United States Department of Agriculture

Department of Health & Human Services

Tobacco Communities

at a Crossroad

The Preliminary Report of the President’s

Commission on Improving Economic

Opportunity in Communities Dependent on

Tobacco Production While Protecting

Public Health

January 26, 2001

The Commission’s Mission

The purpose of the Commission is to advise the President on

changes occurring in the tobacco farming economy and

recommend such measures as may be necessary to improve

economic opportunity and development in communities that

are dependent on tobacco production, while promoting the

public health by protecting consumers, particularly children,

from hazards associated with tobacco use.
The President’s Commission on Improving Economic Opportunity

in Communities Dependent on Tobacco Production While

Protecting Public Health

In September 2000, the President issued Executive Order 13168 (See Appendix A),

establishing the President’s Commission on Improving Economic Opportunity in

Communities Dependent on Tobacco Production While Protecting Public Health

(Commission). Commission members were chosen subject to provisions of the Executive

Order, which provides that members could include tobacco farmers and quota holders;

public health experts; Federal, state, and local government representatives; and experts in

agricultural economics and economic development.

The Commission is co-chaired by:

William Martin (Rod) Kuegel, President of the Burley Tobacco Growers Cooperative

Association and a burley tobacco grower, and

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

Other members include:

Andrew Shepherd, flue-cured tobacco grower and Vice-President and Director of Flue-Cured

Tobacco Cooperative Stabilization Corporation,

James Hill, flue-cured tobacco grower and Director of Flue-Cured Tobacco Cooperative

Stabilization Corporation,

Ronald Sroufe, retired school administrator and burley tobacco grower,

M. Cass Wheeler, Chief Executive Officer of the American Heart Association,

John Seffrin, Chief Executive Officer of the American Cancer Society,

LynnCarol Birgmann, Executive Director of Kentucky ACTION,

Jesse White, Jr., Federal Co-Chair, Appalachian Regional Commission, and

Art Campbell, Assistant Secretary, Economic Development Administration, U.S. Department

of Commerce.

This document constitutes the Preliminary Report of the Commission based on input

received from public forums, the Commission’s website, written comments, and experts in

tobacco farming, tobacco health issues, and economic development. The Report

represents a starting point for discussions which could lead to legislative and non-legislative

initiatives that will seek to improve economic opportunity and development in communities

that are dependent on tobacco production, while promoting the public health by protecting

consumers, particularly children, from hazards associated with smoking.

The Commission plans to continue collecting comments and information and to issue a

final report in May 2001 that makes specific recommendations for addressing the current

crisis facing U.S. tobacco farmers and their communities while also promoting public health.
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

Table of Contents

Introduction and Guiding Principles ............................................................. 2

I. The Current Threat to U.S. Tobacco Farmers and their Communities ........................ 7

II. Harms Caused by Smoking and Other Tobacco Use and their Impact on

Tobacco States and Tobacco-Farming Communities ............................................. 14

III. Emerging Challenges for U.S. Tobacco Farmers ................................................... 17

IV. Options and Opportunities for Assisting Tobacco Farmers and their

Communities – Without Harming the Public Health ............................................... 20

V. Ways to Reduce Tobacco Use that are Consistent with Efforts to Assist

U.S. Tobacco Farmers and Reduce their Economic Problems ................................ 26

VI. Request for Comments ....................................................................................... 28

Appendices

A. Executive Order Establishing the Commission ...................................................... 29

B. Core Principles Statement................................................................................... 31

C. Tobacco Farmers and the Public Health Community Working Together ................... 34

D. Various Tobacco Quota Statistics ........................................................................ 35

E. Primary Sources of Information ........................................................................... 41
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

Introduction and Guiding Principles

This Presidential Commission arose out of an

unprecedented crisis for tobacco farmers and

their communities, an increasing recognition

that more needs to be done to reduce the harm

caused by tobacco use, and a unique dialogue

beginning in the mid 1980s between the health

community and tobacco growers. In 1998, this

remarkable dialogue produced a set of Core

Principles (See Appendix B) among health and

agricultural organizations; and it is upon those

principles that this Preliminary Report builds.

This Commission has concluded that the

problems facing tobacco farmers today are

different than in the past. While the demand for

the two predominant kinds of American-grown

tobacco leaf - flue-cured and burley - has

fluctuated in the past, it has recently declined

sharply as the result of long term trends. There

are multiple causes for the decline in demand

for American-grown tobacco leaf. Significantly,

world competition has been increasing rapidly.

As a result, today U.S. farmers have a much

smaller portion of the world tobacco market.

Despite the overall increase in the global

market for the American-blend cigarettes1 that

use flue-cured and burley, exports of U.S.

tobacco leaf are down. In addition, the use of

foreign-grown tobacco in U.S. manufactured

cigarettes has increased substantially and is

now at record-high levels. Simultaneously,

declines in U.S. smoking have reduced the

market for domestic leaf in the United States. In

prior periods, declines in domestic consumption

have been offset by increases in exports of U.S.

leaf and U.S. cigarettes, but that is no longer the

case.

This Commission has embraced the notion

that the health and safety of the American

people and tobacco farming communities are

linked, however unlikely that might seem (See

Appendix C). It is this belief that leads us, in

part, to argue for new Federal efforts to assist

tobacco farmers and their communities and to

promote the public health. Fairness and equity

also justify assistance to tobacco farmers

during this period of transition.

The production of tobacco and the

manufacturing of tobacco products are now

global. More tobacco is being grown overseas

and more tobacco products are being

manufactured overseas. American tobacco

farmers are being gravely threatened by these

rapidly growing trends. This phenomenon is

familiar in most sectors of the U.S. economy

and few have escaped the impact of global

competition.

What is unique about tobacco is the role that

Federal policy has played in creating the

situation and the benefit to the public health by

intervention. The Commission recognizes that

decades of Federal tobacco programs have

limited the amount of tobacco that can be

grown in the United States, which has fostered

family farms. These policies have had the

unintentional consequence of making many

small farmers heavily reliant on this profitable

crop. But the Federal government has also

imposed quality standards not required of

foreign growers, for example, keeping tobacco

free from non-approved pesticides. Its policy of

limiting supply and overseeing quality is

consistent with health concerns.

1 American-blend cigarettes contain approximately 45 to 50 percent flue-cured leaf, 35 to 40 percent burley, 15 percent Oriental (not

grown in the United States), and one percent Maryland leaf (grown primarily in Maryland and Pennsylvania). But the flue cured and

burley tobacco they contain need not be grown in the United States. Foreign-blend cigarettes typically include higher percentages of

Oriental or darker tobacco leaf.

“A community in crisis is a public

health concern.”

Joy Bechtold

American Cancer Society,

Richmond, Va.

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

This Commission also finds that because past

Federal policies themselves have created a

heavy dependence on this profitable crop for

many farmers and farm communities, the

Federal Government has, in essence, created a

marketable asset upon which quota holders

depend. These assets should not be abolished

without fair compensation. Quotas held by nongrowers and leased out, have the effect of

increasing the costs of production to the active

growers and keeping the price of American leaf

artificially high, thereby further exacerbating

global competition.

Although tobacco usage is a threat to the

health of many, tobacco farmers are not the

culprits. They are our neighbors. They are often

small and economically disadvantaged farmers.

They are often minorities. They grow a crop that

goes back to the founding of this country and is

still legal to grow. What these farmers need is

assistance to diversify their farming and the

economies of their communities in order to

reduce dependence on tobacco.

For all of these reasons this Commission calls

on the Federal Government to continue some

type of tobacco program that regulates supply,

price and quality; that provides fair

compensation for tobacco quotas, especially for

those who do not farm; that protects the

interests of family farmers; and that provides

assistance to tobacco farmers and their

communities to diversify their crops and local

economies to reduce dependence on tobacco

income in the face of negative trends that are

both long term and global.

The Commission also calls on the Federal

Government to recognize the inextricable linkage

between protecting the family tobacco farmer

and the need to do more to promote health by

adopting additional steps to prevent children

from starting to use tobacco, to educate,

encourage and assist adults who want to quit

and to establish fair and effective regulatory

standards over manufactured tobacco products.

Guiding Principles Adopted by the

Commission

The Commission has not yet made any final

decisions about what should be done. This

Preliminary Report is intended to lay the

foundation for the Commission’s future work

and final report.

This Preliminary Report presents an analysis

of the causes of the current crisis for U.S.

tobacco farmers and their communities and

provides a summary of the scientifically

established harms and costs caused by

smoking. It also reviews the role played by the

U.S. tobacco price support and production

control program and considers what is likely to

happen if no new remedial efforts are

implemented.

To provide the public an opportunity for

further input into the Commission’s final

deliberations, this Report sets out a broad range

of actions which have been suggested as

possible solutions and seeks public comment

on these options. These comments will build on

the testimony and comments generated by two

public forums the Commission held in Raleigh,

North Carolina and Louisville, Kentucky on

November 9 and November 10, 2000,

respectively. Approximately 450 tobacco

farmers, health officials, community leaders and

other interested persons attended these forums,

with 76 participants testifying.

While the Commission has made no final

recommendations, it has adopted the following

principles to guide its future deliberations:

· The Commission’s recommendations should

both promote the public health and the

economic security and stability of tobacco

farmers and their communities.

· Both short-term and long-term assistance

are warranted for family tobacco farmers

and their communities because of two

factors: (1) the dramatic reduction in the

purchase of U.S. tobacco leaf in recent years

as the result of a complex set of trends that

are both long term and global in nature, and

(2) past Federal policies which have led many

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

tobacco farmers to a heavy, if not total,

reliance on this crop and way of life.

· The preservation of a tobacco program that

controls supply, maintains price, moves

quotas into the hands of growers and

incorporates health and safety protection is in

the best interests of tobacco farmers and the

public health.

· Solutions to the problems facing tobacco

farmers should protect family farms, of which

a significant number are small farms and

owned by minorities.

· Policies should be adopted to ensure that

any system of direct contracting between

manufacturers and U.S. tobacco farmers

does not undermine the protections for family

farms and the public health that are provided

by the tobacco program.

· Any tobacco program changes should focus

on long-term solutions to the problems facing

tobacco farmers, not short-term quick fixes.

· Tobacco farmers should be compensated

for their quota at a fair and equitable value in

order to address their current crisis and

reduce their dependency on tobacco, an

action which is in the best interests of the

tobacco producing and the public health

communities.

· Economic development assistance to tobacco

producing communities is in the best interests

of tobacco farmers, their communities and the

public health community. The Commission

should consider the broadest range of

economic actions to assist tobacco farmers,

tobacco farm families and their communities

in promoting their prosperity, stability, and

way of life during this period of transition,

including:

- Locally driven assistance to tobacco

producing communities for economic

redevelopment and diversification,

- Support for the growth of supplemental

crops (particularly those utilizing

specialized tobacco farming skills) and

livestock and the infrastructure necessary

to produce, process, develop new markets,

and bring these commodities to market;

and

- Continued research into the development of

non-harmful uses of tobacco products.

· The American tobacco farmer and the public

should be protected against unfair foreign

competition. For example, increased and

expanded inspections for non-approved

pesticides on imported tobacco are in the

best interest of tobacco growers, their

communities and the health community.

· More needs to be done to prevent the harm

caused by tobacco and this has been

acknowledged by some tobacco product

manufacturers. Comprehensive programs,

such as those suggested in the August 2000

Report of the Surgeon General, to reduce

tobacco use and the harm caused by tobacco

should be adopted by both the public and

private sector with a special emphasis on the

problems facing tobacco growing states.

