the world market. 

Any new tobacco legislation that emerges from the U.S. Congress 

should not limit production or have measures that support prices 

at artificial and non-competitive levels. Instead, the production and 

price issues should be determined by simple supply and demand economics. 

Universal believes that a move to a free market system will help 

to restore the competitive balance of U.S. leaf in the world market 

and stabilize domestic leaf production. In fact, we believe that it is 

the only step that can achieve these important objectives and restore the economic viability of the domestic tobacco industry. 

These are just two of issues that Universal believes must be resolved in the very near future, but we believe that they are the two 

24

most critical and we will offer a more thorough explanation of our 

beliefs on these issues for the record at a later date. 

Senator Dole, let me close my testimony by stating that Universal has been—and remains today—a significant buyer and the 

largest processor of U.S. tobacco. We have worked hard to support 

this market, its growers, and its workers, and I believe that our recent $130 million investment in Virginia and right here in North 

Carolina lends full credence to our commitment to this market. 

We intend to be here for years to come processing U.S. leaf—your 

leaf—in our state- of-the-art processing facilities in Nash County 

and Danville, Virginia, but the time is fast approaching when there 

may be very little for us to support and that is why we believe 

changes obviously must come and must come soon. 

In some cases, the changes will be painful, but no change at all 

is bringing a great deal of pain right now. To make these changes, 

it will take strong leaders with the willingness to make tough decisions in the short-term in order to have a more prosperous longterm. 

Senator Dole, I do applaud your leadership on this issue and I 

thank you for bringing these issues to the attention of your Congressional colleagues. Universal stands ready to work with you to 

do and we know that reaching these goals is going to be difficult, 

but we are ready to do it, we are ready to be there with you. 

Thank you again for having me here today. 

[The prepared statement of Mr. Haymore can be found in the appendix on page 58.] 

Senator DOLE. Yes, indeed, thank you very much. Now, Mr. 

Bunn, you mentioned the trend that you are witnessing among foreign buyers as it relates to U.S. tobacco production. How far are 

we from the point of no return for these buyers? 

Once they quit doing business with the American tobacco farmer, 

is there any incentive for them to come back? 

Mr. BUNN. Well, we have always been noted for our integrity and 

quality and capability to be a steady supplier of tobacco and a stable government—so while our prices may be different than some of 

our competitors, we still have things to offer. 

The problem is now the value of those are not being considered 

because of our competitors and the price of their tobacco is so much 

lower than the price of U.S. tobacco. 

Senator DOLE. From your perspective, what kind of business decisions do you anticipate another thirty plus percent cut will require your member companies to make? 

Mr. BUNN. We will see some dramatic scaling back of operations. 

In some cases, there may be consolidation of operations, but certainly we would see the plants trying to at least maintain some 

economies of scale in operation which would mean short time operations perhaps even closing some factories. 

Senator DOLE. Mr. Haymore, as you reference in your testimony, 

Universal Leaf has made a significant investment in a processing 

plant in Nash County just up I–95 from here. Let me ask you the 

same question that I have been asking each of these witnesses, 

how is an additional thirty percent cut going to affect Universal 

Leaf and what kind of impact is that going to have on the new 

plant in Nash County? 

25

Mr. HAYMORE. The first easy answer to that is with a thirty percent quota cut, we are going to try to get as much of our competitor’s business as possible to make sure it’s processed in that facility, but a more, I guess, in depth answer is if we are a volume driven business. If we don’t have the volume to run through the plant, 

it means less time to process, less workers, less jobs. 

To give you maybe a historical answer, Senator, just this past 

year, because of less burley or fewer burley pounds than we expected, we closed our Danville, Virginia—where we just spent $30 

million—we closed it 7 weeks earlier than anticipated. 

That was 7 weeks of payroll that didn’t go out; 7 weeks of time 

that folks didn’t have jobs and quite honestly with a thirty plus 

percent quota cut, we are looking at unfortunately more of the 

same probably in both Virginia and North Carolina. 

