A. Opening Remarks

The meeting was opened by Solomon Whitfield, Designated Federal Official and Acting Director, Tobacco and Peanuts Division, USDA. Mr. Whitfield turned the meeting over to Matthew Myers and Rod Kuegel, Co-Chairs for opening remarks.

B. Introduction of Commission Members

Mr. Kuegel asked that each member introduce themselves and give their views on comments received from the public on the Preliminary Report. Each member introduced themselves and gave comments with respect to input on the Preliminary Report.

C. Minutes

The minutes from the December 5, 2000 meeting were reviewed and unanimously approved by the Commission, the Commission directed that the minutes be posted to the Commissions’ website.

D. Presentation by Tom Burgess, Deputy Director, Tobacco and Peanuts Division

Rod Kuegel, Co-Chair introduced Tom Burgess, Deputy Director, Tobacco and Peanuts Division, who gave a presentation on 2001 tobacco quotas, contracting, flue-cured curing barns retro-fitting, burley undermarketings and related tobacco issues.

E. Review of Public Comments on the Preliminary Report

Doug Richardson gave a summary of comments received by February 21, 2001, on the Preliminary Report. Comments will be accepted until March 8, 2001. There were 768 hits on the website, and a total of 24 comments were received on the Report. The following is a summary of the comments:

Buyout - 7 comments favored and 1 other suggested there may be other ways of getting quota into the hands of growers. 1 suggested a higher buyout price per pound for smaller producers.

Free and Fair Trade - 3 comments specifically supported, plus 2 indicated the Preliminary Report did not adequately stress ways to expand exports.

Against Higher Tobacco Excise Taxes - 4 comments against.

FDA Regulations - Mixed comments but strong endorsement from Philip Morris. Suggested regulations to provide information on ingredients and safety of products. 3 comments against any government regulation of tobacco. 1 comment suggested Bureau of Alcohol, Tobacco and Firearms provide all regulation of tobacco.

No Prohibition on Use of Tobacco Products - At least 3 comments favored no prohibition but at least 1 wanted a ban on use of tobacco products.

Preliminary Report Emphasized the Health Rather than Economic Opportunity Aspects of tobacco - 4 comments.

Recognition of the effect of reduced tobacco use on other industries that produce tobacco related items - 1 comment.

Recognition that Smokeless Tobacco industry is different from the cigarette industry. Challenges the validity of statistics and notes difference in use of imported leaf - 1 comment.

F. Presentations and Discussion of Preliminary Reports from Growers, Economic Development and Health Sub-Committees

The presentations and recommendations presented to the Commission are summarized below. Click here for a complete copy of the respective sub-committees’ recommendations presented at the February 21 meeting.

Tobacco Program - Rod Kuegel made a presentation to the Commission from the tobacco grower sub-committee. In the presentation the following recommendations were made by the subcommittee.

The sub-committee recommended that current tobacco quota/allotment holders and growers be compensated through a Tobacco Equity Reduction Program (TERP) for loss of assets associated with most U.S. tobacco production and a continuation of a production and price support control program. Compensation for TERP would be at a level of $8.00 per pound for quota owners, $4.00 per pound for growers wanting to discontinue producing tobacco and $2.00 per pound for growers wanting to receive a production "permit".

Funds for the TERP should be reliable and guaranteed. Options to be considered include: voluntary funding from tobacco buyers, modification to the Phase II settlement funds, increase in manufactured tobacco sales price, earmarking a portion of current tobacco excise taxes, increase in federal excise taxes and general funds. The compensation should be paid over a short period of time - 2 to 3 years. The funds should not be restricted by any payment limitation. It is recommended that various investment strategies be incorporated to lessen the impact of taxes on these receipts (i.e, 401K/IRA).

It is recommended that the current tobacco program under TERP be modified to: continue a production and price support control program, issue production permits to active growers, require all tobacco buyers to submit accurate purchase intentions, adjust support prices to reflect "zero" quota rental costs for flue-cured only, maintain a viable auction marketing system, require all tobacco to be graded and inspected by USDA, and require that all imported tobacco meet the same pesticide regulations as U.S. grown tobacco.

USDA should provide adequate funding for the Foreign Agricultural Service to collect and disseminate world tobacco information and to support and enhance the tobacco data collection and dissemination functions of Economic Research Service. Legislation should be amended to permit tobacco to participate in USDA’s export credit programs.

The sub-committee recommended that FDA be given meaningful control over manufacturing, labeling, distribution and marketing of tobacco products with continued USDA oversight and control of on-farm tobacco production. The sub-committee also recommended that tobacco companies be involved in discussion of all Commission issues.