· Tobacco should be regulated. The U.S.

Food and Drug Administration (FDA)

should have authority to establish fair and

equitable regulatory controls over the

manufacture, sale, distribution, and

labeling of tobacco products, comparable

to regulations established for other

products regulated by the FDA. Such

regulations should have as their goal the

protection of public health. The U.S.

Department of Agriculture (USDA) should

retain its authority to set safety standards

governing tobacco farms.

· Measures to fund the recommendations of the

Commission must be reliable, long-term and

consistent with the best interests of both

tobacco farming communities and the public

health.

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

Basic Information on U.S. Tobacco Farming

Number of U.S. tobacco farms in 1978: 188,650

Number of U.S. tobacco farms in 1997: 89,700

U.S. tobacco farms with less than 50 acres of tobacco: 86,100

U.S. farm acreage used for tobacco: 647,000

U.S farming gross income from tobacco: $2.27 billion

States with the most tobacco farms: States with the most tobacco acreage:

Kentucky 44,967 North Carolina 320,599

Tennessee 14,995 Kentucky 255,053

North Carolina 12,095 Tennessee 59,427

Virginia 5,870 South Carolina 54,660

Ohio 2,811 Virginia 54,035

Indiana 2,017 Georgia 41,083

Average total size of farm that grows flue-cured tobacco: 442 acres

Average portion of flue-cured farm acreage used for tobacco: 38 acres (8.6%)

Average total size of farm that grows burley tobacco: 154 acres

Average portion of burley farm acreage used for tobacco: 5 acres (3.2%)

Portion of U.S. tobacco farms’ gross farming income from tobacco sales: 79%

 Flue-cured tobacco farms that grow only tobacco: 18%

 Burley tobacco farms that grow only tobacco: 42%

Average U.S. tobacco farm’s gross revenue from tobacco sales: $43,000

 Average Kentucky tobacco farm’s gross revenue from tobacco sales: $19,000

 Average Tennessee tobacco farm’s gross revenue from tobacco sales: $14,000

Tobacco farms for which tobacco sales make up at least half of farm sales: 73%

Average value of all farm products sold by these tobacco farms: $43,750

Average value of all tobacco leaf sold by these tobacco farms: $34,890 (80% of total)

Per-acre returns from crops above variable and fixed costs (1996):

Flue-cured tobacco: $661 Burley tobacco: $407

Cotton: $132 Corn: $52

Peanuts: $44 Soybeans: $6

Percent of flue-cured farmers for which farming is principal occupation: 89%

Percent of burley farmers for which farming is principal occupation: 43%

Amount of retail tobacco dollar that went to U.S. tobacco farmers, 1980: 7%

Amount of retail tobacco dollar that went to U.S. tobacco farmers, 1998: 2%

Average age of flue-cured tobacco farmers: 52 Average age of burley tobacco farmers: 51

Average age of all farmers: 54.3

Total flue-cured quota owners: 112,625 Total burley quota owners: 303,124

Flue-cured quota owned by Blacks: 16% Burley quota owned by Blacks: 1%

Flue-cured quota owned by women: 44% Burley quota owned by women: 35%

This data is from the 1997 Census of Agriculture (next Census scheduled for 2002), USDA, Farm Costs and Returns

Survey/Agricultural Resource Management Study (FCRS/ARMS) (1996), Tobacco Situation and Outlook Report and the

Farm Service Agency.

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

The Role of the U.S. Tobacco Program

Since the early 1930’s, the Federal Government has operated programs to support and

stabilize tobacco prices, thereby insulating growers from seasonal and cyclical price

changes caused by the weather and various production and use variations.

The U.S. tobacco program has two key components:

(1) a marketing quota system that restricts U.S. tobacco farming only to growers who

own or lease production quota rights and

(2) a price-support system that guarantees minimum leaf prices for participating

growers.

The quota component of the U.S. tobacco program restricts tobacco growing to historical

production areas. Quota (production rights) determines both where and how much tobacco

can be marketed annually. The National quota reflects changes in demand and any change is

apportioned to quota holders. The price support component of the tobacco program keeps

U.S. tobacco prices higher than they would be without a program. The impact on the

demand for cigarettes is minimal because the cost of tobacco leaf, including foreign,

comprises only two or three percent of the retail price of cigarettes.

Despite many legislative changes since 1938, the authority to provide an adequate and

balanced flow of tobacco through the marketing quota program continues. More than 97

percent of U.S. grown tobacco is produced under a marketing quota program. For each kind

of tobacco, quota holders and producers vote every 3 years on whether to continue the

program. More than 90 percent of burley and flue-cured tobacco quota holders and

producers have consistently voted to continue the program. The next referendum for burley

and flue-cured tobacco will occur in early 2001.

Over the years, there have been various changes that have allowed for the transfer of

quota away from the farm to which the quota was originally assigned. This transferability

has given quotas an economic value and turned them into financial assets. For example,

when active, quota-holding farmers have retired they have sold or leased their quota, and

quota rental or lease income has become part of the retirement income of a large number of

people in tobacco-producing areas. Because of its value, farmers often use their tobacco

quota as collateral to obtain loans to diversify their operations.

For information on the number, size, distribution and ownership of quotas by kind of

tobacco and state see Appendix D.

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

I. The Current Threat to U.S. Tobacco Farmers

and their Communities

The problems facing tobacco farmers and

their communities have reached an urgent stage

that requires a comprehensive solution. While

the demand for the two predominant kinds of

American-grown tobacco leaf, flue-cured and

burley, has fluctuated in the past, it has recently

experienced sharp, unprecedented declines

because of a variety of long-term trends. From

the 1997 to 2000 growing seasons, the quota

for flue-cured declined by more than 430 million

pounds (farm sales weight), a drop of 45

percent, while the quota for burley declined by

more than 450 million pounds or 65 percent.

While sales have declined, tobacco-farming

costs have surged dramatically and the prices

received by farmers have risen only modestly.

Today, tobacco farmers face additional cost

pressures, such as demands by manufacturers

that flue-cured tobacco leaf be marketed in

baled form and that flue-cured curing barns be

retrofitted.

All of these changes have had a

disproportionately harsh impact on small family

farms. While there were 188,650 tobacco

farms in the United States in 1978, by 1997

there were only 89,700 (a decline of more than

50 percent), and the number of larger tobacco

farms (greater than 50 acres) increased by 128

percent. The current crisis facing U.S. tobacco

growers has accelerated the loss of small family

farms and the consolidation of American

tobacco farming into larger units. Despite their

best efforts many small and even middle-sized

tobacco farmers simply can no longer make

ends meet. Those most at risk are those

already classified as economically

disadvantaged, which include a disproportionate

number of farms owned or operated by

minorities.

Unless strong steps are taken, this threat to

family farms will likely accelerate as tobacco

manufacturers continue to move away from

purchasing tobacco leaf through the traditional

auction system in favor of direct contracting

Figure 1. Flue-cured & Burley Quota and Prices

Source: USDA, Economic Research Service, Tobacco Situation & Outlook.

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

with farmers. The move to contracting also puts

renewed pressure on the survival of the existing

Federal tobacco program that has been critical

to the protection of small farmers and their way

of life.

This threat to the family tobacco farm poses

unique problems for both tobacco growing

communities and the public health. Many

tobacco-growing communities have been highly

dependent on tobacco as their prime source of

revenue and would suffer devastating

consequences to their economy and way of life

if large farms, many of which might be located

elsewhere, displaced the small tobacco farm. In

addition, the tobacco program’s maintenance of

small family farms promotes the public health

because it limits the spread of tobacco growing

and provides price stability.

The Causes of the Current Tobacco

Farming Crisis

Flue-cured and burley tobacco leaf, which

accounts for more than 94 percent of all the

tobacco leaf grown in the United States, is used

primarily for American-blend cigarettes. For

decades, world production and consumption of

American-blend cigarettes has been expanding

rapidly as increasing numbers of foreign

smokers switch to American-blend brands. The

global demand for American-blend cigarettes is

expected to increase steadily for years to come.

As we have seen however, the demand for U.S.

flue-cured and burley has not only failed to

increase along with the rise in global Americanblend cigarette sales, but has recently declined

sharply.

“Three years ago, twenty-four

hours before our home and farm were

to be sold on the courthouse steps,

we finally found a lender willing to take

us on. I believe the Lord was just sick

of hearing from us everyday and gave

himself some relief.”

Amy DeLoach,

Tobacco farmer’s wife

Metter, GA

The U.S. Farmers Shrinking Share of

The Global Market for Tobacco Leaf

The world demand for American-grown

cigarette tobacco has declined despite the

increasing global sales of American-blend

cigarettes. This decline is due, in part, to

substantial increases in the foreign production

of flue-cured and burley leaf that is typically sold

on the world market at lower than U.S. prices.

Because of lower labor costs and often lax or

absent labor standards and health and safety

controls, it has always been possible to grow

tobacco more cheaply in many foreign

countries. The steady increase over the past few

decades in the quantity of improved-quality fluecured and burley leaf grown overseas has been

supported by substantial investments in foreign

tobacco farming by the major U.S. cigarette

companies and U.S. leaf dealers. In Argentina,

Brazil, China, India, Mexico, Russia, Tanzania,

Vietnam and numerous other countries, the

cigarette companies and leaf dealers have

provided foreign growers with financial

assistance, seeds, technology and training.

While American-grown tobacco is still of

much higher quality than most foreign-grown

tobacco, technological manufacturing

improvements now enable cigarette companies

to maintain adequate taste and flavor levels

while using more lower-quality foreign leaf.

Consumer shifts to low-tar cigarettes, which

require less high-quality tobacco, have also

made it easier for the companies to substitute

cheaper foreign tobacco for U.S. leaf. In

addition, many foreign smokers of Americanblend cigarettes are attracted more by the status

of the cigarettes than by their taste. Simply

having a U.S. brand name or some other link to

the United States is often enough to sell

American-blend cigarettes overseas, even if

they contain no U.S. tobacco - especially

because foreign buyers typically do not know

how much U.S. tobacco, if any, the cigarettes

with U.S. brand names or features actually

contain.

During the 1950’s and 1960’s, U.S. tobacco

farmers produced about 40 percent of the

world’s total flue-cured crop and 55 percent of

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

all flue-cured leaf traded in the world market.

For burley, U.S. tobacco farmers accounted for

77 percent of total global production and 51

percent of total trade shipments. Because of

the increased availability of foreign leaf and

reduced need to use highest-quality leaf, by the

end of the 1990’s U.S. production of both fluecured and burley had fallen to around 20

percent of the world totals, and the U.S. share

Figure 2. Changes in Flue-cured Leaf Production in USA and in Selected Countries,

1980-82 to 1996-98

Source: USDA Foreign Agricultural Service

Figure 3. Changes in Burley Leaf Production in USA and in Selected Countries,

1980-82 to 1996-98

Source: USDA Foreign Agricultural Service

of world trade fell to 14 percent for flue-cured

and 18 percent for burley. From 1996 to 2000

alone, the amount of U.S. flue-cured and burley

leaf used by the tobacco industry worldwide

dropped from 1.6 to an estimated 1.2 billion

pounds, or by about 25 percent. In 2000, an

estimated 290 million pounds of flue-cured and

150 million pounds (farm sales weight) of

burley leaf were exported from the United

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

2 In response to the rising use of foreign leaf in American-made cigarettes, Congress passed the short-lived Domestic Content

Legislation (DCL), included in the Omnibus Budget Reconciliation Act of 1993. The DCL was in effect from January 1, 1994, to

September 13, 1995. If foreign leaf content of U.S. cigarettes exceeded 25 percent, a penalty was assessed on the manufacturer for

calendar year 1994 only. There were concerns that the DCL violated various international trade agreements, and it was eliminated on

September 13, 1995 (retroactive to January 1, 1995), when President Clinton proclaimed a Tariff Rate Quota for cigarette leaf tobacco,

mainly flue-cured and burley.