The biggest question mark is if nothing happens and we do have 

this thirty percent quota cut, how long can we go just scaling back 

operations before you get to a situation where you must mothball 

or close permanently a facility. Obviously with the investment we 

have made, we don’t want that to happen. 

Senator DOLE. Thank you both very much for your testimony. It’s 

certainly been informative and it’s very important to have your testimony on the record. Many thanks. 

Will the fourth panel please come forward? We have with us 

today Mr. Gene Charville, President of East Carolina Farm Credit; 

Mr. Wallace Herring, Senior Vice President and Manager of the 

Agribusiness Department for First Citizens Bank; and Dallas Taylor, Senior Vice President for Wachovia. 

It’s important to get the perspective of the financial institutions 

on this important issue as well. 

Mr. Charville, welcome. 

STATEMENT OF GENE CHARVILLE, PRESIDENT, EAST 

CAROLINA FARM CREDIT, RALEIGH, NORTH CAROLINA 

Mr. CHARVILLE. Good morning, Senator Dole, and members of 

the Subcommittee. I am Gene Charville and I am President of East 

Carolina Farm Credit. We are an Agricultural Credit Association 

serving the credit needs of agricultural producers and rural homeowners in eastern North Carolina. Currently our Association serves 

approximately 3,000 farmers and 500 rural homeowners and provides approximately $700 million in credit. 

I would like to thank you, Senator Dole, for your work on behalf 

of the North Carolina farmers that we serve. Your efforts to bring 

resources to bear on the agricultural and rural development challenges facing our state are very much appreciated by me, my farmer board members, and all of the farmers and rural citizens we 

serve. 

We are the largest farm lender operating in eastern North Carolina and over fifty percent of the agricultural credit is with our organization; and as a cooperative business, the success of our business parallels the performance of the farmers that we serve. Being 

a single industry lender, with a loan portfolio that consists nearly 

entirely of agricultural loans, our success is directly linked to the 

plight or successes of our farmer/members. 

26

Within that single industry that we serve, our business is even 

further concentrated predominately in a few main agricultural 

commodities. The largest commodity concentration is tobacco. Over 

forty percent of our loans and commitments are to farmers who 

rely on income from tobacco to pay their bills. For East Carolina 

Farm Credit, this amounts to an investment of over $300 million. 

The future of our business is directly dependent on the ability of 

tobacco farmers to be successful, build and maintain their equity, 

generate profits, and repay their debts. Eliminating the opportunity for growth or expansion limits the ability of farmers to succeed. It affects the value of their assets, the collateral they provide 

for loans, and the entire rural economy. 

The tobacco quota cuts that have occurred over the past several 

years have diminished the ability of tobacco farmers to succeed. 

Further cuts and the resulting instability could adversely affect the 

quality of our loan portfolio and the performance of our cooperative 

business. 

Senator Dole, as someone who lives and works in rural America, 

I see the very real needs facing our farmers and communities. As 

you know, rural people face daily hardships as they meet the challenges of living and working in a rural area. 

The tremendous reductions in the tobacco allotment that have occurred over the past few years have only added to these hardships, 

making the challenge of surviving as a tobacco farmer nearly impossible. 

Farming or working in a rural community no longer offers the 

appeal necessary to keep the next generation in the rural areas 

where they were raised. The average age of our customers is fiftyeight years old and that number has been continually increasing 

for the past two decades. 

At East Carolina Farm Credit, we have pursued numerous programs to support and encourage young people to stay on the farm. 

Despite these efforts, young people, the next generation of farmers, 

are leaving the rural area. A buyout of the tobacco quota program 

would help restore economic strength to rural North Carolina. 

Tobacco farming, for decades has been a stable and profitable 

farm enterprise, but it has now become a myriad of risk and uncertainty. The continuing reductions in the quota, increasing operating expenses, marketing changes and an uncertain future have 

all created a tenuous situation for tobacco farmers, as well as for 

their cooperative lender. 