Economic Development - Jesse White and Sakina Thompson gave a presentation on Economic Development in tobacco dependent communities from the Economic Development sub-committee. They defined Economic Development Assistance (EDA) as an inextricable link between the well being of tobacco farmers and that of their communities. Economic development is where public policy, including expenditures of funds, intersects with the private sector for the purpose of promoting the creation of jobs, income and wealth.

EDA needs to be targeted towards communities that are vulnerable to declines in tobacco receipts. Currently, these communities are not adequately identified. Tobacco farming is broadly distributed across 568 counties, mostly in the Southeast. Tobacco is grown in most counties in Kentucky, North Carolina. and Tennessee, and is considered an important part of both the economic and social fabric of the community in parts of other states, such as southern Virginia; the Coastal Plains of South Carolina, Georgia, and Florida; and southern part of Indiana, Ohio, and Maryland.

The presentation noted resources that are currently available and identified the remaining resource gaps to address the economic dislocation of tobacco communities. The existing Master Settlement Agreement(MSA) funds from both Phase I and Phase II, as well as any payments under a tobacco equity reduction program, provide significant resources to fund economic development initiatives in tobacco communities. Gaps remain, however, in the ability of states to distribute available resources in a strategic manner likely to have the long-term, beneficial impact intended.

The economic development working group did not propose substantial additional financial resources for economic development; but recognized that the challenge is to completely identify existing resources, fully utilize them and to create a learning network among tobacco dependent communities as follows:

Create a "Center for Tobacco Dependent Communities" that would be an active agent of assistance to help communities that are transitioning from tobacco based economies craft and implement economic development strategies.

Create an incentive for tobacco farmers, allotment holders, and others receiving Phase II and other tobacco equity reduction program or indemnification payments, to use those funds to capitalize on new business ventures, on farm or off-farm, that have the potential to create new economic activity and community revenue. The incentive should be market-based, for example preferential tax treatment if funds are invested within a certain amount of time for business activities.

Leverage federal economic and business development program funds (grants and loans) and create an interagency awareness of and commitment of transitioning tobacco based economies.

Health - Matt Myers gave a presentation to the Commission from the public health sub-committee. In the presentation the following recommendations were made by the sub-committee.

The sub-committee recommended that the Food and Drug Administration (FDA) be given authority over manufacture, sale, marketing, labeling, and distribution of manufactured tobacco products comparable to its existing authority over other non-tobacco products. USDA would retain responsibility over the production of tobacco on the farm. This proposal seeks to maximize the protection of the public health by reducing tobacco-caused harms, but does not seek to prohibit tobacco use. Providing FDA with the authority described would fill the gap created by the Supreme Court’s decision that FDA does not have authority over tobacco products. The Supreme Court explicitly said that it is up to Congress to provide FDA with reasonable authority.

Priority provisions for FDA authority over tobacco products include: youth access and marketing, health information disclosure on tobacco products, a new public health standard for tobacco products, disclosure of ingredients in tobacco products, health warnings on tobacco products, and authority to reduce or eliminate harmful components.

They recommended that gaps in tobacco state programs to prevent smoking and other forms of tobacco use be closed by placing special emphasis on reducing youth smoking, directing assistance to areas with highest smoking rates and highest level of smoking-caused illness, harms, and costs.

The sub-committee also, recommended that cessation assistance be included in basic Medicaid coverage. Such coverage would provide lower-income persons wishing to stop smoking or consuming other tobacco products with more equal access to medically necessary assistance. Medicaid coverage would be an especially effective way to reduce smoking among young pregnant women and new mothers, thereby avoiding related smoking-caused costs. Studies indicate that providing comprehensive cessation assistance via Medicaid would not only reduce overall state health costs but reduce state Medicaid costs, as well. Of the top six tobacco states, only North Carolina provides any cessation coverage under Medicaid.

G. Discussion of Issues to be Addressed in the Final Report

The Commission discussed the sub-committees’ recommendations and comments received from the public. Upon completion of the discussion the Commission directed each sub-committee to revisit their recommendations for revisions based on public input and these discussions. Tom Capehart, Economic Research Service (ERS), was asked to assemble information on cost and related data for the Commission on implementing TERP at the rates proposed in the tobacco program discussions.

H. Decisions on Preparation of Final Report

The Commission made a determination to schedule a meeting for March 20, 2001 to review any additional public comments that are received on the Preliminary Report, expanded recommendations from the three sub-committees and information from ERS before drafting recommendations for the Final Report.

I. Adjournment

The meeting was adjourned by Solomon Whitfield at 4:00 P.M.

J. Approval