States. Ten years earlier, over 400 million

pounds of flue-cured and about 200 million

pounds of burley were exported.

U.S. Farmers Shrinking Share of the

U.S. Market for Tobacco Leaf

The increasing availability of cheaper but

adequate foreign-grown leaf has also reduced

U.S. farmers’ share of the domestic market for

tobacco. Although U.S. farmers supplied

virtually all flue-cured and burley leaf used in

American-made cigarettes in the 1960’s, since

then the amount of foreign tobacco in U.S.

cigarettes has increased by more than 325

percent.2 Just from 1996 to 1999 the amount

of American-grown tobacco in American-made

cigarettes dropped by 9.5 percent. Because of

the U.S. cigarette companies’ increasing use of

foreign cigarette tobacco in their Americanmade cigarettes, during the last twenty years

imports of foreign-grown flue-cured and burley

tobacco increased by about 220 and 106

Figure 4. U.S. Share of World Tobacco Leaf Exports, 1960-2000

Source: Foreign Agricultural Service. Percentage for 2000 is based on estimates.

percent, respectively. Today 48 percent of the

tobacco leaf in cigarettes manufactured in the

United States is foreign grown.

Reduced U.S. Demand for Flue-Cured

and Burley Leaf

 While U.S. farmers’ share of the domestic

market for flue-cured and burley declined, the

overall U.S. demand for cigarette tobacco has

been shrinking as well. Most notably, the total

number of cigarettes manufactured in the United

States increased steadily through 1981, then

fluctuated until it reached an all-time high in

1996. Since then cigarette production in the

United States has dropped by more than 19

percent, based on USDA estimates for 2000.

Part of this decline comes from reduced U.S.

smoking levels. Since peaking in 1981, the

number of cigarettes smoked in the United

States gradually but steadily declined at a rate of

about 1.5 percent per year until 1998. Although

there was a drop of almost 6.5 percent from

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

1998 to 1999, U.S. cigarette sales are expected

to decline by more modest annual amounts in

the years to come.

From 1986 to 1996, increased manufacturing

of cigarettes in the United States for export

more than offset declines in U.S. smoking

levels. Since 1996, however, U.S. cigarette

manufacturing of American brands for export

has shrunk by more than 40 percent. This

recent drop in exports has occurred in part

because of regional economic troubles (e.g., in

the Pacific Rim). But it also reflects a much

longer-term effort by the U.S. cigarette

companies to expand their overseas

manufacturing capacity in order to reduce their

reliance on U.S. cigarette exports to serve their

growing foreign markets. The portion of

American brands sold overseas that were

actually American-made had been shrinking

steadily for years – and the companies’ foreignmade cigarettes typically contain much less

U.S. tobacco than those made for sale in the

United States. For example, Marlboros made in

Argentina both for sale there and for export,

contain no U.S. leaf.

The Declining U.S. Demand for

Cigarette Tobaccos

Recent declines in U.S. cigarette consumption

were caused, in part, by sharp increases in the

price of cigarettes sold in the United States.

Since the beginning of 1998, the major U.S.

cigarette companies have increased their prices

by more than $1.10 per pack, more than

doubling the price of an average pack of

cigarettes. Roughly half of these price increases

were made by the companies in order to cover

their costs associated with the settlement of the

states’ lawsuits against the cigarette

companies. While tobacco tax increases have

also helped to raise cigarette prices, the Federal

cigarette tax was stable at 24 cents per pack

from 1993 to January 2000, when it increased

by ten cents per pack. State cigarette taxes have

increased more rapidly, but the average state

cigarette tax increased by only 23 cents per

pack from 1993 to 2000.

Source: USDA, Economic Research Service, Tobacco Situation & Outlook. 2000 data not yet available.

Figure 5. Declining Percentage of U.S. Tobacco Leaf in American-Made Cigarettes,

1960-1999

“The economic and social impacts

on the rural communities from loss of

tobacco revenues will be enormous.”

Larry Wooten,

President, NC Farm Bureau

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

Figure 6. Cigarette Company Prices and Federal and State Cigarette Taxes, 1960-2000

Source: USDA Economic Research Service. Cigarette company prices do not include any taxes.

Over the last four years, cigarette price

increases have had the greatest impact on U.S.

smoking rates because only a few states had

well funded comprehensive tobacco prevention

programs in effect. This situation could change,

however, now that more states are investing

significant monies from their tobacco settlement

funds, general revenues, or tobacco excise tax

receipts in new programs to reduce smoking

and other forms of tobacco use. In those states

that already have comprehensive programs in

place to reduce tobacco use, both youth and

adult smoking has declined much more rapidly

than in other states. The evidence demonstrates

that these programs work when properly

implemented. (There is similar evidence that

overseas efforts to reduce smoking are

accelerating, which could reduce the foreign

demand for cigarette tobaccos, including that

grown in the United States.)

Economic Impacts on U.S.

Tobacco Farmers

The cigarette companies’ desire for lower

tobacco leaf prices is frequently mentioned as

the main reason why the companies and leaf

dealers have invested so heavily to increase

foreign production of flue-cured and burley

tobacco and why U.S. and foreign cigarette

companies have increasingly chosen to use

foreign-grown instead of U.S. tobacco. At the

same time, U.S. flue-cured and burley prices

have not kept up with either inflation or

increases in U.S. tobacco farmers’ production

costs over the past 25 years. Accordingly, U.S.

farmers are being hurt by both reduced leaf

sales and by stagnant or declining real leaf

prices. As a result, from 1980 to 1998, the U.S.

farmers’ share of the retail tobacco dollar

shrunk from seven cents to only two, and has

declined further since then.

“The reasons behind my

accomplishments are the work ethic

and values that the family tobacco

farm instilled in me.”

Brooks Wood,

High School student and son of a

tobacco farmer

Martin, NC

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

Figure 7. Where the Tobacco Dollar Went in 1980 and 1998

Source: V. Grise and T. Capehart, “The Changing Tobacco User’s Dollar.” USDA Economic Resource Service,

Tobacco Situation and Outlook.

Impact on Tobacco-Farming

Communities

 These trends, as indicated above, are hurting

all U.S. tobacco farmers and tobacco-farming

communities, but those farmers and

communities with smaller tobacco farms that

rely most heavily on their tobacco farming

revenues for income are suffering the most.

While it is difficult to determine which

communities are the most dependent on

tobacco farming income, analyses by the

USDA’s Economic Research Service show that

Kentucky, North Carolina and Tennessee have

the most counties in which tobacco farming

income constitutes a substantial portion of total

county farming and non-farming income – with

counties in Virginia, South Carolina, Georgia and

even Indiana on the list. Overall, tobacco

farming is distributed among 568 different

counties in more than a dozen different states,

and the many tobacco-farming communities are

located in vastly different geographic and

economic regions with widely varying

capabilities to address the ongoing changes to

U.S. tobacco production and marketing. Many

of these counties are already experiencing

significant economic difficulties because of

these changes and face even more serious

challenges in the years ahead.

For more information on tobacco farming and these tobacco-farming trends, see USDA Economic Research Service,

Tobacco Briefing Room, www.econ.ag.gov/Briefing/tobacco; USDA Foreign Agriculture Service, Tobacco Pages,

www.fas.usda.gov/cots/tobacco.html; Campaign for Tobacco-Free Kids, Tobacco Farming Pages, http://

www.tobaccofreekids.org/reports/falsefriends; Burley Tobacco Growers Cooperative Association, http://

www.burleytobacco.com; and Flue-Cured Tobacco Cooperative Stabilization Corporation, http://

www.ustobaccofarmer.com.

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

II. Harms Caused by Smoking and Other Tobacco Use

and their Impact on Tobacco States and TobaccoFarming Communities

In 1964, the Surgeon General first documented the harmful effects of smoking in Smoking and

Health: Report of the Advisory Committee of the Surgeon General of the Public Health Service,

which summarized the state of the science knowledge regarding tobacco use at that time. Research

conducted since the release of that Report has established that smoking and other forms of tobacco

consumption cause enormous health problems and suffering. Smoking kills more than 400,000

people each year in the United States. It is the leading preventable cause of death in the United States

and causes a wide variety of serious illnesses.

Smoking and Cancer. Approximately 30 percent of all cancer cases are caused by smoking.

Smoking is responsible for 87 percent of lung cancer cases, and 28 percent of deaths attributable to

smoking involve lung cancer. Smoking is also a risk factor for cancer of the larynx, oral cavity,

esophagus, bladder, kidney, pancreas, stomach and cervix.

Smoking and Respiratory Diseases. Twenty-six percent of smoking attributable deaths come

from respiratory diseases. Smoking is the cause of most cases of emphysema and chronic

bronchitis.

Smoking and Heart Disease and Heart Attacks. More men and women in the United States die

each year from cardiovascular disease attributed to smoking than cancer or any other single cause.

Approximately 18 percent of strokes are attributable to active cigarette smoking. As many as 30

percent of all coronary heart disease deaths in the United States each year are attributable to

smoking.

Spit Tobacco Use. Smokeless tobacco use causes gum disease, oral cancer and increases the

risk of cardiovascular disease.

Harms from Pregnant Women Smoking. Smoking by pregnant women increases the risk of

spontaneous abortions, stillbirths, and sudden infant death syndrome (SIDS) after birth. It also

increases the risk of birth complications and respiratory disorders among newborns.

Secondhand Smoke Harms. Children exposed to secondhand smoke, particularly children of

parents who smoke, face a higher risk of such health harms as SIDS, acute and chronic respiratory

disease, asthma, and middle ear infections. Research has also established that secondhand smoke

exposure increases the risk of disease, including lung cancer and chronic coronary heart disease in

otherwise healthy adults.

Smoking Addiction Starts Early. The peak years for first trying to smoke are the sixth and

seventh grades, or between the ages of 11 and 12, with many kids starting even earlier. Within

weeks or days of first starting to smoke occasionally, young smokers show numerous signs of

nicotine addiction; and more than a third of all kids who ever try smoking a cigarette will become

regular, daily smokers before they leave high school.

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

Smoking Harms in the Tobacco States

Those states and communities with the

highest smoking rates and largest per-capita

cigarette consumption suffer much higher rates

of smoking-caused disease and related harms.

Because of the importance of tobacco farming

and manufacturing in the tobacco states, their

residents have been slower to accept the link

between smoking and health harms. These

states have fewer health programs to keep kids

from smoking or help adults quit. In addition,

cigarette prices are considerably lower than the

national average in the tobacco states because

of lower state cigarette tax rates. As a result, the

tobacco-growing states also tend to have

higher-than-average smoking rates, and suffer

disproportionately from smoking-caused

harms.

The economic costs to the tobacco states

caused by smoking are enormous. The

smoking-caused health care costs, alone, in the

major tobacco states range from more than

$760 million per year for South Carolina to more

than $1.7 billion per year in Georgia.