Farmers today are faced with many of the same obstacles that 

their fathers and grandfathers faced. They have no control over the 

costs of the inputs they purchase and no control over the proceeds 

they receive when they sell their crop, but we have added yet another burden with the uncertainty of whether there will be a 

buyout. Let’s not continue with this burden on an industry that is 

already stressed. 

The good news is that adequate credit is still available to tobacco 

farmers. With continued cuts and in the absence of a buyout, credit 

restrictions will be inevitable. The quota cuts of the past several 

years have financially weakened nearly all tobacco farmers. Net 

worths have declined, earnings have eroded and tobacco farmers 

who have worked hard and achieved financial success are now 

27

fighting for their survival. Let’s end this downward spiral and let 

the tobacco industry start on a new course in North Carolina. 

East Carolina Farm Credit was established to fulfill unmet credit 

needs for farmers and assure that a dependable and reliable source 

of credit would always be available. East Carolina Farm Credit has 

been fulfilling this need for farmers since 1917. 

Farmers still have these same needs for credit and for a lender 

that understands their needs as they did over 85 years ago. Let’s 

give tobacco farmers the ability to continue to earn a living. 

Senator Dole, we are at a turning point. We can sit back idly 

while we continue to see our tobacco industry slowly and painfully 

decline, and with this decline a further erosion of our rural communities and businesses that depend on a strong rural economy. Instead, I hope that we seize the opportunity to change the tobacco 

industry in a positive way. 

Let’s provide an equitable buyout of the tobacco quota program. 

Doing so will strengthen eastern North Carolina, it will strengthen 

the entire state, and it will do so in a way that provides the farmers who are with us today, the farmers that have built eastern 

North Carolina and its economy, a way to make a transition. 

Senator Dole, your interest and support on issues affecting rural 

North Carolina, your strong support of the tobacco industry, and 

your pursuit of a tobacco buyout are very much appreciated. Again, 

thank you for your leadership on this vital issue and for conducting 

today’s hearing. 

Senator DOLE. Thank you. Mr. Herring. 

[The prepared statement of Mr. Charville can be found in the appendix on page 64.] 

STATEMENT OF WALLACE HERRING, SENIOR VICE PRESIDENT 

AND MANAGER OF AGRIBUSINESS FIRST CITIZENS BANK, 

CLINTON, NORTH CAROLINA 

Mr. HERRING. Thank you, Senator Dole for being here for this 

very important event. I am Wallace Herring, Senior Vice President 

and Manager of the Agribusiness division of First Citizens Bank. 

This morning I plan to speak from a business perspective about 

the tobacco buyout and why we need to move forward with it. Our 

company has a vested interest in what happens to our tobacco 

farmers. In 1898, we opened our first office in downtown Smithfield, primarily serving the farmers of this community and then agricultural customers throughout Eastern North Carolina. 

Over the last century, our company has expanded to 337 offices 

in North Carolina, Virginia and West Virginia. While we have expanded our products and services beyond agricultural lending, we 

have never forgotten our roots. 

At First Citizens, we have made a considerable commitment to 

support this sector of our economy. We have a business development team as well as a credit analysis group devoted solely to 

farming and agribusiness. Many of our bank branches are in rural 

communities where we provide financial services to farmers, family 

members and companies who rely on agricultural business for their 

livelihood. 

Without question, tobacco has been a very important part of the 

economy in these areas, including here in Smithfield. The potential 

28

for a buyout looms heavy on the minds of many people, especially 

the growers and the quota owners. 

As we all know, a tobacco buyout and an end to the tobacco program have been debated for many years. Many of us were hopeful 

that some type of buyout would take place last year. Obviously this 

did not happen. Our customers who operate tobacco farms tell us 

they are frustrated with the continued uncertainty over the buyout. 

It’s hard to make long-term decisions—should they finance a new 

tractor or a barn, for example—when income is tight and they don’t 

know what to expect down the road. 

Without a buyout, further quota cuts will continue to put pressure on tobacco growers, owners and our rural economies. If the 

forecast by an N.C. State economist, Blake Brown, who is an expert 

on this issue holds true, the situation looks increasingly dire, especially if we face the predicted thirty-three percent cut in quota in 

next year and lose $200 million. 

The bottom line is, unless we move ahead with a buyout, tobacco 

growers will find it hard to stay in business. Some farmers will 

turn to alternative crops to offset quota cuts and decreased income. 

Others will sell their operations. Some will turn to other lines of 

work. We all know good jobs are hard to come by—especially in the 

rural areas of our state. 

The current tobacco program not only hurts farmers, but it also 

compounds the already distressed economic situation in our rural 

communities. Many of these areas hard hit by the quota reduction 

are struggling to discover a replacement for the tobacco dollar, 

which sustained them for many years. Local companies that do 

business with tobacco growers are finding that it’s hard to make 

ends meet. 

As if this isn’t enough, manufacturing plant closures and job layoffs so common to our state in recent years are adding to the economic woes in many of these rural areas. It’s time to end the uncertainty and make the buyout a reality, while we still have the opportunity to help our farmers and their communities. 

A buyout would allow quota owners and farmers to make the 

transition if they want to stop raising tobacco. At the same time, 

it would stabilize the position of larger growers who want to continue their operations. A tobacco buyout would also make a dramatic impact on our state’s economy. Growers and owners would 

use their buyout payments to settle debts, pay taxes, purchase 

equipment and supplies, invest in education or diversify their operations. 

The buyout’s impact would spread to other businesses and sectors, resulting in billions of dollars in additional economic activity. 

According to a University of Tennessee analysis, North Carolina 

could see an estimated $6 billion in additional growth under the 

proposed House bill; $1.16 billion in the first year of the buyout 

alone. 

The economic activity would also significantly support the creation of much needed jobs in our agricultural communities. In 

other words, a tobacco buyout would help steady our state’s already 

fragile rural economy and significantly increase business opportunities in these areas. 

29

First Citizens is proud of the partnership we have built with our 

agricultural customers over the last 106 years. That’s why we support this issue and understand how important it is to the communities and businesses we serve. 

I commend Senator Dole for her leadership and for putting together this hearing. We must continue to keep the public aware of 

agriculture’s value to our statewide and local economies. We must 

support our farmers and take steps to pass a tobacco buyout. 

Thank you. 

Senator DOLE. Thank you. Mr. Taylor. 

[The prepared statement of Mr. Herring found in the appendix 

on page 68.] 

STATEMENT OF DALLAS TAYLOR, SENIOR VICE PRESIDENT, 

WACHOVIA CORPORATION, RALEIGH, NORTH CAROLINA 

Mr. TAYLOR. Thank you, Senator Dole. On behalf of Wachovia, 

thank you for inviting me to speak to the subcommittee today and 

voice my support for a segment of Wachovia’s customer base that 

has been and continues to be very important to our success. 

My name is Dallas Taylor. I have been a Wachovia employee for 

38 years. All of those years have been spent in various Wachovia 

locations in North Carolina. Most of my time with the company has 

been spent providing loan and deposit services directly to agricultural customers, including numerous tobacco growers and quota 

owners. Currently, I work on the Risk Management side of the 

bank. Although I am no longer in direct contact with our customers 

on a daily basis, I am still part of the team that looks for ways to 

add value through various credit products. 

Over the past several years, I have observed first hand the plight 

of the farming community in eastern North Carolina. Although 

change is inevitable within every segment of our economy as business cycles ebb and flow, tobacco farmers have struggled more so 

than other segments to keep pace with those changes. 

We have seen balance sheets erode in asset value and equity 

value due to rapidly declining quota ownership. We have seen tobacco growers’ disposable income dwindle due to the fewer acres 

grown which combined with rising costs leads to reduced profit 

margins. 

These changes have put more pressure on the grower to find 

other sources of income to take the place of what was once a thriving income source. With limited alternatives available, we have 

seen the number of farmers steadily decline and fewer new farmer 

startups. 