Nationwide, annual smoking-caused health care

expenditures total at least $89 billion, including

smoking-caused Medicaid payments of about

$17 billion per year.

Table 1. Tobacco States’ Tobacco Use Rates and Associated Harms

The experiences of those states that have

initiated comprehensive tobacco control

programs establish that effective measures exist

which can prevent tobacco initiation among

youth and help adults who want to quit.

Comprehensive tobacco control programs –

consisting of community-based initiatives,

school-based programs, counter-marketing,

public education, programs to help people quit,

and vigorous enforcement of state laws

“The tobacco industry has led the

Kentucky farmer down a primrose

path. It is time for us to prepare for a

new future for agriculture in the

Bluegrass, however, it is also time to

finally acknowledge that tobacco is

more than just an economic issue

related to agriculture in Kentucky.

Kentucky spends between $800 million

and $1 billion every year related to the

treatment and care of sick smokers .”

Mike Kuntz,

Chairperson, Kentucky ACTION

Louisville, KY

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United States Department of Agriculture-Farm Service Agency

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forbidding tobacco sales to kids and protecting

nonsmokers from secondhand smoke – prolong

lives, reduce disease and secure healthcare

savings.

For more details on health related tobacco issues, see the following websites: Campaign for

Tobacco-Free Kids, www.tobaccofreekids.org; U.S. Centers for Disease Control and Prevention,

Office of Smoking and Health, www.cdc.gov/tobacco; American Cancer Society, “Tobacco &

Cancer,” www.cancer.org/tobacco; and American Hearth Association, “Cigarette Smoking,

Cardiovascular Disease, and Stroke,” www.americanheart.org/Scientific/statements/1997/

119702.html.

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

III. Emerging Challenges for U.S. Tobacco Farmers

Based on current trends, U.S. cigarette

production is expected to decline further during

the next few years as U.S. cigarette

consumption continues to decline slowly and

steadily and cigarette exports continue their

sharper decline. Whether leaf exports will

decline further or leaf imports rise is more

difficult to predict, but flue-cured and burley

quotas are, at best, expected to remain close to

the sharply reduced 2000 levels. It is also clear

that U.S. tobacco farmers face challenges other

than reduced demand, including the increase in

direct contracting between farmers and cigarette

companies and the possible termination of the

U.S. tobacco program.

Contracting and the Tobacco

Price Support Program

Historically, essentially all flue-cured and

burley tobacco has been sold at a governmentsanctioned auction. However, in 2000 over onefourth of U.S. burley leaf sales bypassed

auction warehouses via contract sales directly

to the largest cigarette manufacturer. That

percentage is expected to grow, and contracting

is also expected to extend to flue-cured tobacco

sales in 2001.

At the Commission’s hearings and elsewhere,

many tobacco farmers expressed serious

concerns about the impact of contracting on

their future well being. One concern is that

contracting will end up leaving out many of the

smaller tobacco farms because it is simply too

much trouble for the cigarette companies to

contract directly with a large number of smallscale farmers. A related problem is that smaller

farms with limited financial resources may not

be able to comply with the cigarette companies’

demands for adopting various new

technologies; and smaller farms may not be

able to provide large enough sale lots of the kind

of quality-segregated leaf the companies now

say they want. Additionally, with only small

amounts of tobacco available for auction sales,

exports would likely decline even more.

In addition, many tobacco farmers worry

about losing their independence and autonomy

if they enter into direct contracts and lose their

ability to sell their leaf through auctions. Many

believe that through contracting tobacco

farmers risk becoming, in effect, employees of

the companies. Because of the unequal

bargaining power of tobacco farmers and the

large cigarette companies, many farmers also

fear that the companies will ultimately demand

significant concessions from the contracting

farmers, such as lower prices. Similar shifts to

direct contracting in the U.S. poultry and pork

markets, for example, have resulted in sharp

price reductions, among other problems for

farmers.

The U.S. tobacco program currently

guarantees minimum prices for tobacco leaf

sold in the United States. Contracting could

either require farmers to sell at lower prices

(rather than exercise their option of selling

through the auction at the program-guaranteed

minimum price) or could even lead to the end of

the tobacco program. For example, if farmers

holding a majority of all flue-cured or burley

quota were under contract to the cigarette

companies, they might vote to end the tobacco

program so that they could escape its

production and sales limits and sell more leaf to

the companies through their contracts (thereby

“We’re very concerned about the

price support system. We’re very

concerned about contracting and

we’re also very concerned about the

buyout program .”

Billy Ray Smith,

Kentucky Commissioner of Agriculture

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

reducing the demand for non-contract

tobacco).

In an analysis of tobacco contracting,

University of Kentucky tobacco economist

William Snell found that contracting would not

only lower prices and favor large growers, but

would likely reduce grower independence while

increasing the cigarette companies’ control,

thereby creating a greater risk of market power

abuses by the companies. He also concluded

that direct contracting could reduce the amount

of public information on prices, quantities sold,

and quality and grade that the current auction

system provides, and which the price support

program requires.

Because of these concerns, the Commission

has received proposals that Federal legislation is

needed to make sure that tobacco contracting

does not put existing U.S. tobacco farmers in an

even worse position than they are in today.

Related comments were also received

expressing the view that tobacco sold under

contract should still be inspected for quality and

safety both to ensure fair competition with noncontract leaf and to address public health

concerns.

Possible Termination of the

Tobacco Program

Beyond the rise of contracting, the recent

sharp reductions in tobacco quotas coupled

with stagnant prices and large increases in

quota rental rates are also jeopardizing the

future of the U.S. tobacco program. Finding it

increasingly hard to survive under the tobacco

program, farmers might simply vote to end it.

But eliminating the tobacco program would

create major hardships for most tobacco farms,

particularly small family-run operations. While

overall U.S. tobacco production and sales would

probably increase, prices would drop

considerably – and many farmers would not be

able to make up for the price cuts through

increased sales. In addition, virtually all fluecured and burley tobacco would soon be grown

under contract, with the potential problems

described above, and the number of active

tobacco farms would decline sharply.

While it is difficult to predict exactly how

much U.S. leaf prices would drop and sales

would increase if the tobacco program were

eliminated, various tobacco economists and

researchers have developed estimates based on

an analysis of historical data and existing

circumstances. For example, studies suggest

that 25 percent price reductions would increase

overall U.S. tobacco leaf sales by about 36 to

62 percent, although the most recent study

supports the lower figure. In a 1999 study,

which took into account the different domestic

and global markets for burley and flue-cured

tobacco, agricultural economists and tobacco

specialists Blake Brown, William Snell, and Kelly

Tiller calculated that the end of the tobacco

program would reduce burley prices by more

than twenty percent, but burley sales would

increase by only 13 to 16 percent. In contrast,

they project that flue-cured prices would drop

by about 27 percent, but flue-cured sales would

increase by 84 to 89 percent.3 However, some

observers believe the calculated flue-cured

sales figures are too high because of the

likelihood that offsetting price reductions and

other adjustments would occur in competitor

countries.

These calculations suggest that burley

growers would, as a whole, suffer more from

the end of the tobacco program because the

overall increased demand for burley would not

compensate for the price drop. Total U.S. burley

revenues would decline. Because the demand

3 These changes in U.S. leaf prices and sales would also reduce foreign leaf prices and sales.

“We believe that 2 components of

the tobacco program, the price

support and the quota systems, help

keep the small farmer in business .”

Patrick Jennings,

Legislative Director,

Kentucky Farm Bureau,

Louisville, KY

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

for flue-cured leaf would increase relatively

more than its price would drop, flue-cured

growers, as a group, would do better than the

burley growers. Nonetheless, many individual

flue-cured growers would still be unable to

expand their own production sufficiently, or at a

low enough cost, to make up for the reduced

prices, and many smaller-scale flue-cured

growers would not be able to compete

successfully against larger farms with lower

production costs. It is also important to note

that there are many more burley farmers than

flue-cured farmers in the United States.

Initially, production of flue-cured tobacco

would likely move to larger farms that could

produce the tobacco most cheaply, with shifts

away from the Piedmont areas of North Carolina

and Virginia to eastern North Carolina, South

Carolina and Georgia. Similarly, burley

production would likely move out of the

Appalachian regions and concentrate in the

Bluegrass and South Central areas of Kentucky.

Eventually, production could also move to nontraditional growing areas, including non-tobacco

states, and be grown on much larger, more

mechanized farms than exist today, under more

direct control of the cigarette companies.

Besides putting many existing tobacco

farmers out of business, these shifts would

create considerable additional hardships for

tobacco-dependent local economies and input

suppliers that are already suffering. Tobacco

auction warehouses would likely disappear.

Moreover, the end of the tobacco program

would also eliminate existing quota rights with

no compensation, which would be a serious

economic loss for many quota holders,

especially those who rely on income from

renting or leasing their quota. The value of

existing tobacco farmland, which would no

longer have an exclusive right to grow tobacco,

would also decline sharply. In Kentucky, for

example, farmland values would probably drop

by about 10 percent and could reduce the value

of the land owned by current tobacco farm

owners, or their landlords by as much as $7

billion.

The end of the tobacco support program

would also prompt a substantial shift of income

and profits from current U.S. tobacco growers

and quota holders to the U.S. cigarette

companies. Tobacco economists Brown, Snell

and Tiller calculate that the loss of quota value

alone caused by the end of the tobacco

program would transfer over $500 million per

year in yearly income from quota holders to the

cigarette companies. Based on the cost savings

caused by the declines in U.S. and foreign

tobacco leaf prices, others have estimated that

the end of the tobacco program would transfer

$800 million or more per year to the cigarette

companies from tobacco farmers.

Because of these concerns, the Commission

does not support ending the U.S. tobacco

program without continuing some kind of

system for limiting U.S. tobacco production to

existing farming areas, maintaining minimum

prices, and promoting public health and safety

concerns. There are many ways that the current

tobacco program could be modified, including

some form of quota buyout which is discussed

in the next section of this Preliminary Report.

Accordingly, the Commission requests

additional comments and proposals from all

interested parties to guide its efforts to develop

the most constructive ways possible to modify

the tobacco program and address the many

concerns related to the rise of contracting and

the possible termination of the tobacco

program, while protecting family farmers and

the public health.

For more information on contracting, the future viability of the U.S. tobacco program, and the possible

consequences from its elimination, see Working Draft, Policy Issues and Options Surrounding a Buyout of U.S.

Tobacco Quotas by Will Snell and Daniel Green, December 2000 and Report to the Presidential Commission on

Tobacco by A. Blake Brown, December 1, 2000 which may be found on the Commission’s website at http://

www.fsa.usda.gov/tobcom; and Contracting in Tobacco? By Carolyn Dimitri and Edward Jaenicke on the Economic

Research Service’s website at http://www.ers.usda.gov/briefing/tobacco.

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

IV. Options and Opportunities for Assisting Tobacco

Farmers and their Communities - Without Harming the

Public Health

The many challenges currently facing tobacco

farmers and their communities can be

addressed in part by helping tobacco farmers

develop new sources of income besides

growing tobacco for consumption, helping

tobacco farmers and their communities become

less dependent on tobacco and making sure the

American tobacco farmer is protected against

unfair trade practices and unfair foreign

competition. From its hearings in Raleigh, North

Carolina and Louisville, Kentucky as well as

written comments, the Commission heard from

a broad spectrum of agricultural, health,

economic and community representatives who

presented a range of ideas, opportunities and

described existing initiatives that could play key

roles in ensuring both the short and long term

viability of tobacco producing communities and

regions. This section of the Preliminary Report

offers a brief outline of the key options and

opportunities. The Commission will consider

these and other ideas further - and looks

forward to obtaining additional information,

ideas, and insights from tobacco farmers and

others - prior to issuing its final report and

recommendations.