The deterioration in tobacco farmers’ financial conditions often 

increases credit risk, resulting in increased bank costs to maintain 

appropriate capital and increase loan portfolio monitoring. In turn, 

this reduces the credit flexibility with existing customers and prospective new customers. 

Since its beginnings in the late 1800’s, Wachovia has been a 

friend to the agricultural community. The farmers and tobacco 

growers are one of the economic engines in eastern North Carolina. 

If the farmers are viable, they funnel money into our economy 

through the purchase of products and services, and they create and 

maintain a large percentage of jobs in this region. As their finanVerDate 0ct 09 2002 07:21 Jul 12, 2004 Jkt 093359 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 C:\DOCS\93559.TXT SAG1 PsN: TOSH
30

cial institution of choice, we have a vested interest in their ongoing 

success. If our customers thrive and succeed, so do we. 

In summary, the financial deterioration of tobacco growers increases our cost to provide credit through higher credit risk, reduces the credit flexibility available to tobacco growing customers 

and impairs the financial viability of lending to tobacco-dependent 

producers. 

Based on our understanding of the various tobacco buyout proposals presented to date, tobacco growers and quota owners would 

be given the opportunity to better control their own destinies as 

well as bolster their deteriorating balance sheets and income 

streams. 

This may give the tobacco grower the option to expand existing 

operations, retire from farming or maintain operations at the same 

level with less fear of further financial deterioration due to quota 

cuts. 

Wachovia is not here to directly support any kind of new legislation—what we are in support of are our customers. Again, thank 

you for this opportunity to voice our support for valued Wachovia 

customers. We wish them continued success. Thank you, Senator 

Dole. 

[The prepared statement of Mr. Taylor can be found in the appendix on page 70.] 

Senator DOLE. Thank you. Mr. Charville, East Carolina Farm 

Credit obviously provides great service to the farm community and 

your customer base truly is rural North Carolina. You stated in 

your testimony just how important a tobacco quota buyout is for 

that customer base. Keeping consistent with my questioning, what 

kind of an impact will another substantial cut in quota—like thirty 

percent—have on this customer base from your perspective, and 

what other ways do you see this impacting rural communities? 

Mr. CHARVILLE. Continued cuts will have a tremendous impact 

on our financial institution as well as our customer base. With the 

cuts that have already occurred, we have seen the financial 

strength of our customers decline; their net worths have been reduced; their earnings abilities have been significantly eroded. 

To date, we have been able to continue to provide credit and adequate credit is available, but with continued cuts, at some point, 

the impact of that will be felt even more so from a credit standpoint to the point that credit availability could be lessened to the 

point that many wouldn’t be able to obtain credit to put their crop 

out. 

The impacts on the communities would be significant. The rural 

areas of eastern North Carolina—the rural communities that are 

there today have been built by the tobacco industry and sustained 

by the tobacco industry and continued cuts and continued deductions would, we believe, lead to continued reduction in opportunities available, less opportunities that would keep our young people 

in the communities they were raised, and just a weakening of the 

overall economy. 

Senator DOLE. Thank you. Mr. Herring, you mentioned a general 

economic impact of the House buyout bill in your testimony, and 

I understand that you’ve been involved in agribusiness from the 

31

banking perspective for a long time. How hard is it for tobacco 

farmers to get their credit extended as compared to previous years? 

Mr. HERRING. Tobacco has always been considered a very stable 

source of income for our farmers. Reduction in that source of income has already had an impact on many farm operations by reducing their ability to service term debt, make the needed investments in equipment and other capital expenditures necessary to 

keep the operation viable. 

As an agribusiness banker, I can tell you emphatically that the 

tobacco income plays a big part in credit decisions in rural eastern 

North Carolina on tobacco farmers. 

Senator DOLE. Are there other side effects of the current economic decline resulting from the inflexibility of the current tobacco 

program that aren’t obvious to those who live outside of tobacco dependent communities? 

Mr. HERRING. We feel that there are. We think that the tobacco 

program the way it is now—the current program has made some 

of the smaller farmers stay in business who would have ordinarily 

gotten out or to convert to cash leasing their quota to neighboring 

farms, which simply does not produce adequate income to even consider any form of diversification that might enhance their livelihood and their quality of living in the rural environment. 

Senator DOLE. Now, if North Carolina were to get back the an- nual $1.1 billion in economic activity it’s currently losing due to 

this broken Federal policy, how much of an impact would that have 

on capital investments? How many new job opportunities would 

that create in these rural communities? 

Mr. HERRING. Those numbers have been alluded to all morning 

in these discussions. In a recent study conducted by Dr. Kelly 

Tillen at the University of Tennessee, it is estimated that the 

buyout will produce the $1.16 billion in income chained to economic 

activity for the year 19005 with $789 million of that going to the 

quota owners and growers. The remaining $371 million, more or 

less, would flow directly into the local economies of these communities. 

According to this study, the change in economic activity would 

support more than 11,000 jobs in our state. North Carolina would 

realize an increase of more than $6 billion overall. 

Senator DOLE. Thank you very much for that answer. Mr. Taylor, 

it’s well known and been documented today just how important tobacco is to the overall economy in North Carolina. Our state ranks 

third in agricultural diversification and it is the State’s No. 1 industry. What kind of impact would a tobacco buyout have on that 

part of the population that is not involved in agriculture? 

Mr. TAYLOR. Well, outside the tobacco industry, the cuts that we 

have seen in the past few years certainly has a ripple effect on the 

entire community—agribusiness, every business that you can think 

of—car dealers, furniture dealers, anyone who is in retail and it 

will have a tremendous impact in reference to North Carolina, particularly eastern North Carolina, as it would create jobs and provide a tremendous amount of cash-flow into the population. As we 

have indicated with consideration to balance sheets, it would go a 

long ways to turning that tide and strengthen those—and that 

would have a ripple effect throughout the economy. 

32

Senator DOLE. Thank you very much, gentlemen. Your testimony 

has been most helpful. Thank you. I appreciate your joining us. 

Senator DOLE. Will the last panel please come forward? We have 

the Chairman of the Johnston County Board of Commissioners, Mr. 

J.H. Langdon and Mr. Allen Scarborough, Manager of State Affairs 

with Bayer CropScience. 

Mr. Langdon, welcome. 

STATEMENT OF HON. J.H. LANGDON, CHAIRMAN, JOHNSTON 

COUNTY BOARD OF COMMISSIONERS, ANGIER, NORTH 

CAROLINA 

Mr. LANGDON. Thank you. Thank you, Senator Dole, for asking 

me to be here today to participate in this event. We have heard a 

lot of things today about how tobacco affects and what’s happening 

to affect our citizens in North Carolina—particularly eastern North 

Carolina—and I would like to put a focus on what we have done 

in Johnston County. 

Johnston County is one of the fastest growing counties in North 

Carolina, so we have a mix of things happening, but tobacco is still 

an extremely important part of our economy in Johnston County. 

In 2003, the estimated farm income from tobacco was $35,363,561. 

The income was shared among an estimated 550 active growers, 

probably the largest number of producers in one county in the 

United States. 

There are some growers who do not own quotas, but most growers, well over eighty percent, own quotas and lease tobacco quotas 

from other quota owners. Johnston County had the second highest 

amount of quota in the state, Pitt County being first. Tobacco has 

been a stable source of income and to some degree, it stabilized our 

local economy over the years. Because the crop was grown under 

the quota system with price supports, growers have been able to 

make business plans and arrange to secure resources necessary to 

do what they need to do in their farming operations. 

Tobacco has been profitable for growers and for quota owners 

and because it’s profitable, the quota has value, and of course, that 

value has allowed farmers to purchase land and paid for their 

equipment based on that value. 