1. Buying Out Existing Owners of

Tobacco Quotas to Enable those that

so Desire to Reduce or Eliminate

their Reliance on Tobacco Farming

Income.

Tobacco farmers and others expressed strong

support at the Commission’s public hearings for

a quota buyout. Because of the sharp, recent

declines in the amount of tobacco that can be

grown under quota in the United States, interest

in a quota buyout is rapidly gaining momentum.

Quota owners are supporting a buyout to

receive reasonable compensation for their

dwindling assets, while growers desire some

means to lower both their current farming costs

and the cost of obtaining additional production

rights. In addition, a buyout of existing quota

rights may be a necessary first step toward

making the kinds of fair and constructive

reforms to the existing tobacco program and

U.S. tobacco farming that many tobacco

farmers want and need.

Past U.S. Government policies have helped to

make many farmers and farm communities

dependent on tobacco-farming income. By

creating tobacco-growing quotas and related

farming restrictions, the U.S. tobacco support

program has created important financial assets

that many who own or lease quota rely on.

Whether a buyout will occur, or what precise

form a buyout might take, has not been

determined. The Commission has determined

that existing quota rights should not be

eliminated without providing fair compensation.

While setting a reasonable buyout price for

flue-cured or burley quota is complicated and

depends on a variety of factors and predictions

about the future, reasonable buyout prices

probably range somewhere between the current

market price of quota and the prices proposed

in 1998 buyout discussions. The total cost of

any quota buyout, however, would depend on

whether it is partial or complete, voluntary or

mandatory, and its budgetary impact would

depend on how it is financed and the period of

time over which buyout payments were made.

Possible funding options include existing

Phase I or Phase II settlement funds (funds from

the settlement between states and cigarette

companies), an increase in Federal or state

tobacco excise taxes, or earmarked funds from

an increase in U.S. cigarette prices or from

cigarette company savings from associated

tobacco price reductions. Although funding a

buyout from new Federal taxes or charges

against the cigarette companies could reduce

the companies’ Phase II payments to tobacco

farmers and quota holders, any such losses

could be offset by the benefits to farmers and

quota holders from the buyout.

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

Along those same lines, one of the important

questions for any buyout system is how buyout

funds should be allocated among existing

farming and non-farming quota holders and

those tobacco farmers who lease quota.

This Commission has already determined that

some kind of tobacco program that limits

production and maintains minimum prices

should be maintained even if there is a complete

buyout of existing quota. Accordingly, any

decision to institute a buyout must also

determine what form the new tobacco program

should take, including how the new production

rights or limits should be structured, how they

should be allocated among those who continue

tobacco farming, and whether they should be

transferable.

In its consideration of these and the many

other questions pertaining to a possible buyout,

the Commission will continue to meet and hear

from growers, economists and others before it

makes its final recommendations and issues its

final report.

2. Developing Alternative Uses for

Tobacco that do not Harm the

Public Health.

Alternative uses of tobacco other than for

smoking or other consumption are already

under development and may some day create

substantial new markets for tobacco. For

example, researchers and bioengineering

entrepreneurs have begun to use tobacco plants

as hosts for bioengineering processes that

could be used to produce new antibiotics,

“We must improve our tobacco

program. We must have a program that

places the quota in the hands of the

actual tobacco farmers while

compensating quota owners .”

Bruce Flye,

President, Board of Directors,

Flue-Cured Tobacco Cooperative

Stabilization Cooperation,

Battleboro, NC

vaccines, cancer treatments, other medicines,

blood substitutes and even biodegradable

plastics and industrial enzymes and solvents.

Similarly, researchers are exploring the use of

genetically engineered tobacco plants for use in

cleaning up contaminated areas just by growing

them in the contaminated dirt. But these efforts

are in their early, still speculative stages, and are

likely to provide immediate assistance to only a

very few current tobacco farmers.

Looking ahead, however, the United States

could firmly establish itself as the world leader

in this area with only relatively small additional

investments of public and private funds. In

addition, the existing structure and oversight of

tobacco production in the United States —

including the production adjustment and price

support program, the tobacco grower

cooperatives, and USDA oversight — provide

an ideal infrastructure for the safe and

constructive production and regulation of

bioengineered or transgenic tobacco. More

broadly, producing tobacco for non-harmful

uses may be an area where the public health

community, tobacco farmers, the biotechnology

industry, and governmental agencies such as

USDA, the FDA and the National Institutes of

Health can work together to develop and

administer a coordinated plan to protect and

benefit both the public health and tobacco

producing communities. The Commission

seeks advice from a wide spectrum of interests

on the potential of bioengineered tobacco and

how such production might be supported,

organized and administered in the United States

most constructively.

3. Helping Tobacco Farmers and their

Communities become Less

Dependent on Tobacco through new

Agricultural and Economic

Development Strategies.

In a 1995 survey of tobacco farmers, the

majority of farmers indicated that they were

interested in trying other on-farm ventures to

supplement tobacco income, and 58 percent

said they had tried to learn about on-farm

alternatives to tobacco. Testimony at the

Commission hearings and other information

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United States Department of Agriculture-Farm Service Agency

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indicates that the interest of tobacco farmers in

alternative forms of income is now even higher.

Because of the recent, sharp declines in

tobacco-farming income, developing new

agricultural and off-farm income options for

existing farmers has become critically

important. But as USDA recently pointed out in

its report Tobacco and the Economy: Farms,

Jobs, and Communities, “a number of

counties, mostly in Kentucky, North Carolina,

and Virginia, depend on tobacco for a

significant share of local income. These

counties have generated relatively few

economic alternatives to tobacco.”

To begin addressing this problem, several

tobacco states have allocated portions of their

tobacco settlement funds to transitional

assistance and economic development. North

Carolina, for example, has set aside 50 percent

of its Phase I tobacco settlement funds to

support a new nonprofit foundation that will

assist tobacco communities, with an additional

25 percent going to a trust fund for tobacco

growers, allotment holders, and workers in

tobacco-related businesses. Virginia also set

aside 50 percent of its settlement proceeds for

tobacco growers and communities and

established a commission to oversee spending

of the funds.

These new initiatives should be helpful, both

in terms of direct assistance and by increasing

knowledge and experience about what works

best to help tobacco farmers and their

communities. Carefully monitoring and

evaluating these new efforts — and, when

necessary, retargeting or restructuring them —

will ensure that they provide the most effective

assistance possible. Nevertheless, additional

agricultural and economic development and

diversification efforts may also be needed to

improve the currently troubled economic

prospects of many tobacco farmers and

tobacco-farming communities. Moreover, no

comprehensive regional analysis, investment, or

coordination strategy has yet been developed

for the tobacco region, much less one that

addresses the diverse needs of each of the

many different tobacco-farming communities.

Developing Alternative or Supplementary

Crops. Most tobacco farmers already grow

crops other than tobacco or have other sources

of farm income to supplement their tobacco

revenues. Flue-cured farmers are most likely to

also grow cotton, grains, and related crops,

while burley farmers tend to produce beef cattle.

But increasing non-tobacco farm incomes must

entail more than simply helping tobacco farmers

increase their production of existing

supplementary crops or livestock. Existing

markets may not be able to absorb any

significant increases in the production of these

other agricultural products, or could do so only

through significant price cuts that would reduce

farmers incomes. Accordingly, initiatives to help

tobacco farmers to increase other forms of farm

income must be coordinated with efforts to

identify existing markets with unmet demand, to

develop new markets, and to make sure that

tobacco farmers can access these other

markets effectively.

Existing agricultural diversification and

development efforts in the tobacco states and

nationwide can provide guidance for these new

efforts, as can the initiatives already underway

to help tobacco farmers develop alternative or

supplemental farm income. Land-grant

universities, extension services, state

departments of agriculture, non-profit

foundations and tobacco farm organizations

have already been assisting farmers, in varying

levels among the several states, in identifying

and adopting viable alternatives that can provide

high (and stable) returns per acre. Several

USDA, Appalachian Regional Commission and

Small Business Administration programs have

funded new initiatives in recent years for

tobacco diversification, and USDA’s Rural

Business Cooperative Service and the

Sustainable Agriculture Research and Education

program have focused on agricultural

entrepreneurship and new enterprise

development.

Among other things, new agricultural

development strategies should also consider the

possible benefits of developing new business

structures or coordinating entities, such as

direct-marketing strategies and new farmer22
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

owned processing or marketing cooperatives for

non-tobacco crops or livestock. Consideration

must also be given to environmental concerns,

such as those raised in reference to the

expansion of the intensive livestock industry in

North Carolina and some of Kentucky’s

tobacco-farming regions. Another key issue is

how to address actual or potential labor

shortages for some farming enterprises that

require high-levels of seasonal or temporary

labor.

Entrepreneurship and Economic

Development. In addition to agricultural

diversification, other economic strategies will be

essential for many tobacco producing

communities to weather changes in the tobacco

industry. Entrepreneurial development - the

nurturing and growing of locally-owned new

businesses that create new jobs and increase

local wealth - is an increasingly attractive

development strategy for communities seeking

to diversify their local economy. To be

successful, communities committed to this

strategy must develop and enhance local

resources and institutions to attract or nurture

entrepreneurs and provide both the capital and

technical assistance new businesses need to

thrive. How a community pursues such a

strategy and acquires the means to grow new

businesses, both on-farm and off-farm, are

issues that need to be explored further.

In addition to entrepreneurial development,

tobacco growing communities can seek to

strengthen their ties to local economic

development agencies, such as the multi-county

area development districts, county industrial

authorities, or local chambers of commerce.

These organizations work on a daily basis to

bring new business and job opportunities to the

towns and counties they serve. And while the

majority of these organizations focus on finding

medium and large scale industries to locate in

their service area, many of these groups also

can work with a specific community and help

them identify their strengths and new

opportunities, thus softening the blow resulting

from declining tobacco income. A key issue for

tobacco growing communities is to determine

how they can best benefit from these

organizations’ resources.

Access to Capital. A major barrier facing

many farmers who wish to develop nontobacco income, both on-farm and off, is the

difficulty of obtaining the funds necessary to

finance their new business. Studies of rural

capital markets have found that such financing

is often generally available, but bankers tend to

be cautious about lending money for new or

unfamiliar enterprises. Put simply, small

tobacco farmers seeking financing for new

businesses with unfamiliar markets are often

seen as high-risk borrowers that may not qualify

for loans; and there is little or no private equity

capital available for these kinds of new ventures.

To improve access to funding for new

enterprises, several rural areas have launched

Development Venture Capital (DVC) funds to

attract new sources of equity financing. Like

traditional venture capital funds, DVCs seek a

strong return on investments, but they also seek

to provide social benefits to the communities.

Another approach is micro-credit funds, which

provide loans for small new economic ventures.

Micro-credit funds are typically offered through

a variety of non-profits and supported by

government and foundation grant funds. These

and other approaches to improving tobacco

farmers’ access to capital for new agricultural

and economic ventures need to be explored

further.