If we change that value, we make it very difficult for them to 

maintain the level of living they have and to carry out the kinds 

of things that they need to. 

As we know, times have changed, haven’t they? Eighty-three percent of tobacco produced in Johnston County in 2003 was sold 

under marketing contract. Since 1997, the quota in Johnston County has dropped forty-seven percent—from 37 million pounds in 

1997 to 19 million pounds last year and in that same period, the 

income from tobacco has dropped by forty-five percent from $64 

million in 1997 to $35 million in 2003, which the projections have 

been mentioned a number of times today about the thirty percent 

reduction in quota in 2005—that would be an $11 million hit for 

Johnston County. This would significantly impact our farmers and 

our quota holders. 

Johnston County tobacco farmers and allotment holders need the 

buyout and with the present tobacco program, quotas and allotments are in a downward spiral. While quotas and allotments beVerDate 0ct 09 2002 07:21 Jul 12, 2004 Jkt 093359 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 C:\DOCS\93559.TXT SAG1 PsN: TOSH
33

come smaller, growers are suffering from the lack of dependable 

source of income and the value of assets that quota owners and 

producers have invested in is decreasing. A buyout will compensate 

allotment holders for their investments. This includes over 5,000 

Johnston County citizens. 

Most important, a buyout will help active growers transition into 

other commodities and industries and we must remember that 

money that comes from tobacco multiplies three to five times. When we say we are going to possibly have an $11 million cut, 

you are looking at a tremendous cut in our local economy. The ability of our people to work and make a living and to carry on the 

things they need to carry on is really important and Senator Dole, 

I hope you will continue to work hard like you have for our tobacco 

buyout. 

Senator DOLE. Thank you. Mr. Scarborough. 

[The prepared statement of Mr. Langdon can be found in the appendix on page 73.] 

STATEMENT OF ALLEN SCARBOROUGH, MANAGER, STATE 

AFFAIRS, BAYER CROP SCIENCE, RALEIGH, NORTH CAROLINA 

Mr. SCARBOROUGH. Senator Dole, I really appreciate the opportunity to come and to give testimony for this hearing representing 

a segment of the ag community, and the tobacco economy, as well, 

and to the folks that are certainly vital to our business as well, our 

partners in agriculture. 

Bayer CropScience researches, develops, manufactures and sells 

a broad range of innovative crop science products for crop protection, biotechnology, seed markets; the turf and ornamental and professional pest management markets; the consumer lawn and garden markets. 

You can see we are vitally diversified throughout crop protection. 

Our U.S. business headquarters is in Research Triangle Park, 

North Carolina. I myself live in Raleigh. We employ about 400 people throughout this state and many more throughout the U.S. 

The success of Bayer CropScience is directly linked to the economic health of U.S. agriculture and the producer community. Our 

business is reliant upon the ultimate users of our products and 

technology and, beyond our own work force, is partnered with the 

distribution and retail businesses that sell, service, and help to 

steward what we develop and manufacture. It’s very important 

throughout the entire chain. 

The crop protection/production industry is affected by the crop 

acreage under production. A drop in acreage directly represents a 

reduction in the potential market for that crop. It’s a very simple 

analysis from my perspective certainly. Additionally, the value of 

the crop to the grower also determines the producers’ input decisions affecting the purchasing of our technology or our products. 

In a simple analysis, if a market or other factors reduce crop 

acreage and/or the value of the crop declines, then our industry experiences reduced sales for that market. The impact is also felt 

within the broader agribusiness community. We are very much 

aware of that and tied directly to that. 

For the agricultural industry, the basic manufacturers of crop 

protection products, the wholesalers and the retailers of input prodVerDate 0ct 09 2002 07:21 Jul 12, 2004 Jkt 093359 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 C:\DOCS\93559.TXT SAG1 PsN: TOSH
34

ucts and technology, from our perspective and our interest, are the 

components most directly affected. 

Of very important concern, the long-term economic viability of 

the producer community will ultimately affect the continued and 

future markets for agrichemicals and related businesses. For tobacco, the acreages have declined and I hear different reports, but 

certainly around forty percent since the late 90’s and we have 

heard support of that information this morning. 

According to North Carolina State University, each lost acre no 

longer receives chemical inputs worth hundreds of dollars per acre. 

A continued decline in acreage and/or the potential loss of producers would adversely affect crop protection/production sales, but 

could affect the viability of distribution and retail locations in such 

areas of these losses. The bottom line of national suppliers such as 

us certainly also is affected. 

For our industry and the economic health of the region, it is important that legislation support agribusiness by supporting the producer community. Without that support, many producers may leave 

farming altogether. Clearly, the loss of producers would negatively 

affect the crop protection/production industry. 

Thank you very much. 

[The prepared statement of Mr. Scarborough can be found in the 

appendix on page 76.] 

Senator DOLE. Thank you. Mr. Langdon, you may very well have 

the best overall perspective on this important issue as Chairman 

of the County Board of Commissioners. As evidenced by your testimony, you see the impact from all sides. You’ve seen first hand 

how the decline in tobacco quota has affected the County. How important is tobacco quota to the county tax base? 

Mr. LANGDON. It’s very important, as you well know. The ability 

to pay your taxes has a lot to do with what happens in government 

and the services we provide, so the quotas and tobacco being—because we are still a very rural county, it is extremely important 

that we are able to maintain that base. 

Senator DOLE. Johnston County is the fastest growing County in 

North Carolina—that makes your job all the much more demanding. What are examples of services that would have to be cut if the 

tobacco industry were to simply dry up or does it mean that taxes 

would have to be raised? 

Mr. LANGDON. It would not mean that we cut services, as much 

as it would be taxes would be a problem for the people. We would 

hope that services that are important to our citizens we would be 

able to maintain, but the ability of people to pay local taxes is a 

very important effect of that, and it becomes our board having to 

make decisions that could be really tough on the services we provide. 

Senator DOLE. Mr. Scarborough, how much of an impact would 

continued quota cuts, particularly the thirty percent cut looming 

for the 2005 crop have on your local business and tobacco areas 

and if you could also answer, what other businesses that Bayer 

CropScience works with would be impacted? 

Mr. SCARBOROUGH. Certainly, I alluded in my comments, there’s 

a simple calculation just on an acreage basis and something that’s 

occurred to me during this morning and should have been more obVerDate 0ct 09 2002 07:21 Jul 12, 2004 Jkt 093359 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 C:\DOCS\93559.TXT SAG1 PsN: TOSH
35

vious certainly tobacco growers versus some of the other row crops 

would probably have fewer acres under production totally and to 

make up that difference in diversification would require an extensive addition of acres—at this point, if they are in a situation 

where they choose to go to another crop, for example, and would 

require further acreage to try to make similar economic grounds, 

if that transition can’t be made, it’s simply a reduction in acreage. 

The second part to your question is the partners and I also alluded to that—the other businesses key to us in our industry are 

the dealers, the distribution network as well as the producers—and 

on a local basis, those are the folks that service our products and 

help to get it on the ground directly and it’s sort an environmentally conscious to make sure that the labels are followed to the 

best maximum usage—so it’s an acreage issue from the fact that 

local businesses and down the chain with us going all the way to 

the grower as well as our individual sales structure and support 

staff and research. 

Senator DOLE. Thank you. I want to thank all of the witnesses 

who joined us today. Your testimony has been very informative and 

will be an extremely valuable resource for us as we continue to 

work with the other ninety percent of Congress who are not from 

tobacco states to make this buyout a reality. 

Before I call the Subcommittee adjourned, let me take a moment 

to thank Frank Lee and his staff who have allowed us to use his 

warehouse and who went to great efforts to get all of this arranged 

for us today. We are extremely grateful. Thank you very much for 

being with us—all of you—today. 

The subcommittee hearing is adjourned. 

[Whereupon, the subcommittee was adjourned.] 

(37)

A P P E N D I X

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