Leadership and Civic Capacity

Development. Whether a community

determines its future lies in agriculture,

entrepreneurship or manufacturing, building

civic capacity and leadership at the local and

regional levels is a key starting point for longterm successful economic development.

Indeed, the extent to which a community will

grow is dependent on its commitment to

educate, motivate, reshape and engage its

citizens toward the achievement of a shared

community vision. While several counties and

geographic regions within the tobacco states

have initiated strong civic capacity-building

initiatives, few efforts have focused on the

unique challenge of building leadership and a

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

shared vision for the rural tobacco

communities. One possibility that needs to be

explored is the establishment of new entities to

enhance and coordinate regional and interstate

economic and agricultural development

strategies. Some existing regional approaches

that could serve as useful examples include the

President’s Economic Adjustment Initiative for

the Pacific Northwest and Northern California,

which provides funding and technical assistance

to timber-dependent communities in the Pacific

Northwest. Other examples include the Delta

Compact, representing the multi-state Lower

Mississippi Delta region; the Tupelo Model,

Tupelo Mississippi; and the President’s

Interagency Task Force on the Economic

Development of the Southwest Border, which

covers 56 counties in California, Arizona, New

Mexico and Texas.

The options and opportunities available for

economic and agricultural development and

restructuring are extensive and complex. The

Commission has in many ways only scratched

the surface in this Preliminary Report and looks

forward to hearing a great deal more about what

is being done and what can be done locally, at

the state level and regionally in order to ensure

the short term and long term viability of these

communities.

4. Protecting U.S. Tobacco Growers

Against Unfair Trade Practices and

Unfair Foreign Competition.

During its hearings, the Commission heard

testimony from growers, public health

organizations, economists and others on a

number of options and opportunities that should

be considered to improve the competitiveness

of U.S. tobacco farmers in the global market. It

is the Commission’s view that no options

should be implemented that risk harming the

public health, impede current public health

efforts or threaten the viability of the family-run

tobacco farm. Some of the most promising

options are outlined here.

Labeling of manufactured tobacco

products. Manufactured tobacco product

labels contain little information. Additional

information could both promote the use of

American tobacco leaf and the public health.

For example, many smokers, both in the United

States and abroad, would choose cigarettes

with higher percentages of U.S. tobacco if that

information were available.

More extensive ingredient disclosure

requirements could also help U.S. tobacco

farmers in the same way. For example, some

U.S. companies are replacing tobacco leaf with

reconstituted tobacco consisting of stems,

stalks and floor sweepings. A requirement that

cigarette packaging inform consumers of the

portion of reconstituted tobacco used in

cigarettes could lead to less use of reconstituted

leaf in cigarettes and greater purchases of

whole leaf from farmers. Similarly, requiring

disclosure of additives, ingredients,

constituents, pesticides and toxins in cigarettes

or the leaf they use could promote the greater

use of U.S. tobacco, which has fewer nonapproved pesticides than most foreign leaf and

which can also produce higher-quality flavor

and taste without resorting to as many

additives.

Fair trade. Making sure that foreign leaf

imported into the United States is held to as

stringent health and safety standards as U.S.

leaf could make the competition between U.S.

and foreign leaf in the U.S. market fairer and

more competitive. For example, the pesticide

requirements for foreign produced tobacco may

not be as rigorous as those applied to U.S. leaf.

Taking advantage of changing

technologies. The production of tobacco has

remained relatively consistent for decades, and

“From our perspective, the greatest

economic problem facing the tobacco

industry today is its weak competitive

position in the international market

place .”

Tommy Bunn,

Executive Vice President,

Leaf Tobacco Export Association,

Raleigh, NC

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United States Department of Agriculture-Farm Service Agency

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little attention has been given to how new and

developing technologies can be applied to

tobacco production. New technologies are

already being implemented to significantly

reduce the amount of tobacco-specific

nitrosamines (TSNA) in tobacco leaf. TSNAs are

some of the most significant among the more

than 40 carcinogens in tobacco leaf. It is also

possible that new transgenic or bioengineering

processes could be applied to tobacco

production to reduce the use of pesticides,

reduce or eliminate toxins and control flavor and

taste.

While many questions remain about the health

impact of lower TSNA leaf and genetically

modified tobacco, it makes sense to promote

the exploration of these technologies under the

guidance of agencies such as USDA, EPA and

FDA to ensure that adequate safety and health

controls are in place. These actions could

increase the competitive position of U.S.

tobacco leaf by establishing health and safety

standards for U.S. tobacco that consumers

would demand worldwide.

Foreign marketing policies that do not

adversely impact public health. The

Commission supports the existing prohibition

against any U.S. Government efforts to increase

smoking overseas or to promote the sale of U.S.

brands in foreign countries as necessary for the

protection of public health. But the Commission

also realizes that government efforts to remove

unfair trade barriers to the sale of U.S. tobacco

leaf overseas could be done without creating

any risk of increasing smoking levels or harming

the public health. Allowing U.S. leaf to compete

fairly with its competition overseas will neither

increase foreign smoking levels nor make

cigarettes more harmful. Accordingly, U.S.

export policies concerning tobacco leaf should

be reviewed and both the potential and the risk

of China’s new trade policies examined.

Increased U.S. tobacco leaf exports to China

are now possible because of the reduction of

China’s general trade barriers prompted by

China’s entry into the World Trade Organization.

Some hope that China could be the next large

export market, but others believe that U.S.

tobacco is too expensive and would have to be

deeply discounted before China would import

significant amounts. Moreover, China could

become another major competitor of U.S.

tobacco farmers in the world market for

exported tobacco leaf.

Tobacco-related data collection by USDA

and others. More accurate and complete data

on domestic and foreign tobacco production,

exports, quality and prices are needed to better

understand U.S. farmers competitive position

and to support more effective planning and

policy development. Unfortunately, the tobaccorelated data collection and dissemination

activities of USDA’s Foreign Agricultural Service,

often the only reliable source of certain data on

world tobacco production and consumption,

have been reduced, as have those of USDA’s

Economic Research Service, which provides

extensive data on domestic tobacco production

and related topics. Restoring and enhancing the

tobacco-related data collection and

dissemination by these two units of USDA

should be considered.

Other Options and Possibilities

While this section of this Preliminary Report

has tried to identify some of the major areas of

opportunity for assisting U.S. tobacco farmers

without harming the public health, it is by no

means complete and much more information

and analysis is needed regarding each of the

presented ideas and options. Accordingly,

the Commission hopes that this section

will prompt additional submissions of

new information, ideas, insight and

concerns to the Commission from

tobacco farmers, community

leaders, policymakers, agency

and program staff,

agricultural and

economic experts,

members of the

public health

community and other

interested parties.

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

V. Ways to Reduce Tobacco Use that are Consistent

with Efforts to Assist U.S. Tobacco Farmers and

Reduce their Economic Problems

The Commission heard testimony from a

number of witnesses about the critical public

health importance of doing more to reduce the

public health impact of tobacco, particularly in

the tobacco-growing regions which have

suffered disproportionately because of higher

smoking rates and other forms of tobacco use.

Numerous witnesses testified that they believed

that the problems of tobacco growers and the

public health were inextricably intertwined.

The Commission also received a number of

recommendations about ways in which the

health interests could be promoted that also

positively impact the tobacco farming

communities and the Commission seeks

comments on these suggestions.

There was a good deal of discussion about

the need for expanded comprehensive tobacco

prevention and cessation efforts designed to

prevent young people from starting, educate,

encourage and assist adults who wish to quit to

do so, and take steps to reduce the harm

caused by tobacco products. The Commission

concluded that comprehensive programs, such

as those suggested in the August 2000 Report

of the Surgeon General, to reduce tobacco use

and the harm caused by tobacco should be

adopted with special attention to the need for

these programs in tobacco growing states.

These programs should be based on the best

available science and should be tailored to the

needs of individual communities. The

Commission has not yet addressed the issue of

how these programs should be funded, but as is

the case with the programs to be developed to

assist farmers and their communities, these

programs will need a reliable and sustained

funding base.

The Commission also heard testimony about

the importance of establishing a fair and

equitable regulatory mechanism for tobacco

that protects both the public health and farmers.

The Commission concluded that the FDA should

be provided with effective authority over the

sale, distribution, labeling, marketing and

manufacturing of tobacco products with the

USDA retaining its authority to set safety

standards governing tobacco farms. This

authority should be comparable to FDA’s

authority over other products. The authority

should include measures to prevent the use of

tobacco by young people, encourage and assist

adults who wish to quit to do so, require full

disclosure of ingredients, harmful constituents

and other information FDA considers necessary

to protect the public health, prevent misleading

labeling and claims, evaluate the relative

harmfulness of different products, ingredients

and constituents and set safety standards for

the product itself. Its goal should be the

promotion of public health, but not the banning

of tobacco products. Support for this objective

was specified in the Core Principles adopted by

farmers and public health groups in 1998.

“I should clarify that when I say

FDA regulation of tobacco, we don’t

mean that we support FDA on the

farm. However, we do feel that there

ought to be some oversight to the

manufacture of this product,

especially with the emergence of

contracting. An industry ought not to

have complete control of a product

with such tremendous negative public

health implications.”

Joy Bechtold,

American Cancer Society,

Richmond, VA

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United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

The FDA should share overall responsibility

with the USDA, EPA, and Federal Trade

Commission in the oversight of tobacco and

tobacco products. The USDA should have

responsibility over the growing and production

of tobacco; the EPA for the regulation of

pesticide use; and the FDA for the regulation of

manufactured tobacco products and oversight

of tobacco manufacturers.

While the role of the FDA in protecting the

public health is obvious, there may also be

advantages to tobacco farmers and their

communities. Growers in the United States pride

themselves on the production of the best quality

leaf in the world. FDA labeling of manufactured

tobacco products that discloses content

information, the establishment of manufacturing

standards, EPA establishment of pesticide

regulations and developing new uses for

tobacco could improve the competitive position

of U.S. growers both here and in international

markets and positively impact on public health.

The Commission seeks comment on these

health related recommendations, as well as

suggestions for other options that the

Commission should consider.

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United States Department of Agriculture-Farm Service Agency

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VI. Request for Comments

The Commission finds that U.S. tobacco farmers and tobacco-farming communities are in perilous

financial conditions. Public input indicates that immediate relief is needed for many tobacco growers

and many family farms who are burdened with a severe financial crunch caused by declining quotas

and increased foreign competition. At the same time, the problems facing U.S. tobacco farmers and

their communities require long-term solutions and comprehensive approaches. There are no quick

fixes.

Because of the many complex problems associated with tobacco production and public health, all

interested parties are invited to comment on issues raised in this Preliminary Report or on any other

issues pertinent to the Commission’s charge. Public comments on this Preliminary Report are

requested through February 16, 2001. Comments may be made through the Commission’s website

www.fsa.usda.gov/tobcom, by email to tobcom@wdc.usda.gov, by fax 202 418-4270, or by

writing:

Tobacco Commission

STOP 0574

1400 Independence Avenue, SW

Washington, DC 20250-0574

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A. Executive Order Establishing the Commission

Executive Order 13168

September 22, 2000

President’s Commission on Improving

Economic Opportunity in Communities

Dependent on Tobacco Production While

Protecting Public Health

By the authority vested in me as President by

the Constitution and the laws of the United

States of America, including the Federal

Advisory Committee Act, as amended (5 U.S.C.

App.), it is hereby ordered as follows:

Section 1. Establishment.

(a) There is established the “President’s

Commission on Improving Economic

Opportunity in Communities Dependent on

Tobacco Production While Protecting Public

Health” (the “Commission”). The Commission

shall be composed of not more than 10

members to be selected by the Secretary of

Agriculture, in consultation with the President.

The members may include tobacco producers

and quota holders; public health experts;

Federal, State, and local government

representatives; and experts in agricultural

economics and economic development.

(b) Two co-chairs shall be selected by the

Secretary of Agriculture from the membership

of the Commission. The co-chairs shall report

to the President through the Secretary of

Agriculture and the Secretary of Health and

Human Services.

Section 2. Purpose. The Commission shall

advise the President on changes occurring in

the tobacco farming economy and recommend

such measures as may be necessary to

improve economic opportunity and

development in communities that are dependent

on tobacco production, while protecting

consumers, particularly children, from hazards

associated with smoking.

Section 3. Functions. (a) The Commission

shall collect and review information about

changes in the tobacco farming economy and

Federal, State, and local initiatives intended to

help tobacco growers, tobacco quota holders,

and communities dependent on tobacco

production pursue new economic opportunities.

The Commission may make recommendations

concerning these, and any other, changes and

initiatives that may be necessary to improve

economic opportunity in communities

dependent on tobacco production. It shall also

consider the public health implications of such

changes and initiatives, including the efforts to

reduce youth smoking and tobacco-related

health consequences in the United States and

abroad.

(b) For the purpose of carrying out its

functions, the Commission may hold hearings,

establish subcommittees, and convene and act

at such times and places as the Commission

may find advisable.

Section 4. Reports. The Commission shall

make a preliminary report to the President by

December 31, 2000. A final report shall be

submitted to the President 6 months after the

Commission‘s first meeting.

Section 5. Administration. (a) To the extent

permitted by law, the heads of executive

departments and agencies shall provide the

Commission, upon request, with such

information as it may require for the purposes of

carrying out its functions.

(b) While engaged in the work of the

Commission, members appointed from among

private citizens of the United States may be

allowed travel expenses, including per diem in

lieu of subsistence, as authorized by law for

persons serving intermittently in the

Government service (5 U.S.C. 5701-5707) to

the extent funds are available for such purposes.
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

(c) To the extent permitted by law and subject

to the availability of appropriations, the

Department of Agriculture shall provide the

Commission with administrative services,

funds, facilities, staff, and other support

services necessary for the performance of the

Commission’s functions. Notwithstanding any

other Executive Order, the functions of the

President under the Federal Advisory Committee

Act, as amended, except that of reporting to the

Congress, that are applicable to the Committee,

shall be performed by the Secretary of

Agriculture in accordance with guidelines that

have been issued by the Administration of

General Services.

Section 6. General. The Commission shall

terminate 30 days after submitting its final

report, but not later than 2 years from the date

of this order, unless extended by the President.

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31

B. Core Principles Statement

Between the Public Health Community and

The Tobacco Producers Community

In the spirit of cooperation and with a commitment towards:

l Reducing disease caused by tobacco products

l Ensuring the future prosperity and stability of the American tobacco farmer, the tobacco

farm family, and tobacco farming communities

the signatory organizations and individuals call on the President of the United States, the Congress

of the United States, and all States Attorneys General to commit to supporting and enacting effective

tobacco legislation and policies that include the following points of agreement.

That on issues related to agricultural production of tobacco there is agreement:

1. That a tobacco production control program which limits the supply and which sets a

minimum purchase price is in the best interest of the public health community and the

tobacco producer community. From a harm reduction standpoint, it is in the best interest of the

public health community to support enhanced assurance of quota stability for domestic

production of tobacco.

2. That any cost associated with the administration or operation of a tobacco program be

guaranteed to be paid for under any legislative proposal, and that the Federal Government no

longer bear the cost for the administration or operation of such a program.

3. That there be greater cooperation between the tobacco growing community and the public

health community to ensure that quality control and health and safety standards are

maintained in the production of tobacco, both domestically and abroad, and that industry

information and research should be made available for public review. Agencies with public

health responsibility, including the Food and Drug Administration (whose authority over

manufactured tobacco products should not extend to on-farm tobacco production), should

work cooperatively through structures already in place in the Department of Agriculture and

Environmental Protection Agency so as not to extend any additional control and bureaucracy

over the on-farm production of tobacco.

4. That tobacco quota holders and tobacco lease holders should be given the opportunity to have

their quotas compensated for at a fair and equitable level, and that the protection of tenant

farmers be given special consideration as part of this process to ensure that they are not

adversely affected.

5. That a significant amount of money be allocated so that tobacco growing states and

communities have options and opportunities to ensure their economic viability into the 21st

century. There must be significant involvement of tobacco growing communities in

determining the allocation of these funds, and decision making for plans to enhance the

economic infrastructures of these communities should be governed primarily through

community-bases input. Agricultural-bases development in particular ought to be given a high

priority.
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

That on issues related to public health there is agreement:

1. That it is in the best interests of the public health community and the tobacco producer

community that the FDA should have authority to establish fair and equitable regulatory

controls over the manufacture, sale, distribution, labeling (including country of origin) and

marketing of tobacco products, both domestic and imported, comparable to regulations

established for other products regulated by the FDA. Such regulations should have as their

goal the protection of public health and the assurance that users of tobacco products are

provided with full and complete information about the products they are using. In order to

accomplish this goal, industry information and research should be made available for public

review.

2. That there should be strong complementary federal, state and local laws which guarantee that

tobacco products are not marked, advertised or otherwise made available to anyone under the

age of 18.

3. That prohibition of the use of tobacco products by informed adults of legal age is not a goal of

the public health advocates or tobacco producers.

4. That there should be mechanisms in place to prevent the importation of foreign tobacco,

whether in raw agricultural leaf, reconstituted or homogenized leaf, tobacco by-products, or

any other form or alteration of tobacco, that does not meet pesticide residue requirements and

other quality controls required for domestically grown and produced tobacco.

5. That if there is an increase in the federal excise tax in any legislative proposal, a portion of the

tax would be used for carrying out public health initiatives, and a portion of the tax would be

used to assist farmers and their communities in addressing their economic dependence on

tobacco.

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United States Department of Agriculture-Farm Service Agency

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33

Leadership Signatories

President Jimmy Carter

Daniel E. Kenady, MD, UKMC

Attorney General Bill Pryor

Attorney General Ben Chandler

Dr. Pat Robertson

National Organizations

American Academy of Addiction Psychiatry

American Association for Respiratory Care

American Cancer Society

American College of Cardiology

American College of Chest Physicians

American College of Preventive Medicine

American Heart Association

American Public Health Association

American School Health Association

Americans for Non-smokers Rights

Association of Schools of Public Health

Association of Teachers of Preventive Medicine

Campaign for Tobacco-Free Kids

The Carter Center

Christian Broadcast Network

College on Problems of Drug Dependence

Family Voices

Federation of Behavioral, Psychological and

Cognitive Sciences

Interreligious Coalition on Smoking or Health

National Association of Local Boards of Public Health

National Black Farmers Association

National Farmers Union

National Hispanic Medical Association

Oncology Nursing Society

Partnership for Prevention

Rural Advancement Foundation International

State and Regional Organizations

Albemarle Co. (VA) Medical Society

Allies for Tobacco, Inc.

American Cancer Society, Mid-South Division

(AL, AR, LA, KY, MS, TN)

American Cancer Society, Virginia Council

American Heart Association Ohio Valley Affiliate

(KY, OH, WV)

American Lung Association, KY

Burley Stabilization Corporation

Burley Tobacco Growers Cooperative, Inc.

Center for Sustainable Systems

Coalition for Health & Agricultural Development, KY

Commodity Growers Cooperative Association

Concerned Friends for Tobacco

Flue Cured Tobacco Stabilization Corporation

Georgia Public Health Association

Greater New York Society for Public Health Education

Halifax County Board of Supervisors

Kentucky Academy of Family Physicians

Kentucky Action (ACS, AHA, ALA, KMA...)

Kentucky Health and Agriculture Forum

Medical Society of Virginia

Michigan Farmers Union

National Capital Area Society for Public Health

Education

New England Society for Public Health Education

New Jersey Society for Public Health Education

North Carolina Society for Public Health Education

Ohio Society for Public Health Education

Sierra Club, Cumberland Chapter

South Carolina Project ASSIST

South Carolina Public Health Association

Texas Society for Public Health Education

Virginia Agricultural Growers Association

Virginia Dark-Fired Growers Association

Virginia Farm Bureau

Virginia General Assembly

Virginia Public Health Association

Virginia Sun-cured Growers Association

Virginia Tobacco Growers Association
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

C. Tobacco Farmers and the Public Health Community

Working Together

This Commission was created because

tobacco farmers and tobacco farming

communities in the U.S. are facing an

unprecedented crisis. Global and domestic

markets for tobacco leaf and products are

undergoing fundamental changes that have

created long-term reductions in the demand for

American grown tobacco. At the same time, the

scientific evidence of the disease, and economic

costs caused by smoking and other tobacco

use has created broad agreement, of which

some tobacco product manufacturers agree,

that more needs to be done to reduce tobacco

use, especially among children.

Reducing tobacco use in the U.S. while

simultaneously helping tobacco farmers may

seem like a paradoxical challenge. But

discussions between tobacco growers,

tobacco-growing community leaders, and the

public health community have established that

these groups share many common goals and

support numerous policies that are consistent

with both goals. The challenge for this

Commission is to identify the nature and extent

of the problems facing tobacco farmers and

their communities and to identify solutions that

both assist farmers and their communities and

promote the public health.

Efforts to establish a dialogue between

tobacco growers and the public health

community were started in the mid-1980’s. In

1985, former President Carter brought growers

and health groups together for the first time to

create better understanding between the two

groups.

In 1989, the report from the major national

conference held by public health advocates

emphasized that efforts to reform the tobacco

price support program must balance the

concerns of the health community and the

interests of the family tobacco farmer. Similarly,

in 1993, a national public health conference on

tobacco recommended increased assistance to

U.S. tobacco growers.

By the mid-1990’s, discussions between

public health advocates and growers began in

earnest. In 1998, the Southern Tobacco

Communities Project, Concerned Friends for

Tobacco, several grower organizations including

Burley Tobacco Growers Cooperative

Association, Flue-Cured Tobacco Cooperative

Stabilization Corporation, and Burley

Stabilization Corporation, the American Heart

Association, the American Cancer Society, the

Campaign for Tobacco-Free Kids, and others

developed a set of shared national Core

Principles. These Principles expressed a mutual

commitment to both reduce disease caused by

tobacco products and ensure the future

prosperity and stability of the American tobacco

farmer and tobacco farming communities.

More than 80 grower, public health, and other

organizations endorsed the ten Core Principles.

Since the release of the Core Principles,

tobacco farmers and representatives of the

public health community have continued to work

together at both the federal and state levels

toward their mutual goals. Following the states’

Master Settlement Agreement (MSA), tobacco

growers and public health groups have worked

together, especially in KY, VA, and NC, to direct

use of significant amounts of MSA funds to both

promote public health and to help tobacco

growers and their communities through this

difficult period.

34
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

35

1/ Dark air-cured in Indiana, fire-cured and dark air-cured in KY and TN, cigar filler and binder in MN, OH and WI and VA fire-cured and

sun-cured in VA.

2000 Tobacco Quota Summary

D. Various Tobacco Quota Statistics

State Number of

Quotas and

Allotments

Flue-Cured

Quotas

Burley Quotas Other

Allotments

1/

Alabama 25 23 2 0

Arkansas 1 0 1 0

Florida 233 233 0 0

Georgia 2,329 2,305 24 0

Indiana 7,972 0 7,955 17

Kansas 25 0 25 0

Kentucky 136,721 0 120,601 16,120

Minnesota 34 0 0 34

Missouri 1,341 0 1,341 0

North Carolina 38,943 27,815 11,128 0

Ohio 8,520 0 8,013 507

Oklahoma 1 0 1 0

South Carolina 4,499 4,499 0 0

Tennessee 78,731 0 70,144 8,587

Virginia 17,852 3,665 12,790 1,397

West Virginia 2,893 0 2,893 0

Wisconsin 3,087 0 0 3,087

TOTAL 303,207 38,540 234,918 29,749
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

Distribution of Flue-Cured Quotas by Size, 2000

1/ Includes Alabama’s 22 quotas.

2/ 12 farms.

36

Acreage

Allotment

FL GA NC SC VA All States

 1/

Acres Percent

0.01 to .50 8.9 2.6 4.2 7.9 5.8 4.8

.51 to 1.00 6.7 7.1 10.6 10.0 12.1 10.4

1.01 to 2.00 7.1 15.1 24.1 19.7 23.2 22.9

2.01 to 3.00 4.9 10.7 14.8 13.3 13.5 14.2

3.01 to 4.00 3.6 9.3 9.9 9.3 7.7 9.6

4.01 to 5.00 4.4 7.4 6.6 6.3 6.0 6.5

5.01 to 6.00 2.2 4.7 4.8 4.8 4.6 4.7

6.01 to 7.00 1.3 3.7 3.5 3.6 3.0 3.4

7.01 to 8.00 2.2 3.6 2.8 2.8 2.5 2.8

8.01 to 9.00 2.2 2.5 2.2 2.3 1.7 2.2

9.01 to 10.00 3.1 2.6 1.9 2.0 1.8 1.9

10.01 to 20.00 15.6 14.2 8.7 10.4 10.1 9.4

20.0 to 50.00 24.9 12.9 4.7 5.7 6.1 5.6

50.01 to 100.00 11.1 2.9 1.0 1.6 1.5 1.3

100.01 to 200.00 1.8 0.7 0.2 0.3 0.4 0.3

200.00 and over 0.0 0.0 0.0 0.0 0.0 0.0

2/

Number

Number of 

quotas

225 2,295 27,811 4,485 3,662 38,500
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

37

Distribution of Burley Quotas by Size, 2000

1/ About 2,100 pounds is equivalent to an acre.

2/ Includes AL, AR, GA, KS and OK.

3/ 208 farms.

4/ 6 farms.

Poundage

Quota 1/

IN KY MO NC OH TN VA WV All

States 

Pounds Percent

1 to 1000 79.1 63.7 50.1 85.1 73.2 86.6 82.3 91.1 73.7

1,001 to

1,300

7.0 8.1 9.7 6.5 7.4 5.2 7.2 3.9 7.0

1,301 to

2500

9.2 15.0 20.1 6.7 12.1 6.1 8.5 4.1 11.2

2,501 to

5,000

3.5 8.6 13.1 1.3 5.5 1.6 1.8 0.6 5.5

5,001 to

10,000

0.9 3.4 5.2 0.4 1.5 0.4 0.2 0.3 2.0

10,001 to

25,000

0.3 1.0 1.8 0.0 0.3 0.1 0.0 0.0 0.6

25,001 to

75,000 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0

3/

75,001

and over

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

4/

Number

Number of

Quotas 7,987 121,543 1,345 11,205 8,122 70,686 12,856 2,898

2/

236,695
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

1999 Flue-Cured Tobacco Quota Ownership

38

1999 Burley Tobacco Quota Ownership

State Number

of

Owners

Race

(Percentages)

Sex

(Percentages)

White Black Native

Americans

Other Male Female Corp.

Alabama 65 92.3 7.7 0.0 0.0 72.3 24.6 3.1

Florida 498 74.3 25.5 0.0 0.2 64.9 24.9 10.2

Georgia 6,151 93.7 6.3 0.0 0.0 60.1 34.8 5.1

NC 78,407 85.2 13.6 1.1 0.1 51.8 44.7 3.5

SC 16,826 77.2 22.4 0.0 0.4 54.2 42.0 3.8

Virginia 10,678 72.0 27.3 0.0 0.7 55.2 42.9 1.9

Total 112,625 83.1 15.9 0.8 0.2 53.0 43.5 3.5

State Number

of

Owners

Race

(Percentages)

Sex

(Percentages)

White Black Other Male Female Corporation

Alabama 2 100.0 0.0 0.0 100.0 0.0 0.0

Arkansas 1 100.0 0.0 0.0 100.0 0.0 0.0

Georgia 31 100.0 0.0 0.0 71.0 29.0 0.0

Indiana 9,809 99.3 0.1 0.6 68.0 29.5 2.5

Kansas 36 100.0 0.0 0.0 61.1 38.9 0.0

Kentucky 163,206 98.6 1.2 0.2 63.4 34.9 1.7

Missouri 1,551 99.2 0.6 0.2 70.9 22.5 6.6

NC 14,244 99.5 0.2 0.3 60.8 37.8 1.4

Ohio 11,313 99.3 0.3 0.4 61.8 36.8 1.4

Oklahoma 1 100.0 0.0 0.0 100.0 0.0 0.0

Tennessee 80,964 98.7 1.1 0.2 66.5 32.3 1.2

Virginia 18,583 99.8 0.2 0.0 55.5 43.1 1.4

W. Virginia 3,385 99.9 0.1 0.0 70.6 28.5 0.9

Total 303,124 98.8 1.0 0.2 63.8 34.6 1.6
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

39

1999 Tobacco Quota Ownership (Other Than Burley and Flue-Cured)

Fire-Cured (Type 21) Tobacco Quota Ownership

Fire-Cured (Types 22 & 23) Tobacco Quota Ownership

Dark Air-Cured (Types 35 & 36) Tobacco Quota Ownership

State Number

of

Owners

Race Sex

White Black Other Male Female Corporation

Virginia 2,371 85.1 14.9 0.0 61.8 36.3 1.9

Total 2,371 85.1 14.9 0.0 61.8 36.3 1.9

State Number

of

Owners

Race Sex

White Black Other Male Female Corporation

Kentucky 6,039 97.5 2.5 0.0 67.1 29.9 3.0

Tennessee 6,091 96.6 2.8 0.6 72.1 25.8 2.1

Total 12,130 97.1 2.6 0.3 69.6 27.8 2.6

State Number

of

Owners

Race Sex

White Black Other Male Female Corporation

Indiana 21 100.0 0.0 0.0 52.4 42.8 4.8

Kentucky 11,518 98.7 1.1 0.2 62.8 33.9 3.3

Tennessee 1,947 98.3 1.7 0.0 62.8 36.5 0.7

Total 13,486 98.6 1.2 0.2 62.8 34.3 2.9
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

40

Virginia Sun-Cured (Type 37) Tobacco Quota Ownership

Cigar-Filler & Binder (Types 42-44 & 54-55) Tobacco Quota Ownership

State Number

of

Owners

Race Sex

White Black Other Male Female Corporation

Virginia 104 88.5 11.5 0.0 71.2 25.0 3.8

Total 104 88.5 11.5 0.0 71.2 25.0 3.8

State Number

of

Owners

Race Sex

White Black Other Male Female Corporation

Minnesota 39 100.0 0.0 0.0 79.5 15.4 5.1

Ohio 522 99.6 0.0 0.4 71.5 22.8 5.7

Wisconsin 5,544 99.6 0.0 0.4 61.4 35.6 3.0

Total 6,105 99.6 0.0 0.4 62.4 34.3 3.3
United States Department of Agriculture-Farm Service Agency

President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health

41

E. Primary Sources of Information

Brown, A.B. “Implications of Elimination of the U.S. Flue-Cured Tobacco Program.” Testimony for

the U.S. Senate Committee on Agriculture, Nutrition, and Forestry, Sept. 18, 1997.

htttp://www.senate.gov/~agriculture/bbrown.htm.

Brown, A.B., W.M. Snell, and K.H. Tiller. “The Changing Political Environment for Tobacco–

Implications for Southern Tobacco Farmers, Rural Economies, Taxpayers, and Consumers.” Paper

presented at Southern Agricultural Economics Association meeting, Memphis, TN, Feb. 2, 1999.

Gale, Fred. What Tobacco Farming Means to Local Economies. U.S. Dept. Agr., Econ.Res.Serv.

AER-694. Sept. 1994.

Grise, Verner N. Tobacco: Background for 1995 Farm Legislation. U.S. Dept. Agr. Econ. Res Serv.

AER-709. April 1995.

Lindblom, Eric N. “False Friends - The U.S. Cigarette Companies’ Betrayal of American Tobacco

Farmers.” 1999 National Center for Tobacco-Free Kids. December 1999.

Snell, Will and Daniel Green. “Policy Issues Surrounding a Buyout of U.S. Tobacco Quotas.”

Working Draft Paper Presented at Tobacco Forum Hearing, Lexington, KY, November 10, 2000.

Surgeon General’s Reports. U.S. Dept. of Health and Human Services, U.S. Public Health Service,

Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention and

Health, Office on Smoking and Health, Various Annual Reports.

U.S. Department of Agriculture. Economic Research Service. Tobacco Situation and Outlook.

Econ.Res.Serv., Various issues.

Foreign Agricultural Service. Tobacco Foreign Agriculture Circular. For.Agr. Serv., Various issues.

Womach, Jasper. Tobacco - Related Programs and Activities of the U.S. Department of Agriculture:

Operations and Cost. Congressional Research Service 97-417 ENR, Updated August 29, 2000.

Campaign for Tobacco-Fee Kids, fact sheet, U.S. Cigarette Companies’ Settlement-Related Price

Hikes Excessive (2000), and various other publications at website www.tobaccofreekids.org.
Acknowledgements

The Commission would like to express its gratitude to the Commission staff of

Doug Richardson and Eloise Taylor for their hard work on behalf of the Commission, and would

also like to thank Verner Grise, Charles Hatcher, Scott Ballin, Blake Brown, Pete Burr, Tom

Capehart, Liz Freund, Eric Lindblom, William Snell, Dan Stevens, Sakina Thompson, Joy

Epstein, Karil Bialostosky, Ripley Forbes, Vivian Lucas, Amy Barkley, Josephine King, Anita

Crowell, Rich Hamburg, Barry Jackson, Andy Kennedy, Swarnali Haldar and Janet Connelly for

their assistance in drafting this preliminary report. The Commission would also like to express

its appreciation to the staff of the North Carolina and Kentucky State Farm Service Agency

Offices for there assistance in conducting the public forums.

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the

basis of race, color, national origin, sex, religion, age, disability, political beliefs, sexual orientation, or marital or

family status. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative

means for communication of program information (Braille, large print, audiotape, etc.) should contact USDA’s

TARGET Center at 202-720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326-W, Whitten

Building, 14th and Independence Avenue, SW, Washington, DC 20250-9410 or call 202-720-5964 (voice or

TDD). USDA is an equal opportunity provider and employer.